SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by Registrant [X]
Filed by a Party other than a Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14-12
Steritek, Inc.
(Name of Registrant as Specified In Its Charter)
Board of Directors of Steritek, Inc.
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock
2) Aggregate number of securities to which transaction applies:
3,636,285
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
The value of the transaction, as stated in the Agreement
and Plan of Merger, is $5,555,155.40.
4) Proposed maximum aggregate value of transaction:
$5,555,155.40
5) Total fee paid:
$1,111.03
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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STERITEK, INC. PRELIMINARY COPIES
121 Moonachie Avenue ------------------
Moonachie, New Jersey 07074
March , 1999
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Steritek, Inc., a New Jersey corporation ("Steritek"), to be held at
the offices of Steritek, Inc., 121 Moonachie Avenue, Moonachie, New
Jersey 07074 on , March , 1999 at 10:00 a.m., local time.
At the Special Meeting, you will be asked to consider and vote upon
the approval and adoption of an Agreement and Plan of Merger, dated
December 4, 1998 (the "Merger Agreement"), among Steritek; Albert J.
Wozniak, the principal shareholder of Steritek; Quality Packaging
Specialists, Inc., a New Jersey corporation ("QPSI"); and QPSI
Steritek Acquisition, Inc., a New Jersey corporation and wholly-
owned subsidiary of QPSI ("Acquisition"). The Merger Agreement provides
for the merger of Acquisition with and into Steritek (the "Merger").
If the proposed Merger is completed, (i) each issued and outstanding
share of Common Stock of Steritek, other than shares held by Albert
J. Wozniak, will be converted into the right to receive $1.39 in cash
without interest, (ii) each issued and outstanding share of Common Stock
of Steritek held by Albert J. Wozniak will be converted into the right
to receive $1.39, at least $750,000 of which shall be payable in cash and
the balance shall be paid in the form of an 8% Guaranteed
Subordinated Promissory Note of QPSI, and (iii) Steritek will issue
10,000 shares of its Common Stock to QPSI. In the Merger, Steritek will
be the surviving corporation. After the Merger, Steritek will be a
wholly-owned subsidiary of QPSI.
The Board of Directors of Steritek, consisting of two persons,
neither of whom is independent or disinterested, has unanimously
authorized and approved the Merger Agreement and recommends that you vote
FOR the proposed Merger. A copy of the Merger Agreement is attached as
Annex I to the accompanying Proxy Statement. For further discussion of
these matters, including a discussion of the interest of the directors
and officers of Steritek in the proposed Merger, see "SPECIAL FACTORS" and
the related text in the accompanying Proxy Statement.
In order for the proposed Merger to be effected, the holders of at
least a majority of all outstanding shares of Steritek's Common Stock
must approve it. Albert J. Wozniak beneficially owns and has the right to
vote at the Special Meeting sufficient shares to cause the Merger
Agreement to be approved and adopted without the affirmative vote of any
other shareholder.
All shareholders are urged to attend the meeting in person or by proxy.
By Order of the Board of Directors,
Albert J. Wozniak
President
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STERITEK, INC. PRELIMINARY COPIES
121 Moonachie Avenue ------------------
Moonachie, New Jersey 07074
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on
March , 1999
Notice is hereby given that the Special Meeting of Shareholders of
Steritek, Inc., a New Jersey corporation ("Steritek"), will be held at its
principal executive offices at 121 Moonachie Avenue, Moonachie, New Jersey
07074 on , March , 1999 at 10:00 a.m., local time, for the
following purposes.
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated December 4, 1998 (the "Merger
Agreement"), among Steritek; Albert J. Wozniak, the principal shareholder
of the Steritek; Quality Packaging Specialists, Inc., a New Jersey
corporation ("QPSI"); and QPSI Steritek Acquisition, Inc., a New
Jersey corporation and wholly-owned subsidiary of QPSI ("Acquisition").
The Merger Agreement provides for the merger of Acquisition with and
into Steritek (the "Merger"). If the proposed Merger is completed, (i)
each issued and outstanding share of common stock of Steritek
("Common Stock"), other than shares held by Albert J. Wozniak, will
be converted into the right to receive $1.39 in cash without interest,
(ii) each issued and outstanding share of Common Stock of Steritek held
by Albert J. Wozniak will be converted into the right to receive $1.39,
at least $750,000 of which shall be payable in cash and the balance shall
be paid in the form of an 8% Guaranteed Subordinated Promissory Note of
QPSI, and (iii) Steritek will issue 10,000 shares of its Common Stock to
QPSI, all as set forth more fully in the accompanying Proxy Statement.
In the Merger, Steritek will be the surviving corporation. After the
Merger, Steritek will be a wholly-owned subsidiary of QPSI. A copy of
the Merger Agreement is attached as Annex I to the accompanying
Proxy Statement.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Only shareholders of record at the close of business on January 25,
1999 are entitled to notice of, and to vote at, the meeting or
any continuation or postponement thereof. Neither the Merger nor any
other matter to be acted upon at the Meeting create any
dissenting shareholders rights under the New Jersey Business Corporation
Act. All shareholders are urged to attend the meeting in person or by
proxy. To assure that your vote will be included, please complete, date
and sign the enclosed proxy and return it promptly in the enclosed
prepaid envelope whether or not you plan to attend the meeting. You
may revoke your proxy in the manner described in the accompanying Proxy
Statement at any time before it has been voted at the meeting.
By Order of the Board of Directors,
Albert J. Wozniak
President
February , 1999
Moonachie, New Jersey
KINDLY MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE IF YOU CANNOT ATTEND IN PERSON.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
<PAGE>
STERITEK, INC. PRELIMINARY COPIES
121 Moonachie Avenue ------------------
Moonachie, New Jersey 07074
____________________
PROXY STATEMENT
____________________
SOLICITATION AND VOTING OF PROXIES
SPECIAL MEETING OF SHAREHOLDERS
To be held March , 1999
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Steritek, Inc., a New
Jersey corporation (the "Company" or "Steritek"), for use at the
Special Meeting of Shareholders of the Company (the "Special Meeting") to
be held at 10:00 a.m., local time, on , March , 1999, at the
principal executive offices of the Company located at 121 Moonachie
Avenue, Moonachie, New Jersey 07074, and at any continuation or
postponement of that meeting, for the purposes set forth in the
accompanying Notice of Special Meeting of Shareholders. This Proxy
Statement, the accompanying proxy card, and the Notice of Special Meeting
are first being sent to shareholders of Steritek ("Shareholders") on or
about February , 1999.
This Proxy Statement relates to a proposal to approve and adopt the
Agreement and Plan of Merger, dated December 4, 1998 (the "Merger
Agreement"), among Steritek; Albert J. Wozniak, the principal shareholder
of the Steritek; Quality Packaging Specialists, Inc., a New Jersey
corporation ("QPSI"); and QPSI Steritek Acquisition, Inc., a New
Jersey corporation and wholly-owned subsidiary of QPSI ("Acquisition").
The Merger Agreement provides for the merger of Acquisition with and
into Steritek (the "Merger"). If the proposed Merger is completed, (i)
each issued and outstanding share ("Share" or "Shares")of common stock
of Steritek ("Common Stock"), other than Shares held by Albert J.
Wozniak, will be converted into the right to receive $1.39 in cash
without interest, (ii) each issued and outstanding Share of Common Stock
of Steritek held by Albert J. Wozniak will be converted into the right to
receive $1.39, at least $750,000 of which shall be payable in cash and the
balance shall be paid in the form of an 8% Guaranteed Subordinated
Promissory Note of QPSI, and (iii) Steritek will issue 10,000 Shares of
its Common Stock to QPSI. In the Merger, Acquisition will merge with and
into Steritek, which will be the surviving corporation
("Surviving Corporation"). After the Merger, Steritek will be a wholly-
owned subsidiary of QPSI.
The Board of Directors of Steritek, consisting of two persons,
neither of whom is independent or disinterested, (i) has determined that
the Merger is fair to, and in the best interest of, the Shareholders
of Steritek, (ii) has approved the Merger Agreement, and (iii) recommends
that the Shareholders approve and adopt the Merger Agreement.
In order for the proposed Merger to be effected, the holders of at
least a majority of all outstanding Shares of Steritek's Common Stock as
of January 25, 1999 the ("Record Date") must approve it. Albert J.
Wozniak beneficially owns and has the right to vote at the Special Meeting
a sufficient number of Shares to approve and adopt the Merger Agreement
under New Jersey law, thereby assuring such approval and
adoption. ACCORDINGLY, THE MERGER MAY BE APPROVED WITHOUT THE VOTE OF
ANY OTHER SHAREHOLDER.
Shares of Common Stock represented by properly executed proxy cards
received by the Company at or prior to the Special Meeting will be voted
in accordance with the instructions indicated on the proxy card.
Unless contrary instructions are given, the persons named on the proxy
card intend to vote the Shares so represented FOR the approval and
adoption of the Merger Agreement. As to other business which may
properly come before the Special Meeting, the persons named on the proxy
card will vote according to their best judgment.
A proxy may be revoked at any time before it is voted at the Special
Meeting (1) by a duly executed proxy bearing a later date, (2) by a
written revocation addressed to the Secretary of the Company at the
address above, or (3) by voting by ballot at the Special Meeting.
This document contains detailed information about the proposed Merger
Agreement and the Merger. QPSI has provided the information concerning
QPSI and Acquisition, and Steritek has provided the information concerning
Steritek. Please see "Available Information" and "Incorporation of
Documents by Reference" on pages ii and iii for additional information
about the Company on file with the United States Securities and
Exchange Commission.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES REGULATOR HAS DETERMINED IF THIS PROXY STATEMENT IS ACCURATE
OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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AVAILABLE INFORMATION
No person is authorized to give any information or to make any
representations, other than as contained in this Proxy Statement, in
connection with the Merger Agreement or the Merger and, if given or made,
such information or representations may not be relied upon as having been
authorized by the Company or QPSI. The delivery of this Proxy Statement
shall not, under any circumstances, create any implication that there has
been no change in the information set forth herein or in the affairs of
the Company since the date hereof.
The Company, QPSI and Albert J. Wozniak have filed with the Securities
and Exchange Commission (the "Commission") a Rule 13e-3 Transaction
Statement on Schedule 13E-3 (including any amendments thereto, the
"Schedule 13E-3") under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), with respect to the Merger. The filing of the
Schedule 13E-3 does not constitute an admission by any person that
the Schedule 13E-3 is required or that Steritek, Albert J. Wozniak, QPSI
or its affiliates are subject to the requirements of Rule 13e-3 under
the Exchange Act. This Proxy Statement does not contain all of
the information set forth in the Schedule 13E-3 and the exhibits
thereto, certain parts of which are omitted in accordance with the rules
and regulations of the Commission.
The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements
and other information with the Commission. The Schedule 13E-3 and
the exhibits thereto, as well as such reports, proxy statements and
other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 or at its regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a web site that contains reports, proxy
and information statements and other information regarding registrants
that file electronically with the Commission at http://www.sec.gov.
Steritek Common Stock is not listed on the NASDAQ National Market or any
other exchange.
Neither QPSI nor Acquisition are subject to the informational
requirements of the Exchange Act. Accordingly, neither QPSI nor
Acquisition files reports, proxy statements and other information with
the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference documents which are
not presented herein or delivered herewith. Copies of any such
documents relating to the Company, other than exhibits to such
documents (unless such exhibits specifically are incorporated by reference
in such documents), are available without charge, upon written or
oral request, from Steritek, Inc., 121 Moonachie Avenue, Moonachie, New
Jersey 07074, Attention: James K. Wozniak, Vice President and Chief
Financial Officer, telephone: (201) 460-0500. In order to ensure
timely delivery of the documents requested, any such request should
be received by the Company by February , 1999. Upon receipt of such
request, the Company will mail (via first class mail) the requested
document within one business day of receipt of such request.
The following documents previously filed by the Company (File No.
0-12547) with the Commission are incorporated in this Proxy Statement by
reference:
(1) The Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1998.
(2) The Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
(3) The Company's Proxy Statement, dated March 17, 1998, which
was mailed to the Company's Shareholders in connection with
the Annual Meeting of Shareholders held on April 9, 1998.
(4) The Company's Current Report on Form 8-K, dated December 16, 1998.
The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 and the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 are attached hereto as Annexes III and
IV, respectively. Any statement contained in a document incorporated
by reference herein shall be deemed to be modified or superseded for
purposes of this Proxy Statement to the extent that a statement
contained herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute part of this Proxy Statement.
FORWARD-LOOKING STATEMENTS
Certain information contained in this Proxy Statement as to the
future financial or operating performance of the Company may constitute
"forward-looking statements." Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events
or performance, and underlying assumptions and other statements which
are other than statements of historical facts. Forward-looking statements
can be identified by, among other things, the use of forward-
looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "pro forma," "anticipates" or "intends" or the negative
of any thereof, or other variations thereon or comparable terminology, or
by discussions of strategy or intentions. Forward-looking statements
involve a number of risks and uncertainties. A number of factors could
cause actual results, performance, achievements of the Company, or
industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These factors include, but are not limited
to, the risks of the contract packaging industry, including the lack of
long-term contracts in a highly competitive industry with many
well-established competitors with greater financial and other resources
than the Company, and the impact of changes in the needs of the
pharmaceutical and consumer products companies for which the Company
performs services, local, regional and national economic
conditions, demographic trends, employee availability and cost increases.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION................................................ iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................... iii
FORWARD-LOOKING STATEMENTS........................................... iv
SUMMARY.............................................................. 1
INTRODUCTION......................................................... 10
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING.................. 10
VOTING AT THE SPECIAL MEETING.................................... 10
PROXIES.......................................................... 11
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM...................... 11
SOLICITATION OF PROXIES.......................................... 12
SPECIAL FACTORS...................................................... 12
RECOMMENDATION OF THE BOARD OF DIRECTORS......................... 12
BACKGROUND OF THE MERGER......................................... 12
FAIRNESS OF THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS. 15
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST 18
PURPOSE OF THE MERGER............................................ 21
CERTAIN EFFECTS OF THE MERGER.................................... 21
PLANS FOR THE COMPANY AFTER THE MERGER........................... 22
RISK THAT THE MERGER WILL NOT BE CONSUMMATED..................... 22
THE COMPANY.......................................................... 23
DEVELOPMENT OF THE BUSINESS...................................... 23
DESCRIPTION OF THE BUSINESS...................................... 23
QUALITY ASSURANCE................................................ 25
MARKETING........................................................ 25
CUSTOMERS........................................................ 26
COMPETITION...................................................... 26
GOVERNMENT REGULATION............................................ 26
INVENTORY AND RAW MATERIALS...................................... 27
EMPLOYEES........................................................ 27
PROPERTIES....................................................... 27
LEGAL PROCEEDINGS................................................ 28
THE MERGER........................................................... 28
PARTIES TO THE TRANSACTION....................................... 28
SUMMARY OF MATERIAL FEATURES OF THE TRANSACTION.................. 29
MERGER CONSIDERATION............................................. 29
EFFECTIVE TIME................................................... 30
CONVERSION OF STERITEK COMMON STOCK; PROCEDURES FOR
EXCHANGE OF CERTIFICATES....................................... 30
CONDUCT OF BUSINESS PENDING THE MERGER........................... 31
CONDITIONS TO THE MERGER......................................... 31
FEDERAL INCOME TAX CONSIDERATIONS................................ 33
ANTICIPATED ACCOUNTING TREATMENT ................................ 33
REGULATORY REQUIREMENTS AND APPROVALS............................ 33
EFFECT ON STOCK OPTIONS.......................................... 34
DEREGISTRATION OF STERITEK COMMON STOCK.......................... 34
MERGER FINANCING................................................. 34
STERITEK CAPITAL STOCK .......................................... 36
FAIRNESS OPINION................................................. 36
REPORT FROM STERITEK'S FINANCIAL ADVISOR; FAIRNESS OF THE TRANSACTION
OPINION OF FINANCIAL ADVISOR ..................................... 37
PUBLIC MARKET FOR SHARES OF STERITEK.............................. 38
PRICE TIMES BOOK VALUE............................................ 39
COMPARABLE TRANSACTIONS ANALYSIS.................................. 39
INTERNAL RATE OF RETURN ANALYSIS ................................. 40
INDUSTRY COMPARISONS.............................................. 40
CII OFFER TO PURCHASE STERITEK.................................... 41
LIQUIDATION VALUE................................................. 41
LEVERAGED BUYOUT ANALYSIS......................................... 41
OTHER ANALYSES ................................................... 41
THE MERGER AGREEMENT ................................................. 42
THE MERGER ....................................................... 43
REPRESENTATIONS AND WARRANTIES ................................... 43
CONDITIONS TO THE MERGER ......................................... 43
NO SOLICITATION; ACQUISITION PROPOSALS ........................... 44
TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEES ............ 44
CONDUCT OF THE COMPANY'S BUSINESS UNTIL THE EFFECTIVE TIME........ 45
INDEMNIFICATION................................................... 45
OTHER MATTERS; GOING PRIVATE TRANSACTIONS ............................ 47
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY....................... 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ....... 48
SELECTED FINANCIAL DATA OF THE COMPANY ............................... 49
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS............................................... 54
CERTAIN TRANSACTIONS IN THE COMMON STOCK ............................. 55
NO DISSENTING SHAREHOLDER RIGHTS...................................... 55
INDEPENDENT AUDITORS.......... ....................................... 55
MISCELLANEOUS......................................................... 55
ANNEX I THE AGREEMENT AND PLAN OF MERGER, DATED AS OF DECEMBER 4, 1998,
BY AND BETWEEN STERITEK, INC., ALBERT J. WOZNIAK, QUALITY
PACKAGING SPECIALISTS, INC. AND QPSI STERITEK ACQUISITION, INC.;
8% GUARANTEE SUBORDINATED PROMISSORY NOTE; EMPLOYMENT AGREEMENT
BETWEEN QUALITY PACKAGING SPECIALISTS, INC. AND ALBERT J.
WOZNIAK; EMPLOYMENT AGREEMENT BETWEEN QUALITY
PACKAGING SPECIALISTS, INC. AND JAMES K. WOZNIAK
ANNEX II FAIRNESS OPINION OF JOHN DURKIN ASSOCIATES, LLC.
ANNEX III ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1998.
ANNEX IV QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30,
1998.
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SUMMARY
This summary highlights selected information from this document and
may not contain all of the information that is important to you.
To understand the Merger fully and for a more complete description of
the legal terms of the Merger, you should carefully read this entire
document and the documents referred to.
The Companies
Steritek, Inc.
121 Moonachie Avenue
Moonachie, New Jersey 07074
(201) 460-0500
Steritek is a New Jersey corporation engaged principally in the
business of contract packaging and promotional materials assembly for the
pharmaceutical, medical, personal health and beauty industries. Albert J.
Wozniak, Chairman, President and Chief Executive Officer of the Company,
owns approximately 2,436,490 shares (or approximately 67%), before
adjustment for unexercised stock options, of the issued and outstanding
Shares of Common Stock of Steritek. Albert J. Wozniak and his son, James
K. Wozniak, Vice President and Chief Financial Officer of the
Company (collectively the "Affiliated Shareholders"), are the only
directors and officers of Steritek. Steritek is subject to the
informational requirements of the Exchange Act. It is obligated to
file reports and other information with the Commission relating to
its business, financial statements and other matters.
Quality Packaging Specialists, Inc.
5 Cooper Street
Burlington, New Jersey 08016
(609) 293-0503
QPSI is a New Jersey corporation, organized on January 20, 1994,
engaged in the business of contract packaging and promotional
materials assembly. QPSI, as a member in good standing of the
National Minority Supplier Development Council, is entitled to
solicit contracts on the basis of being a minority owned business. QPSI
is owned of record by K. Michael Ricketts (51%), Alan Wozniak (29.2%) (the
son of Albert J. Wozniak) and Albert J. Wozniak (19.8%). K. Michael
Ricketts and Alan Wozniak are the only directors and officers of QPSI.
QPSI is privately held and is not subject to the informational
requirements of the Exchange Act. It is not obligated to file reports
and other information with the Commission relating to its business,
financial statements and other matters.
QPSI Steritek Acquisition, Inc.
5 Cooper Street
Burlington, New Jersey 08016
(609) 293-0503
Acquisition is a wholly-owned subsidiary of QPSI, organized
December 3, 1998. It was formed solely for the purpose of effecting
the transactions proposed by the Merger Agreement. K. Michael Ricketts
and Alan Wozniak are the only directors and officers of Acquisition.
The Merger Transaction
Pursuant to the Merger Agreement, Acquisition will merge with and into
Steritek, with Steritek being the surviving corporation. Following the
effective time of the Merger ("Effective Time"), Steritek will be a
wholly-owned subsidiary of QPSI and the separate existence of Acquisition
will cease. The Effective Time of the Merger will occur on the acceptance
for filing of a Certificate of Merger by the Secretary of State of New
Jersey. It is expected that the Effective Time will be the date of
Closing of the Merger, which is scheduled for March , 1999, or as
soon thereafter as is practicable. See "THE MERGER--Effective Time."
Reasons for the Merger
The Steritek Board of Directors believes that the terms of the Merger
and the Merger Agreement are fair to, and in the best interests of,
Steritek and the Shareholders. In reaching its decision, the Steritek
Board of Directors considered the following factors, among other things:
o The desire of Albert J. Wozniak, age 61, the principal shareholder
and the only executive officer of the Company, to begin planning
for retirement;
o The past financial results and future prospects of Steritek based on
its knowledge of Steritek and the contract packaging industry generally,
including the expectation that QPSI will be able to utilize immediately
and for the foreseeable future the unused capacity at Steritek's
facility;
o Previous communications of Steritek and Albert J. Wozniak with others
in connection with the possible sale of the Company or a controlling
interest in the Company;
o The lack of any regular trading market for Shares of Steritek Common
Stock since the effectiveness of its Registration Statement on Form 10
on April 30, 1993 and the Company's past inability to meet the
listing requirements of the NASDAQ National Market System and certain
other securities exchanges;
o Steritek does not have a sufficient number of Shareholders of record,
or assets, to be required by the Exchange Act to file reports
and information with the Commission, the Board presently intends
to discontinue filing such reports and information, and the Board
does not presently expect that its Shares will be listed or traded in
any public market; and
o The opinion, dated January 27, 1999, of John Durkin Associates,
LLC, that the cash consideration to be received by the Shareholders
of Steritek (other than the Affiliated Shareholders, as hereinafter
defined) is fair to such Shareholders from a financial point of view.
Recommendation to Steritek's Shareholders
The Steritek Board of Directors believes that the Merger is in the
best interest of Steritek and its Shareholders and recommends that you
vote FOR the Merger.
Special Factors
The consummation of the Merger involves numerous special factors,
including the following:
o Fairness of the Merger; Recommendation of the Board of Directors. The
Board of Directors of Steritek, consisting of only Albert J. Wozniak
and James K. Wozniak (Albert's son), neither of whom is independent or
disinterested, (i) has determined that the Merger is fair to, and in
the best interest of, the Shareholders of Steritek, (ii) has approved
the Merger Agreement, and (iii) recommends that Shareholders approve
and adopt the Merger Agreement. There is no special committee or
other independent person, other than Steritek's financial advisor,
to comment upon the fairness of the Merger to the Shareholders.
o Interests of Certain Persons in the Merger; Conflicts of Interest.
Steritek is owned approximately 67% by Albert J. Wozniak. QPSI is
owned of record as follows: (i) 19.8% by Albert J. Wozniak; (ii)
29.2% by Alan Wozniak (Albert J. Wozniak's son); and (iii) 51.0% by
K. Michael Ricketts (collectively, the "QPSI Shareholders"). In
addition, Albert J. Wozniak, Alan Wozniak and K. Michael Ricketts
are equal members in AAM Associates, L.L.C. ("AAM"), a limited
liability company that owns land and building that QPSI uses pursuant
to a lease agreement. As a condition to closing the Merger,
the shareholders of QPSI must enter into a Shareholders
Agreement in a form satisfactory to all of them. A draft of that
agreement has not yet been prepared. Following the Merger, Albert J.
Wozniak and James K. Wozniak will each have an employment or
consulting agreement with QPSI, a copy of which is included in Annex
I hereto.
o Purpose of the Merger. The purpose of the Merger is for QPSI to
acquire the entire equity interest in the Company and, thereafter,
to continue its operations.
o Certain Effects of the Merger. Upon consummation of the Merger, each
Shareholder (other than Albert J. Wozniak) will be entitled to receive
a payment in cash of $1.39 per Share, without interest. No shareholder
will be entitled to exercise appraisal rights pursuant to the New
Jersey Business Corporation Act, N.J.S.A. 14A:1-1 et seq. ("BCA").
As a result of the Merger, the Company will become a privately
held corporation. The Shareholders, as of the Effective Time of
the Merger, will have no ownership interest in the Company and
will no longer participate in the future earnings and potential
growth of the Company. Albert J. Wozniak will continue to be,
and James K. Wozniak is expected to become, a shareholder of
QPSI and, therefore, will indirectly participate in the
future earnings and potential growth of the Company. It is expected
that following the Merger, James K. Wozniak will become a shareholder
of QPSI, and that both Albert J. Wozniak and James K. Wozniak will
become employees and directors of QPSI.
The Merger
The Merger Agreement, together with the Note and Employment
Agreements of Albert J. Wozniak and James K. Wozniak which are
exhibits thereto, are attached as Annex I to this Proxy Statement.
Please read the Merger Agreement as it is the legal document that governs
the Merger.
Merger Consideration
-----------------------
As a result of the Merger, the Shareholders of Steritek will
surrender their Common Stock in Steritek. In exchange for each share,
the Shareholders of Steritek, other than Albert J. Wozniak, will receive
$1.39 in cash, without interest. Albert J. Wozniak will receive $1.39
in exchange for each Share of Steritek Common Stock that he owns, paid in
the form of at least $750,000 in cash and the balance by an 8%
Guaranteed Subordinated Promissory Note (the "Note"). The Note is an
unsecured obligation of QPSI, guaranteed by K. Michael Ricketts and
Alan Wozniak. As of January 25, 1999, the record date for the Special
Meeting, the Affiliated Shareholders beneficially owned 2,788,490 shares
of Steritek Common Stock, on a fully diluted basis, which represents
approximately 69.95% of the Company's fully diluted Common Stock. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT".
After the Merger, no Shareholder of Steritek will retain any equity
interest in Steritek. Albert J. Wozniak, however, will continue to own
shares of QPSI and James K. Wozniak is expected to become a shareholder
of QPSI. Because Steritek will be a wholly-owned subsidiary of QPSI,
Albert J. Wozniak will have, and James K. Wozniak is expected to have,
an indirect continuing interest in Steritek. See "THE MERGER--
Merger Consideration" and "THE MERGER AGREEMENT--The Merger."
Do not send in your stock certificates until instructed to do so
after the Merger is completed.
Ownership and Operation of Steritek After the Merger
----------------------------------------------------
If the Merger is completed, Acquisition will be merged with and into
Steritek, with Steritek being the surviving corporation. Steritek will
then be a wholly-owned subsidiary of QPSI. Immediately following the
Merger, the directors and officers of Steritek will continue in
their capacities as such. QPSI, however, will be entitled to elect at any
time all of the directors of Steritek, who will in turn appoint its
officers. Following the Merger, Steritek will not meet the requirements
of a public company, intends to discontinue filing reports and
information with the Commission, and its shares will not be quoted, listed
or traded in any public market.
Ownership and Operation of QPSI After the Merger
------------------------------------------------
The ownership and operation of QPSI will not change immediately
following the Merger, although the shareholders of QPSI will be free
to restructure their ownership and other interests in QPSI as they deem
fit. Presently, K. Michael Ricketts and Alan Wozniak are the only
directors and officers of QPSI. Following the Merger, Albert J. Wozniak
and James K. Wozniak, along with three other persons selected by Alan
Wozniak and K. Michael Ricketts, are expected to join the Board as
directors of QPSI. Thereafter, QPSI is expected to have seven
directors, including Albert J. Wozniak and James K. Wozniak. Also,
Albert J. Wozniak and James K. Wozniak will become officers of QPSI.
Following the Merger, QPSI will continue to be a privately held company.
It does not expect, for the foreseeable future, (i) to meet the
requirements of a public company, (ii)to file reports and information with
the Commission, and (iii) that its shares will be listed or traded in
any public market.
Conditions to the Consummation of the Merger
--------------------------------------------
The completion of the Merger depends upon meeting a number of
conditions. The obligations of Steritek, QPSI and Acquisition to effect
the Merger are subject to the fulfillment of each of the following
conditions (the "Mutual Conditions"): (a) all permits, approvals and
consents of any governmental body or agency necessary or appropriate
for consummation of the Merger shall have been obtained; (b) no
preliminary or permanent injunction or other order of a court or
governmental agency or authority in the United States shall have
been issued and be in effect, and no federal or state statute, rule or
regulation shall have been enacted or promulgated after December 4, 1998
and be in effect that prohibits the consummation of the Merger or
imposes material limitations on the ability of the Surviving Corporation
to exercise full rights of ownership of Steritek's assets or business;
(c) there shall not be any action or proceeding commenced by or before
any court or governmental agency or authority in the United States
that challenges the consummation of the Merger or seeks to impose
material limitations on the ability of the Surviving Corporation to
exercise full rights of ownership of the assets or business of Steritek;
(d) QPSI and Albert J. Wozniak shall have executed and delivered a
Consulting and Non-Competition Agreement; (e) QPSI and James K. Wozniak
shall have executed and delivered an Employment Agreement; (f) the
Disclosure Schedule and the QPSI Disclosure Schedule required by the
Merger Agreement shall be delivered in forms satisfactory to the
receiving parties; (g) the shareholders of QPSI shall have entered into
a shareholders agreement satisfactory to all shareholders of QPSI;
(h) Steritek shall have discontinued the operations of "Physicians'
Fax Network"; and (i) all vested options to purchase Steritek Common
Stock shall have either been converted into Steritek Common Stock or
canceled.
In addition to the Mutual Conditions, the obligations of QPSI and
Acquisition to effect the Merger are subject to each of the following
conditions: (a) there shall not have occurred any material adverse change
in the business, financial condition, prospects, assets or operations
of Steritek since September 30, 1998; (b) the representations and
warranties of Steritek contained in the Merger Agreement shall be true
and correct in all material respects at and as of the date thereof and as
of the effective time of the Merger ("Effective Time"); Steritek shall
have duly performed and complied with all agreements, covenants and
conditions required by the Merger Agreement to be performed or complied
with by it prior to or at the Effective Time of the Merger and Steritek
shall have delivered to QPSI a certificate dated the Effective Time of
the Merger and signed on behalf of Steritek by its President to the effect
set forth in this paragraph (b); (c) all approvals or consents of any
third party required for the execution, delivery or performance of the
Merger Agreement by Steritek, as required to be disclosed on the
Disclosure Schedule, shall have been obtained and delivered to Steritek;
(d) QPSI shall have received a reasonably satisfactory financing
commitment for the transaction in a minimum amount of $2,200,000.00; and
(e) QPSI shall have received a legal opinion of Steritek's counsel
reasonably satisfactory to QPSI's counsel.
In addition to the Mutual Conditions, the obligations of Steritek to
effect the Merger are also subject to each of the following conditions:
(a) there shall not have occurred any material adverse change in the
business, financial condition, prospects, assets or operations of QPSI
or Acquisition since the date of the latest quarterly QPSI
Financial Statement; (b) the representations and warranties of QPSI
and Acquisition contained in the Merger Agreement shall be true and
correct in all material respects at and as of the date thereof and as of
the Effective Time of the Merger as if made at and as of the Effective
Time of the Merger; QPSI and Acquisition shall have duly performed
and complied with all agreements, covenants and conditions required by
the Merger Agreement to be performed or complied with by it prior to or at
the Effective Time; and QPSI and Acquisition shall have delivered to
Steritek a certificate dated the Effective Time and signed on its behalf
by its President to the effect set forth in this paragraph (a); (c)
all approvals or consents of any third party required for the
execution, delivery, or performance of the Merger Agreement by QPSI
and Acquisition shall have been obtained and delivered to the Steritek;
(d) Steritek shall have received the approval of its shareholders, to
the satisfaction of Steritek and its counsel, of the transactions
contemplated by the Merger Agreement; (e) QPSI and K. Michael
Ricketts ("Michael") shall have entered into a non-compete agreement,
in form and substance satisfactory to Albert J. Wozniak; (f) QPSI and Alan
Wozniak ("Alan") shall have entered into a non-compete agreement, in form
and substance satisfactory to Albert J. Wozniak; (g) Albert J. Wozniak
shall be released as a guarantor on all leases and bank debt of Steritek
or all leases and bank debt of Steritek guaranteed by Albert J. Wozniak
shall be repaid; (h) Michael and Alan shall have personally guaranteed
the Note; (i) Steritek shall have received a legal opinion of QPSI's
counsel reasonably satisfactory to Steritek's counsel; and (j) Steritek
shall have received a fairness opinion with respect to the
transactions contemplated by the Merger Agreement, from the person and in
form and substance reasonably satisfactory to Steritek and its counsel.
At any time prior to the Effective Time of the Merger, Steritek, on
the one hand, and QPSI and Acquisition, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of
the obligations or other acts of the other, (ii) waive any inaccuracies in
the representations and warranties made to it contained in the
Merger Agreement or in any document delivered pursuant thereto, and
(iii) waive compliance with any of the agreements or conditions for
the benefit of it contained therein. Any agreement on the part of a
party thereto to any such extension or waiver will be valid only if set
forth in an instrument in writing signed on behalf of such party.
Termination of the Merger Agreement
-----------------------------------
The Merger Agreement may be terminated at any time prior to the
Effective Time: (a) by mutual agreement of QPSI, Acquisition and Steritek;
(b) by QPSI, if events have occurred which have made it impossible to
satisfy a condition precedent to QPSI's and Acquisition's obligations
to consummate the transactions described in the Merger Agreement,
unless QPSI's or Acquisition's breach of the Agreement has caused
the condition to be unsatisfied; (c) by Steritek, if events have
occurred which have made it impossible to satisfy a condition precedent
to Steritek's obligations to consummate the transactions described in
the Merger Agreement, unless Steritek's breach of the Agreement has caused
the condition to be unsatisfied; or (d) by Steritek or QPSI, upon
notice to the other, if the Merger shall not have become effective on or
before April 15, 1999 (unless such date is extended in writing by the
parties hereto), except that the right to terminate the Merger Agreement
is not available to any party whose failure to fulfill any obligation
under the Merger Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; (e) by QPSI,
upon notice to Steritek, if the Merger shall not have become effective on
or before March 1, 1999, unless the reason why the Merger has not
become effective is the failure of Steritek's shareholders to approve
the Merger, in which case QPSI shall have no right to terminate the
Merger Agreement.
If Steritek terminates the Merger Agreement because events have
occurred which have made it impossible to satisfy a condition precedent
to Steritek's obligations to consummate the transactions described in
the Merger Agreement, (unless due to the nonsatisfaction of certain
conditions set forth Sections 5.01(a), (b) or (c), Section 5.03) or
6.01(d) of the Merger Agreement), in addition to any remedies available
to QPSI and Acquisition under the Merger Agreement or otherwise, Steritek
will pay to QPSI a termination fee equal to $50,000.00 for purposes
of compensating QPSI for expenses and costs incurred in entering into
the Merger Agreement and pursuing the transactions contemplated by the
Merger Agreement.
In the event of the termination of the Merger Agreement, the
provisions of the Merger Agreement will become void and have no effect,
with no liability on the part of any party hereto or its shareholders
or directors or officers in respect thereof, provided that nothing
contained in the Merger Agreement will be deemed to relieve any party of
any liability it may have to any other party with respect to a breach of
its obligations, covenants, representations or warranties contained in
the Merger Agreement. See "THE MERGER AGREEMENT--Termination of the
Merger Agreement; Termination Fees;" and Annex I hereto.
Vote Required
-------------
In order for the proposed Merger to be effected, the holders of at
least a majority of all outstanding shares of Steritek's Common Stock
must approve it. Albert J. Wozniak beneficially owns and has the right
to vote at the Special Meeting a sufficient number of shares to approve
and adopt the Merger Agreement under New Jersey law without the
affirmative vote of any other holder of Shares, thereby assuring such
approval and adoption. The Company believes that the New Jersey
Shareholder Protection Act, N.J.S.A. 14A:10A-1 et seq., does not apply to
the transactions contemplated by the Merger Agreement. ACCORDINGLY,
THE MERGER MAY BE APPROVED WITHOUT THE VOTE OF ANY OTHER SHAREHOLDER.
Regulatory Requirements and Approvals
-------------------------------------
The Company and the QPSI do not believe that any governmental filings
are required with respect to the Merger other than: (i) filing a
certificate of merger with the Secretary of State of New Jersey;
(ii) notification of the United States Department of Health and
Human Services, Public Health Service, Food and Drug Administration;
(iii) notification of the United States Department of Justice,
Drug Enforcement Administration; (iv) notification of the New
Jersey Department of Health and Senior Services, Consumer &
Environmental Health Services; and (v)complying with the applicable
requirements of the New Jersey Industrial Site Remediation Act,
N.J.S.A. 13:1K-1, et seq.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), prohibits certain transactions from occurring until
certain governmental approvals have been obtained. The Company and QPSI
do not believe that the HSR Act applies to the Merger, and they do not
expect to have any delays because of this law. However, the Department
of Justice and the Federal Trade Commission continue to have the authority
to challenge the Merger on antitrust grounds before or after the Merger
is completed.
Anticipated Accounting Treatment
--------------------------------
The Company expects that the Merger will be accounted for in
accordance with the principles of purchase accounting.
Opinion of Financial Advisor
----------------------------
In deciding to approve the Merger Agreement and the Merger, Steritek's
Board of Directors, imposed a condition that it receive a fairness opinion
with respect to the transactions contemplated by the Merger Agreement, from
the person and in form and substance reasonably satisfactory to Steritek
and its counsel. Steritek's financial advisor, John Durkin Associates,
LLC ("Durkin) rendered its opinion, dated January 27, 1999, that as of
the date thereof and the date of the Merger Agreement, the Merger
Consideration is fair, from a financial point of view to the shareholders
of Steritek other than the Affiliated Shareholders. This opinion is
attached as Annex II. We encourage you to read this opinion, although it
is limited to the fairness, from a financial point of view, of the
Merger Consideration offered to the Shareholders (other than the
Affiliated Shareholders) and does not constitute a recommendation as to
how you should vote. QPSI received advice from its financial advisors,
but did not request a written opinion. See "REPORT FROM STERITEK'S
FINANCIAL ADVISOR; FAIRNESS OF THE TRANSACTION."
Federal Income Tax Considerations
---------------------------------
The conversion of Shares at the Effective Time of the Merger into the
right to receive cash pursuant to the Merger will be a taxable transaction
for federal income tax purposes under the Internal Revenue Code of 1986,
as amended (the "Code"), and may also be a taxable transaction under
applicable state, local and other tax laws. In general, a Shareholder
will recognize gain or loss equal to the difference between the tax basis
of his Shares and the amount of cash received in exchange therefor. Such
gain or loss will be treated as capital gain or loss if the Shares are
capital assets in the hands of the Shareholder. See "THE MERGER--
Federal Income Tax Considerations."
No Dissenting Shareholder Rights
--------------------------------
Neither the Merger nor any other matter to be acted upon at the
Special Meeting create any dissenting shareholders rights under the New
Jersey Business Corporation Act. See "NO DISSENTING SHAREHOLDER RIGHTS."
Deregistration of Steritek Common Stock
---------------------------------------
Steritek has agreed in the Merger Agreement to file with the
Commission a Form 15, under the Exchange Act, to deregister its Common
Stock. Steritek has not filed the Form 15 as of the date hereof.
Steritek's duty to file any reports required under Section 13(a) of
the Exchange Act (for example, Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q) will be suspended immediately upon the
filing of a certification on Form 15. The termination of the registration
of Steritek's Common Stock can be expected to take effect
90 days after the filing of the Form 15. See "THE MERGER--Deregistration
of Steritek Common Stock."
<PAGE>
INTRODUCTION
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
This Proxy Statement relates to a proposal to approve and adopt the
Merger Agreement. The Merger Agreement provides for the merger of
Acquisition with and into Steritek. If the proposed Merger is completed,
(i) each issued and outstanding Share of Common Stock of Steritek, other
than Shares held by Albert J. Wozniak, will be converted into the right
to receive $1.39 in cash without interest, (ii) each issued and
outstanding Share of Common Stock of Steritek held by Albert J. Wozniak
will be converted into the right to receive $1.39, at least $750,000 of
which shall be payable in cash and the balance shall be paid in the form
of an 8% Guaranteed Subordinated Promissory Note of QPSI, and (iii)
Steritek will issue 10,000 Shares of its Common Stock to QPSI. In the
Merger, Acquisition will merge with and into Steritek, which will be
the surviving corporation. After the Merger, Steritek will be a wholly-
owned subsidiary of QPSI.
The Board of Directors, consisting of two persons, neither of whom is
independent or disinterested, (i) has determined that the Merger is fair
to, and in the best interest of, the Shareholders of the Company, (ii) has
approved the Merger Agreement and (iii) recommends that shareholders
approve and adopt the Merger Agreement.
Other matters properly presented at the Special Meeting or any
adjournments or postponements thereof may also be considered. The Company
does not know of any matters other than the adoption of the Merger
Agreement that will be presented at the Special Meeting.
VOTING AT THE SPECIAL MEETING
The Board has fixed the close of business on January 25, 1999 as the
"Record Date" for determining the Shareholders entitled to notice of and
to vote at the Special Meeting. Accordingly, only holders of record of
Shares as of the Record Date will be entitled to notice of and to vote at
the Special Meeting. On the Record Date, there were 3,636,285 Shares,
held by 128 holders of record, outstanding and entitled to vote.
Shareholders may cast one vote per Share, either in person or by
properly executed Proxy, on each matter to be voted on at the Special
Meeting.
Votes cast in person or by Proxy at the Special Meeting will be
tabulated by an inspector of election appointed by the Board
(the "Inspector"). The Inspector will treat abstentions as Shares that
are present and entitled to vote. In addition, if a broker submits a
Proxy indicating that it does not have discretionary authority as to
certain Shares to vote on a particular matter, those Shares will be
treated as present and entitled to vote.
THE MERGER CONSTITUTES A MATTER OF GREAT IMPORTANCE TO SHAREHOLDERS OF THE
COMPANY. IF THE MERGER AGREEMENT IS ADOPTED AND THE MERGER IS CONSUMMATED,
THE OWNERSHIP INTERESTS OF THE SHAREHOLDERS IN THE COMPANY (OTHER THAN ANY
INDIRECT OWNERSHIP INTEREST OF THE AFFILIATED SHAREHOLDERS) WILL CEASE IN
EXCHANGE FOR THE RIGHT TO RECEIVE $1.39 PER SHARE. ACCORDINGLY,
SHAREHOLDERS ARE URGED TO READ AND CONSIDER CAREFULLY THE
INFORMATION PRESENTED IN THIS PROXY STATEMENT.
Because the vote on the Merger Agreement and the transactions
contemplated thereby, including the Merger, requires the approval of
holders of a majority in interest of the votes entitled to be cast by
the holders of all outstanding Shares of the Company's Common
Stock, abstentions and broker non-votes will have the same effect as a
vote against this proposal.
PROXIES
All Shares represented at the Special Meeting by properly executed
Proxies received prior to or at the Special Meeting, and not revoked
before their use, will be voted in accordance with the instructions
thereon. If no instructions are given, properly executed Proxies will
be voted FOR the approval and adoption of the Merger Agreement. If any
other matters are properly presented to the Special Meeting or
any adjournments or postponements thereof, the persons named in the
enclosed form of Proxy as acting thereunder will have discretion to vote
on such matters in accordance with their best judgment. The Company does
not know of any matters other than the adoption of the Merger Agreement
that will be presented at the Special Meeting.
A Shareholder who has given a Proxy may revoke it at any time before
it is voted at the Special Meeting, or any postponements or
adjournments thereof, (1) by submission of a validly executed Proxy
bearing a later date than the Proxy being revoked, (2) by filing with
the Secretary of the Company, at the address of the Company set forth
herein, a written revocation bearing a later date than the Proxy
being revoked, or (3) by attending the Special Meeting, or any
postponements or adjournments thereof, and voting in person.
Attendance at the Special Meeting, or any postponements or adjournments
thereof, will not in and of itself constitute revocation of a Proxy.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
At the close of business on January 25, 1999, the Record Date for the
determination of Shareholders entitled to notice of, and to vote at, the
Special Meeting, the Company had outstanding 3,636,285 Shares of Common
Stock, without par value. The Company has no other class of
stock outstanding.
Each Share is entitled to one vote on all matters presented at
the Special Meeting. The approval and adoption of the Merger Agreement
and any other proposals, if any, will require the affirmative vote of
the holders of a majority of the Shares of the Common Stock voted on
such proposal. The presence in person or by proxy of the holders of
a majority of the Shares of Common Stock of the Company issued and
outstanding and entitled to vote at the Special Meeting constitutes a
quorum. Abstentions will be treated as shares that are present and
entitled to vote for the purposes of determining the presence of a quorum
but as unvoted for purposes of determining the approval of any
matter submitted to the Shareholders for a vote. Proxies relating to
"street name" Shares that are voted by brokers will be counted as Shares
present for purposes of determining the presence of a quorum on all
matters, but will not be treated as Shares having voted at the Special
Meeting as to any proposal as to which authority to vote is withheld by
the broker.
The presence, in person or by Proxy, at the Special Meeting of the
holders of a majority in interest (1,818,143 Shares) of the Shares of the
Company's Common Stock outstanding on the Record Date is necessary to
constitute a quorum for the transaction of business. Albert J. Wozniak,
as the owner of 2,436,490 Shares (without giving effect to the exercise
of stock options), can cause the Merger Agreement to be approved and
adopted without the affirmative vote of any other Shareholder.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the Board of
Directors of the Company. The Company will bear the cost of the
Special Meeting and the cost of preparing, assembling, printing and
mailing this proxy soliciting material and Notice of Special Meeting
of Shareholders. Additional solicitation by mail, telephone, telecopier
or by personal solicitation may be done by directors, officers and
regular employees of the Company, for which they will receive no
additional compensation, but may be reimbursed for out-of-pocket
expenses incurred. Brokerage houses and other nominees, fiduciaries
and custodians nominally holding shares of the Company's Common Stock as
of the Record Date will be requested to forward proxy soliciting material
to the beneficial owners of such shares, and will be reimbursed by the
Company for their reasonable expenses.
HOLDERS OF COMPANY COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
SPECIAL FACTORS
RECOMMENDATION OF THE BOARD OF DIRECTORS
At a special meeting held on December 4, 1998, upon agreement as to
the terms of the Merger Agreement and subject to the conditions
contained therein, including the condition that the Company receive
a fairness opinion in form and substance reasonably satisfactory to it and
its counsel, the Board approved the Merger Agreement and the
transactions contemplated thereby and conditionally determined that the
Merger was fair to, and in the best interests of, the Company and
its Shareholders. The Board recommends that the Company's Shareholders
vote FOR the approval and adoption of the Merger Agreement and
the transactions contemplated thereby.
BACKGROUND OF THE MERGER
The Board of Steritek has considered regularly various strategic
alternatives to it. Over the past several years, the Company sold its
intracranial pressure monitor business and electron microscope supply
business in an effort to focus its attention on contract packaging,
its principal business activity. Over the past two years, two highly
valued independent directors of Steritek passed away. One, Herbert
A. Marache, who passed away in early 1997, was a Senior Vice President
of Janney Montgomery Scott, Inc., a director of Biosearch Medical
Products, Inc., American Centurion Life Insurance Company, a wholly-
owned subsidiary of American Express Company; and of The Peak
Technologies Group, Inc. The other, Charles A. Pergola, who passed away
in Fall 1997, was President of the Beauty Care Group of Revlon from July
1990 to December 1991, President of SmithKline Beecham Consumer Brands
from September 1989 to June 1990, President of Beecham Products USA
from September 1988 to September 1989, and President of Norcliff Thayer,
Beecham Group from 1986 to 1988. The Company has not identified
individuals to replace these directors. Also, Albert J. Wozniak,
the principal shareholder of Steritek, its Chairman, President and
Chief Executive Officer, is now 61 years old and beginning to
consider retirement planning and for the succession of control of
Steritek. In the past year Albert J. Wozniak deemed it necessary to
loan money to the Company for working capital purposes. Albert J.
Wozniak personally guaranteed the Company's bank debt. Mr. Wozniak
seeks to be relieved of his obligations as a guarantor on the Company's
bank debt and does not intend to make further loans to the Company to
finance its operations. These events have caused the Board to
consider seriously its strategic alternatives, including a sale of
the Company.
From time to time, Albert J. Wozniak, as Chairman, President and
Chief Executive Officer of the Company, received inquiries as to the
possible sale of the Company. In April 1998, the Company was approached
by a large, publicly traded company engaged in contract packaging ("CII")
to discuss the possible purchase of Steritek. Nondisclosure agreements
were exchanged and discussions commenced. Those discussions lead to a
term sheet prepared by CII, dated June 11, 1998, whereby it proposed
to purchase the stock of Steritek, payable in registered shares of its
common stock, for approximately $5,000,000 (calculated as $5,500,000
less interest bearing debt at the closing date (which was expected to
be approximately $800,000) and plus cash on hand as of such date (which
was expected to be approximately $300,000)). In addition, the term
sheet provided for a Consulting/Non-Compete Agreement with Albert J.
Wozniak, payable in cash in an amount equal to 50% of the Company's
annual earnings before interest and taxes in excess of $900,000 for
the succeeding five years. The Board determined to pursue this offer
further. In or about August 1998, CII's stock was trading at
approximately two-thirds of its June 11, 1998 value. CII then
discontinued its discussions with the Company.
In or about October 1998, QPSI's facilities were operating at or near
capacity and it began evaluating its options to increase its contract
packaging capacity. To remedy its short term capacity problems while it
was evaluating its options, it approached Steritek, who at the time had
excess capacity, for assistance. In connection with its expansion
options, QPSI raised the possibility of purchasing Steritek. The Board
of each company considered QPSI and Steritek as providing
complementary services, and the combination of the two companies as a
natural fit. They were both in the contract packaging business. QPSI
needed additional capacity and Steritek had excess capacity. QPSI was
strong in promotional materials packaging in the general consumer
products industry without United States Food and Drug Administration
("FDA") approvals to package certain pharmaceutical and health care
products. Steritek, on the other hand, had the necessary FDA approvals
to package pharmaceutical and health care products and has a strong client
base in the pharmaceutical and health care industry, but not other
consumer goods. Also, because QPSI is a member in good standing of
the National Minority Supplier Development Council, the Board of each
company expects that following the Merger QPSI will be able to obtain
more business in the pharmaceutical and health care industry. Also,
QPSI's management is entrepreneurial and very strong in sales and
marketing while Steritek's management is particularly strong
operationally. Albert Wozniak viewed QPSI management as particularly
capable to take over his responsibilities at Steritek if and when he
chooses to retire. Finally, if the proposed Merger occurs, Mr. Wozniak
will be released from his personal guarantees of the Company's bank debt
and does not expect to be requested or required to loan funds to QPSI
for operating purposes. Consequently, the Boards of both companies chose
to pursue the possible Merger.
The principals discussed various structures for an acquisition, each
of which valued the Company at the $5,000,000 price originally proposed
by CII. In the negotiations, QPSI was represented by its principals,
K. Michael Ricketts and Alan Wozniak, and QPSI's counsel. Steritek
was represented by Albert J. Wozniak, James K. Wozniak, and
Steritek's counsel. Several negotiation sessions among the principals
and their representatives transpired between September 1998 and
December 4, 1998, when the parties reached final agreement as to the
principal terms of the Merger Agreement and the purchase price. Through
the course of negotiations, the representatives of Steritek negotiated
an increase in the price from $5,000,000 to $5,555,155.40. The final
purchase price was established based on the judgment of the Board of
Directors of Steritek as to a fair value of the Company, including a
determination by Albert J. Wozniak, as the principal shareholder, of the
minimum amount acceptable to him for the sale of his shares, and the
maximum amount QPSI was willing or able to pay. It is to be noted that
in order for QPSI to pay the purchase price agreed to, Albert J. Wozniak
was required to take the Note (which is unsecured and subordinated)
in exchange for a portion of his shares. The terms of the transaction
are structured such that Albert J. Wozniak will receive as much cash
at closing as QPSI can provide through borrowings from its senior
lender, subject to certain deductions, with the balance to be paid in the
form of the Note. In addition, it was necessary for Albert J. Wozniak
to personally become a party to the Merger Agreement, thereby exposing
him to possible personal liability in the event of later disputes under
the Merger Agreement. Steritek's obligation to close is subject to
the receipt by it of a fairness opinion in form and substance
reasonably satisfactory to it.
On December 16, 1998, the Company filed a Form 8-K with the
Commission to report that the Merger Agreement had been entered
into. Following the announcement of the transaction, certain of the
minority Shareholders called Albert J. Wozniak to express their approval
of the proposed Merger, including its terms. Two minority Shareholders,
however, expressed to Albert J. Wozniak or his representatives their
belief that the Merger Consideration was inadequate. Steritek
encouraged these individuals to present their own, and to solicit
other, proposals for a possible sale of the Company. One of those
shareholders referred the Company to another individual to evaluate the
possible purchase of the Company. That individual proposed to purchase
only the Shares held by Albert J. Wozniak for approximately $1.03 per
share, substantially less than the $1.39 per share Merger Consideration
negotiated under the Merger Agreement. Albert J. Wozniak rejected
that proposal principally because the price was inadequate. Another
person, who claims to have spoken with the two minority Shareholders
mentioned above, submitted certain proposals that involved (i)
Steritek selling its contract packaging business to QPSI for
the $5,555,155.40, (ii) Steritek maintaining its status as a publicly
held company operating only the Physicians Fax Network business, (iii)
in effect, the redemption of Albert J. Wozniak's interest in Steritek
for $1.39 per share in cash and a note, and (iv) then that representative,
together with the two minority shareholders mentioned above, taking
control of the Company, including the remaining cash proceeds of the sale
of the contract packaging business. The Board of Steritek rejected this
proposal for a number of reasons, including concerns about the added
legal complexity, time and expense to effect such a transaction and
an unidentified and apparently inexperienced management team taking
control of the Company. Also, that proposal would not allow all
minority Shareholders the ability to liquidate his or her investment in
the Company. The proposals and correspondence from the two minority
shareholders has reinforced the Board's conclusion that the transaction
is fair to the minority Shareholders.
FAIRNESS OF THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
In light of the Board's consideration of various strategic
alternatives, the Company's competitive position and recent operating
results, and other matters, the Board has determined that the Merger is
fair to, and in the best interests of, the Company and its Shareholders.
In making this determination and in approving the Merger Agreement and
the transactions contemplated thereby, the Board considered a number
of factors, including but not limited to, the factors described below:
(i) the Board's knowledge of the business, financial results
and prospects of the Company, as well as its knowledge of the
contract packaging industry generally;
(ii) the history of the negotiations with respect to the Merger
Consideration that, among other things, led to an increase in
QPSI's offer from $5,000,000 to $5,555,155.40 for all of the
Company's Common Stock and the belief of the members of the Board
that such price is the highest price that QPSI would agree to pay;
(iii) the views expressed by management of the Company regarding
the financial condition, results of operations, business and
prospects of the Company, including the prospects of the Company if
the Company were to remain publicly owned and Albert J.
Wozniak's desire to begin planning for retirement;
(iv) the lack of any regular trading market for the Shares since
April 30, 1993, and that the available information suggests that
during the past twelve months the reported trades in the Company
Common Stock ranged from prices of approximately $0.25 to
approximately $0.81 per Share compared to the $1.39 per Share price
to paid in the Merger;
(v) discussions with Durkin regarding earnings projections and
Durkin's inability to correlate those projections to estimates
of possible future trading prices of the Shares based on the
limited public float, lack of market makers, and limited public
trading activity;
(vi) the Board's conclusion, supported by Durkin's analysis, that
it was not likely that any party other than QPSI would propose to
the Company and its shareholders a transaction that was more
favorable than the Merger;
(vii) the view expressed by Durkin that the Company was likely to
be more appealing to an entrepreneurial buyer in need of
additional capacity and seeking to expand its client base, such
as QPSI, than to a large publicly traded company;
(viii) the opinion of Durkin that, as of the date of such opinion
and the date of the Merger Agreement, the $1.39 per Share
consideration to be received by the Shareholders (other than
the Affiliated Shareholders) in the Merger is fair to such
Shareholders from a financial point of view. The full text of
Durkin's opinion, which sets forth the assumptions made, the
matters considered and limitations on the review undertaken by
Durkin, is attached as Annex II to this Proxy Statement, and
is incorporated herein by reference. Durkin's opinion is directed
only to the fairness, from a financial point of view, of the
Merger Consideration to be received by the Shareholders
(other than the Affiliated Shareholders) in the Merger and is
not intended to constitute, and does not constitute, a
recommendation as to whether any Shareholder should vote to adopt
the Merger Agreement or the Merger. Holders of Company Common Stock
are urged to read Durkin's opinion in its entirety.
(ix) The terms and conditions of the Merger Agreement, including
(A) the amount and form of consideration (cash) to the minority
shareholders, as opposed to Albert J. Wozniak (cash and the Note),
and (B) the fact that Albert J. Wozniak, and no other Shareholder,
is a party to the Merger Agreement.
The foregoing discussion of the information and factors considered by
the Board is not meant to be exhaustive, but includes the material factors
considered by it. The Board did not assign relative weights to the above
factors or determine that any factor was of particular importance.
Rather, the Board viewed its position and recommendations as being based
on the totality of the information presented to and considered by it,
except that particular consideration was placed on (i) the opinion of
Durkin that, as of the date of the opinion and the date of the
Merger Agreement, the $1.39 per Share Merger Consideration to be received
by the Shareholders (other than the Affiliated Shareholders) in the Merger
was fair to such Shareholders from a financial point of view, and (ii)
the active arm's-length bargaining that had occurred between
the representatives of Steritek, on the one hand, and QPSI on the other
hand, that resulted in the $1.39 per Share Merger Consideration, which
the members of the Board of Steritek believed was the highest price that
QPSI would agree to pay.
The Board recognized that immediately following the proposed Merger,
Shareholders (other than Albert J. Wozniak) would cease to have an
interest in an ongoing corporation with potential for future growth, and
the Board therefore gave consideration to the Company's results of
operations and current forecasts of future revenues and earnings in
reaching its determination to approve the Merger Agreement. The Board
also recognized that Albert J. Wozniak (or both of the Affiliated
Shareholders if James K. Wozniak receives an equity interest in QPSI)
would have an opportunity, subject to the risks of QPSI's business,
to benefit from any increases in its value following the Merger. The
Board recognized that this represented a potential conflict between
the interests of the Affiliated Shareholders (both of whom are officers
and employees of the Company) and the Company's other Shareholders.
See "--Interests of Certain Persons in the Merger; Conflicts of Interest."
In considering the fairness of the Merger, Shareholders should be
aware that Albert J. Wozniak has a substantial equity ownership position
in the Company and also owns approximately 19.8% of the issued and
outstanding common stock of QPSI. Albert J. Wozniak is not, however,
an officer or director of QPSI. As of January 25, 1999, Albert J.
Wozniak owned approximately 67% of the outstanding Shares of the
Company's Common Stock on a fully diluted basis.
The Board believes that the Merger is procedurally fair because: (i)
although Albert J. Wozniak owns an interest in QPSI, QPSI is effectively
controlled by an unrelated person, K. Michael Ricketts who owns 51% of
QPSI; (ii) the price is higher than the highest price the Board could
obtain from CII in a reasonably contemporaneous proposed transaction;
(iii) the Board retained and was advised by Durkin and Durkin rendered
an opinion concerning the fairness, from a financial point of view, of
the consideration to be received by the Shareholders (other than
Affiliated Shareholders) in the Merger; and (iv) the Board entertained
and encouraged proposals from certain minority shareholders and
their representatives as to certain transactions in addition to,
or alternative to, the proposed Merger. In addition, the Board believes
that the Merger is procedurally fair because the $1.39 per share of
the Company's Common Stock and the other terms and conditions of the
Merger Agreement resulted from active and lengthy arm's-length bargaining
between the representatives of Steritek, on the one hand, and QPSI on the
other hand. In addition, the Board insisted that the Merger Agreement
provide for the approval of the Merger Agreement by the affirmative vote
of the Shareholders to the satisfaction of Steritek and its counsel.
The rules of the Commission require the issuer and each affiliate to
express its belief as to the fairness of the Merger to unaffiliated
security holders. While each of QPSI and Albert J. Wozniak has undertaken
no evaluation of the Merger from the standpoint of fairness, they have
considered the factors noted above which were taken into account by the
Board, based however, only on the more limited facts and information
available to them. Although QPSI and Albert J. Wozniak did not find it
practicable to quantify or otherwise attach relative weights to the
specific factors considered by the Board, each of them did consider
these specific factors in arriving at their proposed price per Share.
Each of QPSI and Albert J. Wozniak also considered the fact that
Steritek required, as a condition to closing the Merger, the Board to
have determined that the Merger Agreement was fair to the Shareholders and
to have obtained an opinion that the Merger Consideration to be received
in the Merger by holders of the Company's Common Stock pursuant to the
Merger Agreement is fair to such holders. On the basis of the
foregoing considerations, each of QPSI and Albert J. Wozniak believes that
the Merger is fair from a financial point of view. In addition, QPSI
and Albert J. Wozniak have considered the measures taken by the Board
to ensure the procedural fairness of the transaction, including the
retention of legal and financial advisors and the arms-length nature of
the negotiations. See "--Background of the Merger".
Other than the recommendations of the Board that the Shareholders
vote in favor of adoption of the Merger Agreement and the Merger, no
other person filing the Schedule 13E-3 with the Commission has made
any recommendation with respect to the Merger or any other
transaction contemplated thereby. Albert J. Wozniak and James K.
Wozniak intend to vote their Shares in favor of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the recommendation of the Board of Directors with
respect to the Merger, Shareholders should be aware that both members of
the Board have certain interests that present them with actual or
potential conflicts of interest in connection with the Merger. The Board
of Directors was aware of these conflicts and considered them among the
other matters described under "--Fairness of the Merger; Recommendation of
the Board of Directors."
Albert J. Wozniak, the Company's Chairman of the Board, President and
Chief Executive Officer, and James K. Wozniak, a member of the Board and
Vice President and Chief Financial Officer, will each have an
employment contract with QPSI following the Merger and are expected to
become members of the Board of Directors of QPSI. Copies of their
employment contracts are attached hereto as part of Annex I. The
employment contracts provide for employment under terms and conditions no
more favorable than those each has in connection with his current
employment by Steritek. In addition, if the proposed Merger is
completed, Albert J. Wozniak, James K. Wozniak, QPSI and the
other shareholders of QPSI may enter into agreements changing the equity
ownership of QPSI.
Shareholders Agreement
As a condition to the obligations of all parties to close the Merger,
the shareholders of QPSI, which will include Albert J. Wozniak, K. Michael
Ricketts and Alan Wozniak, must enter into a shareholders agreement
satisfactory to all of them. It is expected that such Shareholders
Agreement, which has not yet been prepared, will address the issues
normally covered in a shareholders agreement among shareholders of a
closely held company. These issues would include limitations on resale
of shares, super majority voting rights, transfer of shares on the death
or disability of a shareholder, and similar matters.
Stock Option Plan
Albert J. Wozniak, James K. Wozniak, and certain of the Company's
directors, employees and independent contractors participate in the
Company's Stock Option Plan (the "Company Stock Option Plan"). The purpose
of the Company Stock Option Plan is to provide increased incentives to
such persons, to encourage such persons to become affiliated with the
Company and to align the interests of such persons with those of
the Shareholders. The Stock Option Plan is administered by the
Board. Holders of options will be entitled to immediately exercise
their options for the aggregate number of Shares subject to such options
and be entitled to receive the Merger Consideration (less the exercise
price). See "THE MERGER--Effect on Stock Options."
Employment Agreements
Albert J. Wozniak does not presently have a written employment
agreement with the Company. In connection with the Merger, he will enter
into an Employment Agreement ("Albert's Employment Agreement") with
terms consistent in all material respects with his current employment
relationship with the Company. The term of the Albert's Employment
Agreement is through December 31, 1999, with annual compensation of
$300,000, followed by a consulting agreement for three years thereafter
at annual compensation of $200,000. In addition, Albert J. Wozniak
is provided an expense allowance. A copy of Albert's Employment Agreement
is included in Annex I hereto.
The Company entered into a ten year employment agreement with James K.
Wozniak on March 1, 1998 (the "James Employment Agreement") which provides
that James Wozniak will be employed as Vice President and Chief Financial
Officer. James Wozniak's base compensation under the James Employment
Agreement is currently $125,000 per year and may be adjusted from time to
time by the Board of Directors. In addition, James Wozniak is entitled to
receive annual bonuses as determined by the Board. The Company may
terminate James Wozniak's employment only for cause. In the Merger
negotiations, the term of James Employment Agreement was reduced from
10 years to five years and the circumstances under which he can be
terminated have been expanded. A copy of James Employment Agreement
is included in Annex I hereto.
The compensation levels and employee benefit plans and programs for
Albert J. Wozniak and James K. Wozniak after the Merger are expected to be
no more favorable than those currently provided by the Company. It is not
anticipated that any director or officer of the Company will receive any
payment under any severance agreement as a result of the Merger.
Transactions with Affiliates
Steritek is owned approximately 67% by Albert J. Wozniak. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT". QPSI
is owned of record as follows: (i) 19.8% by Albert J. Wozniak; (ii) 29.2%
by Alan Wozniak (Albert J. Wozniak's son); and (iii) 51.0% by K.
Michael Ricketts (collectively, the "QPSI Shareholders"). In addition,
Albert J. Wozniak, Alan Wozniak and K. Michael Ricketts are equal members
in AAM Associates, L.L.C. ("AAM"), a limited liability company that owns
land and building that QPSI uses pursuant to a lease agreement.
If the proposed Merger is completed, the ownership of QPSI will be as
set forth in the preceding paragraph. Immediately following the Merger,
the QPSI Shareholders and QPSI will be free to enter into transactions
among themselves to alter the ownership and other interests each has in
QPSI. Following the Merger, Albert J. Wozniak and James K. Wozniak will
each have an employment or consulting agreement with QPSI and each expects
to become a member of the Board of Directors of QPSI.
On a limited basis during the past year, QPSI and Steritek have
transacted business with one another.
Indemnification
The Company is a New Jersey corporation. Section 14A:3-5 of the New
Jersey Business Corporation Act ("BCA") enables a corporation to indemnify
corporate agents, including directors and officers, against his expenses
and liabilities in connection with any proceeding involving the
corporate agent by reason of his being or having been such a corporate
agent, other than a proceeding by or in the right of the corporation, if
(a) such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of the corporation; and (b)
with respect to any criminal proceeding, such corporate agent had
no reasonable cause to believe his conduct was unlawful.
The Restated Certificate of Incorporation of the Company provides
that a director or officer of the Company shall not be personally liable
to the Company or its shareholders for damages for breach of any duty owed
to the Company or its shareholders, except for liability for any breach
of duty based upon an act or omission (a) in breach of such person's duty
of loyalty to the Company or its shareholders, (b) not in good faith
or involving a knowing violation of law or (c) resulting in receipt by
such person of an improper personal benefit. The By-Laws of the
Company provide for indemnification of each of the Company's directors
and officer to the full extent permitted by the BCA.
Such indemnification is further subject to the terms and conditions
set forth in the Merger Agreement, including but not limited to
the requirement that for at least four years after the Effective Time of
the Merger, QPSI will continue the policy of Director and Officer
Insurance ("D&O Insurance") currently held by the Company, or a
policy reasonably equivalent thereto.
PURPOSE OF THE MERGER
The purpose of the Merger is for QPSI to acquire the entire equity
interest in the Company and, thereafter, to continue its operations. In
connection with the Merger, (i) Acquisition will be merged with and into
the Company, with the Company being the Surviving Corporation of the
Merger, (ii) the Shareholders of the Company will exchange their Shares in
the Company for the Merger Consideration and (iii) the Company will
issue shares of its Common Stock to QPSI, thereby becoming a wholly-
owned subsidiary of QPSI.
The acquisition of the Company was structured to allow QPSI to
acquire for cash and the Note all Shares of the Company's Common Stock.
The Company's purpose in submitting the Merger to the vote of its
Shareholders with a favorable recommendation at this time is to allow
the Shareholders an opportunity to receive a cash payment at a fair price
in order to provide a prompt and orderly transfer of ownership of the
Company to QPSI and to provide the Shareholders (other than Albert J.
Wozniak) with cash for all of their Shares of the Company's Common Stock.
Except for the Merger, QPSI does not have any present plans that
relate to or would result in an extraordinary corporate transaction such
as a Merger, reorganization or liquidation involving the Company or a sale
or other transfer of a material amount of assets of the Company or any
changes in the Company's corporate structure or business. QPSI, however,
will continue to evaluate the business and operations of the Company after
the Merger and make such changes as are deemed appropriate.
In addition, QPSI does not have any present plans that relate to or
would result in a merger, reorganization or liquidation involving QPSI or
a sale or other transfer of a material amount of assets of QPSI or
its business. QPSI and Albert J. Wozniak have discussed, however, changes
in QPSI's corporate structure that would reduce Albert J.
Wozniak's participation in that company, as well as increasing James
K. Wozniak's participation in QPSI. QPSI may, upon the agreement of
the required parties, make such changes in its ownership structure as it
deems appropriate.
CERTAIN EFFECTS OF THE MERGER
Upon consummation of the Merger, each Shareholder (other than
Albert J. Wozniak) will be entitled to receive a payment in cash of $1.39
per Share, without interest. No shareholder will be entitled to
exercise appraisal rights pursuant to the BCA. The Shareholders, as of
the Effective Time of the Merger, will have no ownership interest in
the Company and will no longer participate in the future earnings
and potential growth of the Company. Albert J. Wozniak will continue to
be, and James K. Wozniak is expected to become, a shareholder of QPSI and,
therefore, will indirectly participate in the future earnings and
potential growth of the Company.
As a result of the Merger, the Company will become a privately held
corporation. From the Effective Time, price quotations with respect to
sales of Shares in the public market will no longer be available. The
registration of the Shares under the Exchange Act will terminate and
this termination will eliminate the Company's obligation to file
periodic financial and other information with the Commission and will
make certain of the provisions of the Exchange Act, such as the short-
swing profit recovery provisions of Section 16(b) and the requirement,
under the proxy rules of Regulation 14A, of furnishing a proxy or
information statement in connection with Shareholders meetings, no
longer applicable to the Company.
Pursuant to the terms of the Merger Agreement, the Board of Directors
and officers of the Company will remain the directors and officers of the
Surviving Corporation. However, because the Surviving Corporation will
then be a wholly-owned subsidiary of QPSI, it can be expected that QPSI
will replace the directors and officers of the Surviving Corporation.
PLANS FOR THE COMPANY AFTER THE MERGER
It is expected that following the Merger the business and operations
of the Company will, except as set forth in this Proxy Statement, be
conducted by the Surviving Corporation, as a wholly-owned subsidiary of
QPSI, as they are currently conducted.
Except as described in this Proxy Statement, QPSI does not have any
present plans or proposals that relate to or would result in an
extraordinary corporate transaction involving the Company's corporate
structure, business or management, such as a merger, reorganization,
liquidation, relocation of any operations of the Company or sale or
transfer of a material amount of assets other than the transactions
described in this Proxy Statement. However, the Board of QPSI will
continue to evaluate the business and operations of the Surviving
Corporation following the Merger and may propose or develop new plans
and proposals which they consider to be in the best interests of the
Surviving Corporation.
RISK THAT THE MERGER WILL NOT BE CONSUMMATED
Consummation of the Merger is subject to a number of conditions,
including those described in "THE MERGER--Conditions to the Merger."
QPSI has not yet obtained a commitment for the required financing.
The commitment, if received, can be expected to contain numerous
conditions. Therefore, even if the requisite Shareholder approval is
obtained, there can be no assurance that the all of the conditions in
the commitment will be met and that the Merger will be consummated.
It is expected that if the Merger Agreement is not adopted by the
Shareholders, or if the Merger is not consummated for any other reason,
the Company's current management, under the direction of the current
Board, will continue to manage the Company as an on-going business.
The Company may file a Form 15 under the Exchange Act with the Commission
to discontinue its reporting and certain of its other obligations
thereunder. No other transaction is currently being considered by the
Company as an alternative to the Merger.
THE COMPANY
DEVELOPMENT OF THE BUSINESS OF THE COMPANY
Steritek was organized under the name Plasmetics, Inc. on March 9,
1979 to develop, manufacture and market disposable biomedical devices for
therapeutic, diagnostic and other cardiovascular applications. In June
1983, Plasmetics, Inc. changed its name to CardioSearch Inc.
("CardioSearch"). On December 26, 1986, Steritek, Inc., a privately
held company principally engaged in providing contract packaging services
and promotional materials assembly for the pharmaceutical, medical,
health and beauty industries (since 1972), merged with and into
CardioSearch. For accounting purposes, the merger was accounted for as
a reverse acquisition by Steritek, Inc. because its shareholder, Albert
J. Wozniak, owned the majority of the outstanding shares of the
surviving corporation after the merger. Simultaneously with the
merger, CardioSearch changed its name to Steritek, Inc. and the directors
and officers of the former Steritek, Inc. became the directors and
officers of the surviving corporation. The principal business of the
former Steritek, Inc. became the principal business of the
surviving corporation.
The principal business of the Company is Contract Packaging, which
involves contract packaging services and promotional materials assembly
for manufacturers of products in the pharmaceutical, medical, personal
health and beauty industries (collectively, "health care"). The Company
is also engaged in the communication, on behalf of pharmaceutical
companies and others, of medically-oriented information to physicians
through the Company's Physicians Fax Network. Until October 6, 1995,
the Company, through its BioMedical Services business, was engaged in; (i)
the distribution of its proprietary intracranial pressure monitors, and
(ii) manufacturing and supplying products and accessories for
electron microscope laboratories (through its wholly owned
subsidiary, Sterimed, Inc.). The Company sold its BioMedical Services
business on October 6, 1995. The Company's strategy is to continue to
enhance its core business of contract packaging.
DESCRIPTION OF THE BUSINESS
Contract Packaging
The Company's contract packaging services are its principal business
activity. The Company believes that the packaging of a health care
product is an integral part of its efficacy, safety and consumer
acceptance. Although many manufacturers of health care products
include packaging as part of the manufacturing process, many of these
same manufacturers utilize the services of independent packaging companies
in certain circumstances. For example, sample distributions,
special promotions and less established products are typically
characterized by lower production volumes and special packaging needs.
In addition, new product introductions and times of peak demand may
require special packaging needs and/or additional packaging capacity.
Also, certain manufacturers may not have the necessary packaging equipment
or expertise to package certain of their products and may be unwilling
to devote the capital resources necessary to undertake packaging
them. In these circumstances, independent packagers often offer an
efficient, flexible and economical alternative to in-house packaging.
The Company provides a range of packaging services to its health care
customers. The Company packages health care products supplied to it in
bulk quantities by its customers in the form of finished products such
as feminine hygiene products, tablets, capsules, powders, patches,
ointments, lotions and liquids. The Company's packaging services
include pouch filling/sealing, blister and strip packaging, form fill
and seal, production of display units, shrink wrapping, over wrapping,
heat sealing, die cutting/laminating, tamper evident packaging, ink
jet labeling and bar coding. The Company's major customers currently
include Novartis Corporation (formerly Ciba-Geigy Corporation), Johnson
& Johnson, and American Home Products, and it has regularly performed
contract packaging services for SmithKline Beecham, Carter Wallace and
Conair.
The Company performs its packaging services at the direction of, and
according to the specifications of, its customer. The type of package
used typically depends on the nature of the product, its unit volume
and dosage and the manufacturing and marketing requirements of the
customer. Blister packaging consists of a plastic blister affixed to a
rigid or semi-rigid backing material, through which an individual dose
is expelled. 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. Tamper-evident and child-resistant features may take the form
of blister, shrink-wrap, over-wrap or other packaging.
After a health care product has been packaged by the Company, its
services often include inserting the products into folding cartons, set-up
boxes or other display units either produced by the Company or supplied by
the customer. The products are then either delivered to the customer or
into the customer's distribution system depending upon the customer's
instructions.
In general, health care packaging services are provided by the
Company to its customers on an "as-needed" basis, with customers
obtaining bids from several companies or selecting the Company without a
prior bidding process. Once selected by a manufacturer, the Company
typically performs packaging services for the manufacturer on a purchase
order by purchase order basis, and not pursuant to a long-term contract.
Each purchase order usually specifies a specific quantity of product to
be packaged in a particular manner and at a specified price and time.
The packaged product is usually returned to the manufacturer for
distribution and sale. The Company has no assurance that a customer
will continue to use its services after a particular purchase order is
filled. Continued use of the Company's services is often dependent on
a variety of factors, many of which are outside of the control of the
Company. These factors may include, for example, the demand for
the customer's product, the customer's inventory levels, and the
customer's use of internal or alternative packaging capabilities. Thus,
the Company's operating results can vary significantly from period to
period.
Contract packaging services represented approximately 90%, 88% and
96% of the Company's consolidated sales revenues from continuing
operations for the fiscal years ended June 30, 1998, 1997, and
1996, respectively. See Note 8 of the Notes to Consolidated
Financial Statements.
Physicians Fax Network
The Company, through its Physicians Fax Network ("PFN"), facilitates
the communication between certain health care companies, regulatory
agencies, and others, with physicians. Historically, this communication
has been accomplished by time consuming and costly mailings. The
Company, however, offers such persons the ability to send communications
to physicians, at their offices during off-peak hours, via
electronic facsimile transmission ("fax"), instead of the mail. This
procedure provides immediate and cost effective communication to
physicians, and also provides the sender with documentation that the
communication was sent and received. The PFN is able to broadcast
documents to hundreds of thousands of locations overnight. The fax
transmissions are executed by the Company through selected service
companies with whom the Company has an arrangement. The PFN business has
not contributed materially to the profitability of the Company since its
inception. As a condition to the Merger, QPSI has required that the
Company discontinue the operations of the PFN business. The Company
has agreed to do so.
The Company's Physician's Fax Network business represented
approximately 10%, 12% and 4%, of its consolidated sales revenues
from continuing operations for the fiscal years ended June 30,1998, 1997
and 1996, respectively.
QUALITY ASSURANCE
Assuring the quality of health care products and the packaging in
which they are sold is extremely important to the Company and its
customers. The Company stresses quality assurance in every aspect of
its operations through a "Quality Assurance Program" ("QAP"), which
involves every employee of the Company. QAP includes training for
all employees following the date of hire and semi-annually thereafter in
all aspects of the operations of the Company. The Company believes that
its QAP program is an essential component in providing the quality
assurance and service desired by its customers.
The Company's packaging facilities are inspected by the federal Food
and Drug Administration ("FDA") on a periodic basis as part of the
Company's routine regulatory compliance, and from time to time in
connection with the FDA approval process for new and amended
drug applications. 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 each customer's inspections
varying, depending on the particular customer and packaging service.
MARKETING
The Company markets its contract packaging services primarily through
the development of relationships with managers within the purchasing,
manufacturing, quality assurance, marketing and package development
departments of health care product manufacturers. These relationships are
fostered and maintained by the Company's management and sales force, as
well as by one or more representatives from the Company's manufacturing
and quality assurance operations. The Company's existing customers, as
well as potential new customers, are contacted on a regular basis by
the Company's management and by its sales force. The Company relies
on advertising and direct mail, as well as attendance at local and
national trade shows, as part of its marketing activities for its
contract packaging services.
CUSTOMERS
The Company's major customers of its contract packaging services
currently include Novartis Corporation, Johnson & Johnson and American
Home Products, and it has regularly performed contract packaging services
for SmithKline Beecham, Carter Wallace, and Conair. Consistent with
industry practice, the Company's customers purchase services on an as-
needed basis, typically pursuant to purchase orders, rather than
through long-term contracts.
For the fiscal year ended June 30, 1998, Novartis Corporation,
Johnson & Johnson and American Home Products each accounted for more than
10% of the Company's consolidated revenues. The loss of any of such
customers could have a material adverse effect on the Company's business.
For the fiscal years ended June 30, 1997 and 1996, Novartis
Corporation accounted for an aggregate of 42% and 49%, respectively,
and Johnson & Johnson accounted for an aggregate of 25% and 31%,
respectively, of the Company's sales from contract packaging services.
The Company's business with specific customers can vary significantly
from year to year.
No single customer accounts for more than ten percent of the Company's
business from the sale of its other products or services.
COMPETITION
Competition in the health care packaging industry is intense. The
Company believes that competition for 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 a broader range of integrated
packaging services, and a large number of companies that provide one or a
few types of packaging services. In addition, many manufacturers perform
some or all of their packaging at their own facilities and, as a result,
may be considered to be competitors of the Company. The Company
currently competes with companies that are larger and have much
greater resources than the Company.
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 health care manufacturers and the FDA,
and respond to the diverse and changing needs of the health care industry,
all at competitive prices.
GOVERNMENT REGULATION
The Company's health care 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
medical device manufacturer. The Company's facilities undergo general
FDA inspections every two years, the most recent of which occurred on May
14, 1997. In addition, the Company's facilities are subject to
limited inspections from time to time in connection with the Company
being named on a New Drug Application ("NDA") by a pharmaceutical
manufacturer as a potential independent packager. These inspections
review the Company's capacity to package the new drug in question. Only
those companies listed in an approved NDA may provide packaging services
with respect to the product. While the Company does not conduct
any independent analysis of the products provided by its customers
for packaging, rigorous controls are maintained to account for product
utilization.
If, for any reason, the Company were to fail to comply with the
requirements of the FDA, the Company could be subject to administrative
action ranging from written citations for minor infractions to plant
shutdowns in serious cases, which could have a material adverse affect on
the Company. 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. The Company believes that
it conducts its operations in compliance in all material respects with
all such rules and regulations.
The Company is subject to federal, state and local regulations
relating to the protection of the environment, but compliance with
these provisions has had no material effect upon the business or
financial position of the Company.
INVENTORY AND RAW MATERIALS
The Company's inventory for contract packaging services consists
primarily of plastic, aluminum foil, paperboard and corrugated cardboard
shipping cartons, as well as work in progress utilizing this inventory.
The Company does not maintain any significant finished goods inventory.
The Company purchases its raw materials, supplies and equipment from many
different suppliers and is not dependent upon any single supplier for its
requirements.
EMPLOYEES
As of January 1, 1999, the Company had approximately 200 employees,
of whom approximately 20 were engaged in executive, sales, technical and
administrative functions, and approximately 180 were engaged in
production. None of the employees at the Company's facilities are
represented by a union. The number of persons employed by the
Company fluctuates depending upon the volume of business. The
Company considers its employee relations to be generally satisfactory, and
has not experienced any work stoppages or labor shortages.
PROPERTIES
The Company leases 62,000 square feet of space for use as a packaging
facility, corporate headquarters and sales and administrative offices
located at 121 Moonachie Avenue, Moonachie, New Jersey 07074. Until
November 1997, the Company leased on a month-to-month basis a 28,000
square foot building located at 106 McLean Boulevard, Paterson, New
Jersey 07514, which housed packaging operations.
The Company believes that its present facilities are well maintained
and in good operating condition, and that such facilities are adequate for
all of the Company's reasonably foreseeable requirements.
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's financial position. The Company has never been subject to
any product liability claims.
THE MERGER
PARTIES TO THE TRANSACTION
Steritek, Inc.
121 Moonachie Avenue
Moonachie, New Jersey 07074
(201) 460-0500
Steritek is a New Jersey corporation engaged principally in the
business of contract packaging and promotional materials assembly for the
pharmaceutical, medical, personal health and beauty industries. Albert J.
Wozniak, Chairman, President and Chief Executive Officer of the Company,
owns approximately 2,436,490 shares (or approximately 67%), before
adjustment for unexercised stock options, of the issued and outstanding
Shares of Common Stock of Steritek. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Albert J. Wozniak and his
son, James K. Wozniak, Vice President and Chief Financial Officer of
the Company, are the only directors and officers of Steritek. See
"DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY." Steritek is subject to
the informational filing requirements of the Exchange Act. It is
obligated to file reports and other information with the Commission
relating to its business, financial statements and other matters.
Quality Packaging Specialists, Inc.
5 Cooper Street
Burlington, New Jersey 08016
(609) 293-0503
QPSI is a New Jersey corporation, organized on January 20, 1994,
engaged in the business of contract packaging and promotional
materials assembly. QPSI, as a member in good standing of the
National Minority Supplier Development Council, is entitled to
solicit contracts on the basis of being a minority owned business. QPSI
is owned of record by K. Michael Ricketts (51%), Alan Wozniak (29.2%) (the
son of Albert J. Wozniak) and Albert J. Wozniak (19.8%). K. Michael
Ricketts and Alan Wozniak are the only directors and officers of QPSI.
QPSI is privately held and is not subject to the informational
requirements of the Exchange Act. It is not obligated to file reports
and other information with the Commission relating to its business,
financial statements and other matters.
QPSI Steritek Acquisition, Inc.
5 Cooper Street
Burlington, New Jersey 08016
(609) 293-0503
Acquisition is a wholly-owned subsidiary of QPSI, organized December
3, 1998. It was formed solely for the purpose of effecting the
transactions proposed by the Merger Agreement. K. Michael Ricketts and
Alan Wozniak are the only directors and officers of Acquisition.
Acquisition is expected to merge with and into Steritek, with Steritek
being the surviving corporation. Following the effective time of the
Merger, Steritek will be a wholly-owned subsidiary of QPSI and the
separate existence of Acquisition will cease.
SUMMARY OF MATERIAL FEATURES OF THE TRANSACTION
The Merger Agreement provides for the merger of Acquisition with and
into Steritek. If the proposed Merger is completed, each issued and
outstanding share of Common Stock of Steritek will be converted into the
right to receive $1.39, and Steritek will issue 10,000 shares of its
Common Stock to QPSI. In the Merger, Steritek will be the
surviving corporation. After the Merger, Steritek will be a wholly-
owned subsidiary of QPSI.
As a result of the Merger, the Shareholders of Steritek will
surrender their Common Stock in Steritek. In exchange therefor,
the Shareholders of Steritek other than Albert J. Wozniak will receive
$1.39 in cash, without interest, in exchange for each Share of Steritek
Common Stock that they own. Albert J. Wozniak will receive $1.39 in
exchange for each Share of Steritek Common Stock that he owns, paid in
the form of at least $750,000 in cash and the balance by an 8%
Guaranteed Subordinated Promissory Note (the "Note"). After the Merger,
no Shareholder of Steritek will retain any equity interest in
Steritek. Albert J. Wozniak, however, will continue to own shares of QPSI
and James K. Wozniak is expected to become a shareholder of QPSI. Because
Steritek will be a wholly-owned subsidiary of QPSI, Albert J. Wozniak will
have, and James K. Wozniak is expected to have, an indirect continuing
interest in Steritek.
MERGER CONSIDERATION
Subject to certain provisions as described herein, each issued and
outstanding Share of Company Common Stock will be converted into the right
to receive, following the Merger, an amount equal to $1.39 (the "Merger
Consideration"). All Shareholders, other than Albert J. Wozniak, will be
paid his or her share of the Merger Consideration in cash. Albert J.
Wozniak will be paid his share of the Merger Consideration as follows:
(i) cash in an amount equal to $750,000 plus the amount, if any, by
which QPSI's borrowings from its senior lender (other than borrowing under
its working capital or equipment lines of credit) exceed the sum of
(A) $750,000, (B) the amount paid under the Merger Agreement to holders
of Steritek Common Stock other than Albert J. Wozniak, and (C) the amount
of such borrowings applied to refinance existing indebtedness of Steritek
and QPSI; and (ii) the balance shall be paid in the form of the Note,
which matures on November 1, 2004.
All Shares of Company Common Stock will automatically be canceled at
the Effective Time and the Company will issue new shares to QPSI and,
thereby, become a wholly-owned subsidiary of QPSI.
EFFECTIVE TIME
The Merger will become effective upon the filing of the Certificate
of Merger with the Secretary of State of the State of New Jersey or upon
such other date as is specified in such Certificate of Merger in
accordance with the BCA and as QPSI and the Company shall agree. It
is expected that the Effective Time will be the date of Closing of the
Merger, which is scheduled for March , 1999, or as soon thereafter as
is practicable. Subject to certain limitations, the Merger Agreement may
be terminated by either party if, among other reasons, the Merger has not
been consummated on or before April 15, 1999. See "THE
MERGER AGREEMENT--Conditions to the Merger" and "--Termination of the
Merger Agreement; Termination Fees."
CONVERSION OF STERITEK COMMON STOCK; PROCEDURES FOR EXCHANGE OF CERTIFICATES
At the Effective Time, Shares of Company Common Stock will be
converted into the right to receive the Merger Consideration.
As soon as practicable following the Effective Time, First City
Transfer Company, Edison, New Jersey (the "Exchange Agent") will send
a letter of transmittal to each holder of Company Common Stock. The
letter of transmittal will contain instructions with respect to the
surrender of certificates representing Shares of Company Common Stock
or fractions thereof in exchange for cash.
SHAREHOLDERS OF THE COMPANY SHOULD NOT FORWARD STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates at such time which prior thereto
represented Shares of Company Common Stock will, upon surrender to
the Exchange Agent of such certificate or certificates and acceptance
thereof by the Exchange Agent, be entitled to receive the
Merger Consideration. The Exchange Agent will accept such certificates
upon compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof in
accordance with normal exchange practices. After the Effective Time,
there will be no further transfer on the records of the Company or
its transfer agent of certificates representing Shares of Company Common
Stock which have been converted, in whole or in part, pursuant to the
Merger Agreement into the right to receive cash, and if such certificates
are presented to the Company for transfer, they will be canceled
against delivery of cash. Until surrendered as contemplated by the Merger
Agreement, each certificate for Shares of Company Common Stock will be
deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the Merger Consideration. No interest will
be paid or will accrue on any cash payable to Shareholders as
consideration in the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company has agreed to carry on
its business prior to the Effective Time in the usual, regular and
ordinary course of business consistent with past practice. At the request
of QPSI, and as a condition to the Merger, the Company has agreed,
however, to discontinue its Physicians Fax Network business prior to
the Effective Time of the Merger. See "THE MERGER AGREEMENT--Conduct of
the Company's Business Until the Effective Time; --Conditions to the
Merger."
CONDITIONS TO THE MERGER
The completion of the Merger depends upon meeting a number of
conditions. The obligations of Steritek, QPSI and Acquisition to effect
the Merger are subject to the fulfillment of each of the following
conditions (the "Mutual Conditions"): (a) all permits, approvals
and consents of any governmental body or agency necessary or appropriate
for consummation of the Merger shall have been obtained; (b) no
preliminary or permanent injunction or other order of a court or
governmental agency or authority in the United States shall have been
issued and be in effect, and no federal or state statute, rule or
regulation shall have been enacted or promulgated after December 4, 1998
and be in effect that prohibits the consummation of the Merger or
imposes material limitations on the ability of the Surviving Corporation
to exercise full rights of ownership of Steritek's assets or business;
(c) there shall not be any action or proceeding commenced by or before
any court or governmental agency or authority in the United States
that challenges the consummation of the Merger or seeks to impose
material limitations on the ability of the Surviving Corporation to
exercise full rights of ownership of the assets or business of Steritek;
(d) QPSI and Albert J. Wozniak shall have executed and delivered a
Consulting and Non-Competition Agreement; (e) QPSI and James K. Wozniak
shall have executed and delivered an Employment Agreement; (f) the
Disclosure Schedule and the QPSI Disclosure Schedule required by the
Merger Agreement shall be delivered in forms satisfactory to the
receiving parties; (g) the shareholders of QPSI shall have entered into
a shareholders agreement satisfactory to all shareholders of QPSI;(h)
Steritek shall have discontinued the operations of "Physicians' Fax
Network"; and (i) all vested options to purchase Steritek Common Stock
shall have either been converted into Steritek Common Stock or canceled.
In addition to the Mutual Conditions, the obligations of QPSI and
Acquisition to effect the Merger are subject to each of the following
conditions: (a) there shall not have occurred any material adverse change
in the business, financial condition, prospects, assets or operations of
Steritek since September 30, 1998; (b) the representations and warranties
of Steritek contained in the Merger Agreement shall be true and correct in
all material respects at and as of the date thereof and as of the
Effective Time of the Merger; Steritek shall have duly performed and
complied with all agreements, covenants and conditions required by the
Merger Agreement to be performed or complied with by it prior to or at
the Effective Time of the Merger and Steritek shall have delivered to QPSI
a certificate dated the Effective Time of the Merger and signed on behalf
of Steritek by its President to the effect set forth in this paragraph
(b); (c) all approvals or consents of any third party required for
the execution, delivery or performance of the Merger Agreement by
Steritek, as required to be disclosed on the Disclosure Schedule, shall
have been obtained and delivered to Steritek; (d) QPSI shall have received
a reasonably satisfactory financing commitment for the transaction in
a minimum amount of $2,200,000.00; and (e) QPSI shall have received a
legal opinion of Steritek's counsel reasonably satisfactory to QPSI's
counsel.
In addition to the Mutual Conditions, the obligations of Steritek to
effect the Merger are also subject to each of the following conditions:
(a)there shall not have occurred any material adverse change in the
business, financial condition, prospects, assets or operations of QPSI
or Acquisition since the date of the latest quarterly QPSI
Financial Statement; (b) the representations and warranties of QPSI
and Acquisition contained in the Merger Agreement shall be true and
correct in all material respects at and as of the date thereof and as of
the Effective Time of the Merger as if made at and as of the Effective
Time of the Merger; QPSI and Acquisition shall have duly performed
and complied with all agreements, covenants and conditions required by
the Merger Agreement to be performed or complied with by it prior to or at
the Effective Time; and QPSI and Acquisition shall have delivered to
Steritek a certificate dated the Effective Time and signed on its behalf
by its President to the effect set forth in this paragraph (a); (c)
all approvals or consents of any third party required for the execution,
delivery, or performance of the Merger Agreement by QPSI and Acquisition
shall have been obtained and delivered to the Steritek; (d) Steritek shall
have received the approval of its shareholders, to the satisfaction of
Steritek and its counsel, of the transactions contemplated by the
Merger Agreement; (e) QPSI and K. Michael Ricketts ("Michael") shall
have entered into a non-compete agreement, in form and substance
satisfactory to Albert J. Wozniak; (f) QPSI and Alan Wozniak ("Alan")
shall have entered into a non-compete agreement, in form and
substance satisfactory to Albert J. Wozniak; (g) Albert J. Wozniak shall
be released as a guarantor on all leases and bank debt of Steritek or
all leases and bank debt of Steritek guaranteed by Albert J. Wozniak shall
be repaid; (h) Michael and Alan shall have personally guaranteed the
Note; (i) Steritek shall have received a legal opinion of QPSI's
counsel reasonably satisfactory to Steritek's counsel; and (j) Steritek
shall have received a fairness opinion with respect to the
transactions contemplated by the Merger Agreement, from the person and in
form and substance reasonably satisfactory to Steritek and its counsel.
At any time prior to the Effective Time of the Merger, Steritek, on
the one hand, and QPSI and Acquisition, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of
the obligations or other acts of the other, (ii) waive any inaccuracies in
the representations and warranties made to it contained in the
Merger Agreement or in any document delivered pursuant thereto, and
(iii) waive compliance with any of the agreements or conditions for
the benefit of it contained therein. Any agreement on the part of a
party thereto to any such extension or waiver will be valid only if set
forth in an instrument in writing signed on behalf of such party.
FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION
The conversion of Shares at the Effective Time of the Merger into the
right to receive cash pursuant to the Merger will be a taxable transaction
for federal income tax purposes under the Internal Revenue Code of 1986,
as amended (the "Code"), and may also be a taxable transaction under
applicable state, local an other tax laws.
In general, a Shareholder will recognize gain or loss equal to the
difference between the tax basis of his Shares and the amount of cash
received in exchange therefor. Such gain or loss will be treated as
capital gain or loss if the Shares are capital assets in the hands of
the Shareholder.
The tax consequences described in the preceding paragraph may not
apply to (i) Shares acquired upon the exercise of incentive stock options
or otherwise as compensation, (ii) certain non-resident aliens and foreign
corporations and Shareholders who are otherwise subject to special tax
treatment under the Code, and (iii) Albert J. Wozniak, who intends to
utilize installment sale treatment with respect to gain realized upon
receipt by him of payments under the Note.
The federal income tax consequences set forth above are for general
information only. Each Shareholder is urged to consult his own tax
advisor to determine the particular tax consequences to him of the
Merger, including the applicability and effect of state, local and other
tax laws.
ANTICIPATED ACCOUNTING TREATMENT
The Company expects that the Merger will be accounted for in
accordance with the principles of purchase accounting.
REGULATORY REQUIREMENTS AND APPROVALS
The Company and the QPSI do not believe that any governmental
filings are required with respect to the Merger other than: (i) filing
a certificate of merger with the Secretary of State of New Jersey;
(ii) notification of the United States Department of Health and Human
Services, Public Health Service, Food and Drug Administration;
(iii) notification of the United States Department of Justice,
Drug Enforcement Administration; (iv) notification of the New
Jersey Department of Health and Senior Services, Consumer &
Environmental Health Services; and (v)complying with the applicable
requirements of the New Jersey Industrial Site Remediation Act, N.J.S.A.
13:1K-1, et seq. The Company and QPSI do not believe that any of the
governmental filings will delay the consummation of the Merger.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), prohibits certain transactions from occurring until
certain governmental approvals have been obtained. The Company and QPSI
do not believe that the HSR Act applies to the Merger, and they do not
expect to have any delays because of this law. However, the Department
of Justice and the Federal Trade Commission continue to have the authority
to challenge the Merger on antitrust grounds before or after the Merger
is completed.
EFFECT ON STOCK OPTIONS
The Merger Agreement requires Steritek, in good faith, to attempt to
cause all the holders of fully vested options to purchase Steritek Common
Stock ("Vested Options") pursuant to the Steritek Stock Option Plan, to
convert such options into Common Stock prior to the Effective Time and,
prior to the Effective Time, to cause the cancellation of any stock
options or rights other than the Vested Options.
There are currently 435,000 Company Stock Options outstanding, all of
which are fully vested and exercisable (including options held by the
Affiliated Shareholders). Of such Stock Options, options to purchase
75,000 shares of Common Stock held by Albert J. Wozniak are exercisable at
an option price of $1.50 per share, which is more than the
Merger Consideration of $1.39 per share. Albert J. Wozniak has stated
that he will not exercise those options at a price in excess of the
Merger Consideration per share. Accordingly, the Company expects that
all Vested Options (other than those held by Albert J. Wozniak at an
exercise price of $1.50 per share), which total 360,000, will be
exercised prior to the Effective Time of the Merger.
DEREGISTRATION OF STERITEK COMMON STOCK
Steritek has agreed in the Merger Agreement to file with the
Commission a Form 15, under the Exchange Act, to deregister the
Company's Common Stock. Steritek has not filed the Form 15 as of the
date hereof. Steritek's duty to file any reports required under Section
13(a) of the Exchange Act (for example, Annual Reports on Form 10-K
and Quarterly Reports on Form 10-Q) will be suspended immediately upon
the filing of a certification on Form 15. The termination of the
registration of Steritek's Common Stock can be expected to take effect 90
days after the filing of the Form 15.
MERGER FINANCING
Pursuant to the Merger Agreement, QPSI's obligation to consummate the
Merger is conditioned upon, among other things, $2,200,000 of financing
being obtained by it to consummate the transactions contemplated by the
Merger Agreement. QPSI has not yet obtained a commitment for the
required financing. The commitment, if received, can be expected to
contain numerous conditions. Therefore, even if the requisite
Shareholder approval is obtained, there can be no assurance that the all
of the conditions in the commitment will be met and that the Merger will
be consummated.
It is anticipated that borrowings for the transactions contemplated
by the Merger Agreement described above will be repaid from funds
generated internally by QPSI (including, after the Merger, funds generated
by the Company), or other sources. No decisions have been made concerning
the repayment of such borrowings and decisions will be based on QPSI's
review from time to time of the advisability of particular actions, as
well as on prevailing interest rates and financial and other
economic conditions.
The definitive agreements for the financing to be provided under the
commitment letter have not been reached. Accordingly, not all of the
terms of the financing have been finalized, and the provisions thereof
may change materially as a result of the negotiation of definitive
agreements. It is not a condition to the financing that definitive
agreements be entered into. In addition, it is anticipated that
the obligation of the lender to provide financing will be subject to
the satisfaction of certain other conditions, including among others,
the satisfaction of all conditions precedent to the Merger.
The definitive agreements for the financing are also expected to
contain numerous restrictive covenants, including covenants related to
capital expenditures, mergers and asset sales or purchases, incurrence of
debt obligations, liens and contingent obligations, termination, name
changes, transactions with affiliates, distributions and dividends and use
of proceeds. The definitive agreements also are expected to contain
standard event of default provisions, including, among other things,
payment defaults, misrepresentations covenant defaults, and other
material contracts, cross-defaults into other material indebtedness,
failure to have perfected liens of purported priority, bankruptcy
events, adverse judgments, and changes of control.
Other than as set forth above, no agreements, arrangements or
commitments relating to financing for the Merger have been executed or
made. If and when definitive agreements are executed, copies thereof will
be filed as exhibits in amendments to this Proxy Statement and Steritek
will disseminate to Shareholders a description of such agreements
and/or commitments if and to the extent required by Rules 14d-4(c)
and 14d-6(d) under the Exchange Act or otherwise.
STERITEK CAPITAL STOCK
Common Stock
The Company is authorized to issue up to 5,000,000 shares of Common
Stock, without par value. As of January 25, 1999, there were 3,636,285
shares of Common Stock outstanding, held of record by 128 shareholders.
Holders of Common Stock have one vote per share and do not have
cumulative voting rights for the election of directors. Subject to the
prior rights of the holders of any Preferred Stock that may be issued in
the future, the holders of the shares of Common Stock have equal,
ratable rights to dividends from funds legally available therefor, when,
as and if declared by the Board of Directors of the Company, and are
entitled to share ratably in all of the assets of the Company available
for distribution to holders of Common Stock upon the liquidation,
dissolution or winding up of the affairs of the Company. Holders of
Common Stock do not have preemptive, subscription or conversion rights.
There are no redemption or sinking fund provisions in the
Company's Certificate of Incorporation. The outstanding shares of Common
Stock are fully paid and nonassessable.
Preferred Stock
The Company is authorized to issue up to 2,000,000 shares of
Preferred Stock, without par value. As of January 25, 1999, there were
no shares of Preferred Stock issued. The issuance of shares of
Preferred Stock could adversely affect the rights of holders of Common
Stock and could be used by the Company as an anti-takeover device. The
Company has no present plans to issue any shares of Preferred Stock.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is authorized to determine the rights,
preferences, privileges and restrictions granted to and imposed upon any
series of Preferred Stock and to fix the number of shares of any series
of Preferred Stock and the designation of any such series.
Transfer Agent/Exchange Agent
The transfer agent for the Common Stock, and the Exchange Agent in
connection with the Merger, is First City Transfer Company, 505 Thornall
Street, Suite 303, Edison, New Jersey 08837.
FAIRNESS OPINION
On January 27, 1999, John Durkin Associates, LLC ("Durkin"), delivered
its written opinion to the Board to the effect that, as of the date of such
opinion and the date of the Merger Agreement, the $1.39 cash consideration
to be received by the Shareholders of the Company (other than the
Affiliated Shareholders) in the Merger is fair to such shareholders from
a financial point of view. In rendering its opinion, Durkin did not
make appraisals of the Company's assets in connection with its analyses of
the valuation of the Company. In addition, Durkin was not requested to
and did not solicit third parties who might be interested in acquiring all
or any part of the Company in connection with its investigation.
No limitations were imposed by the Board with respect to the
investigation made or the procedures followed by Durkin in rendering
its opinion. The Company and management cooperated fully with Durkin
in connection with its investigation.
REPORT FROM STERITEK'S FINANCIAL ADVISOR; FAIRNESS OF THE TRANSACTION
OPINION OF FINANCIAL ADVISOR
Pursuant to an engagement letter dated December 24, 1998 (the
"Engagement Letter"), the Board engaged Durkin to review and evaluate
the fairness, from a financial point of view, to the Shareholders of
the Company (other than the Affiliated Shareholders) of the proposed
acquisition of the Company by QPSI. Durkin is a financial consultant
and, as part of its activities, is continually engaged in the business
of advising companies on acquisition and disposition strategies and
valuations for existing business enterprises. Durkin has not
previously provided services to Steritek. The Board selected Durkin as
its financial advisor on the basis of its experience and expertise in
transactions similar to the Merger.
In connection with the consideration by the Board of the merits of
the Merger, Durkin was asked under the terms of the Engagement Letter
to perform various financial analyses and deliver to the Board its
opinion based on such analyses. On January 27, 1999 Durkin delivered
its opinion to the effect that the consideration to be received by
the Shareholders of the Company (other than the Affiliated Shareholders)
in the Merger is fair from a financial point of view (the "Durkin
Opinion").
THE FULL TEXT OF THE DURKIN OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS OF REVIEW BY DURKIN, IS ATTACHED
HERETO AS ANNEX II AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE
READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT. THE FOLLOWING SUMMARY OF THE DURKIN OPINION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE DURKIN OPINION. THE
DURKIN OPINION IS ADDRESSED TO THE BOARD ONLY AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY SHAREHOLDER OF THE COMPANY AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING.
In arriving at its opinion, Durkin, among other things: (i) reviewed
the Merger Agreement, dated December 4, 1998, the Note, Albert's
Employment Agreement and James' Employment Agreement; (ii) reviewed
Steritek's Annual Reports on Form 10-K filed with the Securities and
Exchange Commission for the years ending June 30, 1994 through June 30,
1998 and the Quarterly Reports on Form 10-Q filed with the Securities
and Exchange Commission for the quarter ended September 30, 1998;
(iii) reviewed the proxy statement of the most recent Shareholders'
Meeting held on April 9, 1998 as filed with the Securities and
Exchange Commission; (iv) reviewed historical financial results of
Steritek as supplied by the management of Steritek; (v) reviewed forecasts
and projections compiled by Lear & Pannepacker, Certified Public
Accountants; (vi) held meetings with Steritek's management regarding the
business, operations and prospects of Steritek; (vii) held discussions
with Steritek's independent accountants and other advisors; (viii)
performed due diligence, including a plant visit; (ix) performed
various valuation analyses, as Durkin deemed appropriate, of Steritek
using generally accepted methodologies, including (1) price earnings
ratios; (2) internal rate of return analysis; (3) liquidation valuation,
(4) leveraged buyout analysis and (5) a comparable industry
transactions analysis; (x) reviewed very limited historical trading prices
and volumes of Steritek's Common Stock; and (xi) performed such
other procedures as it deemed appropriate.
In its review and analysis and in formulating the Durkin Opinion,
Durkin assumed and relied upon the accuracy and completeness of
all information supplied or otherwise made available to it by the Company
or obtained by it from other sources, and upon the assurance of the
Company's management that they are not aware of any information or facts
that would make the information provided to Durkin incomplete or
misleading. Durkin did not independently verify such information. Durkin
did not undertake an independent appraisal of the assets or liabilities
(contingent or otherwise) of the Company, nor was it furnished with any
such appraisals. With respect to financial forecasts and projections of
the Company referred to in clause (v) above, Durkin was advised by
the Company, and Durkin assumed, without independent investigation, that
they were reasonably prepared and reflected the best currently
available estimates and judgments of management of the Company as to
the expected future financial performance of the Company.
Durkin noted that the Durkin Opinion was necessarily based upon
financial, economic, market and other conditions as they existed, and the
information made available to Durkin, as of January 27, 1999. Durkin
disclaimed any undertaking or obligation to advise any person of any
change in any fact or matter affecting the Durkin Opinion which may come
or be brought to its attention after the date of the Durkin Opinion.
Set forth below is a brief summary of selected analyses presented by
Durkin to the Board on January 29, 1999 in connection with the Durkin
Opinion.
PUBLIC MARKET FOR SHARES OF STERITEK
Steritek is a publicly traded company. There has been very little
activity in the trading of Steritek's Common Stock over the last several
years. In the last six months of 1998, less than 100,000 shares traded
in the open market. The only trade at greater than $3/4 was on December
28, 1998 at $13/16. This trade occurred subsequent to the announcement
of the proposed merger with QPSI, which is at $1.39 per share. As a
result of the limited reported trading of Steritek Common Stock in the
public market place, and considering the per share value of those
trades relative to the offer made by QPSI, Durkin gave no consideration,
in the overall valuation of Steritek, to the trading of Steritek's
Common Stock in the public market place, other than to recognize that
the offered price in the Merger is substantially more than any of the
publicly reported trades.
PRICE TIMES BOOK VALUE
Durkin analyzed the transaction on the basis of the "price times book
value" ratio. Durkin concluded that the Merger transaction, which is
priced at 2.7 times Steritek's book value, is fair when compared
to acquisition transactions of companies in the same industry. In
addition, Durkin concluded that when sales and earnings are averaged over
the last several years, the "price/sales" and "price/operating profit"
ratios also indicate the fairness of the proposed transaction.
No company used by Durkin in the above analysis as a comparison is
identical to the Company. Accordingly, an analysis of the results of the
foregoing involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies
and other factors that could affect the public trading value of the
companies to which the Company is being compared. Mathematical analysis
(such as determining average or a range) is not, in itself, a
meaningful method of using comparable company data.
COMPARABLE TRANSACTIONS ANALYSIS
Durkin identified two transactions, in particular, that he deemed
reasonably comparable to the proposed Merger. Durkin concluded that the
most significant gauge for the valuation of Steritek is an analysis of the
acquisition of Paco Pharmaceuticals Services, Inc. ("Paco") by West
Company, Inc. ("West") in April 1997. Durkin compared certain
valuation factors from that transaction to the valuation factors for
the proposed transaction between QPSI and Steritek. In particular,
he considered the following factors:
Paco Steritek
--------------- ---------------
Price/Book 1.40 2.70
Price/Sales - prior year .79 .64
Price/Sales - prior 3 yr average .77 .91
Price/Sales - prior 5 yr average .86 1.03
Price/Operating Income - prior year 11.50 6.10
Price/Operating Income - prior 3 yr average 8.90 52.90
Price/Operating Income - prior 5 yr average 10.00 N/A
Durkin considered that, in addition to pure size, there are several other
factors that indicate that Paco would have carried higher multiples than
Steritek. Paco had a thirty year history and employed six design and
engineering specialists, compared to only one such specialists at
Steritek. Paco had nine sales representatives with over 90 years
experience compared to two salesmen with limited experience at Steritek.
Paco provided services to 13 of the 16 largest pharmaceutical
companies, compared to only five for Steritek. Only one Paco
customer accounted for more than 10 percent of its total business compared
to the fact that three of Steritek's customers have accounted for
approximately 72% of packaging services revenues over the last three
fiscal years. Considering the comparative strength and diversity of
Paco to Steritek, Durkin concluded that the above financial comparisons
indicate that the price contemplated in the QPSI merger with Steritek is
fair.
Another transaction deemed reasonably comparable by Durkin was the
acquisition by Caraustar Industries, Inc. of General Packaging Services,
Inc. ("GPS")in March 1997. GPS had sales of approximately $12,000,000
per annum and a net book value of approximately $4,200,000. The purchase
price was approximately $10,300,000, representing a Price to Book Value of
2.5 and a Price to Sales of .86. Durkin noted that the similar ratios for
the proposed Steritek transaction are comparable when the last three years
of activity is considered.
No company or transaction used in the above analysis as a comparison
is identical to the Company or the Merger. Accordingly, an analysis of
the results of the foregoing involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the transaction multiples
for the companies to which the Company and the Merger are being compared.
Mathematical analysis (such as determining average or a range) is not, in
itself, a meaningful method of using comparable transaction data.
INTERNAL RATE OF RETURN ANALYSIS
Durkin reviewed cash flows from the projections compiled by Lear &
Pannepacker for the next three fiscal years and extended them for an
additional seven years on both reasonable and more optimistic assumptions.
Durkin then analyzed the projected cash flows required to provide rates of
return from 12% to 28% on the investment required in the contemplated
acquisition of Steritek by QPSI. Durkin noted that substantial cash flow
increases will be required by Steritek over the next ten years to provide
such returns. The most conservative approach provides for an annual return
on cash of 12% and the most optimistic for an annual return of 28%, based
upon a purchase price of $5,555,000. Durkin's calculations utilize price
to cash flow ratios in determining the value of Steritek ten years out
that are comparable to the price to cash flow ratios for the
industry represented by Caraustar, which range from a low of 7.7 to a high
of 22.7. Durkin concluded that the resultant calculated rates of return
are representative of expected rates of return on a transaction such as
the acquisition of Steritek.
Inherent in any internal rate of return valuation are the use of a
number of assumptions, including the accuracy of projections. Variations
in any of these assumptions or judgements could significantly alter
the results of an internal rate of return analysis.
INDUSTRY COMPARISONS
Durkin concluded that Steritek is in an industry that does not have
many counterparts that are public companies, and thus there is limited
public industry financial data. One company, Caraustar, is a
multifaceted packaging conglomerate with sales steadily increasing from
1993 through 1997 from $365,000,000 to $696,000,000. Operating
profit increased from $48,000,000 to $96,000,000 for the same period. On
the other hand, Steritek is much smaller, has had erratic revenues
and earnings, and has only obtained significant profitability in those
years when a large volume non-repeating specific purchase order was in
hand. Therefore, utilization of the public market place valuation ratios
of Caraustar puts the Steritek values that are computed when using
these Caraustar ratios at the higher end of the range of values for
Steritek. Caraustar is currently selling at. 2.76 times book value and
.91 of sales. The proposed acquisition of Steritek is at 2.7 times
book value and .91 of sales averaged over the past three years. It is
important to average the sales and profits of Steritek over a period that
reflects the occurrence of the larger non-repeating specific purchase
orders that have created the high profit years for Steritek. This
period appears to be three years. When the current Caraustar P/E ratio
of 13 is applied to the average EPS of Steritek over the last three years,
the share per value is calculated at $.65 as of June 30, 1998. Based on
the projections compiled by Lear & Pannepacker, Certified Public
Accountants, for the current year (ending June 30, 1998) and
historical earnings for the past two years, the price per share, based on
a three year trailing average EPS of Steritek and the Caraustar P/E of 13,
is $1.43. The proposed acquisition price is $1.39.
CARAUSTAR OFFER TO PURCHASE STERITEK
Durkin also considered one recent prior proposal regarding the
purchase of Steritek. In June of 1998, an initial proposal was made
to acquire Steritek by Caraustar. This preliminary offer was made as a
stock for stock transaction when Caraustar's stock was trading in the $30
to $32 range. In the ensuing two months, the trading value of Caraustar
stock dropped to the low $20's, a drop of over 30%. While the Board
of Directors of Steritek wished to pursue the transaction with
Caraustar, Caraustar withdrew its proposal which was valued at
$5,000,000. Durkin concluded that this recently proposed transaction
from an arm's-length and knowledgeable buyer provides a reasonable basis
for valuing Steritek in the $5,000,000 range.
LIQUIDATION VALUE
Durkin concluded that Steritek has a liquidation value of less than
book value. The deferred tax asset, of approximately $422,000, is
generally worthless in a liquidation, and management believes that the
fixed assets are carried on the balance sheet at close to their fair
market value. As a result, the liquidation value of Steritek's assets is
less than their book value, and the proposed transaction is at a multiple
of 2.7 times book value including the deferred tax asset.
LEVERAGED BUYOUT ANALYSIS
Durkin advised that a leveraged buyout is often times a way to
maximize current shareholder value. However, in this case, Durkin
concluded that financing from leveraging the assets would only be able
to provide funding for 35% of the acquisition price offered by QPSI.
OTHER ANALYSES
In rendering its opinion, Durkin considered certain other factors and
conducted certain other analyses. These analyses did not directly focus
on the Merger Consideration, but were undertaken to provide contextual
data and comparative market data to assist in assessing the Merger and
the market's evaluation of the Company.
The summary set forth above does not purport to be a complete
description of the presentation by Durkin to the Board or the
analyses performed by Durkin. The preparation of a fairness
opinion necessarily is not susceptible to partial analysis or summary
description. Durkin believes that such analyses and the summary set
forth above must be considered as a whole and that selecting portions of
its analyses and of the factors considered, without considering all such
analyses and factors, would create an incomplete view of the analyses set
forth in its presentation to Board. In addition, Durkin may have given
various analyses more or less weight than other analyses, and may have
deemed various assumptions more or less probable than other assumptions,
so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Durkin's view of the
actual value of the Company.
In performing its analyses, Durkin made numerous assumptions with
respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of the Company.
The analyses performed by Durkin are not necessarily indicative of
actual values or actual future results, which may be significantly more
or less favorable than suggested by such analyses. Such analyses
were prepared solely as part of Durkin's analysis of the fairness, from
a financial point of view, of the consideration to be received in the
Merger by the Company's Shareholders (other than the Affiliated
Shareholders) and were provided to the Board in connection with the
delivery of the Durkin Opinion. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be
sold or the prices at which any securities may trade at the present time
or at any time in the future. Durkin used in its analyses various
projections of future performance prepared or approved by the management
of the Company. The projections are based on numerous variables
and assumptions which are inherently unpredictable. Accordingly, actual
results could vary significantly from those set forth in such projections.
As described above, the Durkin Opinion and presentation to the Board
were among the many factors taken into consideration by the Company's
Board of Directors in making its determination to approve, and to
recommend that its Shareholders approve, the Merger.
Pursuant to the Engagement Letter, the Company has agreed to pay
Durkin a fee of $25,000 following the delivery of the Durkin
Opinion. Pursuant to a separate letter agreement, the Company has agreed
to indemnify Durkin, its affiliates, and their respective partners,
directors, officers, agents, consultants, employees and controlling
persons against certain liabilities, including liabilities under the
federal securities laws.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement, which is attached as Annex I to this Proxy Statement. Such
summary is qualified in its entirely by reference to the Merger Agreement.
THE MERGER
In accordance with the provisions of the Merger Agreement and the
BCA, at the Effective Time, Acquisition will be merged with and into
Steritek, and Steritek will be the surviving corporation in the Merger
and will continue its corporate existence under the laws of the State of
New Jersey. At the Effective Time, the separate existence of Acquisition
will cease. All properties, franchises and rights belonging to Steritek
and Acquisition, by virtue of the Merger and without further act or deed,
will be deemed to be vested in the Surviving Corporation, which
will thenceforth be responsible for all the liabilities and obligations
of each of Steritek and Acquisition. The name of the Surviving
Corporation will be "Steritek, Inc."
Steritek's Certificate of Incorporation, as amended, as in effect
immediately prior to the Effective Time will continue in full force and
effect as the Certificate of Incorporation of the Surviving Corporation
until altered or amended as provided therein or by law. Steritek's By-
Laws, as amended, in effect immediately prior to the Effective Time will
be the By-Laws of the Surviving Corporation until altered, amended or
repealed as provided therein or by law. The directors of Steritek
immediately prior to the Effective Time will serve as directors of
the Surviving Corporation following the Effective Time in accordance with
the Certificate of Incorporation and By-laws of the Surviving Corporation
and the BCA. The officers of Steritek immediately prior to the Effective
Time will serve in such capacities at the pleasure of the Board of
Directors of the Surviving Corporation following the Effective Time
in accordance with the Certificate of Incorporation and By-Laws of
the Surviving Corporation and the BCA.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and
warranties for a merger transaction. These representations and
warranties include those relating to organization and good standing, power
and authorization, SEC Documents, no conflicts, capitalization,
Company investments and subsidiaries, compliance with laws,
litigation, financial statements, accounts receivable, product design
warranties, real property, personal property, list of properties and
contracts, contracts, insurance, valid issuance of new Steritek common
stock, taxes, employee benefit plans, labor matters, directors officers
and employees, affiliate agreements, environmental matters, absence of
certain changes and events, books and records, brokers and full
disclosure. The Merger Agreement is attached as Annex I.
CONDITIONS TO THE MERGER
Under the Merger Agreement, the completion of the Merger is dependent
upon a number of conditions. Those conditions are described in "THE MERGER--
CONDITIONS TO THE MERGER."
NO SOLICITATION, ACQUISITION PROPOSALS
In the Merger Agreement, Steritek agreed not to directly or indirectly,
continue, encourage, solicit, initiate or participate in discussions or
negotiations with, or provide any nonpublic information to, any person
concerning any sale of assets (other than in the ordinary course of its
business consistent with past practice) or shares of capital stock of
Steritek or any merger, consolidation, recapitalization, liquidation or
similar transaction involving Steritek (collectively, a "Steritek
Acquisition Transaction"). Steritek agreed to promptly communicate to
QPSI the terms of any inquiry or proposal that it may receive in respect
of a Steritek Acquisition Transaction, to the extent it can do so
without breaching any confidentiality provision contained in such
proposal. Subject to any such confidentiality provision, any
notification must include the identity of the person making such proposal,
the terms of such proposal and any other information with respect thereto.
TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEES
The Merger Agreement may be terminated at any time prior to the
Effective Time: (a) by mutual agreement of QPSI, Acquisition and
Steritek; (b) by QPSI, if events have occurred which have made it
impossible to satisfy a condition precedent to QPSI's and Acquisition's
obligations to consummate the transactions described in the Merger
Agreement, unless QPSI's or Acquisition's breach of the Agreement has
caused the condition to be unsatisfied; (c) by Steritek, if events have
occurred which have made it impossible to satisfy a condition precedent
to Steritek's obligations to consummate the transactions described in
the Merger Agreement, unless Steritek's breach of the Agreement has caused
the condition to be unsatisfied; or (d) by Steritek or QPSI, upon notice
to the other, if the Merger shall not have become effective on or before
April 15, 1999 (unless such date is extended in writing by the
parties hereto), except that the right to terminate the Merger Agreement
is not available to any party whose failure to fulfill any obligation
under the Merger Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; (e) by QPSI,
upon notice to Steritek, if the Merger shall not have become effective on
or before March 1, 1999, unless the reason why the Merger has not
become effective is the failure of Steritek's Shareholders to approve
the Merger, in which case QPSI shall have no right to terminate the Merger
Agreement.
If Steritek terminates the Merger Agreement because events have
occurred which have made it impossible to satisfy a condition precedent
to Steritek's obligations to consummate the transactions described in
the Merger Agreement, (unless due to the nonsatisfaction of certain
conditions set forth Sections 5.01(a), (b) or (c), Section 5.03) or
6.01(d) of the Merger Agreement), in addition to any remedies available
to QPSI and Acquisition under the Merger Agreement or otherwise,
Steritek shall pay to QPSI a termination fee equal to $50,000.00 for
purposes of compensating QPSI for expenses and costs incurred in entering
into the Merger Agreement and pursuing the transactions contemplated by
the Merger Agreement.
In the event of the termination of the Merger Agreement, the
provisions of the Merger Agreement shall become void and have no effect,
with no liability on the part of any party hereto or its shareholders
or directors or officers in respect thereof, provided that nothing
contained in the Merger Agreement shall be deemed to relieve any party of
any liability it may have to any other party with respect to a breach of
its obligations, covenants, representations or warranties contained in
the Merger Agreement.
CONDUCT OF THE COMPANY'S BUSINESS UNTIL THE EFFECTIVE TIME
Pursuant to the Merger Agreement, the each party has agreed that from
the date thereof to the Effective Time, except with the prior written
consent of the other party, each party will: (i) carry on its business
in, and only in, the usual, regular and ordinary course, consistent with
past practice and in substantially the same manner as heretofore conducted
and, to the extent consistent with such business, use its best efforts
to preserve intact its present business organization, keep available
the services of its present officers and employees, and preserve
its relationships with customers, contractors, and others having business
dealings with it to the end that its goodwill and going business shall
be unimpaired at the Effective Time, (ii) promptly advise the other party
in writing of any material change in its financial condition,
operations, assets, prospects or business, (iii) not make any change in
it's authorized and issued capital stock; grant any stock option or
other right to purchase shares of it's capital stock or other
securities; issue or make any commitment to issue any security by
it, including any security convertible into capital stock; grant
any registration rights; or purchase, redeem, retire or make any
other acquisition of any shares of its capital stock or other securities,
(iv) not amend its certificate of incorporation or bylaws, (v) not take,
or permit to be taken, any action that is represented and warranted in
the Merger Agreement regarding "absence of certain changes" thereof not
to have been taken since September 30, 1998 and (vi) not enter into
any agreement or understanding to do or engage in any of the foregoing
actions described in (i) through (v).
INDEMNIFICATION
The Merger Agreement provides that all representations and warranties
contained in the Merger Agreement or in any document, certificate,
instrument, Schedule or Exhibit delivered in connection therewith, and
the rights of the parties to seek indemnification with respect
thereto, survive the consummation of the Merger for a period of two (2)
years following the Closing, except for the representations and
warranties contained in Sections 2.19 and 2.20 (relating to taxes and
employee benefit plans) which survive until the expiration of all statutes
of limitation applicable to claims relating to such representations and
the activities and omissions related thereto.
From and after the Closing, QPSI has agreed to indemnify Albert J.
Wozniak, and hold him harmless, against and in respect of any and all
damages, losses, liabilities, deficiencies, assessments, fines, judgments,
costs and other expenses (including, without limitation, reasonable legal
fees), arising from actions, suits, claims, proceedings, investigations,
audits or demands of third parties (collectively "Third Party Claims")
which Third Party Claims resulted from any misrepresentation, or any
breach of any warranty or of any covenant or agreement, on the part of
QPSI under the Merger Agreement. Anything in the foregoing to the
contrary notwithstanding, (i) QPSI will have no liability or obligation
to Albert J. Wozniak except to the extent that the amount thereof
exceeds $100,000 as to all events or occurrences in the aggregate and (ii)
the maximum aggregate liability of QPSI under this Agreement shall be
the lesser of $3,000,000 or the outstanding principal amount of the Note
at the time an indemnification payment is sought by Albert J. Wozniak.
From and after the Closing, Albert J. Wozniak has agreed to indemnify
QPSI, and hold QPSI harmless, against and in respect of (i)any and all
damage, loss, liability or deficiency resulting from any
misrepresentation, or any breach of any warranty or of any agreement
or covenant, on the part of Albert J. Wozniak or Steritek under the
Merger Agreement and (ii) any and all actions, suits, claims,
proceedings, investigations, audits, demands, assessments, fines,
judgments, costs and other expenses (including, without limitation,
reasonable legal fees) incident to any of the foregoing. Anything in
the foregoing to the contrary notwithstanding, (i) Albert will have
no liability or obligation to QPSI except to the extent that the amount
thereof exceeds $100,000 as to all events and occurrences in the
aggregate, (ii) the maximum aggregate liability of Albert J. Wozniak under
the Merger Agreement will be the lesser of $3,000,000 or the
outstanding principal amount of the Note at the time an
indemnification payment is sought by QPSI. All indemnification payments
of Albert J. Wozniak are to be paid to QPSI by set-off against the Note
as follows: (i) with respect to the first $100,000 in
indemnification payments, payments on the Note will be suspended up to the
amount equal to the indemnification payment, and (ii) with respect to
indemnification payments in excess of $100,000, payments on the Note shall
be reduced from the last payment going back up to the amount equal to the
indemnification payment.
In the event that any legal proceedings are instituted or that any
claim or demand is asserted against QPSI or Albert J. Wozniak in respect
of which payment may be sought from either of them under the
indemnification provisions of the Merger Agreement, the indemnified
party must promptly give written notice of the assertion of any claim of
which it or he, as the case may be, has knowledge which is covered by
the indemnity to the indemnifying party who will have the right,
without admitting liability for indemnification, at its or his option and
at its or his own expense, to be represented by counsel of its or his
choice and to defend against, negotiate, settle or otherwise deal with
any proceeding, claim or demand which related to any loss, liability,
damage or deficiency indemnified against thereunder. The parties have
agreed to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such legal proceeding, claim or demand.
No claim will, however, be settled without the written consent of the
indemnifying party, which consent can not be unreasonably withheld. After
any final judgment or award is rendered by a court, arbitration board or
administrative agency of competent jurisdiction, or a settlement is
consummated, or QPSI and Albert have arrived at a mutually binding
agreement with respect to each separate matter indemnified thereunder,
the indemnifying party will become liable to the indemnified party for
the sums so owing under such judgment, award or settlement in the manner
and to the extent of its or his liability. The indemnification provided
for includes reasonable legal and other costs incurred in defending
against or investigating any claims of liability, but the defense by
the indemnifying party of any action provided for will relieve
the indemnifying party of any obligation to reimburse the indemnified
party for any legal or other expenses thereafter incurred by the
indemnified party in respect of such action, notwithstanding any
participation by such indemnified party in such action.
OTHER MATTERS, GOING PRIVATE TRANSACTIONS
The Merger will have to comply with any applicable federal law
operative at the time of its consummation. The Commission has adopted
Rule 13e-3 under the Exchange Act which is applicable to certain
"going private" transactions. Rule 13e-3 requires, among other things,
that certain financial information and certain information relating to
the fairness of certain merger transactions and the consideration offered
to minority shareholders in such transactions, be filed with the
Commission and distributed to minority shareholders before the
consummation of the merger.
The Company, QPSI and Albert J. Wozniak have filed with the
Commission the Schedule 13E-3. The filing of the Schedule 13E-3 does
not constitute an admission by any person that the Schedule 13E-3 is
required or that Steritek, Albert J. Wozniak, QPSI or its affiliates
are subject to the requirements of Rule 13e-3 under the Exchange Act.
Such information, required by Rule 13e-3, will nonetheless be disseminated
to the Shareholders by Steritek in accordance with the Commission
Regulations.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information relating to the
directors, executive officers and certain significant employees of the
Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Albert J. Wozniak................... 61 Chairman, Chief
Executive Officer,
President
James K. Wozniak.................... 37 Director, Vice
President and
Secretary
</TABLE>
Each Director holds office until the earlier of the election of his
successor at the next annual meeting of shareholders or his resignation or
removal. Officers are elected by, and serve at the discretion of, the
Board of Directors. There are currently four vacancies on the Board
of Directors.
Mr. Albert J. Wozniak has been Chairman of the Board, Chief Executive
Officer and President of the Company since 1986. Albert J. Wozniak is the
father of both James K. Wozniak and Alan Wozniak (a principal shareholder,
director and executive officer of QPSI and Acquisition).
Mr. James K. Wozniak, a director of the Company since 1991, has been a
Vice President of the Company since 1991, and Secretary since 1992. James
Wozniak is the son of Albert J. Wozniak, and the brother of Alan Wozniak.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 25, 1999, certain
information with respect to the beneficial ownership of the Common Stock
of the Company as to each director and nominee of the Company, each
person known by the Company to own beneficially more than 5% of its
Common Stock, each executive officer, and all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Shares
Beneficially Percent
Name and Address Owned(1) Owned
---------------- ------------- ------
<S> <C> <C>
Albert J. Wozniak................... 2,651,490(2) 68.85%
Steritek, Inc.
121 Moonachie Ave.
Moonachie, NJ 07074
James K. Wozniak.................... 137,000(3) 3.63%
All directors and officers
as a group (2 persons)............ 2,788,490(4) 69.95%
</TABLE>
---------------------------
(1) Unless otherwise indicated, each named holder has, to the best
knowledge of the Company, sole voting and investment power with
respect to the shares.
(2) Includes 215,000 shares of Common Stock of the Company that
may be acquired within 60 days upon the exercise of options.
(3) Includes 135,000 shares of Common Stock of the Company that
may be acquired within 60 days upon the exercise of options.
(4) Includes 350,000 shares of Common Stock of the Company that
may be acquired by directors and officers within 60 days upon the
exercise of options.
SELECTED FINANCIAL DATA OF THE COMPANY
The following table presents summary historical financial data as
of the dates and for the periods indicated. The information in the
summary has been derived in part from, and should be read in conjunction
with, the consolidated financial statements, related notes and other
financial information included elsewhere in this report.
<TABLE>
STERITEK, INC. & SUBSIDIARY
SELECTED FINANCIAL DATA
<CAPTION>
For the Years Ended June 30,
----------------------------------------------------------
1998 1997 1996(1) 1995 1994
---------- ---------- ---------- ---------- ----------
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Sales $8,674,561 $4,907,504 $4,714,542 $5,095,103 $3,443,986
Costs of Sales 5,764,318 2,891,755 2,731,128 2,654,980 2,161,694
S G & A 2,003,603 2,200,257 2,392,864 1,975,165 2,095,596
Operating Income
(loss) 906,640 ( 184,508) (409,450) 464,958 (813,304)
Income (loss) from
contin. opertns 925,376 140,192 (523,882) 212,112 (1,037,968)
Income (loss) from
discont. operations - (67,427) 45,344 (66,738) (2,169)
Net Income(loss)(2) 925,376 72,765 (478,538) 145,374 (1,040,137)
Net Income (loss)
per share .26 .02 (.13) .04 (.29)
BALANCE SHEET DATA:
Assets $3,929,825 $2,955,033 $2,309,256 $2,977,254 $2,940,774
Assets transferred
under contractual
agreement 0 0 68,660 75,700 110,565
Net assets of
discont. operations 0 0 0 241,178 287,057
Current
Liabilities 1,046,698 1,105,567 666,964 862,899 1,097,977
Long-term debt
and capital lease
obligations,
excl. current
maturities 669,102 567,067 432,658 426,183 300,000
Shareholders'
Equity 2,214,025 1,282,399 1,209,634 1,688,172 1,542,798
Working Capital 1,242,944 711,045 344,973 435,939 327,135
- -----------------------------
</TABLE>
(1) On October 6, 1995, the Company sold all of the assets
used directly and exclusively in its ICP business and all
of its assets, subject to all of its liabilities, in its
EMS business (i.e., the BioMedical Services business).
The income statement for the years ended June 30, 1995,
1994 and 1993 have been restated and operating results
of the discontinued operations are also shown separately.
See Note 1 of the Notes to Consolidated Financial
Statements.
(2) In July 1991, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes." For the fiscal year ended June 30, 1994, the Company
adjusted the deferred tax asset, resulting in an increase in
net loss by $214,500 (($.06) per share). For the fiscal year
ended June 30, 1996, the Company adjusted the deferred tax
asset, resulting in an increase in net loss by $100,000
(($.03) per share). For the fiscal year ended June 30, 1997,
the Company adjusted the deferred tax asset, resulting in
a decrease in net loss by $361,400 ($.10 per share).
For the fiscal year ended June 30, 1998, the Company adjusted
the deferred tax asset, resulting in an increase in net
income by $555,300 ($.15 per share). See Note 9 of the
Notes to Consolidated Financial Statements.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Management's Discussion and Analysis of Financial Condition and
Results of Operations set forth below is based upon the restated income
statement for the year ended June 30, 1995 as a result of the October 6, 1995
sale by the Company of its BioMedical Services business. See Note 1 to the
Notes to Consolidated Financial Statements.
Year Ended June 30, 1998 as Compared to the Year Ended June 30, 1997
Revenues from continuing operations for the year ended June 30, 1998
increased to $8,674,561 from $4,907,504 for the same period in 1997. Revenues
for the year ended June 30, 1997 included $4,309,091 from contract packaging
and $598,413 from the Physicians Fax Network. Revenues for the year ended
June 30, 1998 included $7,841,233 from contract packaging and $833,328 from
the Physicians Fax Network. The increase in contract packaging revenues is
principally due to a higher level of contract packaging activity. The Company
has continued to aggressively market its contract packaging business and its
Physicians Fax Network.
The Company's cost of sales represented 58.9% of sales (or $2,891,755)
for the year ended June 30, 1997, as compared to 66.4% of sales (or
$5,764,318) for the year ended June 30, 1998. The increase in cost of sales,
as a percent of sales, is a result of the change in the mix of the products
packaged by the Company during the respective periods.
Selling, general and administrative expenses ("SG&A") for the year ended
June 30, 1997 was $2,200,257 (or 44.8% of sales), as compared to $2,003,603
(or 23.1% of sales) for the year ended June 30, 1998. The decrease in SG&A
is principally a result of the Company's overall cost reduction efforts.
Operating loss for the year ended June 30, 1997 was $184,508 as compared
to income of $906,640 for the year ended June 30, 1998. The increase in
operating income is principally attributable to the increase in contract
packaging activity.
In July 1991, the Company adopted Statement of Financial Accounting
Standards No. 109 ("FAS 109"), "Accounting for Income Taxes." The adoption
of FAS 109 changed the Company's method of accounting for income taxes from
the deferred method (Accounting Principles Board Opinion 11) to an asset and
liability approach. For the fiscal year ended June 30, 1998, the Company
adjusted the deferred tax asset, resulting in an increase in net income
by $555,300 ($.15 per share). See Note 9 to the Notes to Consolidated
Financial Statements.
There were no other material changes in the results of operations in the
Company's business.
Health care packaging services are typically provided by the Company to
its customers on an "as-needed" (purchase order-by-purchase order) basis, and
not pursuant to a long-term contract. Because of the nature of the contract
packaging business, the Company's operating results can vary significantly
from period to period.
Year Ended June 30, 1997 as Compared to the Year Ended June 30, 1996
Revenues from continuing operations for the year ended June 30, 1997
increased to $4,907,504 from $4,714,542 for the same period in 1996. Revenues
for the year ended June 30, 1996 included $4,145,242 from contract packaging
and $569,300 from the Physicians Fax Network. Revenues for the year ended
June 30, 1997 included $4,309,091 from contract packaging and $598,413 from
the Physicians Fax Network. The increase in contract packaging revenues is
principally due to a higher level of contract packaging activity. The Company
has continued to aggressively market its contract packaging business and its
Physicians Fax Network.
The Company's cost of sales represented 57.9% of sales (or $2,731,128)
for the year ended June 30, 1996, as compared to 58.9% of sales (or
$2,891,755) for the year ended June 30, 1997. The increase in cost of sales,
as a percent of sales, is a result of the change in the mix of the products
packaged by the Company during the respective periods.
Selling, general and administrative expenses ("SG&A") for the year ended
June 30, 1996 was $2,392,864 (or 50.7% of sales), as compared to $2,200,257
(or 44.8% of sales) for the year ended June 30, 1997. The decrease in SG&A
is principally a result of the Company's overall cost reduction efforts.
Operating loss for the year ended June 30, 1996 was $409,450 as compared
to a loss of $184,478 for the year ended June 30, 1997. The decrease in
operating loss is principally attributable to the decrease in SG&A.
Liquidity and Capital Resources at June 30, 1998
The Company's working capital on June 30, 1998 was $1,242,944. The
Company's working capital on June 30, 1997, was approximately $711,045. The
principal changes in the components of working capital are the increases in
cash and inventories as a result of the increased contract packaging activity.
On March 12, 1998, the Company executed a Note with the Bank of New York
in the amount of $785,000, payable over four years at a fixed interest rate
of 8.09%. The Note was issued to provide working capital and to refinance a
loan on June 17, 1997, in the amount of $700,000 from the Bank of New York,
payable monthly until June 17, 2002, at prime plus 1%. The proceeds of the
June 17, 1997 borrowing were used to retire prior indebtedness of the Company
and to provide working capital for operations. On April 13, 1998, the Company
executed an additional Note with the Bank of New York in the amount of
$146,000, payable over three years at a fixed interest rate of 8.09%. The
Note was issued to provide working capital to the Company.
On March 12, 1998, the Company obtained a line of credit from the Bank
of New York in the amount of $250,000, at prime plus 1/2%. The Company has
not drawn any funds on this line of credit as of the date hereof.
On April 30, 1997, the Company borrowed $50,000 from Albert J. Wozniak,
the Chairman and Chief Executive Officer of the Company. The loan bears
interest at 8.5% per annum, and is payable by the Company on demand. On May
31, 1997, the Company borrowed an additional $50,000 from Mr. Wozniak. The
May 31, 1997 loan bears interest at 8.5% per annum, and is payable by the
Company on demand. The loans were repaid during the fourth quarter of fiscal
year ending June 30, 1998. The proceeds of the loans were used by the Company
for working capital purposes.
The Company believes that funding for anticipated operations and
capital needs will come from existing working capital and anticipated
future operations.
<TABLE>
STERITEK, INC. & SUBSIDIARY
SELECTED FINANCIAL DATA
<CAPTION>
For the Three Months Ended September 30,
----------------------------------------
1998 1997
---------- ----------
OPERATING DATA:
<S> <C> <C>
Sales $1,617,634 $2,010,682
Costs of Sales 1,118,066 1,197,935
S G & A 632,252 621,618
Operating Income (loss) ( 132,684) 191,129
Income (loss) from
operations ( 150,693) 111,544
Net Income(loss) ( 150,693) 111,544
Net Income (loss) per share (0.04) .03
September 30, June 30,
1998 1998
---------- ----------
BALANCE SHEET DATA:
Assets $3,839,591 $3,929,825
Current Liabilities 1,107,157 1,046,698
Long-term debt and capital
lease obligations, excl.
current maturities 669,102 669,102
Shareholders' Equity 2,063,332 2,214,025
Working Capital 1,109,251 1,242,944
-----------------------------
</TABLE>
Three Months Ended September 30, 1998 as Compared to the Three Months Ended
September 30, 1997
Revenues for the three months ended September 30, 1998 decreased to
$1,617,634 from $2,010,682 for the same period in 1997. Revenues for the
three months ended September 30, 1998 included approximately: (i) $1,376,213
from contract packaging, as compared to $1,862,127 for the same period in
1997; and (ii) $241,421 from the Physicians Fax Network, as compared to
$148,555 for the same period in 1997. The decrease in contract packaging
revenues is principally attributable to the normal fluctuation in contract
packaging activity from period to period.
The Company's cost of sales represented 69.1% of sales (or $1,118,066)
for the quarter ended September 30, 1998, as compared to 59.6% of sales (or
$1,197,935) for the quarter ended September 30, 1997. The increase in cost
of sales, as a percent of sales, is a result of the change in the mix of the
products packaged by the Company during the respective periods.
Selling, general and administrative expenses ("SG&A") was 39.1% of sales
(or $632,252) for the quarter ended September 30, 1998, as compared to 30.9%
of sales (or $621,618) for the quarter ended September 30, 1997. SG&A
expenditures remained relatively constant during the two periods.
The Company earned a profit of $111,544 (or 5.5% of sales) for the
quarter ended September 30, 1997, as compared to an operating loss of
($150,693) for the quarter ended September 30, 1998. The loss is attributable
to the Company's lower first quarter revenues and lower margins resulting from
the change in product mix.
There were no other material changes in the results of operations in the
Company's business.
Health care packaging services are typically provided by the Company to
its customers on an "as-needed" (purchase order-by-purchase order) basis, and
not pursuant to a long-term contract. Because of the nature of the contract
packaging business, the Company's operating results can vary significantly
from period to period.
Liquidity and Capital Resources at September 30, 1998
The Company's working capital on June 30, 1998 was $1,242,944, as
compared to working capital of $1,109,251 on September 30, 1998. The decrease
in working capital is principally a result of the operating activities of the
Company during the first quarter.
On March 12, 1998, the Company executed a Note with the Bank of New York
in the amount of $785,000, payable over four years at a fixed interest rate
of 8.09%. The Note was issued to provide working capital and to refinance a
loan on June 17, 1997, in the amount of $700,000 from the Bank of New York,
payable monthly until June 17, 2002, at prime plus 1%. The proceeds of the
June 17, 1997 borrowing were used to retire prior indebtedness of the Company
and to provide working capital for operations. On April 13, 1998, the Company
executed an additional Note with the Bank of New York in the amount of
$146,000, payable over three years at a fixed interest rate of 8.09%. The
Note was issued to provide working capital to the Company.
On March 12, 1998, the Company obtained a line of credit from the Bank
of New York in the amount of $250,000, at prime plus 1/2%. The Company has
drawn $150,000 on this line of credit as of the date hereof.
The Company believes that funding for anticipated operations and
capital needs will come from existing working capital and anticipated
future operations.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market.
The market for the Company's Common Stock has been represented by low
volume and limited or sporadic trades. Consequently, there are no
relevant bid and asked prices for the Company's stock. Accordingly, a
table presenting the high and low bid and asked prices for the
Company's Common Stock (published by the National Quotation Service, Inc.)
has not been included.
There were 128 holders of record of the Company's Common Stock as of
January 25, 1999, which total does not include individual participants in
security listings.
The Company has not previously declared or paid any cash dividends on
its Common Stock. The Company currently anticipates retaining any
earnings for use in the operation and expansion of its business.
Therefore, it is unlikely that dividends will be declared in the
foreseeable future.
CERTAIN TRANSACTIONS IN THE COMMON STOCK
There were no transactions in the Shares that were effected in the
past 60 days by (i) the Company, (ii) any director or executive officer of
the Company, (iii) any persons controlling the Company, or (iv) any
director or executive officer ultimately in control of the Company or QPSI.
NO DISSENTING SHAREHOLDER RIGHTS
Neither the Merger nor any other matter to be acted upon at the
Special Meeting create any dissenting shareholders rights under the New
Jersey Business Corporation Act, N.J.S.A. 14A-1 et seq.
INDEPENDENT AUDITORS
The Board of Directors has selected I. Weismann Associates to serve
as independent accountant for the Company's fiscal year ending June 30,
1999. A representative of I. Weismann Associates is not expected to
be present at the Special Meeting of Shareholders.
MISCELLANEOUS
The Company does not know of any business other than that described
above to be presented for actions to the Shareholders at the meeting, but
it is intended that the proxies will be exercised upon any other matters
and proposals that may legally come before the meeting and any
adjournments thereof in accordance with the discretion of the persons
named therein.
A proposal of a security holder intended to be presented at the next
annual meeting of shareholders and to be included in the proxy statement
and form of proxy relating to that meeting must be received at the
Company's principal executive offices at 121 Moonachie Avenue, Moonachie,
New Jersey 07074, on or before September 30, 1998.
All documents subsequently filed by the Company with the Commission
prior to the date of the Special Meeting are hereby incorporated by
reference into this Proxy Statement.
<PAGE>
STERITEK, INC.
PROXY PRELIMINARY COPIES
------------------
The undersigned hereby appoints Albert J. Wozniak and James K. Wozniak,
and each of them, with full power of substitution as proxies for
the undersigned, to attend the Special Meeting of Shareholders of
Steritek, Inc. ("Company") to be held at the offices of the Company at
121 Moonachie Avenue, Moonachie, New Jersey 07074 on , March ,
1999 at 10:00 a.m. local time, and at any adjournment or postponement
thereof, and to vote the number of shares of Common Stock of the Company
that the undersigned would be entitled to vote, and with all the power
the undersigned would possess, if personally present, as follows:
1. The approval and adoption of an the Agreement and Plan of Merger,
dated December 4, 1998, among the Company; Albert J. Wozniak, the
principal shareholder of the Company; Quality Packaging
Specialists, Inc., a New Jersey corporation; and QPSI Steritek
Acquisition, Inc., a New Jersey corporation and wholly-owned
subsidiary of QPSI:
[ ] For [ ] Against [ ] Abstain
2. In their discretion, on such other business as may properly come before
the meeting or any adjournment thereof.
[ ] For [ ] Against [ ] Abstain
(Continued on the other side)
<PAGE>
(Continued from other side) PRELIMINARY COPIES
------------------
THE PROXIES WILL VOTE AS SPECIFIED ABOVE, OR IF A CHOICE IS NOT SPECIFIED,
THEY WILL VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
FOR THE PROPOSAL LISTED IN ITEM 2.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
Receipt of Notice of Special Meeting
of Shareholders and Proxy Statement
dated February , 1999 is hereby
acknowledged:
Dated: , 1999
Signature(s)
(Please sign exactly as your name or names
appear hereon, indicating where proper,
official position or representative capacity.)
<PAGE>
ANNEX I
-------
AGREEMENT AND PLAN OF MERGER
among
STERITEK, INC.,
ALBERT J. WOZNIAK,
QUALITY PACKAGING SPECIALISTS, INC. and
QPSI STERITEK ACQUISITION, INC.
Dated December 4, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") made and entered into
on this 4th day of December, 1998 by and among Steritek Inc., a New Jersey
corporation ("Steritek"), Quality Packaging Specialists, Inc., a New Jersey
corporation ("QPSI"), QPSI Steritek Acquisition, Inc., a New Jersey
corporation ("Acquisition") and Albert J. Wozniak ("Albert").
BACKGROUND
The parties desire that QPSI acquire Steritek by having Acquisition, a
wholly-owned subsidiary of QPSI, merge with and into Steritek upon the terms
and conditions set forth herein and in accordance with the laws of the State
of New Jersey.
NOW THEREFORE, in consideration of the mutual terms and conditions herein
contained, and intending to be legally bound, it is agreed between the parties
hereto as follows:
THE MERGER
1.01 Merger; Surviving Corporation. In accordance with the provisions
of this Agreement and the New Jersey Business Corporation Act ("NJBCA"), at
the Effective Time (as such term is defined in Section 1.05
hereof), Acquisition shall be merged with and into Steritek (the
"Merger"), and Steritek shall be the surviving corporation in the
Merger (hereinafter sometimes called the "Surviving Corporation") and
shall continue its corporate existence under the laws of the State of
New Jersey. At the Effective Time, the separate existence of
Acquisition shall cease. All properties, franchises and rights belonging
to Steritek and Acquisition, by virtue of the Merger and without further
act or deed, shall be deemed to be vested in the Surviving Corporation,
which shall thenceforth be responsible for all the liabilities and
obligations of each of Steritek and Acquisition. The name of the
Surviving Corporation shall be "Steritek, Inc."
1.02 Certificate of Incorporation. Steritek's Certificate of
Incorporation, as amended, as in effect immediately prior to the Effective
Time shall thereafter continue in full force and effect as the Certificate
of Incorporation of the Surviving Corporation until altered or amended as
provided herein or by law.
1.03 By-Laws. Steritek's By-Laws, as amended, in effect immediately
prior to the Effective Time shall be the By-Laws of the Surviving Corporation
until altered, amended or repealed as provided therein or by law.
1.04 Directors and Officers. The directors of Steritek immediately
prior to the Effective Time shall serve as directors of the Surviving
Corporation following the Effective Time in accordance with the Certificate
of Incorporation and By-laws of the Surviving Corporation and the NJBCA. The
officers of Steritek immediately prior to the Effective Time shall serve in
such capacities at the pleasure of the Board of Directors of the Surviving
Corporation following the Effective Time in accordance with the Certificate
of Incorporation and By-Laws of the Surviving Corporation and the NJBCA.
1.05 Effective Time. The Merger shall become effective upon the
acceptance for filing of a certificate of merger ("Certificate of Merger"), in
substantially the form attached hereto as Exhibit 1.05, by the Secretary of
State of the State of New Jersey in accordance with the provisions of the
NJBCA. The Certificate of Merger shall be executed by Steritek and
Acquisition and delivered to the Secretary of State of the State of New Jersey
for filing, as stated above, on the Closing Date provided for in Section
1.08(b). The date and time when the Merger shall become effective are
referred to herein as the "Effective Time."
1.06 Conversion of Steritek Shares. (a) At the Effective Time, each
share of Steritek Common Stock (defined below) issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holders thereof, be canceled and
converted into the right to receive an amount (payable in immediately
available U.S. dollars and, in the case of Steritek Common Stock owned by
Albert, payable as set forth in paragraph (b) below) equal to $5,555,155.40
divided by the total number of shares of Steritek Common Stock issued and
outstanding immediately prior to the Effective Time ("Merger Consideration").
The Merger Consideration shall be reduced by $50,000, allocable to the cash
portion thereof, if the Merger is not effective by March 15, 1999 and (i)
Steritek has not received the requisite shareholder approval of the
transaction as contemplated by Section 5.03 below, (ii) QPSI is not then in
material breach of any representation, warranty or covenant under this
Agreement and (iii) all contingencies within QPSI's reasonable control have
been satisfied or waived by Steritek.
(b) Albert shall be paid, in consideration for his shares of
Steritek Common Stock: (i) cash in an amount equal to $750,000 plus the
amount, if any by which QPSI's borrowings from its senior lender (other than
borrowing under its working capital or equipment lines of credit) exceed the
sum of (A) $750,000, (B) the amount paid hereunder to holders of Steritek
Common Stock other than Albert, and (C) the amount of such borrowings applied
to refinance existing indebtedness of Steritek and QPSI; and (ii) the balance
shall be paid in the form of a promissory note in the form attached hereto as
Exhibit 1.06, which shall mature on November 1, 2004 ("Albert's Note").
1.07 Consideration Paid to QPSI. In return for QPSI agreeing to merge
Acquisition into Steritek, at the Effective Time, Steritek shall issue 10,000
shares of Steritek Common Stock (the "New Steritek Common Stock") to QPSI.
1.08 Exchange of Certificates; Closing. (a) At or promptly following
the Closing provided for in paragraph (b) below, upon surrender of the stock
certificates representing the Steritek Common Stock by the stockholders of
Steritek (the "Steritek Stockholders") for cancellation, together with any
other required documents, the Steritek Stockholders shall receive the Merger
Consideration. Until such certificates are surrendered, outstanding
certificates formerly representing shares of Steritek Common Stock shall be
deemed for all purposes as being canceled and only evidencing the right to
receive the Merger Consideration into which such shares have been converted
as though said surrender and exchange had taken place. In no event will a
holder of shares of Steritek Common Stock be entitled to interest on the
Merger Consideration issuable in respect of such shares.
(b) The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place on the later of (a) the tenth business day
after the date on which Steritek stockholder approval is obtained, as
contemplated by Section 4.02 hereof, or (b) the third business day after
satisfaction or waiver of the latest to occur of the conditions set forth in
Section 5 hereof (the "Closing Date"), at the offices of Drinker Biddle &
Reath, 105 College Road East, Princeton, New Jersey, or such other date and
place as the parties shall agree. The parties intend that the Closing shall
occur on March 1, 1999.
REPRESENTATIONS AND WARRANTIES OF STERITEK
Steritek and Albert, jointly and severally, represent and warrant to
QPSI and Acquisition that the statements contained in this Section 2 are
correct and complete as of the date hereof, except as set forth in the
disclosure schedule delivered by Steritek to QPSI and Acquisition as of the
date hereof (the "Disclosure Schedule").
2.01 Organization and Good Standing. Steritek is a corporation duly
organized, validly existing and in good standing under the laws of the State
of New Jersey and has all necessary corporate power and authority to carry on
its business, to own and lease the assets that it owns and leases and to
perform all its obligations under each agreement and instrument by which it
is bound. Steritek is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each jurisdiction identified in the
Disclosure Schedule, which includes each jurisdiction in which its ownership
or leasing of assets or properties or the nature of its activities requires
such qualification
2.02 Power and Authorization. Steritek has full legal right, power and
authority to enter into and perform its obligations under this Agreement and
under the other agreements and documents (the "Steritek Transaction
Documents") required to be delivered by it prior to or at the Closing. The
execution, delivery and performance by Steritek of this Agreement and the
Steritek Transaction Documents have been duly authorized by the Board of
Directors of Steritek. This Agreement has been duly and validly executed and
delivered by Steritek and constitutes Steritek's legal, valid and binding
obligation, enforceable against Steritek in accordance with its terms, and
when executed and delivered as contemplated herein, each of the Steritek
Transaction Documents shall constitute the legal, valid and binding obligation
of Steritek, enforceable against Steritek in accordance with its terms, except
as such enforceability of this Agreement or any Steritek Transaction Document
may be limited by bankruptcy, insolvency, moratorium, reorganization or other
similar laws relating to or affecting the enforcement of creditors' rights
generally, and except that the availability of specific performance,
injunctive relief or other equitable remedies is subject to the discretion of
the court before which any such proceeding therefor may be brought.
2.03 SEC Documents. Steritek has filed all required reports, schedules,
forms, statements and other documents with the SEC since June 30, 1996 (the
"SEC Documents"). As of their respective dates, to Steritek's knowledge, the
SEC Documents complied in all material respects with the requirements of the
Securities Act of 1933 (the "Securities Act"), or Securities the Exchange Act
of 1934 (the "Exchange Act"), as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC
Documents. None of the SEC Documents at the time they were filed
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they
were made, not misleading. Except as described in the Disclosure
Schedule, Steritek is in material compliance with all applicable federal
and state securities laws.
2.04 No Conflicts.
(a) Except as described in the Disclosure Schedule, the execution,
delivery and performance of this Agreement and the Steritek Transaction
Documents do not and will not (with or without the passage of time or the
giving of notice):
(i) violate or conflict with any provision of the certificate
of incorporation or bylaws of or of any law, statute, regulation, Permit (as
defined in Section 2.07(b) hereof), license, certificate, judgment, order,
award or other decision or requirement of any arbitrator, court, government
or governmental agency or instrumentality (each, a "Law" and collectively,
"Laws") binding upon Steritek;
(ii) violate or conflict with, result in a breach of, or
constitute a default or otherwise cause any loss of benefit under any material
agreement or other material obligation to which Steritek is a party or by
which Steritek or its assets are bound, or give to others any rights
(including rights of termination, foreclosure, cancellation or acceleration)
in or with respect to Steritek or any of its assets; or
(iii) result in, require or permit the creation or imposition
of any restriction, mortgage, deed of trust, pledge, lien, security interest
or other charge, claim or encumbrance of any nature upon or with respect to
Steritek Common Stock, Steritek or any of its assets.
(b) To Steritek's knowledge, there are no judicial, administrative
or other governmental actions, proceedings or investigations pending or
threatened, that question any of the transactions contemplated by this
Agreement or the validity of this Agreement or any of the other agreements or
instruments contemplated hereby or which, if adversely determined, would have
an adverse effect upon Steritek's ability to enter into or perform its
obligations under this Agreement or any of the other agreements or instruments
contemplated hereby. Steritek has not received any request from any
governmental agency or instrumentality for information with respect to the
transactions contemplated hereby.
2.05 Capitalization. Steritek's authorized capital stock consists of
5,000,000 shares of common stock, no par value (the "Steritek Common Stock"),
and 2,000,000 shares of preferred stock, no par value (the "Steritek Preferred
Stock"), of which (i) 3,636,285 shares of Steritek Common Stock are issued and
outstanding, (ii) no shares of Steritek Preferred Stock are issued and
outstanding and (iii) 500,000 shares of Steritek Common Stock are reserved for
issuance pursuant to Steritek's employee stock option plan (the "Steritek
Option Plan"), of which, options to purchase 435,000 shares of Steritek Common
Stock are outstanding. Except as disclosed in this Section 2.05, Steritek has
not issued any preemptive or other rights with respect to any such capital
stock or securities and there are no offers, options, warrants, rights,
agreements or commitments of any kind (contingent or otherwise) relating to
the issuance, conversion, registration, sale or transfer of any equity
interests or other securities of Steritek or obligating Steritek or any other
person to purchase or redeem any such equity interests or other securities.
All of the issued and outstanding shares of Steritek Common Stock have been
duly authorized and are validly issued and outstanding, fully paid and
nonassessable, and have been issued in compliance with applicable securities
and other Laws. Steritek represents and warrants that the total number of
record owners of Steritek Common Stock is less than 300.
2.06 Company Investments and Subsidiaries. Except as disclosed on the
Disclosure Schedule, Steritek does not own, control or have any investment or
other interest in any corporation, partnership, joint venture, business trust
or other entity, and Steritek has not agreed, contingently or otherwise, to
share any profits, losses, costs or liabilities, or to indemnify any person
or entity or to guaranty the obligations of any person or entity.
2.07 Compliance with Laws.
(a) Except as described in the Disclosure Schedule, to Steritek's
knowledge, Steritek is, and has been for the past three (3) years, in
compliance with all applicable Laws, except where noncompliance would not have
a material adverse effect on the business, properties, profits, prospects or
condition (financial or otherwise) of Steritek (a "Material Adverse Effect"),
and Steritek does not have any basis to expect, and has not received any
notice, order or other communication from any governmental agency or
instrumentality of, any alleged, actual, or potential violation or failure to
comply with any Law. To Steritek's knowledge, there are no unsatisfied
judgments, penalties or awards against or affecting Steritek or any of its
businesses, properties or assets.
(b) To Steritek's knowledge, all federal, foreign, state, local and
other governmental consents, licenses, permits, franchises, grants and
authorizations required to be obtained and held by Steritek for the operation
of its business as currently conducted and as conducted since June 30, 1995
(collectively, "Permits") are, except as otherwise described in the Disclosure
Schedule, in full force and effect without any default or violation thereunder
by Steritek or, to the knowledge of Steritek, by any other party thereto
(except where the failure to have such a Permit in full force and effect or
where any default or violation thereunder would not have a Material Adverse
Effect), and Steritek has not received any notice of any claim or charge that
Steritek is or had been in violation of or in default under any such Permit.
Except as described in the Disclosure Schedule, to Steritek's knowledge: (i)
no proceeding is pending or threatened by any person to revoke or deny the
renewal of any Permit of Steritek; and (ii) Steritek has not been notified
that any such Permit may not in the ordinary course be renewed upon its
expiration or that by virtue of the transactions contemplated hereby any such
Permit may not be granted or renewed.
(c) Steritek is registered and in good standing with the federal
Food and Drug Administration ("FDA") as a pharmaceutical packager and medical
device manufacturer. Steritek's operations have been and are now conducted
in compliance with the Current Good Manufacturing Practices standards of the
FDA, except where noncompliance would not have a Material Adverse Effect. The
most recent inspection by the FDA of Steritek facilities occurred on May 14,
1997. Steritek does not have any basis to expect, and has not received any
notice, order or other communication from the FDA, or any other governmental
agency or instrumentality, of, any alleged, actual, or potential violation or
failure to comply with the FDA's rules and regulations, including without
limitation the FDA's Current Good Manufacturing Practices.
2.08 Litigation. Except as described in the Disclosure Schedule or the
Financial Statements (as defined in Section 2.09 hereof), there are no, and
since the date of the Interim Balance Sheet (as defined in Section 2.09
hereof) there have not been any, claims, actions, suits, proceedings
(arbitration or otherwise) or investigations involving or affecting Steritek,
its businesses or assets, or its directors, officers or shareholders in their
capacities as such, before or by any court or governmental agency or
instrumentality, or before an arbitrator of any kind. Any description set
forth on the Disclosure Schedule pursuant to this Section 2.08 with respect
to any such claims, actions, suits, proceedings or investigations shall
include, to the extent applicable, the name of the court or agency in which
the proceedings are pending, the date instituted, the principal parties
thereto, a description of the factual basis alleged to underlie the proceeding
and the relief sought. To the knowledge of Steritek, (a) no such claims,
actions, suits, proceedings or investigations are presently threatened or
contemplated and (b) there are no facts that could reasonably serve as a basis
for any such claim, action, suit, proceeding or investigation.
2.09 Financial Statements.
(a) The Disclosure Schedule contains: (i) the balance sheet of
Steritek as at June 30, 1998 (including the notes thereto, the "Balance
Sheet"), and the related statements of income, changes in stockholders' equity
and cash flow for the fiscal year then ended, together with the report thereon
of I. Weismann Associates, independent certified public accountants (the
"Audited Financial Statements"); and (ii) an unaudited balance sheet of
Steritek as at September 30, 1998 (including the notes thereto, the "Interim
Balance Sheet") and the related unaudited statements of income, cash flow for
the three months then ended, including in each case all notes thereto (the
financial statements referred to in this clause (ii) being referred to
collectively as the "Interim Financial Statements" and the financial
statements referred to in clauses (i) and (ii) above being referred to
collectively as the "Financial Statements"). The Financial Statements and
notes accurately and fairly reflect the books and records of Steritek and
fairly present the financial condition, cash flow and results of operations
of Steritek as at the respective dates thereof and for the periods therein
referred to, all in accordance with generally accepted United States
accounting principles, consistently applied ("GAAP"), subject, in the case of
the Interim Financial Statements, to normal recurring year end adjustments
(the effect of which will not, individually or in the aggregate, be material)
and the absence of notes (which, if presented, would not differ materially
from those included in the Audited Financial Statements).
(b) The Balance Sheet and the Interim Balance Sheet reflect all
material known liabilities of Steritek, whether absolute, accrued or
contingent, as of the respective dates thereof of the type required to be
reflected or disclosed in a balance sheet (or the notes thereto) prepared in
accordance with GAAP. Steritek does not have knowledge of any material
liabilities of any nature that are not reflected on the Interim Balance Sheet
except for liabilities disclosed on the Disclosure Schedule and for current
liabilities (within the meaning of GAAP) that have been incurred since the
date thereof in the ordinary course of business consistent in nature and
amount with past practice and that are not inconsistent with any of the
representations and warranties contained herein, and, to the knowledge of
Steritek, there is no basis for the assertion against Steritek of any
liability (other than current liabilities referred to above) not fully
reflected or reserved against in the Interim Balance Sheet.
(c) The Balance Sheet and the Interim Balance Sheet reflect
reserves or other appropriate provisions at least equal to reasonably
anticipated liabilities, losses and expenses of Steritek as of the respective
dates thereof, including those with respect to income and other taxes
(including alternative minimum tax), warranty claims, bad debts, unsalable
inventories, vacation pay, and plans and programs for the benefit of present
and former employees (including, without limitation, plans and programs
relating to medical coverage for employees).
2.10 Accounts Receivable. All accounts and notes receivable of Steritek
represent valid obligations from sales made or services rendered in the
ordinary course of business and in the aggregate have been or will be
collected in full in the ordinary course of business, without any setoff or
discount, except to the extent of any reserves for possible losses set forth
on the Interim Balance Sheet and any adjustments made to such reserve by
Steritek after the date of the Interim Balance Sheet in accordance with
Steritek's policies and in a manner consistent with past practices. The
Disclosure Schedule includes a correct and complete accounts and notes
receivable aging of Steritek as of the date of the Interim Balance Sheet,
reflecting the designated and undesignated reserves for possible losses as of
such date and the aggregate dollar amount of all accounts and notes receivable
due Steritek that have been outstanding for: 60 days or less; more than 60
but less than 90 days; more than 90 but less than 120 days; more than 120 but
less than 150 days; and more than 150 days.
2.11 Product Design; Warranties. Except as described in the Disclosure
Schedule: (a) Steritek has not expressly agreed to become responsible for
consequential damages or made any express warranties to third parties with
respect to any products created, manufactured, sold, distributed or licensed,
or any services rendered, by Steritek; and (b) to the knowledge of Steritek,
Steritek has no implied warranties outstanding with respect to any such
products or services other than any such implied pursuant to Sections 2312 and
2314 of the Uniform Commercial Code.
2.12 Real Property. The Disclosure Schedule identifies each interest
in real property leased by Steritek, including a listing of all leases and
other agreements under which any such property is held. Steritek does not own
or have any other interest in real property other than pursuant to the leases
referred to above. Steritek owns all right, title and interest in all
leasehold estates and other rights purported to be granted to them by the
leases and other agreements listed in the Disclosure Schedule, in each case
free and clear of any restriction, mortgage, deed of trust, pledge, lien,
security interest or other charge, claim or encumbrance of any nature except
for liens and restrictions described in said Schedule. All of the buildings
and structures constituting the premises leased by Steritek are structurally
sound with no known defects, are in good operating condition and repair
(ordinary wear and tear excepted) and are suitable for the purposes for which
they are being used. To Steritek's knowledge, no such building or structure,
or any appurtenance thereto or equipment therein, or the operation or
maintenance thereof by Steritek, violates any restrictive covenant or any
provision of any Law (including without limitation any such relating to health
and safety or zoning), which violation interferes with the use of such
building, structure or appurtenance, or encroaches on any property owned by
others. To Steritek's knowledge, no condemnation proceeding is pending or
threatened with respect to any real property identified in the Disclosure
Schedule.
2.13 Personal Property. Except as described in the Disclosure Schedule:
(a) Steritek has good and marketable title to all of its properties and assets
(other than real property) free and clear of any restriction, mortgage, deed
of trust, pledge, lien, security interest or other charge, claim or
encumbrance of any nature; and (b) all properties and assets owned or leased
by Steritek are in the possession or under the control of Steritek and are in
good condition and repair, ordinary wear and tear excepted, are suitable for
the purposes for which they are being used, and are of a condition, nature and
quantity sufficient for the conduct of Steritek's business as it is presently
conducted.
2.14 List of Properties, Contracts, etc. The Disclosure Schedule
contains, lists or adequately describes the following:
(a) each vehicle, item of machinery, equipment and other
tangible asset (other than real property) carried as an asset on the records
of Steritek with a fair market or book value in excess of $25,000 in respect
of any item, and the location thereof;
(b) each vehicle, item of machinery, equipment and other
tangible asset (other than real property) leased to or by Steritek under
agreement providing for annualized payments of more than $25,000, together
with the location of such asset, the identities of the lessor and lessee, the
annual rental and unexpired term of the lease;
(c) each Permit;
(d) each (i) fictitious business name, tradename, registered and
unregistered trademark, service mark and related application (collectively,
"Marks"), (ii) patent, patent right and patent application (collectively,
"Patents"), (iii) copyright in published and material unpublished works
("Copyrights"), computer program and software ("Software"), (iv) proprietary
formula, trade secret, formulation and unpatented invention ("Trade Secrets")
and (v) licenses and permits issued or granted by any person relating to any
of the foregoing (the items referred to in clauses (i)(iv) above are
collectively referred to herein as ("Intellectual Property"); in each case
owned, leased, used or held by, granted to or licensed by Steritek as licensor
or licensee (excluding non-critical, off-the-shelf application software
licensed by Steritek and software imbedded in machinery or equipment, which
software is owned or used by Steritek and is licensed for use by Steritek in
conjunction with its ownership or use of said equipment or machinery),
together with all other interests therein granted by Steritek to any other
person and all agreements with respect to any of the foregoing to which
Steritek is a party (including secrecy and nondisclosure agreements with
current or former employees, consultants or contractors);
(e) each agreement or commitment that restricts or purports to
restrict Steritek's business activities or the freedom of Steritek to engage
in any business or to compete with any person;
(f) each outstanding loan or advance in excess of $5,000
(excluding advances for ordinary and necessary business expenses, receivables
generated in connection with Steritek's bona fide sales of products and
services, and prepaid, in each case made or generated by Steritek in the
ordinary course of business consistent with past practices) by Steritek to any
person (including any stockholder and any director, officer, or employee of
Steritek);
(g) each contract, agreement, purchase order or other commitment
(whether or not in writing) involving the performance of services or delivery
of goods or materials by or to Steritek (i) outside of the continental United
States of America, (ii) of an aggregate amount or value in excess of $50,000
in any 12- month period or (iii) which is not terminable by Steritek without
payment of penalty or premium on 30 days notice or less;
(h) each capital project currently undertaken or which has been
approved by Steritek;
(i) each evidence of indebtedness, note, advance, guaranty or
letter of credit entered into, issued or to be issued, contingently or
otherwise, by, to or from Steritek, and all loan and other agreements relating
thereto;
(j) each restriction, deed of trust, pledge, lien, security
interest or other charge, claim and encumbrance of any nature relating to or
affecting any of the assets or properties of Steritek;
(k) each contract, agreement or commitment to which Steritek is
a party or is otherwise bound providing for payments to or by any person or
entity based on sales, purchases or profits, other than direct payments for
goods, and each other agreement to which Steritek is a party or is otherwise
bound that is material to its business, operation, financial condition or
prospects;
(l) each policy and binder of insurance (including without
limitation, property, casualty, liability, life, health, accident, workers'
compensation and disability insurance and bonding arrangements) owned by, or
maintained for the benefit of, or the premiums for which are paid directly or
indirectly in whole or in part by, Steritek;
(m) each form of contract, agreement or commitment used by
Steritek as a standard form in the ordinary course of business;
(n) each outstanding power of attorney or similar power granted
by Steritek for any purpose whatsoever; and
(o) each bank or other financial institution in which Steritek has
a deposit account, line of credit or safe deposit box, the relevant account
or other identifying number, and the names of all persons authorized to act
or deal in connection therewith.
Steritek has furnished and will furnish or make available to QPSI true
and complete copies of each agreement, plan and other document required to be
disclosed on the Disclosure Schedule.
2.15 Contracts. Each of the material contracts, agreements and
commitments to which Steritek is a party or by which it or its assets are
bound was made in the ordinary course of business and is in full force and
effect and is valid, binding and enforceable in accordance with its terms
against Steritek and, to the knowledge of Steritek, the other parties thereto.
Except as described in the Disclosure Schedule, Steritek has performed all
obligations required to be performed by it under each such contract, agreement
and commitment through the date hereof, and no condition exists or event has
occurred that with notice or lapse of time would constitute a material default
or a basis for delay or nonperformance by Steritek or, to Steritek's
knowledge, by any other party to any such contract, agreement or commitment,
except where such failure in performance or condition would not have a
Material Adverse Effect.
2.16 Insurance.
(a) The summary of the policies and binders of insurance contained
in the Disclosure Schedule identifies, among other things: (i) the respective
issuers and expiration dates thereof; (ii) deductible amounts and amounts of
coverage available and outstanding thereunder; (iii) whether such policies and
binders are "claims made" or "occurrences" policies; and (iv) any
retrospective premium adjustments. Such policies and binders are sufficient
for compliance with all requirements of Laws and all agreements to which
Steritek is a party or by which it or its assets are bound, are valid and
enforceable policies and will not be affected by, terminate or lapse prior to
the Closing by reason of the transactions contemplated by this Agreement.
(b) Steritek has not received (i) any notice of cancellation of any
policy or binder of insurance required to be identified in the Disclosure
Schedule or refusal of coverage thereunder; (ii) any notice that any issuer
of such policy or binder has filed for protection under applicable bankruptcy
or insolvency laws or is otherwise in the process of liquidating or has been
liquidated; or (iii) any other indication that any such policy or binder may
no longer be in full force or effect or that the issuer of any such policy or
binder may no longer be willing or able to perform its obligations thereunder.
2.17 Valid Issuance of New Steritek Common Stock. The New Steritek
Common Stock, when issued and delivered in accordance with the terms hereof,
will be duly and validly issued, fully paid and nonassessable and free of
restrictions on transfer other than restrictions on transfer under applicable
state and federal securities laws, and will be free of any liens or
encumbrances other than those created by or imposed upon QPSI through no
action of Steritek or Albert. None of the New Steritek Common Stock is
subject to any preemptive rights or rights of first refusal except as have
been waived or satisfied.
2.18 Customers and Suppliers. Except as provided on the Disclosure
Schedule, no customer that accounted for more than of 5% of the revenues of
Steritek during 1998 has terminated or materially reduced, or has given notice
that it intends to terminate or materially reduce, the amount of business done
with Steritek. Except as provided on the Disclosure Schedule, no supplier or
vendor that accounted for more than $50,000 of the purchases of Steritek
during 1998 has terminated or materially reduced, or has given notice that it
intends to terminate or materially reduce, the amount of business done with
Steritek. Except as provided on the Disclosure Schedule, Steritek is not
aware of any such intention on the part of any such customer, supplier or
vendor. Except as disclosed on the Disclosure Schedule, there are no, and
since June 30, 1995 there have not been any, disputes or controversies
involving, in the aggregate, more than $5,000 between Steritek and any
customer, supplier or other person regarding the quality, merchantability or
safety of, or involving a claim of breach of warranty that has not been fully
resolved with respect to, or defect in, any service or product purchased or
sold by Steritek. Steritek is satisfied with its working relationships under
all arrangements and agreements with customers and suppliers necessary to the
normal operation of its businesses. Alternative sources of supply, on
substantially similar terms and conditions, exist for all material goods or
services purchased by or supplied to Steritek.
2.19 Taxes.
(a) All federal, state, local and foreign returns and reports
relating to Taxes (as defined herein), or extensions relating thereto,
required to be filed by or with respect to Steritek (including, without
limitation, all federal and state consolidated and combined tax returns and
reports for any consolidated group of which Steritek has been a member during
the last five years (the "Consolidated Group")) during the past six years have
been timely and properly filed, and all such returns and reports are correct
and complete in all material respects.
(b) All federal, state, local, and foreign income, profits,
franchise, sales, use, payroll, premium, occupancy, property, severance,
excise, withholding, customs, unemployment, transfer and other taxes,
including interest, additions to tax and penalties (collectively "Taxes")
shown to be due on any return referred to in Subsection (a) above by Steritek
with respect to taxable periods ending on or prior to, and the portion of any
interim period up to, the date hereof have been fully and timely paid or, in
the case of Taxes not yet due, fully provided for on the Interim Balance Sheet
or, in the case of Taxes accruing after the date of such financial statement,
on the books of account of Steritek; and there are no levies, liens, or other
encumbrances relating to Taxes existing, threatened or pending with respect
to any asset of Steritek, other than statutory liens for taxes not yet due and
payable.
(c) Except as described in the Disclosure Schedule, no issues have
been raised with any representative or employee of Steritek (and are currently
pending) by the Internal Revenue Service ("IRS") or any other taxing authority
in connection with any of the returns and reports referred to in subsection
(a) above and no waivers of statutes of limitations have been given or
requested with respect to any such returns and reports or with respect to any
Taxes.
(d) Except as set forth on the Disclosure Schedule, to the
knowledge of Steritek, no federal, state, local or foreign income, franchise
or sales and use tax returns of or with respect to Steritek have been examined
since 1995, or are currently under examination, by the IRS or by other taxing
authorities, or with respect to which the applicable statue of limitations
(including all extensions and tolling periods) has not yet run. There are no
unpaid deficiencies asserted or assessments made by any taxing authority
against Steritek.
(e) Steritek uses the accrual method of accounting for federal
income tax purposes. Steritek has not: (i) filed any consent under section
341(f)(1) of the Code, or agreed to have the provisions of Code section
341(f)(2) apply to any dispositions of "subsection (f) assets" as such term
is defined in Code section 341(f)(4); (ii) agreed to or is required to make
any adjustments under Code section 481(a) by reason of a change in accounting
method or otherwise; or (iii) made a transfer of intangible property on which
Code section 367(d) or 482 will require the recognition of additional income
for any period after the date hereof. Steritek does not own stock in a
"passive foreign investment company" within the meaning of Code section
1296(a). The books and records of Steritek are sufficient to prove the
correctness of all tax returns for open tax years and to determine and to
prove the adjusted tax basis for federal income tax purposes of each asset of
Steritek.
(f) Steritek is not obligated to make any payments that would
constitute an "excess parachute payment" as defined in Code section 280G.
Steritek is not a party to any tax sharing agreement or tax indemnification
agreement.
2.20 Employee Benefit Plans.
(a) The Disclosure Schedule contains a complete and correct list
of all employee benefit plans, arrangements, commitments and payroll practices
(whether or not employee benefit plans ("Employee Benefit Plans") as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), including, without limitation, sick leave, vacation pay,
severance pay, salary continuation for disability, consulting or other
compensation arrangements, retirement, deferred compensation, bonus, incentive
compensation, stock purchase, stock option, health including hospitalization,
medical and dental, life insurance and scholarship programs maintained for the
benefit of any employees of Steritek or any ERISA Affiliate (as defined below)
or to which Steritek or any ERISA Affiliate has contributed or is or was
within the last six years obligated to make payments. Steritek has delivered
or made available to QPSI, with respect to all benefit plans, arrangements,
commitments or payroll practices required to be listed on the Disclosure
Schedule, true, complete and correct copies of the following: all plan
documents, handbooks, manuals, collective bargaining agreements and similar
documents governing employment policies, practices and procedures; all the
most recent summary plan descriptions and any subsequent summaries of material
modifications and all other material employee communications discussing any
employee benefit; Forms series 5500 as filed with the IRS for the most recent
three plan years; the most recent report of the enrolled actuary for all
defined benefit plans, funded welfare plans or other plans requiring actuarial
valuation; all trust agreements with respect t employee benefit plans; plan
contracts with service providers and plan contracts with insurers providing
benefits for participants or liability insurance for fiduciaries and other
parties in interest or bonding; most recent annual audit and accounting of
plan assets for all funded plans; and most recent IRS determination letter for
all plans qualified under Code section 401(a). As used herein, "ERISA
Affiliate" shall refer to any trade or business, whether or not incorporated,
under common control with Steritek within the meaning of Section 414(b), (c),
(m) or (o) of the Code.
(b) With respect to each Employee Benefit Plan required to be
listed on the Disclosure Schedule: (i) each Employee Benefit Plan has been
administered in compliance with its terms and is in compliance in all material
respects with the applicable provisions of ERISA, the Code and all other
federal, foreign, state and other applicable laws, rules and regulations, as
they relate to such plan (including, without limitation, funding, filing,
termination, reporting and disclosure and continuation coverage obligations
pursuant to Section 601 et seq. of ERISA); (ii) Steritek and each ERISA
Affiliate has made all contributions to all Employee Benefit Plans as required
under the terms of such Plans; (iii) no "Employee Pension Benefit Plan" (as
defined in Section 3(2) of ERISA) has been the subject of a "reportable event"
(as defined in Section 4043 of ERISA) and there have been no "prohibited
transactions" (as described in Section 4975 of the Code or in Part 4 of
Subtitle B of Title I of ERISA) with respect to any Employee Benefit Plan;
(iv) there are and during the past three years there have been no inquiries,
proceedings, claims or suits pending or, to the knowledge of Steritek,
threatened by any governmental agency or authority or by any participant or
beneficiary against any of the Employee Benefit Plans, the assets of any of
the trusts under such Plans or the Plan sponsor or the Plan administrator, or
against any fiduciary of any of such Employee Benefit Plans with respect to
the design or operation of the Employee Benefit Plans; (v) the actuarial
present value of accumulated benefits (both vested and unvested) of each of
the Employee Pension Benefit Plans, which are defined benefit plans, are fully
funded in accordance with the actuarial assumptions used by the Pension
Benefit Guaranty Corporation ("PBGC") to determine the level of funding
required in the event of the termination of such Plan; (vi) each Employee
Pension Benefit Plan that is intended to be "qualified" within the meaning of
Section 401(a) of the Code is, and has from its inception been so qualified,
both in form and in operation, and any trust created pursuant to any such
Employee Pension Benefit Plan is exempt from federal income tax under Section
501(a) of the Code and the IRS has issued each such Plan a favorable
determination letter which is currently applicable; and (vii) Steritek nor,
to the knowledge of Steritek, any ERISA Affiliate is aware of any circumstance
or event which would jeopardize the tax qualified status of any such Employee
Pension Benefit Plan or the tax exempt status of any related trust, or would
cause the imposition of any liability, penalty or tax under ERISA or the Code
with respect to any Employee Benefit Plan.
(c) Neither Steritek nor any ERISA Affiliate maintains or has ever
maintained or been obligated to contribute to a "Multiemployer Plan" (as such
term is defined by Section 4001(a)(3) of ERISA).
(d) With respect to each Employee Benefit Plan maintained by
Steritek or any ERISA Affiliate: (i) no unsatisfied liabilities to
participants, the IRS, the United States Department of Labor ("DOL"), the PBGC
or to any other person or entity have been incurred as a result of the
termination of any Employee Benefit Plan; (ii) no Employee Pension Benefit
Plan, which is subject to the minimum funding requirements of Part 3 of
subtitle B of Title I of ERISA or subject to Section 412 of the Code, has
incurred any "accumulated funding deficiency" within the meaning of Section
302 of ERISA or Section 412 of the Code and there has been no waived funding
deficiency within the meaning of Section 303 of ERISA or Section 412 of the
Code; (iii) there has been no event with respect to an Employee Pension
Benefit Plan that would require disclosure under Sections 4062(c), 4063(a) or
4041(e) of ERISA.
(e) All reports and information required to be filed with the DOL,
IRS and PBGC and with plan participants and their beneficiaries with respect
to each Employee Benefit Plan required to be listed on the Disclosure Schedule
have been filed and all annual reports (Form 5500 series) of such Plans were
certified without qualification by each Plan's accountants and actuaries. Any
annual reports that are not yet due but are required to be filed with respect
to a plan year that ended on or prior to the Closing Date shall be filed by
Steritek before the Closing Date.
(f) Except as set forth on the Disclosure Schedule, all Employee
Benefit Plans, arrangements, commitments, and payroll practices required to
be listed on the Disclosure Schedule have been administered in compliance with
federal, state, and local law, including, but not limited to, the Americans
with Disabilities Act, the Age Discrimination in Employment Act, and the
Family and Medical Leave Act, except where noncompliance would not have a
Material Adverse Effect.
(g) Except as set forth on the Disclosure Schedule, all Employee
Benefit Plans, arrangements, commitments, and payroll practices required to
be listed on the Disclosure Schedule and all other Employee Benefit Plans
currently maintained by Steritek or an ERISA Affiliate may, without liability,
be amended, terminated or otherwise discontinued.
(h) Any bonding required under ERISA with respect to any Employee
Benefit Plan required to be listed on the Disclosure Schedule and any other
Employee Benefit Plan currently maintained by Steritek or an ERISA Affiliate
has been obtained and is in full force and effect and no funds held by or
under the control of Steritek are plan assets.
(i) Except as set forth on the Disclosure Schedule, neither
Steritek nor any ERISA Affiliate maintains any retiree life and/or retiree
health insurance plans that provide for continuing benefits or coverage for
any employee or any beneficiary of an employee after such employee's
termination of employment, other than as required by Section 601 et seq. of
ERISA.
(j) Except as set forth on the Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any person to severance pay, an excess parachute payment within the
meaning of Section 280G of the Code, (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due to any such employee or
(iii) result in any liability under Title IV of ERISA or otherwise.
2.21 Labor Matters.
(a) No application for certification of a collective bargaining
agent is pending and none of the employees of Steritek are, or have ever been,
represented by any union or other bargaining representative; there has not
been, and there is not currently pending, any labor arbitration or proceeding
in respect of the grievance of any employee, any application or complaint
filed by any employee or union with the National Labor Relations Board or any
comparable state or local agency, any strike, slowdown, picketing or work
stoppage by any employees at any facility of Steritek, any lockout of any such
employees or any labor trouble or other labor related controversy, occurrence
or condition of a similar character; no agreement restricts Steritek from
relocating, closing or terminating any of its operations or facilities; and
to the knowledge of Steritek, no such agreement, action, proceeding or
occurrence is threatened or contemplated by any person.
(b) Except as described in the Disclosure Schedule, Steritek has
not been cited for violations of the Occupational Safety and Health Act of
1970, 29 U.S.C. sec. 651 et seq. ("OSHA"), any regulation promulgated pursuant
to OSHA, or any other statute, ordinance, rule, or regulation establishing
standards of workplace safety or paid any fines or penalties with respect to
any such citation. Except as described in the Disclosure Schedule: (i) since
January 1, 1996, there have been no inspections of any of the facilities of
Steritek by representatives of the Occupational Safety and Health
Administration or any other government agency vested with authority to enforce
any statute, ordinance, rule or regulation establishing standards of workplace
safety; (ii) to the knowledge of Steritek, no representative of the
Occupational Safety and Health Administration or any other such government
agency has attempted to conduct any such inspection or sought entry to any of
such facilities for that purpose; (iii) Steritek has not been notified of any
complaint or charge filed by any employee or any labor union or other employee
representative with the Occupational Safety and Health Administration or any
other such government agency that alleges that Steritek has violated OSHA or
any other statute, ordinance, rule or regulation establishing standards of
workplace safety; (iv) Steritek has not been notified that any employee, labor
union or other employee representative has requested that the Occupational
Safety and Health Administration or any other such government agency conduct
an inspection of any facilities of Steritek to determine whether violations
of OSHA or any other such statute, ordinance, rule or regulation exists; and
(v) Steritek does not maintain any condition, process, practice or procedure
at any of its facilities that violate OSHA or any other statute, ordinance,
regulation or rule establishing standards or workplace safety where any such
violation has or reasonably can be expected in the future to have a Material
Adverse Effect.
2.22 Directors, Officers and Employees. The Disclosure Schedule sets
forth the following information for each officer and employee of Steritek
whose aggregate compensation for the year ended June 30, 1998 exceeded
$100,000 or whose current aggregate annual rate of compensation exceeds such
amount (including each such person on leave or layoff status): employee name
and job title; current annual rate of compensation (identifying bonuses
separately) and any change in compensation since the date of the Balance
Sheet; vacation accrued and service credited for purposes of vesting and
eligibility to participate in applicable Employee Benefit plans and programs;
and any automobile leased or owned by Steritek primarily for use by any of the
foregoing persons. Since the date of the Interim Balance Sheet, no employees
of Steritek have been reassigned or transferred to, or hired or employed by,
any Steritek Stockholder or any affiliate of a Steritek Stockholder other than
Steritek. Except as disclosed in the Disclosure Schedule, to the knowledge
of Steritek, none of the officers of Steritek is a party to, or is otherwise
bound by, any agreement or arrangement with any person or entity other than
Steritek that in any way limits or adversely affects the performance of his
or her duties, the ability of Steritek to conduct its businesses, or his or
her freedom to engage in any of the businesses conducted by Steritek. The
Disclosure Schedule lists each written, and lists and describes the principal
terms of each oral, employment, severance, change of control, consulting,
commission, agency and representative agreements providing annual compensation
in excess of $100,000 to which Steritek is a party or is otherwise bound,
including, without limitation, all agreements and commitments relating to
wages, hours or other terms or conditions of employment (other than unwritten
employment arrangements terminable at will without payment of any contractual
severance or other amount).
2.23 Affiliate Agreements. Except as described in the Disclosure
Schedule or in Steritek's Form 10-K filings, there are no, and during the last
three years there have not been any, material agreements, arrangements or
understandings between Steritek, on the one hand, and any Steritek Stockholder
or any member of the immediate family of such Steritek Stockholder, on the
other. Except as described in the Disclosure Schedule or in Steritek's Form
10-K filings, all agreements between Steritek and any person or entity
described in the preceding sentence are terminable by Steritek, upon less than
ten days notice, without payment of penalty or premium of any kind.
2.24 Environmental Matters.
(a) Except as described in the Disclosure Schedule, to Steritek's
knowledge:
(i) Steritek, including all of its businesses and operations,
are and always have been operated in compliance with all Environmental Laws
(as defined below), except where noncompliance would not have a Material
Adverse Effect of $10,000 or more;
(ii) During Steritek's period of ownership or tenancy of any
real property that is now owned or leased to or by Steritek ("Current Real
Property") and, to the knowledge of Steritek without investigation or inquiry,
prior to Steritek's period of ownership or tenancy of any Current Real
Property, there are no conditions on, about, beneath or arising from any
Current Real Property that might, under any Environmental Law, (A) give rise
to liability or the imposition of a statutory lien, or (B) that would or may
require any "Response," "Removal" or "Remedial Action" (as those terms are
defined below) or any other action, including without limitation reporting,
monitoring, cleanup or contribution;
(iii) During Steritek's period of ownership or tenancy of any
real property that was, but is no longer, owned or leased to or by Steritek
("Former Real Property") and, to the knowledge of Steritek without
investigation or inquiry, prior to and after Steritek's period of ownership
or tenancy of any Former Real Property, there were no conditions on, about,
beneath or arising from any Former Real Property, during the period of such
ownership, use or lease, that might, under any Environmental Law, (A) give
rise to liability or the imposition of a statutory lien, or (B) that would or
may require any "Response," "Removal" or "Remedial Action" or any other
action, including without limitation reporting, monitoring, cleanup or
contribution;
(iv) Steritek has not received any notification of a release or
threat of a release of a "Hazardous Substance" (as defined below) with respect
to any Current Real Property or Former Real Property;
(v) During Steritek's period of ownership or tenancy of any
Current Real Property and, to the knowledge of Steritek without investigation
or inquiry, prior to Steritek's period of ownership or tenancy of any Current
Real Property, no Hazardous Substances have been used, handled, generated,
processed, treated, stored, transported to or from, released, discharged or
disposed of by Steritek or, to the knowledge of Steritek, any third party, on,
about or beneath any Current Real Property in violation of any applicable
Environmental Law;
(vi) During Steritek's period of ownership or tenancy of any
Former Real Property and, to the knowledge of Steritek without investigation
or inquiry, prior to and after Steritek's period of ownership or tenancy of
any Former Real Property, no Hazardous Substances were used, handled,
generated, processed, treated, stored, transported to or from, released,
discharged or disposed of by Steritek or any third party, on, about or beneath
the Former Real Property in violation of any applicable Environmental Law;
(vii) To the knowledge of Steritek without investigation or
inquiry, there are no above or underground storage tanks, asbestos containing
materials, or transformers containing or contaminated with polychlorinated
biphenyl on, about or beneath the Current Real Property.
(viii) Steritek has not received notice and does not have actual
knowledge of:
(A) any claim, demand, investigation, enforcement
action, Response, Removal, Remedial Action, statutory lien or other
governmental or regulatory action instituted or threatened against Steritek,
the Current Real Property or Former Real Property pursuant to any of the
Environmental Laws;
(B) any claim, demand notice, suit or action, made or
threatened by any person against Steritek, the Current Real Property or the
Former Real Property relating to (i) any form of damage, loss or injury
resulting from, or claimed to result from, any Hazardous Substance on, about,
beneath or arising from the Current Real Property or Former Real Property or
(ii) any alleged violation of the Environmental Laws by Steritek; or
(C) any communication to or from any governmental or
regulatory agency arising out of or in connection with Hazardous Substances
on, about, beneath, arising from or generated at the Current Real Property or
Former Real Property, including without limitation, any notice of violation,
citation, complaint, order, directive, request for information or response
thereto, notice letter, demand letter or compliance schedule;
(ix) Steritek has not knowingly sent, transferred, transported
to, treated, stored, or disposed of waste at any site listed or formally
proposed for listing on the National Priority List promulgated pursuant to
"CERCLA" (as defined below) or to any site listed on any state list of sites
required or recommended for investigation or clean-up. To Steritek's
knowledge, none of the Current Real Property or Former Real Property is listed
on the National Priorities List or any state list of sites requiring or
recommended for investigation or clean up; and
(x) To the knowledge of Steritek there is no proposed change
in any Environmental Law that could have a Material Adverse Effect.
(b) As used in this Agreement:
(i) the term "Environmental Laws" means all applicable Laws
concerning or relating to industrial hygiene or protection of human health or
the environment;
(ii) the terms "Response," "Removal" and "Remedial Action"
shall have the meanings ascribed to them in Sections 101(23)-101(25) of the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act
("SARA"), 42 U.S.C. 9601(23)-9601(25) and other comparable Laws as presently
or heretofore in effect; and
(iii) The term "Hazardous Substances" or "Hazardous Substance"
shall mean any substance presently or heretofore regulated under any of the
Environmental Laws including, without limitation, any substance that is (A)
petroleum, asbestos or asbestos-containing material, or polychlorinated
biphenyls; (B) defined, designated or listed as a "Hazardous Substance"
pursuant to Sections 307 and 311 of the Clean Water Act, 33 U.S.C. 1317, 1321,
Section 101(14) of CERCLA, 42 U.S.C. 9601; (C) listed in the United States
Department of Transportation Hazardous Material Tables, 49 C.F.R. 172.101; or
(D) defined, designated or listed as a "Hazardous Waste" under Section 1004(5)
of the Resource and Conservation and Recover Act, 42 U.S.C. 6903(5).
2.25 Absence of Certain Changes and Events.
(a) Except as described in the Disclosure Schedule, since the date
of the Interim Balance Sheet, Steritek has conducted its business only in the
usual and ordinary course consistent with past practice and there has not been
any:
(i) declaration or payment of any dividend or other
distribution or payment in respect of the shares of capital stock of Steritek,
or any repurchase or redemption of any such shares of capital stock;
(ii) split, combination or reclassification of any of its
capital stock or any issuance or authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock;
(iii) payment by Steritek of any bonus, or increase of any
salary or other compensation payable to any director or officer, payment by
Steritek of any bonus or increase of any salary or other compensation payable
to any non- officer employee other than ordinary merit bonuses and merit
salary increases consistent with past practices, nor has Steritek entered into
any employment, severance or similar agreement with any director, officer or
employee other than employment at will arrangements;
(iv) adoption of or change in any plan or policy that is
required to be disclosed pursuant to Section 2.20;
(v) damage, destruction or loss to any material asset or
property of Steritek, whether or not covered by insurance (including, without
limitation, any extraordinary loss as defined in Opinion Number 30 of the
Accounting Principles Board of The American Institute of Certified Public
Accountants);
(vi) entry into, amendment, termination or receipt of notice
of termination of any agreement that is required to be disclosed in the
Disclosure Schedule hereto, other than in the ordinary course of business
consistent with past practices;
(vii) sale, assignment, conveyance, lease, or other disposition
of any material asset or property of Steritek or mortgage, pledge, or
imposition of any lien or other encumbrance on any material asset or material
property of Steritek;
(viii) incurrence or repayment of any liability or obligation
(whether absolute or contingent) to any affiliated person, or incurrence or
repayment of any liability or obligation to any other person other than
current liabilities incurred and obligations under agreements entered into in
the ordinary course of business consistent with past practice, or any
discharge or satisfaction of any lien, claim or encumbrance other than in the
ordinary course of business consistent with past practice;
(ix) writedown or writeoff of the value of any asset, except
for writedowns and writeoffs of accounts receivable in the ordinary course of
business consistent with past practice or any cancellation or waiver of any
other material claims or rights;
(x) change in the business or operations of Steritek or in the
manner of conducting the same or entry by Steritek into any transaction, other
than in the ordinary course of business consistent with past practice;
(xi) change in the accounting methods, principles or practices
followed by Steritek, except as required by GAAP, or any change in any of
assumptions underlying, or methods of calculating, any bad debt, contingency
or other reserve; or
(xii) agreement, whether or not in writing, to do any of the
foregoing by Steritek.
(b) Since the date of the Interim Balance Sheet, there has not
been any material adverse change in the business, operations, properties,
assets, prospects, working capital, or condition (financial or otherwise) of
Steritek or, to the knowledge of Steritek and each Stockholder, any event,
condition or contingency that is likely to result in such a material adverse
change.
2.26 Books and Records.
(a) The copies of the certificate of incorporation of Steritek, as
certified by the Secretary of State of the State of New Jersey, and of its
bylaws, as certified by the secretary or assistant secretary of Steritek,
which have been delivered to QPSI, are true, complete and correct and are in
full force and effect as of the date hereof.
(b) The stock records of Steritek fairly and accurately reflect the
record ownership of all of its outstanding shares of capital stock. The
minute books of Steritek contain complete and accurate records of all meetings
held of, and corporate action taken by, the shareholders, the board of
directors and each committee of the board of directors of Steritek and no
meetings of such shareholders or of such board of directors or committee have
been held for which minutes have not been prepared and are not contained in
such minute books. The other books and records of Steritek, including
financial records and books of account, are complete and accurate in all
material respects and have been maintained in accordance with sound business
practices. Complete and accurate copies, as of the date hereof, of all such
minute books and stock records have been made available to QPSI.
2.27 Brokers. No person acting on behalf of Steritek or any of its
affiliates or under the authority of Steritek or any of the foregoing is or
will be entitled to any brokers' or finders' fee or any other commission or
similar fee, directly or indirectly, from any of such parties in connection
with any of the transactions contemplated by this Agreement.
2.28 Full Disclosure. All documents and other papers delivered by or
on behalf of Steritek in connection this Agreement are accurate and complete
and are authentic. No representation or warranty of Steritek contained in
this Agreement or any Schedule hereto contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.
REPRESENTATIONS AND WARRANTIES OF QPSI AND ACQUISITION
QPSI and Acquisition hereby jointly represent and warrant to Steritek
that the statements contained in this Section 3 are correct and complete as
of the date hereof, except as set forth in the disclosure schedule delivered
by QPSI and Acquisition to Steritek as of the date hereof (the "QPSI
Disclosure Schedule") as follows:
3.01 Organization and Good Standing. QPSI and Acquisition are each a
corporation duly organized, validly existing and in good standing under the
laws of the State of New Jersey, and each has all necessary corporate power
and authority to carry on its business as presently conducted, to own and
lease the assets that it owns and leases and to perform all of its obligations
under each agreement and instrument by which it is bound. QPSI and
Acquisition are each duly qualified to do business as a foreign corporation
and is in good standing under the laws of each jurisdiction identified in the
QPSI Disclosure Schedule, which includes each jurisdiction in which its
ownership or leasing of assets or properties or the nature of its activities
requires such qualification.
3.02 Power and Authorization. QPSI and Acquisition each has full legal
right, power and authority to enter into and perform its obligations under
this Agreement and under the other agreements and documents (the "QPSI
Transaction Documents") required to be delivered by it prior to or at the
Closing. The execution, delivery and performance by QPSI and Acquisition of
this Agreement and the QPSI Transaction Documents have been duly authorized
by the Board of Directors of QPSI and the Board of Directors of Acquisition
and approved by the stockholders of QPSI and Acquisition, and no other
corporate proceedings on the part of Steritek are necessary to authorize this
Agreement or the Steritek Transaction Documents. This Agreement has been duly
and validly executed and delivered by QPSI and Acquisition and constitutes
their legal, valid and binding obligation, enforceable against each of them
in according with its terms, and when executed and delivered as contemplated
herein, each of the Steritek Transaction Documents shall constitute the legal,
valid and binding obligation, enforceable against QPSI and Acquisition in
accordance with its terms, except as such may be limited by bankruptcy,
insolvency, moratorium, reorganization or other similar laws relating to or
affecting the enforcement of creditors' rights generally, and except that the
availability of specific performance, injunctive relief or other equitable
remedies is subject to the discretion of the court before which any such
proceeding therefor may be brought.
3.03 No Conflicts.
(a) The execution, delivery and performance of this Agreement and
the QPSI Transaction Documents do not and will not (with or without the
passage of time or the giving of notice):
(i) violate or conflict with any provision of the certificate
of incorporation or bylaws, each as amended, of QPSI or Acquisition or of any
Law binding upon QPSI or Acquisition;
(ii) violate or conflict with, result in a breach of, or
constitute a default or otherwise cause any loss of benefit under any material
agreement or other material obligation to which either QPSI or Acquisition is
a party; or
(iii) require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory
authority.
(b) To QPSI's knowledge, there are no judicial, administrative or
other governmental actions, proceedings or investigations pending or
threatened, that question any of the transactions contemplated by this
Agreement or the validity of this Agreement or any of the other agreements or
instruments contemplated hereby or which, if adversely determined, would have
an adverse effect upon the ability of QPSI or Acquisition to enter into or
perform its obligations under this Agreement or any of the other agreements
or instruments contemplated hereby. Neither QPSI nor Acquisition received
any request from any governmental agency or instrumentality for information
with respect to the transactions contemplated hereby.
3.04 Brokers. No person acting on behalf of QPSI, Acquisition or any
of their affiliates or under the authority of any of the foregoing is or will
be entitled to any brokers' or finders' fee or any other commission or similar
fee, directly or indirectly, from any of such parties in connection with any
of the transactions contemplated by this Agreement.
3.05 Company Investments and Subsidiaries. Except for Acquisition and
as set forth on the QPSI Disclosure Schedule, QPSI does not own, control or
have any investment or other interest in any corporation, partnership, joint
venture, business trust or other entity, and neither QPSI nor Acquisition has
agreed, contingently or otherwise, to share any profits, losses, costs or
liabilities, or to indemnify any person or entity or to guaranty the
obligations of any person or entity
3.06 Compliance with Laws.
(a) Except as described in the QPSI Disclosure Schedule, to QPSI's
knowledge, QPSI is, and has been for the past three (3) years, in compliance
with all applicable Laws, except where noncompliance would not have a material
adverse effect on the business, properties, profits, prospects or condition
(financial or otherwise) of QPSI (a "QPSI Material Adverse Effect"), and QPSI
does not have any basis to expect, and has not received any notice, order or
other communication from any governmental agency or instrumentality of, any
alleged, actual, or potential violation or failure to comply with any Law.
To QPSI's knowledge, there are no unsatisfied judgments, penalties or awards
against or affecting QPSI or any of its businesses, properties or assets.
(b) To QPSI's knowledge, all federal, foreign, state, local and
other governmental consents, licenses, permits, franchises, grants and
authorizations required to be obtained and held by QPSI for the operation of
its business as currently conducted and as conducted since June 30, 1995
(collectively, "Permits") are, except as otherwise described in the QPSI
Disclosure Schedule, in full force and effect without any default or violation
thereunder by QPSI or, to the knowledge of QPSI, by any other party thereto
(except where the failure to have such a Permit in full force and effect or
where any default or violation thereunder would not have a QPSI Material
Adverse Effect), and QPSI has not received any notice of any claim or charge
that QPSI is or had been in violation of or in default under any such Permit.
Except as described in the QPSI Disclosure Schedule, to QPSI's knowledge: (i)
no proceeding is pending or threatened by any person to revoke or deny the
renewal of any Permit of QPSI; and (ii) QPSI has not been notified that any
such Permit may not in the ordinary course be renewed upon its expiration or
that by virtue of the transactions contemplated hereby any such Permit may not
be granted or renewed.
3.07 Litigation. Except as described in the QPSI Disclosure Schedule
or the QPSI Financial Statements (as defined in Section 3.08 hereof), there
are no, and since the date of the latest QPSI Financial Statements, there have
not been any, claims, actions, suits, proceedings (arbitration or otherwise)
or investigations involving or affecting QPSI, its businesses or assets, or
its directors, officers or shareholders in their capacities as such, before
or by any court or governmental agency or instrumentality, or before an
arbitrator of any kind. Any description set forth on the QPSI Disclosure
Schedule pursuant to this Section 3.07 with respect to any such claims,
actions, suits, proceedings or investigations shall include, to the extent
applicable, the name of the court or agency in which the proceedings are
pending, the date instituted, the principal parties thereto, a description of
the factual basis alleged to underlie the proceeding and the relief sought.
To the knowledge of QPSI, (a) no such claims, actions, suits, proceedings or
investigations are presently threatened or contemplated and (b) there are no
facts that could reasonably serve as a basis for any such claim, action, suit,
proceeding or investigation.
3.08 Financial Statements.
(a) The financial statements and notes prepared by Lear &
Pannepacker, CPAs and delivered to Steritek by QPSI since December 31, 1995
(the "QPSI Financial Statements") accurately and fairly reflect the books and
records of QPSI and fairly present the financial condition, cash flow and
results of operations of QPSI as at the respective dates thereof and for the
periods therein referred to, all in accordance with generally accepted United
States accounting principles, consistently applied ("GAAP"), subject to normal
recurring year end adjustments (the effect of which will not, individually or
in the aggregate, be material) and the absence of notes (which, if presented,
would not differ materially from those included in the previous statements).
(b) The QPSI Financial Statements reflect all material known
liabilities of QPSI, whether absolute, accrued or contingent, as of the
respective dates thereof of the type required to be reflected or disclosed in
a balance sheet (or the notes thereto) prepared in accordance with GAAP. QPSI
does not have knowledge of any material liabilities of any nature that are not
reflected on the QPSI Financial Statements except for liabilities disclosed
on the QPSI Disclosure Schedule and for current liabilities (within the
meaning of GAAP) that have been incurred since the date thereof in the
ordinary course of business consistent in nature and amount with past practice
and that are not inconsistent with any of the representations and warranties
contained herein, and, to the knowledge of QPSI, there is no basis for the
assertion against QPSI of any liability (other than current liabilities
referred to above) not fully reflected or reserved against in the QPSI
Financial Statements.
(c) The QPSI Financial Statements reflect reserves or other
appropriate provisions at least equal to reasonably anticipated liabilities,
losses and expenses of QPSI as of the respective dates thereof, including
those with respect to income and other taxes (including alternative minimum
tax), warranty claims, bad debts, unsalable inventories, vacation pay, and
plans and programs for the benefit of present and former employees (including,
without limitation, plans and programs relating to medical coverage for
employees).
3.09 Capitalization. QPSI's authorized capital stock consists of 2,500
shares of common stock, no par value (the "QPSI Common Stock"), of which 125
shares of QPSI Common Stock are issued and outstanding. Except as disclosed
in the QPSI Disclosure Schedule, no person has any preemptive or other rights
with respect to any such capital stock or securities and there are no offers,
options, warrants, rights, agreements or commitments of any kind (contingent
or otherwise) relating to the issuance, conversion, registration, sale or
transfer of any equity interests or other securities of QPSI or obligating
QPSI or any other person to purchase or redeem any such equity interests or
other securities. All of the issued and outstanding shares of QPSI Common
Stock have been duly authorized and are validly issued and outstanding, fully
paid and nonassessable, and have been issued in compliance with applicable
securities and other Laws.
3.10 Customers and Suppliers. Except as provided on the QPSI Disclosure
Schedule, no customer that accounted for more than of 5% of the revenues of
QPSI during 1998 has terminated or materially reduced, or has given notice
that it intends to terminate or materially reduce, the amount of business done
with QPSI. Except as provided on the QPSI Disclosure Schedule, no supplier
or vendor that accounted for more than $50,000 of the purchases of QPSI during
1998 has terminated or materially reduced, or has given notice that it intends
to terminate or materially reduce, the amount of business done with QPSI.
Except as provided on the QPSI Disclosure Schedule, QPSI is not aware of any
such intention on the part of any such customer, supplier or vendor. Except
as disclosed on the QPSI Disclosure Schedule, there are no, and since June 30,
1995 there have not been any, disputes or controversies involving, in the
aggregate, more than $5,000 between QPSI and any customer, supplier or other
person regarding the quality, merchantability or safety of, or involving a
claim of breach of warranty that has not been fully resolved with respect to,
or defect in, any service or product purchased or sold by QPSI. QPSI is
satisfied with its working relationships under all arrangements and agreements
with customers and suppliers necessary to the normal operation of its
businesses. Alternative sources of supply, on substantially similar terms and
conditions, exist for all material goods or services purchased by or supplied
to QPSI.
3.11 Taxes.
(a) All federal, state, local and foreign returns and reports
relating to QPSI Taxes (as defined herein), or extensions relating thereto,
required to be filed by or with respect to QPSI (including, without
limitation, all federal and state consolidated and combined tax returns and
reports for any consolidated group of which QPSI has been a member during the
last five years (the "QPSI Consolidated Group")) during the past six years
have been timely and properly filed, and all such returns and reports are
correct and complete in all material respects.
(b) All federal, state, local, and foreign income, profits,
franchise, sales, use, payroll, premium, occupancy, property, severance,
excise, withholding, customs, unemployment, transfer and other taxes,
including interest, additions to tax and penalties (collectively "QPSI Taxes")
shown to be due on any return referred to in Subsection (a) above by QPSI with
respect to taxable periods ending on or prior to, and the portion of any
interim period up to, the date hereof have been fully and timely paid or, in
the case of QPSI Taxes not yet due, fully provided for on the QPSI Financial
Statements or, in the case of QPSI Taxes accruing after the date of such
financial statement, on the books of account of QPSI; and there are no levies,
liens, or other encumbrances relating to QPSI Taxes existing, threatened or
pending with respect to any asset of QPSI, other than statutory liens for
taxes not yet due and payable.
(c) Except as described in the QPSI Disclosure Schedule, no issues
have been raised with any representative or employee of QPSI (and are
currently pending) by the Internal Revenue Service ("IRS") or any other taxing
authority in connection with any of the returns and reports referred to in
subsection (a) above and no waivers of statutes of limitations have been given
or requested with respect to any such returns and reports or with respect to
any QPSI Taxes.
(d) Except as set forth on the QPSI Disclosure Schedule, to the
knowledge of QPSI, no federal, state, local or foreign income, franchise or
sales and use tax returns of or with respect to QPSI have been examined since
1995, or are currently under examination, by the IRS or by other taxing
authorities, or with respect to which the applicable statue of limitations
(including all extensions and tolling periods) has not yet run. There are no
unpaid deficiencies asserted or assessments made by any taxing authority
against QPSI.
(e) To the knowledge of QPSI, QPSI has had for at least the last
six (6) years a valid election in effect as an S corporation for federal and
state income tax purposes. The books and records of QPSI are sufficient to
prove the correctness of all tax returns for open tax years and to determine
and to prove the adjusted tax basis for federal income tax purposes of each
asset of QPSI.
(f) QPSI is not obligated to make any payments that would
constitute an "excess parachute payment" as defined in Code section 280G.
QPSI is not a party to any tax sharing agreement or tax indemnification
agreement.
3.12 Employee Benefit Plans.
(a) The QPSI Disclosure Schedule contains a complete and correct
list of all employee benefit plans, arrangements, commitments and payroll
practices (whether or not employee benefit plans ("Employee Benefit Plans")
as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), including, without limitation, sick leave,
vacation pay, severance pay, salary continuation for disability, consulting
or other compensation arrangements, retirement, deferred compensation, bonus,
incentive compensation, stock purchase, stock option, health including
hospitalization, medical and dental, life insurance and scholarship programs
maintained for the benefit of any employees of QPSI or any QPSI ERISA
Affiliate (as defined below) or to which QPSI or any QPSI ERISA Affiliate has
contributed or is or was within the last six years obligated to make payments.
QPSI has delivered or made available to Steritek, with respect to all benefit
plans, arrangements, commitments or payroll practices required to be listed
on the QPSI Disclosure Schedule, true, complete and correct copies of the
following: all plan documents, handbooks, manuals, collective bargaining
agreements and similar documents governing employment policies, practices and
procedures; all the most recent summary plan descriptions and any subsequent
summaries of material modifications and all other material employee
communications discussing any employee benefit; Forms series 5500 as filed
with the IRS for the most recent three plan years; the most recent report of
the enrolled actuary for all defined benefit plans, funded welfare plans or
other plans requiring actuarial valuation; all trust agreements with respect
to employee benefit plans; plan contracts with service providers and plan
contracts with insurers providing benefits for participants or liability
insurance for fiduciaries and other parties in interest or bonding; most
recent annual audit and accounting of plan assets for all funded plans; and
most recent IRS determination letter for all plans qualified under Code
section 401(a). As used herein, "QPSI ERISA Affiliate" shall refer to any
trade or business, whether or not incorporated, under common control with QPSI
within the meaning of Section 414(b), (c), (m) or (o) of the Code.
(b) With respect to each Employee Benefit Plan required to be
listed on the QPSI Disclosure Schedule: (i) each Employee Benefit Plan has
been administered in compliance with its terms and is in compliance in all
material respects with the applicable provisions of ERISA, the Code and all
other federal, foreign, state and other applicable laws, rules and
regulations, as they relate to such plan (including, without limitation,
funding, filing, termination, reporting and disclosure and continuation
coverage obligations pursuant to Section 601 et seq. of ERISA); (ii) QPSI and
each QPSI ERISA Affiliate has made all contributions to all Employee Benefit
Plans as required under the terms of such Plans; (iii) no "Employee Pension
Benefit Plan" (as defined in Section 3(2) of ERISA) has been the subject of
a "reportable event" (as defined in Section 4043 of ERISA) and there have been
no "prohibited transactions" (as described in Section 4975 of the Code or in
Part 4 of Subtitle B of Title I of ERISA) with respect to any Employee Benefit
Plan; (iv) there are and during the past three years there have been no
inquiries, proceedings, claims or suits pending or, to the knowledge of QPSI,
threatened by any governmental agency or authority or by any participant or
beneficiary against any of the Employee Benefit Plans, the assets of any of
the trusts under such Plans or the Plan sponsor or the Plan administrator, or
against any fiduciary of any of such Employee Benefit Plans with respect to
the design or operation of the Employee Benefit Plans; (v) the actuarial
present value of accumulated benefits (both vested and unvested) of each of
the Employee Pension Benefit Plans, which are defined benefit plans, are fully
funded in accordance with the actuarial assumptions used by the Pension
Benefit Guaranty Corporation ("PBGC") to determine the level of funding
required in the event of the termination of such Plan; (vi) each Employee
Pension Benefit Plan that is intended to be "qualified" within the meaning of
Section 401(a) of the Code is, and has from its inception been so qualified,
both in form and in operation, and any trust created pursuant to any such
Employee Pension Benefit Plan is exempt from federal income tax under Section
501(a) of the Code and the IRS has issued each such Plan a favorable
determination letter which is currently applicable; and (vii) QPSI nor, to the
knowledge of QPSI, any QPSI ERISA Affiliate is aware of any circumstance or
event which would jeopardize the tax qualified status of any such Employee
Pension Benefit Plan or the tax exempt status of any related trust, or would
cause the imposition of any liability, penalty or tax under ERISA or the Code
with respect to any Employee Benefit Plan.
(c) Neither QPSI nor any QPSI ERISA Affiliate maintains or has ever
maintained or been obligated to contribute to a "Multiemployer Plan" (as such
term is defined by Section 4001(a)(3) of ERISA).
(d) With respect to each Employee Benefit Plan maintained by QPSI
or any QPSI ERISA Affiliate: (i) no unsatisfied liabilities to participants,
the IRS, the United States Department of Labor ("DOL"), the PBGC or to any
other person or entity have been incurred as a result of the termination of
any Employee Benefit Plan; (ii) no Employee Pension Benefit Plan, which is
subject to the minimum funding requirements of Part 3 of subtitle B of Title
I of ERISA or subject to Section 412 of the Code, has incurred any
"accumulated funding deficiency" within the meaning of Section 302 of ERISA
or Section 412 of the Code and there has been no waived funding deficiency
within the meaning of Section 303 of ERISA or Section 412 of the Code; (iii)
there has been no event with respect to an Employee Pension Benefit Plan that
would require disclosure under Sections 4062(c), 4063(a) or 4041(e) of ERISA.
(e) All reports and information required to be filed with the DOL,
IRS and PBGC and with plan participants and their beneficiaries with respect
to each Employee Benefit Plan required to be listed on the QPSI Disclosure
Schedule have been filed and all annual reports (Form 5500 series) of such
Plans were certified without qualification by each Plan's accountants and
actuaries. Any annual reports that are not yet due but are required to be
filed with respect to a plan year that ended on or prior to the Closing Date
shall be filed by QPSI before the Closing Date.
(f) Except as set forth on the QPSI Disclosure Schedule, all
Employee Benefit Plans, arrangements, commitments, and payroll practices
required to be listed on the QPSI Disclosure Schedule have been administered
in compliance with federal, state, and local law, including, but not limited
to, the Americans with Disabilities Act, the Age Discrimination in Employment
Act, and the Family and Medical Leave Act, except where noncompliance would
not have a QPSI Material Adverse Effect.
(g) Except as set forth on the QPSI Disclosure Schedule, all
Employee Benefit Plans, arrangements, commitments, and payroll practices
required to be listed on the QPSI Disclosure Schedule and all other Employee
Benefit Plans currently maintained by QPSI or a QPSI ERISA Affiliate may,
without liability, be amended, terminated or otherwise discontinued.
(h) Any bonding required under ERISA with respect to any Employee
Benefit Plan required to be listed on the QPSI Disclosure Schedule and any
other Employee Benefit Plan currently maintained by QPSI or a QPSI ERISA
Affiliate has been obtained and is in full force and effect and no funds held
by or under the control of QPSI are plan assets.
(i) Except as set forth on the QPSI Disclosure Schedule, neither
QPSI nor any QPSI ERISA Affiliate maintains any retiree life and/or retiree
health insurance plans that provide for continuing benefits or coverage for
any employee or any beneficiary of an employee after such employee's
termination of employment, other than as required by Section 601 et seq. of
ERISA.
(j) Except as set forth on the QPSI Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any person to severance pay, an excess parachute payment within the
meaning of Section 280G of the Code, (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due to any such employee or
(iii) result in any liability under Title IV of ERISA or otherwise.
3.13 Labor Matters.
(a) No application for certification of a collective bargaining
agent is pending and none of the employees of QPSI are, or have ever been,
represented by any union or other bargaining representative; there has not
been, and there is not currently pending, any labor arbitration or proceeding
in respect of the grievance of any employee, any application or complaint
filed by any employee or union with the National Labor Relations Board or any
comparable state or local agency, any strike, slowdown, picketing or work
stoppage by any employees at any facility of QPSI, any lockout of any such
employees or any labor trouble or other labor related controversy, occurrence
or condition of a similar character; no agreement restricts QPSI from
relocating, closing or terminating any of its operations or facilities; and
to the knowledge of QPSI, no such agreement, action, proceeding or occurrence
is threatened or contemplated by any person.
(b) Except as described in the QPSI Disclosure Schedule, QPSI has
not been cited for violations of the Occupational Safety and Health Act of
1970, 29 U.S.C. sec. 651 et seq. ("OSHA"), any regulation promulgated pursuant
to OSHA, or any other statute, ordinance, rule, or regulation establishing
standards of workplace safety or paid any fines or penalties with respect to
any such citation. Except as described in the QPSI Disclosure Schedule: (i)
since January 1, 1996, there have been no inspections of any of the facilities
of QPSI by representatives of the Occupational Safety and Health
Administration or any other government agency vested with authority to enforce
any statute, ordinance, rule or regulation establishing standards of workplace
safety; (ii) to the knowledge of QPSI, no representative of the Occupational
Safety and Health Administration or any other such government agency has
attempted to conduct any such inspection or sought entry to any of such
facilities for that purpose; (iii) QPSI has not been notified of any complaint
or charge filed by any employee or any labor union or other employee
representative with the Occupational Safety and Health Administration or any
other such government agency that alleges that QPSI has violated OSHA or any
other statute, ordinance, rule or regulation establishing standards of
workplace safety; (iv) QPSI has not been notified that any employee, labor
union or other employee representative has requested that the Occupational
Safety and Health Administration or any other such government agency conduct
an inspection of any facilities of QPSI to determine whether violations of
OSHA or any other such statute, ordinance, rule or regulation exists; and (v)
QPSI does not maintain any condition, process, practice or procedure at any
of its facilities that violate OSHA or any other statute, ordinance,
regulation or rule establishing standards or workplace safety where any such
violation has or reasonably can be expected in the future to have a QPSI
Material Adverse Effect.
3.14 Environmental Matters.
(a) Except as described in the QPSI Disclosure Schedule, to QPSI's
knowledge:
(i) QPSI, including all of its businesses and operations, are
and always have been operated in compliance with all Environmental Laws (as
defined below), except where noncompliance would not have a QPSI Material
Adverse Effect of $10,000 or more;
(ii) During QPSI's period of ownership or tenancy of any real
property that is now owned or leased to or by QPSI ("QPSI Current Real
Property") and, to the knowledge of QPSI without investigation or inquiry,
prior to QPSI's period of ownership or tenancy of any QPSI Current Real
Property, there are no conditions on, about, beneath or arising from any QPSI
Current Real Property that might, under any Environmental Law, (A) give rise
to liability or the imposition of a statutory lien, or (B) that would or may
require any "Response," "Removal" or "Remedial Action" (as those terms are
defined below) or any other action, including without limitation reporting,
monitoring, cleanup or contribution;
(iii) During QPSI's period of ownership or tenancy of any real
property that was, but is no longer, owned or leased to or by QPSI ("QPSI
Former Real Property") and, to the knowledge of QPSI without investigation or
inquiry, prior to and after QPSI's period of ownership or tenancy of any QPSI
Former Real Property, there were no conditions on, about, beneath or arising
from any QPSI Former Real Property, during the period of such ownership, use
or lease, that might, under any Environmental Law, (A) give rise to liability
or the imposition of a statutory lien, or (B) that would or may require any
"Response," "Removal" or "Remedial Action" or any other action, including
without limitation reporting, monitoring, cleanup or contribution;
(iv) QPSI has not received any notification of a release or
threat of a release of a "Hazardous Substance" (as defined below) with respect
to any QPSI Current Real Property or QPSI Former Real Property;
(v) During QPSI's period of ownership or tenancy of any QPSI
Current Real Property and, to the knowledge of QPSI without investigation or
inquiry, prior to QPSI's period of ownership or tenancy of any QPSI Current
Real Property, no Hazardous Substances have been used, handled, generated,
processed, treated, stored, transported to or from, released, discharged or
disposed of by QPSI or, to the knowledge of QPSI, any third party, on, about
or beneath any QPSI Current Real Property in violation of any applicable
Environmental Law;
(vi) During QPSI's period of ownership or tenancy of any QPSI
Former Real Property and, to the knowledge of QPSI without investigation or
inquiry, prior to and after QPSI's period of ownership or tenancy of any QPSI
Former Real Property, no Hazardous Substances were used, handled, generated,
processed, treated, stored, transported to or from, released, discharged or
disposed of by QPSI or any third party, on, about or beneath the QPSI Former
Real Property in violation of any applicable Environmental Law;
(vii) To the knowledge of QPSI without investigation or
inquiry, there are no above or underground storage tanks, asbestos containing
materials, or transformers containing or contaminated with polychlorinated
biphenyl on, about or beneath the QPSI Current Real Property.
(viii) QPSI has not received notice and does not have actual
knowledge of:
(A) any claim, demand, investigation, enforcement
action, Response, Removal, Remedial Action, statutory lien or other
governmental or regulatory action instituted or threatened against QPSI, the
QPSI Current Real Property or QPSI Former Real Property pursuant to any of the
Environmental Laws;
(B) any claim, demand notice, suit or action, made or
threatened by any person against QPSI, the QPSI Current Real Property or the
QPSI Former Real Property relating to (i) any form of damage, loss or injury
resulting from, or claimed to result from, any Hazardous Substance on, about,
beneath or arising from the QPSI Current Real Property or QPSI Former Real
Property or (ii) any alleged violation of the Environmental Laws by QPSI; or
(C) any communication to or from any governmental or
regulatory agency arising out of or in connection with Hazardous Substances
on, about, beneath, arising from or generated at the QPSI Current Real
Property or QPSI Former Real Property, including without limitation, any
notice of violation, citation, complaint, order, directive, request for
information or response thereto, notice letter, demand letter or compliance
schedule;
(ix) QPSI has not knowingly sent, transferred, transported to,
treated, stored, or disposed of waste at any site listed or formally proposed
for listing on the National Priority List promulgated pursuant to "CERCLA" (as
defined below) or to any site listed on any state list of sites required or
recommended for investigation or clean-up. To QPSI's knowledge, none of the
QPSI Current Real Property or QPSI Former Real Property is listed on the
National Priorities List or any state list of sites requiring or recommended
for investigation or clean up; and
(x) To the knowledge of QPSI there is no proposed change in
any Environmental Law that could have a QPSI Material Adverse Effect.
(b) As used in this Agreement:
(i) the term "Environmental Laws" means all applicable Laws
concerning or relating to industrial hygiene or protection of human health or
the environment;
(ii) the terms "Response," "Removal" and "Remedial Action"
shall have the meanings ascribed to them in Sections 101(23)-101(25) of the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act
("SARA"), 42 U.S.C. 9601(23)-9601(25) and other comparable Laws as presently
or heretofore in effect; and
(iii) The term "Hazardous Substances" or "Hazardous Substance"
shall mean any substance presently or heretofore regulated under any of the
Environmental Laws including, without limitation, any substance that is (A)
petroleum, asbestos or asbestos-containing material, or polychlorinated
biphenyls; (B) defined, designated or listed as a "Hazardous Substance"
pursuant to Sections 307 and 311 of the Clean Water Act, 33 U.S.C. 1317, 1321,
Section 101(14) of CERCLA, 42 U.S.C. 9601; (C) listed in the United States
Department of Transportation Hazardous Material Tables, 49 C.F.R. 172.101; or
(D) defined, designated or listed as a "Hazardous Waste" under Section
1004(5) of the Resource and Conservation and Recover Act, 42 U.S.C. 6903(5).
3.15 Absence of Certain Changes and Events.
(a) Except as described in the QPSI Disclosure Schedule, since the
date of the latest QPSI Financial Statement, QPSI has conducted its business
only in the usual and ordinary course consistent with past practice and there
has not been any:
(i) declaration or payment of any dividend or other
distribution or payment in respect of the shares of capital stock of QPSI, or
any repurchase or redemption of any such shares of capital stock;
(ii) split, combination or reclassification of any of its
capital stock or any issuance or authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock;
(iii) payment by QPSI of any bonus, or increase of any salary
or other compensation payable to any director or officer, payment by QPSI of
any bonus or increase of any salary or other compensation payable to any non-
officer employee other than ordinary merit bonuses and merit salary increases
consistent with past practices, nor has QPSI entered into any employment,
severance or similar agreement with any director, officer or employee other
than employment at will arrangements;
(iv) adoption of or change in any plan or policy that is
required to be disclosed pursuant to Section 3.12;
(v) damage, destruction or loss to any material asset or
property of QPSI, whether or not covered by insurance (including, without
limitation, any extraordinary loss as defined in Opinion Number 30 of the
Accounting Principles Board of The American Institute of Certified Public
Accountants);
(vi) entry into, amendment, termination or receipt of notice
of termination of any agreement that is required to be disclosed in the QPSI
Disclosure Schedule hereto, other than in the ordinary course of business
consistent with past practices;
(vii) sale, assignment, conveyance, lease, or other
disposition of any material asset or property of QPSI or mortgage, pledge, or
imposition of any lien or other encumbrance on any material asset or material
property of QPSI;
(viii) incurrence or repayment of any liability or obligation
(whether absolute or contingent) to any affiliated person, or incurrence or
repayment of any liability or obligation to any other person other than
current liabilities incurred and obligations under agreements entered into in
the ordinary course of business consistent with past practice, or any
discharge or satisfaction of any lien, claim or encumbrance other than in the
ordinary course of business consistent with past practice;
(ix) writedown or writeoff of the value of any asset, except
for writedowns and writeoffs of accounts receivable in the ordinary course of
business consistent with past practice or any cancellation or waiver of any
other material claims or rights;
(x) change in the business or operations of QPSI or in the
manner of conducting the same or entry by QPSI into any transaction, other
than in the ordinary course of business consistent with past practice;
(xi) change in the accounting methods, principles or practices
followed by QPSI, except as required by GAAP, or any change in any of
assumptions underlying, or methods of calculating, any bad debt, contingency
or other reserve; or
(xii) agreement, whether or not in writing, to do any of the
foregoing by QPSI.
(b) Since the date of the latest quarterly QPSI Financial
Statement, there has not been any material adverse change in the business,
operations, properties, assets, prospects, working capital, or condition
(financial or otherwise) of QPSI or, to the knowledge of QPSI, any event,
condition or contingency that is likely to result in such a material adverse
change.
3.16 Member of National Minority Supplier Development Council. QPSI is
a member in good standing of the National Minority Supplier Development
Council.
3.17 Full Disclosure. All documents and other papers delivered by or
on behalf of QPSI and Acquisition in connection this Agreement are accurate
and complete and are authentic. No representation or warranty of QPSI or
Acquisition contained in this Agreement or any Schedule hereto contains any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
AGREEMENTS AND COVENANTS
4.01 Deregistration. Pursuant to and in accordance with Rule 12g-
4(a)(1)(i) of the Exchange Act, Steritek shall deregister as a reporting
company under the Exchange Act by filing a Form 15, with the SEC within five
(5) days of the execution of this Agreement, certifying that Steritek has less
than 300 shareholders of record. Steritek represents and warrants that it has
no reason to believe that the deregistration of Steritek will not become
effective on the ninetieth day after Steritek's filing of a Form 15 with the
SEC.
4.02 Special Stockholders Meeting. Steritek shall duly call, give
notice of, convene and hold a special stockholders meeting (the "Steritek
Stockholder Meeting") to approve, among other things, this Agreement and the
transactions contemplated hereby. The Board of Directors of Steritek will
recommend to its stockholders approval of such matters, and Steritek shall
take all such reasonable actions to obtain such approvals as promptly as
practicable, including without limitation the solicitation of proxies.
4.03 Proxy Statement. Steritek shall prepare as promptly as
practicable, with the cooperation of QPSI and Acquisition, a proxy statement
(the "Proxy Statement") for purposes of soliciting the approval of the
stockholders of Steritek of, among other things, this Agreement and the
transactions contemplated hereby. QPSI and Acquisition agree to provide
promptly to Steritek for inclusion in the Proxy Statement, or any amendments
or supplements thereto, such information concerning its business and financial
statements and affairs as, in the reasonable judgment of Steritek or its
counsel, may be required by applicable law or the rules and regulations of the
Securities and Exchange Commission. The Proxy Statement shall be prepared in
compliance with the provisions of the Exchange Act if the Proxy Statement is
to be delivered to the shareholders of Steritek within the 90 day period
following Steritek's filing of the Form 15 contemplated by Section 4.01 above.
Each party hereto agrees that the information to be included in the Proxy
Statement with respect to such party and their business, if any, shall not,
at the date the Proxy Statement (or any amendment thereof or supplement
thereto) is first mailed to stockholders of Steritek, or at any time
thereafter up to and including the time of the Steritek Stockholder Meeting,
be false or misleading with respect to any material fact required to be stated
therein, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not misleading; or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation
of proxies for the Steritek Stockholder Meeting which has become false or
misleading. Each party will promptly advise the others in writing if at any
time prior to the Effective Time of the Merger, such party shall obtain
knowledge of any facts that might make it necessary or appropriate to amend
or supplement the Proxy Statement in order to make the statements contained
or incorporated by reference therein not misleading or to comply with
applicable law.
4.04 Further Action; Reasonable Best Efforts. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all appropriate action
and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including without limitation (i)
cooperation in the preparation and filing of the Proxy Statement and (ii)
using its reasonable best efforts to make all required regulatory filings and
applications and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities as are
necessary for the consummation of the transactions contemplated by this
Agreement and to fulfill the conditions to the Merger. In case any time after
the Effective Time any further action is necessary or desirable to carry out
the purposes of this Agreement, each of the parties hereto shall use their
reasonable best efforts to take all such necessary action.
4.05 Access to Information; Confidentiality. From the date of this
Agreement to the Closing Date, each party will give to the other party and its
officers, employees, counsel, accountants and other representatives free and
full access to and the right to inspect, during normal business hours, all of
the assets, records, contracts and other documents relating to its business
as the other party may reasonably request. Neither party will use such
information for purposes other than in connection with the Merger and each
party will otherwise hold such information in confidence until such time as
such information otherwise becomes publicly available, and in the event of
termination of this Agreement for any reason will promptly return, destroy or
cause to be returned or destroyed, to the other party all nonpublic documents
obtained from the other party, and any copies made of such documents.
4.06 Public Announcements. Except as and to the extent required by law
in the opinion of their respective counsel, as the case may be, without the
prior written consent of the other party, neither QPSI, Acquisition nor
Steritek will, and each will direct its representatives not to, directly or
indirectly, make any public comment, statement or communication with respect
to, or otherwise disclose or permit the disclosure of any of the terms,
conditions or other aspects of, the transactions contemplated hereby. In the
event any party determines that it is required by law to make any such public
comment, statement or communication, such party shall advise the other parties
of that fact as soon as reasonably practicable so that, to the extent feasible
and desired by the other parties, such public comment, statement or other
communication can be made jointly by the parties. Notwithstanding the
foregoing, Steritek shall be permitted to file a report with the Securities
and Exchange Commission disclosing the transactions contemplated hereby and
may include information deemed legally required by its counsel.
4.07 No Solicitation. (a) Steritek shall not, and Steritek shall cause
its officers, employees, representatives and agents not to, directly or
indirectly, continue, encourage, solicit, initiate or participate in
discussions or negotiations with, or provide any nonpublic information to, any
person concerning any sale of assets (other than in the ordinary course of its
business consistent with past practice) or shares of capital stock of Steritek
or any merger, consolidation, recapitalization, liquidation or similar
transaction involving Steritek (collectively, a "Steritek Acquisition
Transaction"). Steritek agrees that it will promptly communicate to QPSI the
terms of any inquiry or proposal that it or he may receive in respect of a
Steritek Acquisition Transaction, to the extent he or it can do so without
breaching any confidentiality provision contained in such proposal. Subject
to any such confidentiality provision, any notification under this Section
4.07 shall include the identity of the person making such proposal, the terms
of such proposal and any other information with respect thereto as Steritek
may reasonably request.
(b) Prior to the Closing or termination of this Agreement, QPSI
shall not actively pursue any acquisition or enter into any lease or agreement
as an alternative to the Merger.
4.08 Notification of Certain Matters. Steritek shall give prompt notice
to QPSI and QPSI shall give prompt notice to Steritek, of (i) the occurrence,
or failure to occur, of any event that such party believes would likely cause
any of its representations or warranties contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date of this
Agreement to the Effective Time, (ii) any material failure of QPSI,
Acquisition or Steritek, or as the case may be, or any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder, (iii) any
notice or other communication from any governmental or regulatory agency or
authority in connection with the transactions contemplated by this Agreement,
and (iv) any actions, suits, claims, investigations or proceedings commenced
or, to the best of its knowledge, threatened against, relating to or involving
or otherwise affecting QPSI, Acquisition or Steritek, as the case may be, or
any of the transactions contemplated by this Agreement.
4.09 Conduct of Business. From the date hereof to the Effective Time,
except with the prior written consent of the other party, each party will: (i)
carry on its business in, and only in, the usual, regular and ordinary course,
consistent with past practice and in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use its
best efforts to preserve intact its present business organization, keep
available the services of its present officers and employees, and preserve its
relationships with customers, contractors, and others having business dealings
with it to the end that its goodwill and going business shall be unimpaired
at the Effective Time, (ii) promptly advise the other party in writing of any
material change in its financial condition, operations, assets, prospects or
business, (iii) not make any change in it's authorized and issued capital
stock; grant any stock option or other right to purchase shares of it's
capital stock or other securities; issue or make any commitment to issue any
security by it, including any security convertible into capital stock; grant
any registration rights; or purchase, redeem, retire or make any other
acquisition of any shares of its capital stock or other securities, (iv) not
amend its certificate of incorporation or bylaws, (v) not take, or permit to
be taken, any action that is represented and warranted in Section 2.25 or 3.15
not to have been taken since the date of the Interim Balance Sheet and (vi)
not enter into any agreement or understanding to do or engage in any of the
foregoing actions described in (i) through (v).
4.10 Adoption by QPSI. QPSI, constituting the holder of all of the
issued and outstanding capital stock of Acquisition, by executing this
Agreement, consents to the adoption of this Agreement by Acquisition and agree
that such consent shall be treated for all purposes as a vote duly adopted at
a meeting of the shareholders of Acquisition held for this purpose.
4.11 Conversion of Steritek Options. Steritek shall in good faith
attempt to cause all the holders of fully vested options (including options
vesting as a result of the consummation of the Merger) to purchase Steritek
Common Stock, pursuant to the Steritek Option Plan (the "Vested Options"), to
convert such Vested Options into Steritek Common Stock, prior to the Effective
Time and shall also prior to the Effective Time cause the cancellation of any
stock options or rights other than Vested Options.
4.12 Continuation of D&O Policy. For at least four (4) years after the
Closing, QPSI shall continue the policy of Director and Officer Insurance
currently held by Steritek, or a policy reasonably equivalent thereto.
4.13 Costs and Expenses. Except as otherwise provided herein, QPSI,
Acquisition, Steritek and Albert shall each pay their own fees and expenses
and those of their respective agents and advisors incurred in connection with
the transactions contemplated by this Agreement (including, without
limitation, all legal and accounting fees.
CONDITIONS
5.01 Conditions Precedent to the Obligations of All Parties.
Notwithstanding any other provision of this Agreement, the obligations of
Steritek, QPSI and Acquisition to effect the Merger shall be subject to the
fulfillment, at or prior to the Effective Time, of each of the following
conditions:
(a) all permits, approvals and consents of any governmental body
or agency necessary or appropriate for consummation of the Merger shall have
been obtained;
(b) no preliminary or permanent injunction or other order of a
court or governmental agency or authority in the United States shall have been
issued and be in effect, and no federal or state statute, rule or regulation
shall have been enacted or promulgated after the date hereof and be in effect
that prohibits the consummation of the Merger or imposes material limitations
on the ability of the Surviving Corporation to exercise full rights of
ownership of Steritek's assets or business;
(c) there shall not be any action or proceeding commenced by or
before any court or governmental agency or authority in the United States that
challenges the consummation of the Merger or seeks to impose material
limitations on the ability of the Surviving Corporation to exercise full
rights of ownership of the assets or business of Steritek;
(d) QPSI and Albert Wozniak shall have executed and delivered a
Consulting and Non-Competition Agreement in the form attached hereto as
Exhibit 5.01(d);
(e) QPSI and James K. Wozniak shall have executed and delivered an
Employment Agreement in the form attached hereto as Exhibit 5.01(e);
(f) The Disclosure Schedule and the QPSI Disclosure Schedule shall
be delivered in forms satisfactory to the receiving parties;
(g) The shareholders of QPSI shall have entered into a shareholders
agreement satisfactory to all shareholders of QPSI;
(h) Steritek shall have discontinued the operations of "Physicians'
Fax Network"; and
(i) All Vested Options shall have either been converted into
Steritek Common Stock or canceled.
5.02 Additional Conditions Precedent to the Obligations of QPSI and
Acquisition. In addition to the conditions contained in Section 5.01, the
obligations of QPSI and Acquisition to effect the Merger shall also be subject
to the fulfillment at the Effective Time of each of the following conditions:
(a) there shall not have occurred any material adverse change in
the business, financial condition, prospects, assets or operations of Steritek
since the date of the Interim Balance Sheet;
(b) the representations and warranties of Steritek contained herein
shall be true and correct in all material respects at and as of the date
hereof and as of the Effective Time as if made at and as of such time;
Steritek shall have duly performed and complied with all agreements, covenants
and conditions required by this Agreement to be performed or complied with by
it or him prior to or at the Effective Time; and Steritek shall have delivered
to QPSI a certificate dated the Effective Time and signed on behalf of
Steritek by its President to the effect set forth in this paragraph (b);
(c) all approvals or consents of any third party required for the
execution, delivery or performance of this Agreement by Steritek, as required
to be disclosed on the Disclosure Schedule, shall have been obtained and
delivered to Steritek;
(d) QPSI shall have received a reasonably satisfactory financing
commitment for the transaction in a minimum amount of $2,200,000.00; and
(e) QPSI shall have received a legal opinion of Steritek's counsel
reasonably satisfactory to QPSI's counsel.
5.03 Additional Conditions Precedent to the Obligations of Steritek.
In addition to the conditions contained in Section 5.01, the obligations of
Steritek to effect the Merger shall also be subject to the fulfillment at the
Effective Time of each of the following conditions:
(a) there shall not have occurred any material adverse change in
the business, financial condition, prospects, assets or operations of QPSI or
Acquisition since the date of the latest quarterly QPSI Financial Statement;
(b) the representations and warranties of QPSI and Acquisition
contained herein shall be true and correct in all material respects at and as
of the date hereof and as of the Effective Time as if made at and as of the
Effective Time; QPSI and Acquisition shall have duly performed and complied
with all agreements, covenants and conditions required by this Agreement to
be performed or complied with by it prior to or at the Effective Time; and
QPSI and Acquisition shall have delivered to Steritek a certificate dated the
Effective Time and signed on its behalf by its President to the effect set
forth in this paragraph (a);
(c) all approvals or consents of any third party required for the
execution, delivery, or performance of this Agreement by QPSI and Acquisition
shall have been obtained and delivered to the Steritek;
(d) Steritek shall have received the approval of its shareholders,
to the satisfaction of Steritek and its counsel, of the transactions
contemplated hereby;
(e) QPSI and Michael Ricketts ("Michael") shall have entered into
a non-compete agreement, in form and substance satisfactory to Albert;
(f) QPSI and Alan Wozniak ("Alan") shall have entered into a non-
compete agreement, in form and substance satisfactory to Albert;
(g) Albert shall be released as a guarantor on all leases and bank
debt of Steritek or all leases and bank debt of Steritek guaranteed by Albert
shall be repaid;
(h) Michael and Alan shall have personally guaranteed Albert's
Note;
(i) Steritek shall have received a legal opinion of QPSI's counsel
reasonably satisfactory to Steritek's counsel; and
(j) Steritek shall have received a fairness opinion with respect
to the transactions contemplated hereby, from the person and in form and
substance reasonably satisfactory to Steritek and its counsel.
5.04 Waiver. Any time prior to the Effective Time, any party hereto may
(i) in the case of QPSI and Acquisition, extend the time for the performance
of any of the obligations or other acts of Steritek or waive compliance with
any of the agreements of Steritek or with any conditions to its own
obligations or (ii) in the case of Steritek, extend the time for the
performance of any of the obligations or other acts of QPSI or Acquisition or
waive compliance with any of the agreements of QPSI or Acquisition or with any
conditions to its own obligations. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party by a duly authorized
officer.
TERMINATION
6.01 Termination. This Agreement may be terminated at any time prior
to the Effective Time:
(a) by mutual agreement of QPSI, Acquisition and Steritek;
(b) by QPSI, if events have occurred which have made it impossible
to satisfy a condition precedent to QPSI's and Acquisition's obligations to
consummate the transactions described in this Agreement, unless QPSI's or
Acquisition's breach of this Agreement has caused the condition to be
unsatisfied;
(c) by Steritek, if events have occurred which have made it
impossible to satisfy a condition precedent to Steritek's obligations to
consummate the transactions described in this Agreement, unless Steritek's
breach of this Agreement has caused the condition to be unsatisfied; or
(d) by Steritek or QPSI, upon notice to the other, if the Merger
shall not have become effective on or before April 15, 1999 (unless such date
is extended in writing by the parties hereto), except that the right to
terminate this Agreement under this Section 6.01(d) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Closing to occur on or
before such date;
(e) by QPSI, upon notice to Steritek, if the Merger shall not have
become effective on or before March 1, 1999, unless the reason why the Merger
has not become effective is the failure of Steritek's shareholders to approve
the Merger, in which case QPSI shall have no right to terminate this Agreement
pursuant to this Section 6.01(e).
6.02 Steritek Termination Fee. If Steritek terminates this Agreement
under Sections 6.01(c) (unless due to the nonsatisfaction of the conditions
set forth Sections 5.01(a), (b) or (c), Section 5.03) or 6.01(d)), in addition
to any remedies available to QPSI and Acquisition under this Agreement or
otherwise, Steritek shall pay to QPSI a termination fee equal to $50,000.00
for purposes of compensating QPSI for expenses and costs incurred in entering
into this Agreement and pursuing the transactions contemplated by this
Agreement.
6.03 Effect of Termination. Except as set forth in Sections 6.02, 4.05
and 4.13 above, in the event of the termination of this Agreement pursuant to
the provisions of Section 6.01, the provisions of this Agreement shall become
void and have no effect, with no liability on the part of any party hereto or
its shareholders or directors or officers in respect thereof, provided that
nothing contained herein shall be deemed to relieve any party of any liability
it may have to any other party with respect to a breach of its obligations,
covenants, representations or warranties contained in this Agreement.
SURVIVAL; INDEMNIFICATION.
7.01 Survival of Representations and Warranties. All representations
and warranties contained in this Agreement or in any document, certificate,
instrument, Schedule or Exhibit delivered in connection herewith, and the
rights of the parties to seek indemnification with respect thereto, shall
survive the consummation of the transaction contemplated hereby for a period
of two (2) years following the Closing, except for the representations and
warranties contained in Sections 2.19 and 2.20 above which shall survive until
the expiration of all statutes of limitation applicable to claims relating to
such representations and the activities and omissions related thereto.
7.02 Indemnification by QPSI. From and after the Closing, QPSI shall
indemnify Albert, and hold Albert harmless, against and in respect of any and
all damages, losses, liabilities, deficiencies, assessments, fines, judgments,
costs and other expenses (including, without limitation, reasonable legal
fees), arising from actions, suits, claims, proceedings, investigations,
audits or demands of third parties (collectively "Third Party Claims") which
Third Party Claims resulted from any misrepresentation, or any breach of any
warranty or of any covenant or agreement, on the part of QPSI under this
Agreement. Anything in the foregoing to the contrary notwithstanding, (i)
QPSI shall have no liability or obligation to Albert under this Section 7.02
except to the extent that the amount thereof exceeds $100,000 as to all events
or occurrences in the aggregate and (ii) the maximum aggregate liability of
QPSI under this Agreement shall be the lesser of $3,000,000 or the outstanding
principal amount of Albert's Note at the time an indemnification payment is
sought by Albert.
7.03 Indemnification of QPSI by Albert. From and after the Closing,
Albert shall indemnify QPSI, and hold QPSI harmless, against and in respect
of (i) any and all damage, loss, liability or deficiency resulting from any
misrepresentation, or any breach of any warranty or of any agreement or
covenant, on the part of Albert or Steritek under this Agreement and (ii) any
and all actions, suits, claims, proceedings, investigations, audits, demands,
assessments, fines, judgments, costs and other expenses (including, without
limitation, reasonable legal fees) incident to any of the foregoing. Anything
in the foregoing to the contrary notwithstanding, (i) Albert shall have no
liability or obligation to QPSI under this Section 7.03 except to the extent
that the amount thereof exceeds $100,000 as to all events and occurrences in
the aggregate, (ii) the maximum aggregate liability of Albert under this
Agreement shall be the lesser of $3,000,000 or the outstanding principal
amount of Albert's Note at the time an indemnification payment is sought by
QPSI. All indemnification payments of Albert shall be paid to QPSI by set-off
against Albert's Note as follows: (i) with respect to the first $100,000 in
indemnification payments, payments on Albert's Note shall be suspended up to
the amount equal to the indemnification payment, and (ii) with respect to
indemnification payments in excess of $100,000, payments on Albert's Note
shall be reduced from the last payment going back up to the amount equal to
the indemnification payment.
7.04 Notice of Claim; Defense of Action. In the event that any legal
proceedings shall be instituted or that any claim or demand shall be asserted
against QPSI or Albert in respect of which payment may be sought from either
of them under the provisions of this Section 7, the indemnified party shall
promptly give written notice of the assertion of any claim of which it or he,
as the case may be, has knowledge which is covered by this indemnity to the
indemnifying party who shall have the right, without admitting liability for
indemnification, at its or his option and at its or his own expense, to be
represented by counsel of its or his choice and to defend against, negotiate,
settle or otherwise deal with any proceeding, claim or demand which related
to any loss, liability, damage or deficiency indemnified against hereunder.
The parties hereto agree to cooperate fully with each other in connection with
the defense, negotiation or settlement of any such legal proceeding, claim or
demand. No claim shall, however, be settled without the written consent of
the indemnifying party, which consent shall not be unreasonably withheld.
After any final judgment or award shall have been rendered by a court,
arbitration board or administrative agency of competent jurisdiction, or a
settlement shall have been consummated, or QPSI and Albert shall have arrived
at a mutually binding agreement with respect to each separate matter
indemnified hereunder, the indemnifying party shall become liable to the
indemnified party for the sums so owing under such judgment, award or
settlement in the manner and to the extent of its or his liability provided
in this Section 7. The indemnification provided for in this Section 7 shall
include reasonable legal and other costs incurred in defending against or
investigating any claims of liability, but the defense by the indemnifying
party of any action provided for in this Section 7.04 shall relieve the
indemnifying party of any obligation to reimburse the indemnified party for
any legal or other expenses thereafter incurred by the indemnified party in
respect of such action, notwithstanding any participation by such indemnified
party in such action.
GENERAL PROVISIONS
8.01 Amendment. This Agreement may be amended by the parties hereto at
any time before or after approval of the Merger by the stockholders of
Steritek; provided that following approval of the Merger by the stockholders
of Steritek, no amendment shall be made which by law requires the further
approval of such stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on
behalf of the parties hereto.
8.02 Extension; Waiver. At any time prior to the Effective Time of the
Merger, Steritek, on the one hand, and QPSI and Acquisition, on the other,
may, to the extent legally allowed, (i) extend the time for the performance
of any of the obligations or other acts of the other, (ii) waive any
inaccuracies in the representations and warranties made to it contained herein
or in any document delivered pursuant hereto and (iii) waive compliance with
any of the agreements or conditions for the benefit of it contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party.
8.03 Notices. All notices or other communications permitted or required
under this Agreement shall be in writing and shall be sufficiently given if
and when hand delivered to the persons set forth below or if sent by
documented overnight delivery service or registered or certified mail, postage
prepaid, return receipt requested, or by telegram, telex or telecopy, receipt
acknowledged, addressed as set forth below or to such other person or persons
and/or at such other address or addresses as shall be furnished in writing by
any party hereto to the others. Any such notice or communication 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.
(a) If to Steritek, to: Steritek Inc.
121 Moonachie Avenue
Moonachie, New Jersey 07074
Attn: Albert Wozniak, President
with a copy to: McManimon & Scotland, LLC
One Riverfront Plaza
Newark, New Jersey 07102
Attn: Jeffrey Kramer, Esq.
(b) If to QPSI and/or Acquisition, to:
Quality Packaging Specialists, Inc.
5 Cooper Street
Burlington, NJ 08016
Attn: K. Michael Ricketts, President
with a copy to: Drinker Biddle & Reath LLP
105 College Road East
Princeton, New Jersey 08542
Telecopier No.: 609-716-6524
Attn: Thomas A. Belton, Esq.
8.04 Assignment and Benefit. This Agreement and the rights and
obligations set forth herein may not be transferred or assigned by operation
of law or otherwise without the consent of each party hereto. This Agreement
is binding upon and will inure to the benefit of the parties hereto and their
respective successors and permitted assigns. This Agreement shall not be
construed as giving any person, other than the parties hereto and their
permitted successors, heirs and assigns, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any of the provisions herein
contained, this Agreement and all provisions and conditions hereof being
intended to be, and being, for the sole and exclusive benefit of such parties,
and permitted successors, heirs and assigns and for the benefit of no other
person or entity.
8.05 Severability. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of the void unenforceable provision.
8.06 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law or
equity on such party, and the exercise of any one remedy will not preclude the
exercise of any other.
8.07 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
8.08 Governing Law. This Agreement is made pursuant to, and shall be
construed and enforced in accordance with, the laws of the State of New
Jersey, without giving effect to otherwise applicable principles of conflicts
of law.
8.09 Section Headings and Defined Terms. The section headings contained
herein are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement. The terms defined herein and
in any agreement executed in connection herewith include the plural as well
as the singular and the singular as well as the plural. Except as otherwise
indicated, all agreements defined herein refer to the same as from time to
time amended or supplemented or the terms thereof waived or modified in
accordance herewith and therewith.
8.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original; and any person may
become a party hereto by executing a counterpart hereof, but all of such
counterparts together shall be deemed to be one and the same instrument. It
shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.
8.11 Entire Agreement. This Agreement, together with the Disclosure
Schedule and the agreements, exhibits, schedules and certificates referred to
herein or delivered pursuant hereto, constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and supersede all
prior agreements and understandings.
8.12 Enforcement Expenses. In the event of any litigation, arbitration,
or other legal proceeding to enforce, interpret or recover damages for breach
of this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees and costs incurred in the proceeding in addition
to any other relief to which the prevailing party is entitled.
IN WITNESS WHEREOF, Steritek, Albert, QPSI and Acquisition have caused
this Agreement to be signed by their respective duly authorized officers, on
the date first above written.
ATTEST: STERITEK, INC.
/s/ James K. Wozniak By:/s/ Albert J. Wozniak
---------------------- ------------------------
WITNESS:
/s/ James K. Wozniak /s/ Albert J. Wozniak
---------------------- ------------------------
Albert J. Wozniak
ATTEST: QUALITY PACKAGING
SPECIALISTS, INC.
/s/ Alan I. Wozniak By: /s/ Kurt M. Ricketts
--------------------- -------------------------
President
ATTEST: QPSI STERITEK ACQUISITION, INC.
/s/ Alan I. Wozniak By: /s/ Kurt M. Ricketts
--------------------- -------------------------
<PAGE>
Exhibit 1.06
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE
SECURITIES LAWS AND THE OTHER RESTRICTIONS ON TRANSFER SET FORTH HEREIN.
____________________________________________________
8% GUARANTEED SUBORDINATED PROMISSORY NOTE
$______________ Princeton, New Jersey __________ __,
1999
FOR VALUE RECEIVED, QUALITY PACKAGING SPECIALISTS, INC., a New Jersey
corporation ("Maker"), hereby promises to pay to the order of ALBERT J.
WOZNIAK ("Payee") the principal amount of ______________ Dollars
($___________), together with interest on the principal balance hereof from
time to time outstanding from the date hereof and until this Note is paid in
full, whether before or after demand, at the rate of eight percent (8%) per
annum, in accordance with the terms set forth below.
INTEREST
Interest shall be calculated on the basis of actual days elapsed and a year
of three-hundred sixty-five (365) days and shall be paid monthly in arrears
on the first business day of each month, commencing on __________ ___, 1999
(the "First Payment Date"). If an Event of Default (defined below) has
occurred and is continuing, the rate of interest shall increase to 12%. For
purposes of this Note, "business day" shall mean any day not a Saturday,
Sunday, legal holiday or day on which banking institutions are authorized by
law to close in Princeton, New Jersey.
PAYMENT; PREPAYMENT
2.1 On and from the First Payment Date to _______, 2004 (the "Maturity
Date"), Maker shall make payments of interest and principal in accordance with
the amortization schedule attached hereto as Exhibit A (the "Amortization
Schedule").
2.2 Payments of principal and interest shall be made in lawful money of
the United States of America by cash or check at ______________________, or
at such other place as Payee shall designate to Maker in writing.
2.3 Maker may prepay this Note in whole or in part at any time without
premium or penalty. Any partial prepayment shall be applied to the unpaid
installments of principal in the inverse order of their maturity.
2.4 All payments on account of indebtedness evidenced by this Note shall
be first applied to accrued interest and then to principal.
2.5 If an Event of Default (defined below) has occurred and is
continuing, Maker shall not make any dividends or other distributions with
respect to any of its capital stock (other than stock dividends or similar
recapitalizations).
2.6 This Note is issued to Payee in connection with an Agreement and
Plan of Merger, dated December 4, 1998, in connection with the acquisition by
Maker of Steritek, Inc. If Maker takes any action with respect to Steritek,
Inc. that results in a second disposition by a related person within the
meaning of Section 453(e) of the Internal Revenue Code of 1986, as amended,
this Note shall become due and payable on the date of such second disposition.
REPRESENTATIONS AND WARRANTIES
Maker hereby represents and warrants to Payee as of the date hereof as
follows:
3.1 Maker is a corporation duly organized, validly existing and in good
standing under the laws of the State of New Jersey and has all necessary power
and authority to carry on its business as presently conducted and to own and
lease the assets which it owns and leases and to perform all of its
obligations under each agreement and instrument by which it is bound.
3.2 Maker has the corporate power and authority to enter into and
perform its obligations under this Note. The execution, delivery and
performance by Maker of this Note has been duly authorized by all necessary
corporate action. This Note has been duly and validly executed and delivered
by Maker and constitutes the legal, valid and binding obligation of Maker
enforceable against it in accordance with its terms, except as such may be
limited by bankruptcy, insolvency, moratorium, reorganization or other similar
laws relating to or affecting the enforcement of creditors' rights generally.
3.3 The execution, delivery and performance of this Note does not and
will not violate or conflict with, result in a breach of, or constitute a
default or otherwise cause any loss of benefit under (i) Maker's certificate
of incorporation and bylaws; (ii) any statute, law, ordinance, rule or
regulation or any order, writ, injunction, judgment, plan or decree of any
court, arbitrator, department, commission, board, bureau, agency, authority,
instrumentality or other body, whether federal, state, municipal, foreign or
other, applicable to Maker or by which Maker or any of its assets are bound;
or (iii) any agreement or other obligation to which Maker is a party or by
which it or any of its assets are bound.
SECURITIES LAWS REPRESENTATIONS AND WARRANTIES
Payee represents and warrants to Maker that this Note is being acquired
by Payee for his own account, not as a nominee or agent, and without a view
to resale or other distribution within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
thereunder, and Payee will not distribute this Note in violation of the
Securities Act. Payee (i) acknowledges that this Note is not registered under
the Securities Act and must be held indefinitely by him unless it is
subsequently registered under the Securities Act or an exemption from
registration is available, (ii) is aware that Rule 144 is not presently
available for use by Payee for resale of this Note, and (iii) is aware that
Maker is not obligated to register any sale, transfer or other disposition of
this Note.
SUBORDINATION
Payee covenants and agrees at the request of Maker from time to time to
execute and deliver to Maker's principal lender, which may be a bank or other
financial institution ("Senior Lender"), a subordination agreement, including
any amendment thereto or substitution thereof (as reasonably required), in
form and substance reasonably satisfactory to Payee, Maker and the Senior
Lender (the "Subordination Agreement"), subordinating Payee's rights to
receive payments hereunder to the rights of such Senior Lender to
receive payments with respect to any indebtedness of Maker held by such
Senior Lender.
DEFAULT
6.1 The occurrence of any of the following shall constitute an Event of
Default hereunder:
(a) if at any time Maker has not made all required interest and
principal payments under this Note and such nonpayment continues for a period
of twelve (12) consecutive calendar months, and during such twelve (12) month
period, Maker has not been in material compliance with all its financial
covenants under all documents directly relating to Maker's borrowing of money
from the Senior Lender;
(b) if at any time Maker has not made any required interest payment
within 30 days of its due date;
(c) if at any time during the period commencing on the First
Payment Date and ending on the date on the second anniversary hereof, Maker
is six (6) months behind in the principal portion of payments due under this
Note (as determined from the Amortization Schedule), and during such six (6)
month period, Maker has been in material compliance with all its financial
covenants under all documents directly relating to Maker's borrowing of money
from the Senior Lender;
(d) if at any time during the period commencing on the date on the
second anniversary hereof and ending on the Maturity Date (in accordance with
the Amortization Schedule), Maker is three (3) months behind in the principal
portion of payments under this Note (as determined from the Amortization
Schedule), and during such three (3) month period, Maker has been in material
compliance with all its financial covenants under all documents directly
relating to Maker's borrowing of money from the Senior Lender;
(e) the Senior Lender accelerates any of Maker's debt to the Senior
Lender;
(f) material breach by Maker of any warranty, covenant or agreement
herein (other than payment defaults covered by Section 8.1(a)) or in the
Agreement and Plan of Merger dated as of December 4, 1998 among Maker, Payee,
Steritek, Inc. and QPSI Steritek Acquisition, Inc., which breach is not cured
after thirty (30) days written notice thereof to Maker;
(g) sale, transfer, assignment or other disposition of all or
substantially all of Maker's assets; or
(h) institution of any proceedings by or against Maker under any
law relating to bankruptcy, insolvency, reorganization or other form of debtor
relief or Maker's making an assignment for the benefit of creditors, or the
appointment of a receiver, trustee, conservator or other judicial
representative for Maker or Maker's property.
6.2 Upon the occurrence of any Event of Default, all amounts payable
hereunder shall, at Payee's option but without notice or demand, become
immediately due and payable, and Payee shall thereupon have all rights and
remedies provided hereunder, in any other agreement between Payee and Maker
or otherwise available at law or in equity cumulatively and not exclusively.
6.3 No failure or delay on the part of Payee to insist on strict
performance of Maker's or any guarantor's obligations hereunder or to exercise
any remedy shall constitute a waiver of Payee's rights in that or any other
instance. No waiver of any of Payee's rights shall be effective unless in
writing, and any waiver of any default or any instance of non-compliance shall
be limited to its express terms and shall not extend to any other default or
instance of non-compliance.
MISCELLANEOUS
7.1 Maker and each endorser and guarantor hereby waive presentment,
notice of nonpayment or dishonor, protest, notice of protest and all other
notices in connection with the delivery, acceptance, performance, default or
enforcement of payment of this Note.
7.2 Any provision hereof found to be illegal, invalid or unenforceable
for any reason whatsoever shall not affect the validity, legality or
enforceability of the remainder hereof.
7.3 If the effective interest rate on this Note would otherwise violate
any applicable usury law, then the interest rate shall be reduced to the
maximum permissible rate and any payment received by Payee in excess of the
maximum permissible rate shall be treated as a prepayment of the principal of
this Note.
7.4 This Note shall be binding upon Maker's successors and assigns and
shall inure to the benefit of Payee and each of Payee's successors, endorsees
and assigns.
7.5 Any notices required or permitted hereunder shall be in writing and
shall be deemed to be properly given when sent by fax, with transmission
satisfactorily confirmed, or personally delivered to the party to whom notice
is being given or when sent by certified or registered mail, postage prepaid,
properly addressed to the party to whom notice is being given at the address
stated below:
If to Payee: Mr. Albert Wozniak
c/o Steritek, Inc.
121 Moonachie Avenue
Moonachie, New Jersey 07074
Fax: (201) 507-1016
If to Maker: Quality Packaging Specialists, Inc.
5 Cooper Street
Burlington, New Jersey 08016
Attn: K. Michael Ricketts, President and Chief Executive
Officer
Fax: (___) ___-____
or, as in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other.
7.6 This Note 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.
7.7 If either party hereto incurs any costs or expenses in connection
with any dispute arising under this Note, the prevailing party to such dispute
shall be entitled to recover from the non-prevailing party such prevailing
party's reasonable costs and expenses, including, without limitation,
reasonable attorneys' fees and costs, incurred in prosecuting or defending
such dispute, as the case may be.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, has
duly executed and delivered this instrument.
QUALITY PACKAGING SPECIALISTS, INC.
By:________________________
K. Michael Ricketts
President and Chief Executive Officer
Accepted and Agreed:
______________________
Albert J. Wozniak
GUARANTEE
The undersigned hereby jointly and severally guarantee Maker's payment
of and the performance of its obligations under this Note.
______________________ _____________________
K. Michael Ricketts Alan Wozniak
<PAGE>
Exhibit 5.01(d)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the __ day of _______, 199_ (the
"Agreement"), by and between Quality Packaging Specialists, Inc., a New Jersey
corporation (the "Company"), and Albert Wozniak ("Employee").
Background
1. Prior to the date hereof, the Employee has been employed by Steritek,
Inc. ("Steritek") and on the date hereof, the Company has acquired Steritek
through the merger of a wholly-owned subsidiary ("Sub") of the Company into
Steritek (the "Merger") pursuant to the terms of an Agreement and Plan of
Merger dated ________, 1998 among the Company, Sub, Employee and Steritek (the
"Merger Agreement").
2. The Company desires to retain the Employee following the Merger and
the Employee desires to accept employment by the Company and to render
services to the Company, all on the terms and conditions herein provided.
3. The execution and delivery of this Agreement by Employee is a
condition to the closing of the transactions contemplated by the Merger
Agreement.
In consideration of the foregoing recitals and the mutual agreements
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
CAPACITY AND DUTIES
1.1 Employment; Acceptance of Employment. The Company hereby employs
Employee and Employee hereby accepts employment by the Company, in each case,
for the period and upon the terms and subject to the conditions hereinafter
set forth.
1.2 Capacity and Duties. Employee shall perform such duties, and shall
have such authority, as may from time to time be specified by the Board of
Directors of the Company.
(a) Except as otherwise provided in this Section, throughout the
term of this Agreement, Employee 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 the
Company, and Employee shall not be employed by, participate or engage in, or
be a part of, in any manner, the management or operation of any business
enterprise other than the Company and its Affiliates (as defined below)
without the prior written consent of the Board of Directors of the Company,
which consent may be granted or withheld in the sole discretion of the Board
of Directors of the Company. For purposes of this Agreement, "Affiliate"
means any person or entity Controlling or Controlled by or under common
Control with the Company. For 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 purposes of the definition of
"Affiliate."
(b) Employee shall perform his duties for the Company from the
Company's office located in Moonachie, New Jersey except for periodic business
trips that may be necessary or appropriate in connection with the performance
of Employee's duties hereunder.
1.3 Election to Board of Directors. The Company shall use its best
efforts to cause the shareholders of the Company to elect Employee to the
Board of Directors of the Company to serve as a director in accordance with
the bylaws of the Company.
TERM OF EMPLOYMENT; TERMINATION
2.1 Term; Automatic Termination; Consulting Agreement. Unless earlier
terminated as hereinafter provided, the term of Employee's employment
hereunder shall commence on the date hereof and shall automatically terminate
on December 31, 1999, upon which the parties shall execute a consulting
agreement (the "Consulting Agreement") effective January 1, 2000 for a three
(3) year term containing terms substantially similar to those contained herein
except that (i) Employee shall not be required to work more than twenty (20)
hours per month and (ii) Employee's compensation shall be $200,000 per annum.
2.2 Other Termination Events.
(a) Death. Employee's employment hereunder shall immediately
terminate upon the death of Employee, in which event the Company shall not
thereafter be obligated to make any further payments hereunder other than
amounts accrued under this Agreement as of the date of Employee's death.
(b) Disability. In the event that Employee, in the opinion of the
Board of Directors of the Company, is for any reason unable to perform (for
a period of 60 consecutive days) the duties to be performed by Employee
hereunder, the Board of Directors of the Company shall have the option to
terminate Employee's employment by giving written notice to Employee at any
time during the continuation of such inability, in which event the Company
shall not be obligated to make any further payments hereunder other than
amounts accrued under this Agreement as of the date of such termination.
(c) Discharge for Cause. Employee's employment hereunder shall
terminate immediately if the Board of Directors of the Company makes a
determination that there are grounds to dismiss Employee for Cause (as
hereinafter defined), in which event the Company shall not be obligated to
make any further payments hereunder other than amounts accrued as of the date
of termination. "Cause" shall mean the following: (i) Employee's failure to
perform his duties under this Agreement or to follow the reasonable directions
of the Board of Directors of the Company; (ii) Employee's conviction of a
felony; (iii) theft, misappropriation or embezzlement by Employee of the
Company's funds; (iv) fraud committed by Employee in connection with his
employment; or (v) habitual intoxication of Employee, intoxication of Employee
while performing his duties for the Company, or abuse of controlled substances
by Employee.
COMPENSATION
3.1 Salary. As compensation for the services rendered by Employee to
the Company pursuant to this Agreement, the Company shall pay to Employee
during the term hereof a salary at the initial rate of $300,000 per annum,
subject to customary deductions for employment taxes, payable bi-weekly on
normal pay days; provided, however, for calendar year 1999, Employee's total
salary shall be equal to $300,000 minus the aggregate compensation Employee
received from Steritek during the 1999 calendar year.
3.2 Expense Reimbursement. During the term of this Agreement and after
receipt of itemized vouchers therefor or other supporting information as the
Company may reasonably require, the Company shall reimburse Employee for (a)
all reasonable expenses (not including auto and travel expenses) incurred by
Employee in connection with the performance of Employee's duties hereunder,
up to a maximum of $3,000 per calendar month, and (b) all reasonable auto and
travel expenses incurred in connection with the performance of Employee's
duties hereunder, up to a maximum of $35,000 per year. The Company
acknowledges and agrees that Employee is not required to seek or receive the
Company's prior approval for Employee's incurrence of reimbursable expenses.
3.3 Health Insurance; Other Benefits. During the term of this
Agreement, Employee shall be entitled to receive such additional benefits
(including without limitation health insurance) which are available from time
to time to executives at substantially the same level as Employee.
RESTRICTIVE COVENANTS
4.1 Confidentiality. Employee acknowledges a duty of confidentiality
owed to the Company and agrees that Employee shall not, at any time during or
after his employment by the Company, retain in writing, use, divulge, furnish,
or make accessible to anyone, without the express authorization of the
Company, any trade secret, private or confidential information, or knowledge
of the Company or any of the Company's Affiliates obtained or acquired by
Employee while so employed. All customer lists, price lists, contract forms,
catalogs, books, records, and files are acknowledged to be the property of the
Company and shall not be duplicated or made use of other than in pursuit of
the Company's business, and, upon termination of Employee's employment for any
reason, Employee shall deliver to the Company, without further demand, all
copies thereof which are then in Employee's possession.
4.2 Inventions and Improvements. Employee hereby acknowledges that
all ideas, discoveries, inventions, and improvements which are made,
conceived, or reduced to practice by Employee in the course of rendering his
services to the Company, and every item of knowledge relating to the Company's
business interests (including potential business interests) gained by Employee
during Employee's employment hereunder, are the property of the Company, and
Employee hereby irrevocably assigns all such ideas, discoveries, inventions,
improvements, and knowledge to the Company for the Company's sole use and
benefit, without additional compensation. It shall be conclusively presumed
that ideas, inventions, and improvements relating to the Company's business
interests or potential business interests conceived during Employee's period
of employment with the Company are, for the purposes of this Agreement, the
property of the Company, and it shall be presumed (which presumption may be
rebutted by clear and convincing evidence to the contrary) that all ideas,
inventions, and improvements relating to the Company's business interests or
potential business interests made, conceived or reduced to practice by
Employee within six months after termination of Employee's employment, were
conceived during Employee's employment by the Company.
(a) Employee shall, upon request of the Company, at any time and
from time to time during or after Employee's employment with the Company, sign
all instruments and documents requested by the Company, and otherwise
cooperate with the Company, to protect the Company's right to such ideas,
discoveries, inventions, improvements, and knowledge (including, without
limitation, by applying for, obtaining and enforcing, and using his best
efforts to aid the Company in applying for, obtaining and enforcing, patents
and copyrights thereon).
4.3 Noncompetition. During the term of this Agreement and the
Consulting Agreement and for a period of two (2) years following the
expiration of the term of the Consulting Agreement, Employee shall not
directly or indirectly engage anywhere in the World in any business which
competes with the business conducted by the Company (the "Business"); 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 engaged in the Business; seek in competition with the business of
the Company to procure orders from or do business with any customer of the
Company; solicit, or contact with a view to the engagement or employment by
an person or entity of any person who is an employee of the Company; seek
to contact with or engage (in such way as to adversely affect or interfere
with the business of the Company) any person or entity who has been contracted
with or engaged to manufacture, assemble, supply or deliver products, goods,
materials or services to the Company; or engage in or participate in any
effort or act to induce any of the customers, associates, consultants, or
employees of the Company to take any action that might be disadvantageous to
the Company; provided, however, that nothing herein shall prohibit Employee
from owning, as a passive investor, in the aggregate not more than 2% of the
outstanding publicly traded stock of any corporation so engaged; provided
further, however, if an action or omission of the Company causes a material
Event of Default (as defined in the Merger Agreement or the Note (hereinafter
defined)) under the Merger Agreement or the 8% Guaranteed Subordinated
Promissory Note dated the date hereof from the Company to Employee (the
"Note") or a material breach of this Agreement, and such Event of Default
or material breach continues for a period of 6 months, Employee's
obligations under this Section 4.3 shall be suspended until such Event
of Default or material breach is cured by the Company.
4.4 Injunctive and Other Relief. Employee 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 Employee of his covenants contained herein and
accordingly expressly agrees that, in addition to any other remedies which the
Company may have, the Company shall be entitled to injunctive relief in any
court of competent jurisdiction for any breach or threatened breach of any
such covenants by Employee. Nothing contained herein shall prevent or delay
the Company from seeking, in any court of competent jurisdiction, specific
performance or other equitable remedies in the event of any breach or intended
breach by Employee of any of his obligations hereunder.
(a) Notwithstanding the equitable relief available to the Company,
Employee, in the event of a breach of his covenants contained in Section 4
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 the Company until and unless the Company
can obtain such equitable relief. Therefore, in addition to such equitable
relief, the Company shall be entitled to damages for any such period of breach
until the termination of such breach, as provided in Section 5.1 hereof. If
Employee should use or reveal to any person or entity any confidential
information, such use or revelation would be considered a continuing violation
on a daily basis for as long as such confidential information is made use of
by Employee.
(b) If any of the provisions of this Article 4 are held to be in
any respect unenforceable in any jurisdiction, then such provisions shall be
deemed to extend only over the maximum period of time, geographic area, and/or
range of activities as to which they may be enforceable in such jurisdiction,
such amendment to apply only within the jurisdiction of the court which has
held such provision to be unenforceable.
MISCELLANEOUS
5.1 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
in arbitration in Princeton, New Jersey, pursuant to the rules and regulations
then obtaining of the American Arbitration Association. 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. Nothing
herein shall preclude the Company from seeking, in any court of competent
jurisdiction, specific performance or other equitable remedies in the case of
any breach or threatened breach by Employee of Article 4.
(b) Discovery shall be allowed pursuant to the intent of the United
States Federal Rules of Civil Procedure and as the arbitrators determine
appropriate under the circumstances.
(c) Such arbitrators shall be required to apply the contractual
provisions hereof in deciding any matter submitted to them 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.
5.2 Prior Employment. Employee represents and warrants that Employee,
by his acceptance of employment with the Company and the performance of
Employee's duties hereunder, will not breach the provisions of any contract,
agreement or understanding to which Employee is party or any duty owed by
Employee to any prior employer or other person or entity.
5.3 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including, without limitation, telex,
telecopier, facsimile device or similar writing) and shall be given to such
party at such party's address, telex, telecopier or facsimile device number
set forth below, or such other address, telex, telecopier or facsimile device
number as such party may hereafter specify for such purpose. Each such
notice, request or other communication shall be effective (i) if given by
telex, telecopy or facsimile, the beginning of the next business day when such
telex, telecopy or facsimile is transmitted to the telex or telecopy/facsimile
number specified in this Section provided the appropriate answer back is
received, (ii) if given by mail, 72 hours after such communication is
deposited in the mail with first class postage prepaid, addressed as
aforesaid, or (iii) if given by any other means, when delivered at the address
specified in this Section:
To the Company at:
Quality Packaging Specialists, Inc.
5 Cooper Street
Burlington, New Jersey 08016
Attn: K. Michael Ricketts, President
With a copy to:
Thomas A. Belton, Esq.
Drinker Biddle & Reath LLP
105 College Road East
P.O. Box 627
Princeton, New Jersey 08542-0627
To Employee at:
Albert Wozniak
c/o Steritek, Inc.
121 Moonachie Avenue
Moonachie, New Jersey 07074
With a Copy to:
Jeffrey Kramer, Esq.
McManimon & Scotland, LLC
One Riverfront Plaza
Newark, New Jersey 07102
5.4 Indulgences; Waivers. Neither the failure nor any delay on the part
of the Company or Employee 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, nor shall any waiver of any 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.
5.5 Assignment. This Agreement shall not be assignable by Employee, and
shall be assignable by the Company only to any person, firm, or corporation
which may become a successor in interest by purchase, merger, or otherwise to
the Company in the business or a portion of the business presently operated
by the Company.
5.6 Entire Agreement. This writing represents the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings of the parties in
connection therewith. This Agreement may not be altered or amended except by
an agreement in writing executed by both parties.
5.7 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns,
heirs, executors, and administrators. If any provision of this Agreement
shall be or become illegal or unenforceable in whole or in part for any reason
whatsoever, the remaining provisions shall nevertheless be deemed valid,
binding, and subsisting.
5.8 Governing Law. This Agreement and all questions relating to its
validity, interpretation, performance, and enforcement shall be governed by
and construed in accordance with the internal laws of the State of New Jersey
without regard to the otherwise applicable principles of conflicts of laws of
such state.
5.9 Headings. The headings of paragraphs in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
effective as of the date first above written.
ATTEST: QUALITY PACKAGING SPECIALISTS, INC.
By:_______________________
WITNESS: EMPLOYEE
___________________________
Albert J. Wozniak
<PAGE>
Exhibit 5.01(e)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is effective as of the [1st day of March 1999],
between QUALITY PACKAGING SPECIALISTS, INC., a New Jersey corporation, having
its principal place of business at 5 Cooper Street, Burlington, New Jersey
(the "Corporation") and James K. Wozniak, residing at 301 Rea Avenue
Extension, Hawthorne, New Jersey 07506 ("Employee").
WITNESSETH:
WHEREAS, the Corporation is engaged in the business of contract
packaging; and
WHEREAS, Employee has experience and knowledge in the business in which
the Corporation is involved and wishes to become a full-time employee of the
Corporation; and
WHEREAS, Employee is currently employed as Vice President and Chief
Financial Officer of Steritek, Inc. ("Steritek") upon the terms and conditions
of an Employment Agreement dated as of March 1, 1998 between Employee and
Steritek (the "Original Employment Agreement"); and
WHEREAS, the Corporation and Steritek have entered into an Agreement and
Plan of Merger dated as of December 4, 1998 (the "Merger Agreement") pursuant
to which the Corporation will acquire Steritek through a merger of a wholly
owned subsidiary of the Corporation into Steritek; and
WHEREAS, the Merger Agreement requires, as a condition to closing, that
(i) Employee terminate his employment relationship with Steritek and (ii)
become an employee of the Corporation, upon the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the foregoing and mutual covenants
herein contained, the parties agree as follows:
1. Resignation; Employment.
(a) Employee hereby agrees to resign as Vice President and Chief
Financial Officer of Steritek, effective immediately. Employee agrees that
Steritek has no further obligations to Employee resulting from Employee's
relationship with Steritek, including without limitation any obligations
relating to the Original Employment Agreement.
(b) The Corporation hereby employs Employee to serve as Vice
President of the Corporation in charge of the facility located in Moonachie,
New Jersey (the "Position") and Employee hereby accepts such employment.
Employee will devote his full-time and attention, during normal business
hours, to performing all duties assigned or delegated to him by the President
and the Board of Directors of the Corporation.
(c) Employee will be required to discharge his duties in the
Position in accordance with the rules and regulations of the Corporation.
(d) On a periodic basis during the term of this Agreement, Employee
will be required to provide the President of the Corporation with periodic
reports on his employment activities on behalf of the Corporation.
2. Compensation.
(a) For his services hereunder, Employee shall receive a base
salary of $125,000 per year, payable on the Corporation's regular paydays.
In addition, the Employee shall be entitled to receive a bonus, in the amounts
and at the times as shall be determined by the Board of Directors of the
Corporation.
(b) The Employee's base salary shall be reviewed by the Board of
Directors on an annual basis and upon such review, shall be increased in such
amount as the Board of Directors, in its discretion, determines, but in no
event shall such increase be less than five percent (5%) of the Employee's
base salary for the previous year.
(c) In addition to the base salary to which Employee is entitled
under Paragraph 2 (a), Employee shall be entitled to participate in fringe
benefit plans which the Corporation may offer or establish from time to time
for employees of equal or lesser rank; provided, however, that this provision
shall not require that the Corporation establish or continue any specific
fringe benefit plan. The Employee shall be provided a new company car at
least every three years, of a model commensurate with his position and as
approved by the President.
(d) All compensation paid to Employee shall be subject to the
customary withholding of taxes as required by law.
3. Business Expenses.
(a) The parties acknowledge that Employee may incur, from time to
time, for the benefit of the Corporation, and in furtherance of the
Corporation's business, various expenses such as travel, entertainment and
promotional expenses. The Corporation agrees that it shall either pay such
expenses directly, advance sums to Employee to be used for payment of such
expenses, or reimburse Employee for such expenses incurred by him, subject to
the approval of such expenses by the Board of Directors of the Corporation.
(b) Employee agrees to submit to the Corporation such documentation
as may be reasonably necessary to substantiate the expenses paid or
reimbursed pursuant to this Paragraph
4. Performance of Employment. Employee will observe and comply with
such reasonable rules, regulations and policies as may from time to time be
established, in writing, by the Board of Directors of the Corporation or his
designee.
5. Vacation; Other Leave. Each year during this Agreement, Employee
shall be entitled to not less than four (4) weeks vacation per calendar year
(prorated for partial years) with at least one (1) week of work separating
each week of vacation. Employee shall also be entitled to additional leave
to attend business related conventions, meetings, and programs, all without
reduction in salary hereunder in accordance with the Corporation's standard
policies. Scheduling of vacation and other voluntary leave shall only be
completed after receiving the approval of the Board of Directors or the
President of the Corporation and at a time and manner which shall not
interfere with the proper operation of the business of the Corporation.
Promptly after the end of each calendar year, Employee shall be paid for all
unused vacation. In addition to any other compensation paid to Employee
hereunder, if Employee has been in full compliance with the terms and
conditions of this Paragraph 5 during any entire calendar year during the term
of this Agreement, the Corporation shall pay Employee, within 30 days after
the end of such calendar year, an amount equal to one (1) week's salary.
6. Employment Conduct and Confidential Information.
(a) Employee shall at all times during the term of this Agreement
observe and conform to all the laws regulating the business of the
Corporation.
(b) Employee recognizes that during the term of this Agreement, he
will necessarily become privy to certain confidential and proprietary
information of the Corporation (hereinafter referred to as "Confidential
Data"). Confidential Data shall be considered to be all information, not
otherwise public knowledge, concerning the identity of the Corporation's
customers and suppliers, technical and business activities, plans, operations,
pricing and procedures, which Confidential Data is designated in writing to
be confidential or proprietary. Employee agrees that he will hold all
Confidential Data in the strictest confidence and that he will not disclose
to any person entity for any reason nor use any Confidential Data in any way
other than on behalf of the Corporation or as the Corporation may otherwise
direct.
(c) Employee agrees that all business records and files, including
but not limited to memoranda, notes and proposals pertaining to the business,
products or processes of the Corporation, shall be the sole property of the
Corporation and he shall not retain, remove or copy such materials during the
term of this Agreement or upon its termination or expiration, without the
prior express written consent of the Board of Directors of the Corporation.
Upon the termination of this Agreement or at any other time upon the request
of the Board of Directors, Employee shall deliver all such materials to the
Corporation.
7. Term of Employment. The term of this Agreement shall be for five
(5) years commencing on the Closing Date (as defined in the Merger Agreement)
and ending on February 29, 2004 (the "Term", including any renewals thereof).
Thereafter, this Agreement shall automatically renew for successive one (1)
year terms, unless either party gives sixty (60) days written notice of his
or its intent not to renew prior to the end of the then current term.
8. Termination of Employee; Effect of Termination.
(a) Disability. If, during the term of this Agreement, Employee
becomes physically or mentally disabled so as to become unable for a period
of more than six (6) consecutive months to perform his duties hereunder on
substantially a full-time basis as determined by the Corporation (in its sole
reasonable discretion), Employee's total compensation shall be reduced to 50%
of his base salary. If Employee's disability continues for six (6) additional
consecutive months, the Corporation may, at its option, terminate Employee's
employment hereunder without further financial obligation, effective as of the
end of the twelfth (12th) consecutive month of disability except as stated
hereafter. For purposes of this provision, separate periods of disability
shall be counted as continuous if separated by less than thirty (30) days, but
the periods of separation shall not be counted for purposes of calculating the
total period of disability.
(b) Cause. The Corporation may immediately terminate Employee's
employment under this Agreement for "cause", at any time during the initial
or any renewal term. For purposes of this Agreement, the term "cause" for
immediate termination shall mean: (i) Employee being convicted of a crime
of the first or second degree, as evidenced by a final judgment, order or
decree of a court of competent jurisdiction; or (ii) any act of gross
negligence or gross misconduct on the part of Employee with respect to his
duties under this Agreement. For purposes of this provision, gross
negligence or gross misconduct shall include, without limitation,
embezzlement, theft, fraud or criminal conduct. If Employee is terminated
for cause, the Corporation's obligations to Employee hereunder, including
without limitation Employee's salary and benefits, shall immediately
terminate, except that the Corporation will reimburse Employee for any
reasonable business expenses incurred prior to termination.
(c) Non-Performance. The Corporation may terminate Employee's
employment under this Agreement for "non-performance", during the initial or
any renewal term, upon thirty (30) days prior notice to Employee unless
Employee cures such non-performance within such thirty (30) day period, or if
such non-performance cannot be completely cured within such thirty (30) day
period and Employee uses his best efforts to cure such non-performance and
continues same diligently, Employee's employment shall not terminate unless
such non-performance has not been cured within sixty (60) days after the
Corporation's initial notice. For purposes of this Agreement, the term "non-
performance" shall mean Employee's failure to materially comply with the
reasonable guidelines and directions of the Board of Directors. If Employee
is terminated for non-performance, the Corporation shall, promptly after
termination, make a final payment to Employee in an amount equal to 50% of the
base salary Employee would have received for the unexpired balance of the
Term.
(d) Termination By the Corporation For Reason Other Than
Disability, Cause or Non-Performance. If the Corporation terminates
Employee's employment for any reason other than for "disability", "cause" or
"non-performance", the Corporation shall, promptly after termination, make a
final payment to Employee in an amount equal to 100% of the base salary
Employee would have received for the unexpired balance of the Term.
(e) Termination By Employee. If Employee terminates this Agreement
for any reason, the Corporation's obligations to Employee hereunder, including
without limitation Employee's salary and reimbursement of Employee's expenses,
shall immediately terminate.
(f) Payment of Accrued Salary and Expenses. Within thirty (30)
days of termination of this Agreement for any reason, the Corporation shall
pay Employee an amount equal to the sum of (i) salary accrued to the
termination date, but unpaid as of the termination date, and (ii) expenses
incurred prior to the termination date and requiring reimbursement pursuant
to Paragraph 3 above, but not reimbursed as of the termination date.
9. Inventions, Creations and Discoveries. Employee acknowledges that
during the course of his employment he may, either alone or in conjunction
with others, be responsible for the creation or development of inventions,
processes, materials or property (hereinafter referred to as "Materials").
Employee agrees that he will disclose all such Materials to the Board of
Directors of the Corporation. Employee acknowledges that all such Materials
developed during the term of this Agreement shall be the property of the
Corporation whether or not patent or copyright applications are filed with
respect thereto from the date of their conception. If an assignment is
necessary to transfer ownership thereof to the Corporation, Employee agrees
that this Agreement, without more, shall constitute such an assignment. At
the Corporation's request, Employee shall be required to make or assist in the
filing of letters of patent, copyright applications or the like with respect
to such materials. All such filings shall be made, if possible, in the name
of the Corporation, at its expense. If such filings are required after the
termination of Employee's employment by the Corporation, he shall receive
reasonable compensation for his assistance. If made during the term of his
employment, Employee shall receive no additional compensation therefor.
10. Assignment Prohibited. This Agreement is personal to each of the
parties hereto and neither party may assign or delegate any of its rights or
obligations hereunder without first obtaining the written consent of the
other.
11. Continuity of Contract. Corporation is prohibited from merging or
consolidating with any other corporation or business or from selling its
Businesses outright unless the succeeding or surviving corporation or business
expressly assumes the rights and obligations of the Corporation herein set
forth with amendment.
12. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties.
13. Governing Law. This Agreement shall be governed in all respects by
the laws of the State of New Jersey.
14. Paragraph Heading. The paragraph headings used in this Agreement
are included solely for convenience and shall not affect or be used in
connection with the interpretation of this Agreement.
15. Waiver, Modification, Cancellation. Any waiver, alteration or
modification of any of the provisions of this Agreement or cancellation or
replacement of this Agreement shall not be valid unless in writing and signed
by all of the parties hereto.
16. Heirs and Successors. This Agreement shall be binding upon the
Corporation, Employee and their successors, heirs, assigns, personal
representatives and transferees.
17. Entire Agreement. This Agreement contains the entire agreement of
the parties regarding the subject matter hereof and supersedes all prior
agreements, understandings and negotiations regarding the same, including
without limitation the Original Employment Agreement.
18. Waiver. The waiver by either party of a breach of any provisions
contained herein must be in writing and shall in no way be construed as a
waiver of any succeeding breach of such provision or the waiver of the
provision itself.
19. Notice. Whenever under the provisions of this Agreement notice is
required to be given, it shall be in writing and shall be deemed given when
(i) hand delivered; (ii) delivered by overnight courier; (iii) transmitted by
facsimile transmission and first class mail; or (iv) mailed, postage prepaid
by registered or certified mail, return receipt requested, addressed to the
Corporation or Employee at their addresses as set forth on the first page of
this Agreement. Either party hereto may change his or its address for purposes
of this Agreement by notification to the other party in accordance with this
Paragraph.
20. Arbitration. If either party feels that the other party is in
breach of this Agreement or any other dispute in connection with this
Agreement arises between the parties, such claim or dispute shall be submitted
to binding arbitration. Either party may initiate arbitration by giving
written notice to that effect to the other party. Within ten (10) days after
service of such written notice, each party shall designate one arbitrator.
The two arbitrators so named shall designate a third arbitrator, who shall be
an attorney licensed to practice law in the State of New Jersey, to act as the
head arbitrator; provided, however, that should the partisan arbitrators be
unable to agree upon a third arbitrator, then the third arbitrator shall be
named by a Judge of the Superior Court of New Jersey sitting in Bergen County
or the American Arbitration Association upon the application of either party.
The arbitration shall be conducted in accordance with the then prevailing
rules of the American Arbitration Association. In connection with the
arbitration, the arbitrators shall, at the request of either party, direct
that discovery be provided. If the arbitration concerns whether a termination
of Employee's Employment was for cause, the Corporation shall have the burden
of establishing that cause existed by a preponderance of the evidence. In
rendering their decision and award, the arbitrators shall not add to, subtract
form or otherwise modify the provisions of this Agreement, but rather shall
be bound thereby. Unless the arbitrators expressly provide in their award for
a different allocation of costs and expenses, each party shall bear its own
costs and expenses in connection with the arbitration and the costs and
expenses of the arbitrators shall be borne equally.
Judgment upon the award rendered by the arbitrators may be entered by any
court having jurisdiction thereof. It is expressly recognized, however, that
no claim with respect to this Agreement may be raised by either party unless
such claim is raised within two (2) years from the date on which the claim or
cause of action accrued.
21. Counterparts. The Agreement may be executed by the parties hereto
on any number of separate counterparts and all such counterparts taken
together shall constitute one and the same instrument. A facsimile mail
transmission of this document executed by a party to this Agreement shall be
treated as an original.
22. Attorney Review. Employee acknowledges that he has been advised to
have this Agreement reviewed by an Attorney at Law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
effective as of the date first above written.
ATTEST: QUALITY PACKAGING SPECIALISTS, INC.
By:_______________________
WITNESS: EMPLOYEE
___________________________
James K. Wozniak
<PAGE>
JOHN DURKIN ASSOCIATES, LLC ANNEX II
ACCOUNTANTS AND CONSULTANTS --------
19320 SONOMA HWY. SUITE B
SONOMA, CA 95476
(707) 939-0500
January 27, 1999
The Board of Directors
Steritek, Inc.
121 Moonachie Avenue
Moonachie, NJ 07074
Members of the Board of Directors:
John Durkin Associates, LLC ("Durkin") understands that Steritek, Inc.
("Steritek") is contemplating a transaction pursuant to which Quality
Packaging Specialists, Inc. ("QPSI") would acquire all the outstanding shares
(the "Shares") of the common stock of Steritek. The transaction will be
effected through a merger of a subsidiary of QPSI, formed solely to effect the
merger, and Steritek, with Steritek being the surviving corporation (the
"Merger"). Following the Merger, Steritek will be a wholly owned subsidiary
of QPSI. Each outstanding share of common stock of Steritek that is not owned
by Albert J. Wozniak ("Albert") will be acquired for $1.39 in cash without
interest. Albert will receive $1.39 for each share of common stock held by
him, of which at least $750,000 will be paid in cash with the remainder being
paid in the form of an 8% Guaranteed Subordinated Promissory Note (the
"Note") of QPSI. James K. Wozniak, Vice-President and Chief Financial
Officer of Steritek ("James") has negotiated an employment agreement with
QPSI that is consistent with his current employment agreement with
Steritek in all material respects, except that his QPSI Employment
Agreement provides for a shorter duration and expanded circumstances
for termination. Albert and QPSI have agreed to enter into an
employment agreement, on terms consistent in all material respects with
his existing employment relationship with Steritek, that will terminate
on December 31, 1999 and be followed by a consulting agreement for the
three subsequent years. The terms and conditions of the Merger are more
fully described in the proposed Agreement and Plan of Merger (the
"Merger Agreement").
You have requested that Durkin render an opinion (the "Opinion"), as
financial advisors, as to the fairness, from a financial point of view, of the
Merger consideration to the shareholders of Steritek other than Albert or
James (together the "Affiliated Shareholders") (the "Merger Consideration").
Durkin is continually engaged in the business of advising companies on
acquisition and disposition strategies and valuations for existing business
enterprises. Heretofore, Durkin has provided no services to Steritek.
In connection with the Opinion set forth herein, Durkin has, among
other things:
- reviewed the Merger Agreement, dated December 4, 1998, the Note,
Albert's Employment Agreement and James' Employment Agreement;
- reviewed Steritek's Annual Reports on Form 10-K filed with the
Securities and Exchange Commission for the years ending June 30,
1994 through June 30, 1998 and the Quarterly Reports on Form 10-Q
filed with the Securities and Exchange Commission for the quarters
ended September 30, 1998;
- reviewed the proxy statement of the most recent Shareholders'
Meeting held on April 19, 1998 as filed with the Securities and
Exchange Commission;
- reviewed historical financial results of Steritek as supplied by the
management of Steritek;
- reviewed forecasts and projections compiled by
Lear & Pannepacker, Certified Public Accountants;
- held various meetings with Steritek's management regarding the business,
operations and prospects of Steritek;
- held discussions with Steritek's independent accountants and other
advisors;
- performed due diligence, including a plant visit;
- performed various valuation analyses, as Durkin deemed appropriate, of
Steritek using generally accepted methodologies, including (1) price
earnings ratios; (2) discounted cash flow analysis; (3) liquidation
valuation, (4) leveraged buyout analysis and (5) a comparable industry
transactions analysis;
- reviewed very limited historical trading prices and volumes of Steritek's
Common Stock;
- performed such other procedures as we deemed appropriate.
In rendering the Opinion, at your direction Durkin has assumed and relied
upon the accuracy and completeness of all information supplied or otherwise
made available to Durkin by James, Albert and other Steritek personnel or
obtained by Durkin from other sources, and upon the assurance of James and
Albert that they are not aware of any information or facts that would make the
information provided to Durkin incomplete or misleading. Durkin has not
independently verified such information, undertaken an independent appraisal
of the assets or liabilities (contingent or otherwise) of Steritek, or been
furnished with any such appraisals. With respect to the financial forecasts
and projections referred to above, Durkin has been advised by Albert and
James, and has assumed, without independent investigation, that they have been
reasonably prepared and reflect the best currently available estimates and
judgments of the management of Steritek as to the expected future financial
performance of Steritek.
The Opinion is necessarily based upon financial, economic, market and
other conditions as they exist, and the information made available to Durkin,
as of the date hereof. Durkin disclaims any undertakings or obligations to
advise any person of any change in any fact or matter affecting the Opinion
which may come or be brought to our attention after the date hereof.
The Opinion does not constitute a recommendation as to any action of the
Board of Directors of Steritek or any action that any shareholder of Steritek
should take in connection with the Merger or any aspect thereof. The Opinion
relates solely to the fairness from a financial point of view as of the date
hereof and the date of the Merger Agreement of the Merger Consideration to the
shareholders of Steritek other than the Affiliated Shareholders. Durkin
expresses no opinion as to the structure, terms or effect of any other aspect
of the Merger or as to the merits of the underlying decision of Steritek to
enter into the Merger.
This letter is for the information of the Board of Directors of Steritek
for its use in evaluating the fairness from a financial point of view of the
Merger Consideration to the shareholders of Steritek other than the Affiliated
Shareholders. It may not be used for any purpose or referred to without our
prior written consent.
Based upon and subject to all of the foregoing, Durkin is of the opinion,
as a financial advisor, that, as of the date hereof and the date of the Merger
Agreement, the Merger Consideration is fair, from a financial point of view
to the shareholders of Steritek other than the Affiliated Shareholders.
Sincerely,
JOHN DURKIN ASSOCIATES, LLC
/s/ John S. Durkin
John S. Durkin
Senior Managing Director
<PAGE>
UNITED STATES ANNEX III
SECURITIES AND EXCHANGE COMMISSION ---------
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended...June 30, 1998.....................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from..............to................
Commission file number..0-12547...............................
Steritek, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-2243703
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 Moonachie Avenue, Moonachie, NJ 07074
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 460-0500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
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 [XX] 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. [ ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of September 1, 1998 was
approximately $374,311 (by reference to the last reported
transaction in the stock).
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
3,636,285 shares of Common Stock on September 1, 1998
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
STERITEK, INC.
INDEX
Pursuant to Regulation S-K showing
Location of Information Required by Items in Form 10-K
Page
Report Item and Heading Number
Part I
Item 1. Business........................................... X
Item 2. Properties......................................... X
Item 3. Legal Proceedings.................................. X
Item 4 . Submission of Matters to a Vote of Security
Holders............................................ X
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.................... X
Item 6. Selected Financial Data............................ X
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation....... X
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk........................................ X
Item 8. Financial Statements and Supplementary Data........ X
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure............. X
Part III
Item 10. Directors and Executive Officers
of the Registrant.................................. X
Item 11. Executive Compensation............................. X
Item 12. Security Ownership of Certain
Beneficial Owners and Management................... X
Item 13. Certain Relationships and Related
Transactions....................................... X
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................ X
<PAGE>
Part I
Item 1. Business.
Development of the Business of the Company
Steritek, Inc. (the "Company") is a New Jersey corporation with
its principal place of business at 121 Moonachie Avenue, Moonachie,
New Jersey 07074.
The principal business of the Company is Contract Packaging,
which involves contract packaging services and promotional
materials assembly for manufacturers of products in the pharmaceutical,
medical, personal health and beauty industries (collectively, "health
care"). The Company is also engaged in the communication, on behalf of
pharmaceutical companies and others, of medically-oriented information
to physicians through the Company's Physicians Fax Network. Until
October 6, 1995, the Company, through its BioMedical Services
business, was engaged in; (i) the distribution of its proprietary
intracranial pressure monitors, and (ii) manufacturing and supplying
products and accessories for electron microscope laboratories
(through its wholly owned subsidiary, Sterimed, Inc.). The Company
sold its BioMedical Services business on October 6, 1995. The Company's
strategy is to continue to enhance its core business of contract
packaging while developing its Physicians Fax Network.
Financial information about industry segments is contained in
Note 8 of the Notes to Consolidated Financial Statements. Note 8
sets forth, for the periods indicated, the amounts of revenue, operating
profit and identifiable assets attributable to the Company's business
segments.
Description of the Business
Contract Packaging
The Company's contract packaging services are its principal
business activity. The Company believes that the packaging of a
health care product is an integral part of its efficacy, safety and
consumer acceptance. Although many manufacturers of health care
products include packaging as part of the manufacturing process,
many of these same manufacturers utilize the services of independent
packaging companies in certain circumstances. For example, sample
distributions, special promotions and less established products are
typically characterized by lower production volumes and special
packaging needs. In addition, new product introductions and times
of peak demand may require special packaging needs and/or additional
packaging capacity. Also, certain manufacturers may not have the
necessary packaging equipment or expertise to package certain of
their products and may be unwilling to devote the capital resources
necessary to undertake packaging them. In these circumstances,
independent packagers often offer an efficient, flexible and
economical alternative to in-house packaging.
The Company provides a range of packaging services to its health
care customers. The Company packages health care products supplied
to it in bulk quantities by its customers in the form of finished
products such as feminine hygiene products, tablets, capsules,
powders, patches, ointments, lotions and liquids. The Company's
packaging services include pouch filling/sealing, blister and strip
packaging, form fill and seal, production of display units, shrink
wrapping, over wrapping, heat sealing, die cutting/laminating,
tamper evident packaging, ink jet labeling and bar coding. The
Company's major customers currently include Novartis Corporation
(formerly Ciba-Geigy Corporation), Johnson & Johnson, and
American Home Products, and it has regularly performed contract
packaging services for SmithKline Beecham, Carter Wallace and
Conair.
The Company performs its packaging services at the direction of,
and according to the specifications of, its customer. The type of
package used typically depends on the nature of the product, its
unit volume and dosage and the manufacturing and marketing requirements
of the customer. Blister packaging consists of a plastic blister
affixed to a rigid or semi-rigid backing material, through which an
individual dose is expelled. 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. Tamper-evident and child-resistant
features may take the form of blister, shrink-wrap, over-wrap or
other packaging.
After a health care product has been packaged by the Company, its
services often include inserting the products into folding cartons,
set-up boxes or other display units either produced by the Company
or supplied by the customer. The products are then either delivered
to the customer or into the customer's distribution system depending
upon the customer's instructions.
In general, health care packaging services are provided by the
Company to its customers on an "as-needed" basis, with customers
obtaining bids from several companies or selecting the Company
without a prior bidding process. Once selected by a manufacturer, the
Company typically performs packaging services for the manufacturer on a
purchase order by purchase order basis, and not pursuant to a long-
term contract. Each purchase order usually specifies a specific
quantity of product to be packaged in a particular manner and at a
specified price and time. The packaged product is usually returned
to the manufacturer for distribution and sale. The Company has no
assurance that a customer will continue to use its services after
a particular purchase order is filled. Continued use of the
Company's services is often dependent on a variety of factors, many of
which are outside of the control of the Company. These factors may
include, for example, the demand for the customer's product, the
customer's inventory levels, and the customer's use of internal or
alternative packaging capabilities. Thus, the Company's operating
results can vary significantly from period to period.
Contract packaging services represented approximately 90%,
88% and 96% of the Company's consolidated sales revenues from
continuing operations for the fiscal years ended June 30, 1998,
1997, and 1996, respectively. See Note 8 of the Notes to
Consolidated Financial Statements.
Physicians Fax Network
The Company, through its Physicians Fax Network, facilitates the
communication between certain health care companies, regulatory
agencies, and others, with physicians. Historically, this
communication has been accomplished by time consuming and costly
mailings. The Company, however, offers such persons the ability
to send communications to physicians, at their offices during
off-peak hours, via electronic facsimile transmission ("fax"), instead
of the mail. This procedure provides immediate and cost effective
communication to physicians, and also provides the sender with
documentation that the communication was sent and received. The
Physicians Fax Network is able to broadcast documents to hundreds
of thousands of locations overnight. The Company believes that this
service is particularly useful for drug manufacturers to send new
drug, recall and other priority medical communications, as well as
to facilitate other agencies, such as the American Medical Association
("AMA"), communication with physicians.
The Company has access to the fax numbers, along with certain
other data, of over 420,000 physicians and 44,000 pharmacists.
The fax transmissions are executed by the Company through selected
service companies with whom the Company has an arrangement.
The Company's Physician's Fax Network business represented
approximately 10%, 12% and 4%, of its consolidated sales revenues
from continuing operations for the fiscal years ended June 30,1998,
1997 and 1996, respectively.
Quality Assurance
Assuring the quality of health care products and the packaging in
which they are sold is extremely important to the Company and its
customers. The Company stresses quality assurance in every aspect
of its operations through a "Quality Assurance Program" ("QAP"), which
involves every employee of the Company. QAP includes training for
all employees following the date of hire and semi-annually thereafter
in all aspects of the operations of the Company. The Company believes
that its QAP program is an essential component in providing the
quality assurance and service desired by its customers.
The Company's packaging facilities are inspected by the federal
Food and Drug Administration ("FDA") on a periodic basis as part of
the Company's routine regulatory compliance, and from time to time
in connection with the FDA approval process for new and amended drug
applications. 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 each customer's
inspections varying, depending on the particular customer and
packaging service.
Marketing
The Company markets its contract packaging services primarily
through the development of relationships with managers within the
purchasing, manufacturing, quality assurance, marketing and package
development departments of health care product manufacturers.
These relationships are fostered and maintained by the Company's
management and sales force, as well as by one or more representatives
from the Company's manufacturing and quality assurance operations. The
Company's existing customers, as well as potential new customers,
are contacted on a regular basis by the Company's management and by its
sales force. The Company relies on advertising and direct mail, as
well as attendance at local and national trade shows, as part of
its marketing activities for its contract packaging services.
Customers
The Company's major customers of its contract packaging services
currently include Novartis Corporation, Johnson & Johnson and
American Home Products, and it has regularly performed contract
packaging services for SmithKline Beecham, Carter Wallace, and
Conair. Consistent with industry practice, the Company's customers
purchase services on an as-needed basis, typically pursuant to
purchase orders, rather than through long-term contracts.
For the fiscal year ended June 30, 1998, Novartis Corporation,
Johnson & Johnson and American Home Products each accounted for
more than 10% of the Company's consolidated revenues. The loss
of any of such customers could have a material adverse effect on
the Company's business. For the fiscal years ended June 30, 1997
and 1996, Novartis Corporation accounted for an aggregate of 42%
and 49%, respectively, and Johnson & Johnson accounted for an
aggregate of 25% and 31%, respectively, of the Company's sales from
contract packaging services. The Company's business with specific
customers can vary significantly from year to year.
No single customer accounts for more than ten percent of the
Company's business from the sale of its other products or services.
Competition
Competition in the health care packaging industry is intense.
The Company believes that competition for 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 a broader range of
integrated packaging services, and a large number of companies that
provide one or a few types of packaging services. In addition, many
manufacturers perform some or all of their packaging at their own
facilities and, as a result, may be considered to be competitors of
the Company. The Company currently competes with companies that are
larger and have much greater resources than the Company.
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 health care
manufacturers and the FDA, and respond to the diverse and changing
needs of the health care industry, all at competitive prices.
Government Regulation
The Company's health care 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 medical device manufacturer. The Company's facilities
undergo general FDA inspections every two years, the most recent of
which occurred on May 14, 1997. In addition, the Company's facilities
are subject to limited inspections from time to time in connection
with the Company being named on a New Drug Application ("NDA") by
a pharmaceutical manufacturer as a potential independent packager.
These inspections review the Company's capacity to package the new
drug in question. Only those companies listed in an approved NDA
may provide packaging services with respect to the product. While
the Company does not conduct any independent analysis of the products
provided by its customers for packaging, rigorous controls are
maintained to account for product utilization.
If, for any reason, the Company were to fail to comply with
the requirements of the FDA, the Company could be subject to
administrative action ranging from written citations for minor
infractions to plant shutdowns in serious cases, which could have
a material adverse affect on the Company. 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. The Company believes that it conducts its operations in
compliance in all material respects with all such rules and regulations.
The Company is subject to federal, state and local regulations
relating to the protection of the environment, but compliance with
these provisions has had no material effect upon the business or
financial position of the Company.
Inventory and Raw Materials
The Company's inventory for contract packaging services consists
primarily of plastic, aluminum foil, paperboard and corrugated
cardboard shipping cartons, as well as work in progress utilizing
this inventory. The Company does not maintain any significant finished
goods inventory. The Company purchases its raw materials, supplies
and equipment from many different suppliers and is not dependent
upon any single supplier for its requirements.
Employees
As of September 1, 1998, the Company had approximately 200 employees,
of whom 20 were engaged in executive, sales, technical and administrative
functions, and 180 were engaged in production. None of the
employees at the Company's facilities are represented by a union.
The number of persons employed by the Company fluctuates depending
upon the volume of business. The Company considers its employee
relations to be generally satisfactory, and has not experienced
any work stoppages or labor shortages.
Item 2. Properties
The Company leases 62,000 square feet of space for use as a
packaging facility, corporate headquarters and sales and
administrative offices located at 121 Moonachie Avenue, Moonachie,
New Jersey 07074. Until November 1997, the Company leased on a month-
to-month basis a 28,000 square foot building located at 106 McLean
Boulevard, Paterson, New Jersey 07514, which houses packaging
operations.
The Company believes that its present facilities are well
maintained and in good operating condition, and that such
facilities are 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's financial position. The Company has never
been subject to any product liability claims.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On April 9, 1998, the Company held its annual meeting of
shareholders.
(b) The meeting involved the election of directors. The two
directors nominated, Albert J. Wozniak and James K. Wozniak, were
reelected as directors of the Company. The Company has no other
members of the Board of Directors.
(c) The only matter voted upon was the election of directors.
The number of shares cast for the election of each of Albert J.
Wozniak and James K. Wozniak was 2,964,908. No shares were voted
against the election of such persons. 100,400 shares were not
voted.
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's Common Stock is traded in the over-the-counter market.
The market for the Company's Common Stock during the periods presented
has been represented by low volume and limited or sporadic
trades. Consequently, there are no relevant bid and asked prices
for the Company's stock. Accordingly, a table presenting the high
and low bid and asked prices for the Company's Common Stock
(published by the National Quotation Service, Inc.) has not been
included.
There were 138 holders of record of the Company's Common Stock
as of September 1, 1998, which total does not include individual
participants in security listings.
The Company has not previously declared or paid any cash
dividends on its Common Stock. The Company currently anticipates
retaining any earnings for use in the operation and expansion of
its business. Therefore, it is unlikely that dividends will be
declared in the foreseeable future.
Item 6. Selected Financial Data.
SELECTED FINANCIAL DATA
The following table presents summary historical financial
data as of the dates and for the periods indicated. The information
in the summary has been derived in part from, and should be read in
conjunction with, the consolidated financial statements, related
notes and other financial information included elsewhere in this report.
<PAGE>
<TABLE>
STERITEK, INC. & SUBSIDIARY
SELECTED FINANCIAL DATA
<CAPTION>
For the Years Ended June 30,
----------------------------------------------------------
1998 1997 1996(1) 1995 1994
---------- ---------- ---------- ---------- ----------
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Sales $8,674,561 $4,907,504 $4,714,542 $5,095,103 $3,443,986
Costs of Sales 5,764,318 2,891,755 2,731,128 2,654,980 2,161,694
S G & A 2,003,603 2,200,257 2,392,864 1,975,165 2,095,596
Operating Income
(loss) 906,640 ( 184,508) (409,450) 464,958 (813,304)
Income (loss) from
contin. operations 925,376 140,192 (523,882) 212,112 (1,037,968)
Income (loss) from
discont. operations - (67,427) 45,344 (66,738) (2,169)
Net Income(loss)(2) 925,376 72,765 (478,538) 145,374 (1,040,137)
Net Income (loss)
per share .26 .02 (.13) .04 (.29)
BALANCE SHEET DATA:
Assets $3,929,825 $2,955,033 $2,309,256 $2,977,254 $2,940,774
Assets transferred
under contractual
agreement 0 0 68,660 75,700 110,565
Net assets of
discont. operations 0 0 0 241,178 287,057
Current
Liabilities 1,046,698 1,105,567 666,964 862,899 1,097,977
Long-term debt
and capital lease
obligations,
excl. current
maturities 669,102 567,067 432,658 426,183 300,000
Shareholders'
Equity 2,214,025 1,282,399 1,209,634 1,688,172 1,542,798
Working Capital 1,242,944 711,045 344,973 435,939 327,135
- -----------------------------
</TABLE>
(1) On October 6, 1995, the Company sold all of the assets
used directly and exclusively in its ICP business and all
of its assets, subject to all of its liabilities, in its
EMS business (i.e., the BioMedical Services business).
The income statement for the years ended June 30, 1995,
1994 and 1993 have been restated and operating results
of the discontinued operations are also shown separately.
See Note 1 of the Notes to Consolidated Financial
Statements.
(2) In July 1991, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes." For the fiscal year ended June 30, 1994, the Company
adjusted the deferred tax asset, resulting in an increase in
net loss by $214,500 (($.06) per share). For the fiscal year
ended June 30, 1996, the Company adjusted the deferred tax
asset, resulting in an increase in net loss by $100,000
(($.03) per share). For the fiscal year ended June 30, 1997,
the Company adjusted the deferred tax asset, resulting in
a decrease in net loss by $361,400 ($.10 per share).
For the fiscal year ended June 30, 1998, the Company adjusted
the deferred tax asset, resulting in an increase in net
income by $555,300 ($.15 per share). See Note 9 of the
Notes to Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Management's Discussion and Analysis of Financial Condition
and Results of Operations set forth below is based upon the restated
income statement for the year ended June 30, 1995 as a result
of the October 6, 1995 sale by the Company of its BioMedical Services
business. See Note 1 to the Notes to Consolidated Financial
Statements.
Year Ended June 30, 1998 as Compared to the Year Ended June 30,
1997
Revenues from continuing operations for the year ended
June 30, 1998 increased to $8,674,561 from $4,907,504 for the same
period in 1997. Revenues for the year ended June 30, 1997 included
$4,309,091 from contract packaging and $598,413 from the Physicians
Fax Network. Revenues for the year ended June 30, 1998 included
$7,841,233 from contract packaging and $833,328 from the Physicians
Fax Network. The increase in contract packaging revenues is principally
due to a higher level of contract packaging activity. The Company
has continued to aggressively market its contract packaging business
and its Physicians Fax Network.
The Company's cost of sales represented 58.9% of sales
(or $2,891,755) for the year ended June 30, 1997, as compared to
66.4% of sales (or $5,764,318) for the year ended June 30, 1998. The
increase in cost of sales, as a percent of sales, is a result of the
change in the mix of the products packaged by the Company during the
respective periods.
Selling, general and administrative expenses ("SG&A")
for the year ended June 30, 1997 was $2,200,257 (or 44.8% of sales), as
compared to $2,003,603 (or 23.1% of sales) for the year ended June
30, 1998. The decrease in SG&A is principally a result of the
Company's overall cost reduction efforts.
Operating loss for the year ended June 30, 1997 was $184,508
as compared to income of $906,640 for the year ended June 30, 1998.
The increase in operating income is principally attributable to the
increase in contract packaging activity.
In July 1991, the Company adopted Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income
Taxes." The adoption of FAS 109 changed the Company's method of
accounting for income taxes from the deferred method (Accounting
Principles Board Opinion 11) to an asset and liability approach.
For the fiscal year ended June 30, 1998, the Company adjusted
the deferred tax asset, resulting in an increase in net income
by $555,300 ($.15 per share). See Note 9 to the Notes to
Consolidated Financial Statements.
There were no other material changes in the results of
operations in the Company's business.
Health care packaging services are typically provided
by the Company to its customers on an "as-needed" (purchase
order-by-purchase order) basis, and not pursuant to a long-term
contract. Because of the nature of the contract packaging business,
the Company's operating results can vary significantly from period
to period.
Year Ended June 30, 1997 as Compared to the Year Ended June 30,
1996
Revenues from continuing operations for the year ended
June 30, 1997 increased to $4,907,504 from $4,714,542 for the same
period in 1996. Revenues for the year ended June 30, 1996 included
$4,145,242 from contract packaging and $569,300 from the Physicians
Fax Network. Revenues for the year ended June 30, 1997 included
$4,309,091 from contract packaging and $598,413 from the Physicians
Fax Network. The increase in contract packaging revenues is principally
due to a higher level of contract packaging activity. The Company
has continued to aggressively market its contract packaging business
and its Physicians Fax Network.
The Company's cost of sales represented 57.9% of sales
(or $2,731,128) for the year ended June 30, 1996, as compared to
58.9% of sales (or $2,891,755) for the year ended June 30, 1997. The
increase in cost of sales, as a percent of sales, is a result of the
change in the mix of the products packaged by the Company during the
respective periods.
Selling, general and administrative expenses ("SG&A")
for the year ended June 30, 1996 was $2,392,864 (or 50.7% of sales), as
compared to $2,200,257 (or 44.8% of sales) for the year ended June
30, 1997. The decrease in SG&A is principally a result of the
Company's overall cost reduction efforts.
Operating loss for the year ended June 30, 1996 was $409,450
as compared to a loss of $184,478 for the year ended June 30, 1997.
The decrease in operating loss is principally attributable to the
decrease in SG&A.
Liquidity and Capital Resources
The Company's working capital on June 30, 1998 was $1,242,944.
The Company's working capital on June 30, 1997, was approximately
$711,045. The principal changes in the components of working
capital are the increases in cash and inventories as a result of
the increased contract packaging activity.
On March 12, 1998, the Company executed a Note with the Bank of
New York in the amount of $785,000, payable over four years at a
fixed interest rate of 8.09%. The Note was issued to provide working
capital and to refinance a loan on June 17, 1997, in the amount of
$700,000 from the Bank of New York, payable monthly until June 17,
2002, at prime plus 1%. The proceeds of the June 17, 1997 borrowing
were used to retire prior indebtedness of the Company and to provide
working capital for operations. On April 13, 1998, the Company
executed an additional Note with the Bank of New York in the
amount of $146,000, payable over three years at a fixed interest
rate of 8.09%. The Note was issued to provide working capital
to the Company.
On March 12, 1998, the Company obtained a line of credit from
the Bank of New York in the amount of $250,000, at prime plus 1/2%.
The Company has not drawn any funds on this line of credit as of the
date hereof.
On April 30, 1997, the Company borrowed $50,000 from Albert J.
Wozniak, the Chairman and Chief Executive Officer of the Company.
The loan bears interest at 8.5% per annum, and is payable by the
Company on demand. On May 31, 1997, the Company borrowed an
additional $50,000 from Mr. Wozniak. The May 31, 1997 loan bears
interest at 8.5% per annum, and is payable by the Company on demand.
The loans were repaid during the fourth quarter of fiscal year ending
June 30, 1998. The proceeds of the loans were used by the
Company for working capital purposes.
The Company believes that funding for anticipated operations
and capital needs will come from existing working capital and
anticipated future operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company has no market risk sensitive instruments. The
amounts included in the balance sheet at June 30, 1998 for cash
and cash equivalents, accounts receivable, prepaid expenses and other
assets, and accounts payable and accrued expenses approximated fair
value due to the short term nature of these instruments. The carrying
amount of long term debt, capital lease obligations and loan
payable-stockholder approximate fair value based on borrowing rates
currently available to the Company.
Item 8. Financial Statements and Supplementary Data.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
JUNE 30, 1998
<PAGE>
STERITEK, INC. AND SUBSIDIARY
JUNE 30, 1998
CONTENTS
Independent Auditor's Report
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
I. WEISMANN ASSOCIATES
CERTIFIED PUBLIC ACCOUNTANTS
PO BOX 2207
MORRISTOWN, NJ 07962-2207
(973) 984-8900
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
STERITEK, INC. AND SUBSIDIARY
We have audited the Consolidated Balance Sheets of Steritek, Inc.
and Subsidiary as of June 30, 1998 and 1997, and the related Consolidated
Statements of Income, Stockholders' Equity and Cash Flows for
the fiscal years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audit. The consolidated financial statements of Steritek, Inc.
and Subsidiary as of June 30, 1996 were audited by other
auditors whose report dated August 22, 1996, expressed an
unqualified opinion on those statements.
We conducted our audit 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 audit provides
a reasonable basis for our opinion.
In our opinion, the 1998 and 1997 financial statements referred
to above present fairly, in all material respects, the financial
position of Steritek, Inc. and Subsidiary as of June 30, 1998 and
1997, and the results of its operations and cash flows for the
years then ended in conformity with generally accepted accounting
principles.
/s/ I. Weismann Associates
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
August 7, 1998
<PAGE>
<TABLE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
June 30,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 557,565 212,127
Accounts receivable, (less allowances
for doubtful accounts of $7,098 and
$4,895 in 1998 and 1997, respectively) 863,843 904,425
Inventories (Note 2) 352,715 190,341
Prepaid expenses and other assets 93,219 79,719
Deferred tax asset (Note 9) 422,300 430,000
---------- ----------
Total current assets 2,289,642 1,816,612
---------- ----------
Property, equipment and
Improvements - at cost (Note 4):
Machinery and equipment 2,699,214 2,220,885
Leasehold improvements 707,204 521,060
Capital leases 300,173 283,150
Office furniture and equipment 162,234 88,861
---------- ----------
Total 3,868,825 3,113,956
Less: accumulated depreciation and
amortization 2,294,054 2,057,921
---------- ----------
Net property, equipment
and improvements 1,574,771 1,056,035
---------- ----------
Other assets - Security deposits 65,412 82,836
---------- ----------
Total $3,929,825 $2,955,033
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
June 30,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 525,613 $ 536,324
Accrued expenses 256,901 210,077
Current portion:
Long-term debt (Note 3) 222,154 140,000
Capital lease obligations (Note 4) 9,939 83,894
Loan payable - stockholder (Note 5) - 100,000
Income taxes 32,091 35,272
---------- ----------
Total current liabilities 1,046,698 1,105,567
Long-term debt liabilities:
Long-term debt (Note 3) 659,663 560,000
Capital lease obligations (Note 4) 9,439 7,067
---------- ----------
Total liabilities 1,715,800 1,672,634
---------- ----------
Commitments (Note 6)
Stockholders' equity:
Preferred stock, no par value, authorized
2,000,000 shares; none issued - -
Common stock, no par value, authorized
5,000,000 shares; issued and outstanding
3,636,285 shares (Note 7) 647,094 640,844
Retained earnings 1,566,931 641,555
---------- ----------
Total stockholders' equity 2,214,025 1,282,399
---------- ----------
Total liabilities and
stockholders' equity $3,929,825 $2,955,033
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years Ended June 30,
-----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Sales - net $8,674,561 4,907,504 4,714,542
Cost of sales 5,764,318 2,891,755 2,731,128
---------- ---------- ----------
Gross profit 2,910,243 2,015,749 1,983,414
Selling, general and administrative
expenses 2,003,603 2,200,257 2,392,864
---------- ---------- ----------
Operating income (loss) 906,640 (184,508) (409,450)
Other income 112,644 11,146 42,089
Interest expense (67,295) (47,846) (56,521)
--------- --------- --------
Income (loss) before taxes 951,989 (221,208) (423,882)
--------- --------- --------
Income taxes (Note 9):
Increase (decrease) in valuation
of the deferred tax asset 555,300 361,400 (100,000)
Current:
Federal ( 15,755) - -
State ( 3,158) - -
Deferred:
Federal (458,000) - -
State (105,000) - -
--------- ---------- ---------
Total (26,613) 361,400 (100,000)
--------- ---------- ----------
Income (loss) from operations 925,376 140,192 (523,882)
--------- --------- ---------
Discontinued operations:
Income (loss) from discontinued
operations of Bio Medical
Services (Note 1) - (67,427) 5,346
Gain on sale of Sterimed, Inc. - - 39,998
--------- --------- ---------
Total - (67,427) 45,344
-------- -------- --------
Net income (loss) $ 925,376 $ 72,765 (478,538)
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Continued)
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Earnings per common share:
Weighted-average number of
common and common equivalent
shares outstanding 3,596,700 3,586,285 3,586,285
========== ========= ==========
Earnings (loss) per share:
Income from continuing operations $ 0.26 $ 0.04 (0.14)
Discontinued operations N/A (0.02) 0.01
---------- ---------- ----------
Net income (loss) per common and
common equivalent share $ 0.26 $0.02 $(0.13)
========== ========= ==========
</TABLE>
As of June 30, 1998, 400,000 options to purchase common stock were
outstanding, priced at $.125 to $1.50, but were not included
in the computation of diluted earnings per share since the options'
exercise price equalled or exceeded management's estimate of the
average market price of common shares at June 30, 1998. (See Note
1).
The accompanying notes are an integral part of these statements.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
No Par Value Retained
--------------------
Shares Amount Earnings Total
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Balance, June 30, 1995 3,586,285 $640,844 1,047,328 1,688,172
Net loss year ended
June 30, 1996 - - (478,538) (478,538)
---------- -------- --------- ---------
Balance, June 30, 1996 3,586,285 $640,844 568,790 1,209,634
Net income year ended
June 30, 1997 - - 72,765 72,765
---------- -------- --------- ----------
Balance, June 30, 1997 3,586,285 $640,844 641,555 1,282,399
Common stock issuance 50,000 6,250 6,250
Net income year ended
June 30, 1998 - - 925,376 925,376
--------- -------- --------- ---------
Balance, June 30, 1998 3,636,285 $647,094 1,566,931 2,214,025
========== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 925,376 $ 72,765 $ (478,538)
Adjustments to reconcile net
income(loss) to net cash
provided by operating activities:
Depreciation and amortization 360,019 364,052 326,715
Amortization of patents and
excess of cost over net assets
of business acquired - - 1,029
(Gain) loss on sale of Sterimed, Inc. - 67,427 (39,998)
(Increase) decrease in valuation
of the deferred tax asset (555,300) (361,400) 100,000
Deferred taxes 563,000 - -
Amortization of Physicians Fax
Network - 100,159 100,158
Uncollectible accounts - - 19,511
Changes in assets and liabilities:
Accounts receivable 40,582 (425,921) 116,829
Inventories (162,374) (83,233) 27,269
Prepaid expenses and other assets (13,502) (18,423) (508)
Assets transferred under
contractual arrangement - 1,233 7,100
Net assets of discontinued segment - - (25,795)
Accounts payable and accrued
expenses 36,113 378,551 48,152
Income taxes (3,181) 35,272 -
---------- --------- ---------
Net cash provided by operating
activities 1,190,733 130,482 201,924
---------- --------- ---------
Cash flows from investing activities:
Increase (decrease) security
deposits 16,974 (22,035) -
Expenditures for purchase of
machinery and equipment (878,753) (351,938) (231,545)
Officer's loan:
Proceeds 50,000 100,000 -
Payments 150,000 - -
Proceeds from sale of
discontinued operation - - 300,000
---------- --------- ---------
Net cash provided (used) by
investing activities (961,779) (273,973) 68,455
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Cash flow from financing activities:
Principal payments:
Long-term debt $ (749,183) (581,667) (450,000)
Capital lease obligations (88,606) (59,144) (87,612)
Borrowings:
Long-term debt 931,000 700,000 300,000
Capital lease obligations 17,023 - -
Common stock issuance 6,250 - -
--------- -------- --------
Net cash provided (used) by
financing activities: 116,484 59,189 (237,612)
--------- -------- --------
Net increase (decrease) in cash
and cash equivalents 345,438 (84,302) 32,767
Cash and cash equivalents:
Beginning 212,127 296,429 263,662
-------- -------- --------
Ending $557,565 212,127 296,429
======== ======== ========
Supplemental disclosure of cash
flow information:
Interest paid $ 67,295 47,846 56,521
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997, AND 1996
NOTE 1 - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
BUSINESS DESCRIPTION:
- --------------------
The Company's principal business is providing contract packaging services
and promotional materials assembly for distribution by the pharmaceutical,
medical and the personal health and beauty industries. The Company is
also engaged in the communication, on behalf of pharmaceutical companies
and others, of medically oriented information to physicians through
its Physicians Fax Network (PFN). Sterimed, Inc., a wholly owned
subsidiary, was a manufacturer and supplier of products and accessories
for electron microscopes used in laboratories, whose assets were sold
in October 1995. On April 9, 1998 the corporate charter of Sterimed,
Inc. was dissolved pursuant to the laws of the State of Delaware.
The Company's distribution business involving the distribution of its
Intracranial Pressure Monitors (ICP) through its Bio Medical
Services segment was discontinued in October 1995.
DISCONTINUED OPERATION:
- ----------------------
On October 6, 1995, the Company sold all assets used in their
electron microscope business subject to all the liabilities
of Sterimed, Inc., collectively with the Bio Medical Services
Segment, to a former director/employee. The aggregate purchase
price was $600,000 for Sterimed, Inc.'s electron microscope business and
Bio Medical Services ICP business; paid $300,000 in cash, and
$300,000 by a non-interest bearing note due in monthly installments,
equal to 10% of future gross receipts of ICP. The note receivable
balance of $67,427 was written off during the fiscal year ended
June 30, 1997 due to the uncertainty of its collectability. The sale
of Bio Medical Services has not been considered a sale for
accounting purposes and the gain on disposal of the ICP
business not recognized.
Gain of the sale of Sterimed, Inc.'s electron microscope business was
$39,998.
Operating results of the Bio Medical Services Segment for the period
July 1, 1995 to October 6, 1995 are shown separately in the
accompanying consolidated statements of income for the year ended
June 30, 1996.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued):
PRINCIPLES OF CONSOLIDATION:
- ---------------------------
The consolidated financial statements include the accounts of Steritek, Inc.
and Sterimed, Inc., a wholly owned subsidiary (inactive). All material
intercompany balances and transactions during their active years have
been eliminated. On April 9, 1998 the corporate charter of Sterimed,
Inc. was dissolved pursuant to the laws of the State of Delaware.
USE OF ESTIMATES:
- ----------------
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the amounts of sales and
expenses during the reporting period. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK:
- ----------------------------
The Company maintains a bank account balance as of June 30, 1998, which
exceeds the FDIC insured limit by $431,455.
Credit sales are made to customers in the normal course of business and are
unsecured.
For the year ended June 30, 1998, the four largest customers
accounted for approximately 78% of net sales; five customers
accounted for approximately 55% of accounts receivable at
June 30, 1998.
For the year ended June 30, 1997, the three largest customers
accounted for approximately 67% of net sales; five customers
accounted for approximately 85% of accounts receivable at
June 30, 1997.
CASH AND CASH EQUIVALENTS:
- -------------------------
For purposes of the consolidated financial statements, the Company
considers all highly liquid investments with a ninety day or less
maturity to be cash equivalents.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
NOTE 1 - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued):
INVENTORIES:
- -----------
Valued at the lower of cost or market, determined by the first-in,
first-out (FIFO) method.
PROPERTY, EQUIPMENT AND IMPROVEMENTS AND RELATED DEPRECIATION AND
- -----------------------------------------------------------------
AMORTIZATION:
- ------------
Property, equipment and improvements - Stated at cost. Expenditures
for major repairs and replacements that extend the useful lives of
the property and equipment are capitalized. Upon retirement or other
disposition, the costs and related accumulated depreciation and/or
amortization are removed from the accounts with gain or loss recognized
in income. Cost of maintenance and repairs are charged to expense
as incurred.
Depreciation and amortization - Calculated under the straight-line method for
financial reporting purposes at rates based on the following estimated useful
lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Equipment held under capital lease 5 - 10
Machinery and equipment 5 - 10
Furniture, fixtures and office equipment 5 - 7
Leasehold improvements 5 - 39
</TABLE>
The accelerated cost recovery and modified accelerated cost recovery
systems are utilized for federal and state income tax purposes and for
assets acquired subsequent to December 31, 1980. The tax effect
of the greater expense allowable under this method has been provided
for in the financial statements as deferred taxes.
Depreciation and amortization was $360,019, $364,052 and $326,715 for the
years ended June 30, 1998, 1997 and 1996, respectively.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
NOTE 1 - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued):
PHYSICIANS FAX NETWORK:
- ----------------------
Marketing communication system utilizing electronic facsimile transmission
acquired June 30, 1993 for $527,000. During the year ended June 30, 1994,
the asset was reduced by $226,525 due to poor performance in the delivery of
the originally agreed upon network. Amortization was not recorded for the
year ended June 30, 1994, because the network was not operational, and
accordingly, not placed in service until the year ended June 30, 1995.
During the years ended June 30, 1997 and 1996, amortization of
$100,159 and $100,158 was charged to operations, based on a three-
year life.
COMPENSATED ABSENCES:
- --------------------
Employees are entitled to paid vacations, sick days and personal days
off, depending on job classification, length of service, and other
factors. It is impracticable to estimate the amount of compensation
for future absences, and, accordingly, no liability has been recorded
in the accompanying balance sheets. The Company's policy is to
recognize these costs when paid.
INCOME TAXES:
- ------------
Accounted for in accordance with the Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," wherein the asset and
liability method is used. Deferred taxes are recognized for temporary
differences between the basis of assets and liabilities for financial
statement and income tax purposes. The temporary differences relate
primarily to different accounting methods used for depreciation and
amortization of property and equipment and improvements, goodwill,
allowance for doubtful accounts and net operating loss carryforwards.
A valuation allowance is recorded for deferred tax assets when it is more
likely than not that some or all of the deferred tax assets will not be
realized through future operations. Accordingly, the Company has provided
a valuation allowance (based on estimated future taxable income) for the
portion of the total deferred income tax asset that will not be realized
as related to the operating loss carryforward. It is management's belief
that a substantial portion of the loss carryforward will be used in the
subsequent fiscal year and therefore the valuation allowance recorded in
the prior years has been decreased accordingly.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
NOTE 1 - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued):
NET INCOME (LOSS) PER SHARE:
- ---------------------------
Net income per common and common equivalent share was computed by dividing
net income by the weighted-average number of common shares and equivalents
(stock options) outstanding during the year ended June 30, 1998 and 1997.
Net loss per common and common equivalent share was computed by dividing net
loss by the weighted average number of common shares outstanding during the
year ended June 30, 1996.
STOCK BASED COMPENSATION:
- ------------------------
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995 and adoption of the
measurement and recognition provisions for non-employee transactions no later
than after December 15, 1995. The new standard defines a fair value method
of accounting for the issuance of stock options and other equity instruments.
Under the fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the service
period, which is usually the vesting period. Pursuant to SFAS No. 123, the
Company is not required to adopt the fair value method of accounting for
employee stock-based transactions. The Company is permitted to continue to
account for such transactions under Accounting Principles Board Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees", but commencing during the
first quarter of fiscal 1997 was required to disclose in a note to the
consolidated financial statements proforma net income, and per share amounts
as if the Company had applied the method of accounting as required in
SFAS No. 123. The adoption of this new requirement did not effect
the Company's consolidated financial statements, nor was there any
effect on proforma net income.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
- -----------------------------------
The amounts included in the balance sheet at June 30, 1998 for cash
and cash equivalents, accounts receivable, prepaid expenses and other
assets, and accounts payable and accrued expenses approximated fair value
due to the short term nature of these instruments. The carrying
amount of long term debt, capital lease obligations and loan
payable-stockholder approximate fair value based on borrowing rates
currently available to the Company.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
NOTE 2 - INVENTORIES:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Raw materials $352,715 190,341
======== =======
</TABLE>
NOTE 3 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
<S> <C> <C>
Bank of New York:
Payable in monthly installments of
$19,197 including interest at 8.09%
through March 2002; secured by
substantially all assets. $743,022 -
Payable in monthly installments of
$4,581, including interest at 8.09%
through April 2000; secured by
substantially all assets. 138,795 -
Payable in monthly installments of
$11,667 plus interest at bank base rate
plus 1% through June 2002; secured by
substantially all assets and personally
guaranteed by the President. Refinanced
March 12, 1998. - 700,000
-------- --------
Total 881,817 700,000
Less: Current portion 222,154 140,000
-------- --------
Long-term portion $659,663 560,000
======== ========
</TABLE>
<TABLE>
Maturities at June 30, 1998:
<CAPTION>
Years Ending June 30
--------------------
<S> <C>
1999 $222,154
2000 240,773
2001 251,797
2002 167,093
--------
Total $881,817
</TABLE>
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
NOTE 4 - CAPITAL LEASE OBLIGATIONS:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Machinery and equipment:
payable in monthly installments of $402,
including interest at 9.9%; maturing
January 2000 $ 7,068 11,015
payable in monthly installments of $292,
including interest at 15.17%; maturing
August 2000 6,444 -
payable in monthly installments of $288,
including interest at 12.6%; maturing
July 2000 5,866 -
payable in monthly installments of $6,661,
non-interest bearing; matured December 1997 - 79,946
-------- -------
Total 19,378 90,961
Less: Current portion 9,939 83,894
-------- -------
Long-term portion $ 9,439 7,067
======== =======
</TABLE>
<TABLE>
Maturities at June 30, 1998:
<CAPTION>
Years Ending June 30
--------------------
<S> <C>
1999 $ 9,939
2000 8,864
2001 575
-------
Total $19,378
=======
</TABLE>
NOTE 5 - LOAN PAYABLE - STOCKHOLDER:
Interest at 8.5%; payable on demand.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
NOTE 6 - COMMITMENTS:
LEASES
- ------
The Company leases its operating and corporate facilities under an
operating lease expiring in 2004 with provision for additional payments
for annual rent increases in real estate taxes and insurance. A
warehouse facility was leased on a month to month basis from October
1992, to November 1997. Total rent expense amounted to $308,299,
$353,421 and $356,973 for the years ended June 30, 1998, 1997
and 1996, respectively. The rent expense for discontinued
operations was immaterial. Rent for its corporate facilities were
in arrears in the amount of $18,716 (accrued in the current year).
Future minimum lease commitments:
<TABLE>
<CAPTION>
Years Ending
June 30 Amount
------------ ------
<S> <C>
1999 $ 267,224
2000 273,463
2001 279,702
2002 285,940
2003 273,893
Thereafter 322,852
----------
Total $1,703,074
==========
</TABLE>
LOAN PAYABLE - BANK
- -------------------
Established line of credit of $250,000 with The Bank of New York with
interest payable at prime plus one half percent. There was no
outstanding balance at June 30, 1998 and 1997.
EMPLOYMENT CONTRACT
- -------------------
Agreement for period of ten years commencing March 1, 1998 and ending
February 28, 2008, covering an officer of the Company and providing
incentive compensation in addition to annual salary of $125,000 plus
annual increases of no less than five percent.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
NOTE 7 - STOCK OPTIONS:
Plan adopted on June 24, 1992, authorizing the granting to
certain individuals performing services for the Company of either
incentive or nonqualified stock options to purchase up to 400,000 shares
of common stock. Nonqualified options to purchase 150,000 shares were
issued on this date to the directors/employees of the Company. The
exercise price of $.50 per share was the Company's estimate of the
market value at that date. The options became exercisable on
December 24, 1992 and expire on June 24, 2002.
On December 16, 1992, nonqualified options to purchase 10,000 shares were
issued to a director/employee of the Company. The exercise price of
$1.00 per share was the Company's estimate of the market value at that
date. The options became exercisable on June 16, 1993 and expire on
December 16, 2002.
On August 19, 1993, nonqualified options to purchase 210,000 shares were
issued to the directors/employees of the Company. The exercise price
of $1.50 per share was the Company's estimate of the market value at
that date. The options became exercisable on February 29, 1994 and
expire on August 19, 2003.
On September 29, 1993, nonqualified options to purchase 20,000 shares
were issued to an employee. The exercise price of $1.50 per share
was the Company's estimate of the market value at that date. The
options became exercisable on February 19, 1994 and expire on
August 29, 2003.
On November 9, 1993, the authorized number of shares of common stock
permitted to be issued pursuant to the plans adopted June 24, 1992 was
increased to 550,000.
On October 26, 1995, nonqualified options to purchase 100,000 shares
were issued to the directors/employees of the Company. The exercise
price of $.25 per share was the Company's estimate of the market
value at that date. The options became exercisable on April 26, 1995
and expire on October 26, 2005.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
NOTE 7 -STOCK OPTIONS (Continued):
On February 5, 1997 the Board of Directors approved and ratified the
repricing of 10,000 options issued December 16, 1992, 55,000 options
issued August 19, 1993 and 20,000 options issued September 29, 1993 to
a new option price of $.125.
On March 26, 1998 options to purchase 50,000 shares of the Company's
common stock were exercised at $.125 per share by a former employee.
On June 24, 1998 nonqualified options to purchase 35,000 shares of the
Company's stock were issued to a director of the Company. The exercise
price of $.25 per share was the Company's estimate of the market value
at that date.
On June 24, 1998 the board of directors approved and ratified the
repricing of 35,000 options issued to a director on August 19, 1993
to a new option price of $.25.
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company is permitted and has opted to continue to account for such
transactions under Accounting Principals Board Opinion ("APB") No. 25 with
the requirement to disclose proforma income and per share amounts as if
the Company had applied the new method. The fair value per share at
grant date equaled the exercise price, therefore having no effect on
proforma income (See Note 1).
<TABLE>
The following summarizes information relative to stock option plans:
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Options outstanding at beginning
of fiscal year 455,000 445,000 390,000
Options granted 35,000 50,000 100,000
Options cancelled (40,000) (40,000) (45,000)
Options exercised (50,000) - -
--------- --------- ---------
Options outstanding at end of
fiscal year 400,000 455,000 445,000
========= ========= =========
Option prices per share:
Granted .25 - .25
========= ========= =========
Exercised .125 - -
========= ========= =========
Cancelled .125-1.50 .50-1.25 1.00-1.50
========= ========= =========
Exercise price of options
outstanding at end of fiscal year .125-1.50 .125-1.50 .25-1.50
========== ========== ==========
</TABLE>
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
NOTE 8 - SEGMENT INFORMATION:
The Company's operations are divided into two business segments: Contract
Packaging and Physicians Fax Network (see Note 1).
<TABLE>
Operations by business segments:
<CAPTION>
Year Ended June 30, 1998
--------------------------------
Physicians
Fax Contract
Network Packaging Total
--------- --------- ---------
<S> <C> <C> <C>
Sales $833,328 7,841,233 8,674,561
Operating income 109,769 796,871 906,640
Depreciation and amortization - 360,019 360,019
Aggregate carrying amount of
identifiable assets - 3,929,825 3,929,825
Additions to machinery and equipment - 637,170 637,170
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1997
--------------------------------
Physicians
Fax Contract
Network Packaging Total
--------- --------- ---------
<S> <C> <C> <C>
Sales $598,413 4,309,091 4,907,504
Operating loss (62,070) (122,438) (184,508)
Depreciation and amortization 100,159 263,893 364,052
Aggregate carrying amount of
identifiable assets - 2,955,033 2,955,033
Additions to machinery and equipment - 351,938 351,938
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1996
--------------------------------
Bio Medical Contract
Services Packaging Total
----------- --------- ---------
<S> <C> <C> <C>
Sales $193,797 4,520,745 4,714,542
Operating income (loss) 5,346 (414,796) (409,450)
Depreciation and amortization 1,029 325,686 326,715
Aggregate carrying amount of
identifiable assets - 2,309,256 2,309,256
Additions to machinery and equipment - 231,545 231,545
</TABLE>
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
NOTE 9 - INCOME TAXES:
Deferred tax asset of $422,300 at June 30, 1998 consisted of the
following components.
<TABLE>
<CAPTION>
Deferred Tax
Temporary Asset
Difference Tax Rate (Liability)
----------- -------- ------------
<S> <C> <C> <C>
Allowance for doubtful accounts $ 7,100 43% 3,050
Accumulated depreciation (92,200) 43% (39,650)
Benefit of remaining operating
loss carryforward 1,799,700 34% 611,900
Less: valuation allowance (450,000) 34% (153,000)
----------- ---------
Totals $ 1,264,600 422,300
=========== =========
</TABLE>
At June 30, 1998 net operating loss (NOL) carryforwards of approximately
$1,799,700 were available, expiring on various dates from 1999 through 2011.
The valuation allowance as of June 30, 1998 was increased by $555,300
because management believes that the current profit level will continue
and they will utilize most of the NOL carryforwards.
The deferred tax asset of $430,000 at June 30, 1997, consisted of the
following components:
<TABLE>
<CAPTION>
Deferred Tax
Temporary Asset
Difference Tax Rate (Liability)
----------- -------- ------------
<S> <C> <C> <C>
Allowance for doubtful accounts $ 5,000 43% 2,150
Accumulated depreciation 171,860 43% 73,900
Benefit of remaining operating
loss carryforward 2,900,000 43% 1,247,000
Less: valuation allowance (2,076,860) 43% (893,050)
----------- ---------
Totals $ 1,000,000 430,000
=========== =========
</TABLE>
At June 30, 1997 net operating loss (NOL) carryforwards of approximately
$3,163,000 were available, expiring on various dates from 1998 through 2011.
The valuation allowance as of June 30, 1997 was decreased by $361,400
($.10 per share) due substantially to a change in judgement concerning the
realization of the related deferred tax asset in the subsequent year.
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
NOTE 9 - INCOME TAXES (continued):
The deferred tax asset of $68,600 at June 30, 1996 consisted of the
following components:
<TABLE>
<CAPTION>
Deferred Tax
Temporary Asset
Difference Tax Rate (Liability)
----------- -------- ------------
<S> <C> <C> <C>
Allowance for doubtful accounts $ 5,000 43% 2,150
Accumulated depreciation (201,000) 43% (86,430)
Benefit of remaining operating loss
carryforward 2,515,000 43% 1,081,450
Less: valuation allowance (2,159,000) 43% (928,570)
----------- ---------
Totals $ 160,000 68,600
=========== =========
</TABLE>
At June 30, 1996, net operating loss (NOL) carryforwards of approximately
$2,515,000 were available, expiring on various dates from 1997 through 2006.
During the year ended June 30, 1996, the beginning-of-the-year balance
of the valuation allowance was increased by $100,000 due substantially
to a change in circumstances causing a change in judgment about
the realization of the related deferred tax asset in future years.
The reconciliation of taxes at statutory rates to provision for taxes
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income (loss) before tax $ 951,989 (221,208) (423,882)
========= ======= =======
Expected tax at statutory rates 410,250 - -
Decrease (increase) resulting from
tax effect of:
Valuation of deferred tax asset 7,700 (361,400) 100,000
Utilization of loss carryforwards (517,704) - -
Effect of nondeductible expenses-net 126,367 - -
-------- ------- -------
Income taxes $ 26,613 (361,400) 100,000
======== ======== =======
</TABLE>
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
NOTE 9 - INCOME TAXES (continued):
The Company is currently being examined by the State of New Jersey for
the years ended June 30, 1993 through 1997. Management believes that
any adjustment will be immaterial. Additionally, Federal income tax
returns for the years ended June 30, 1995 through 1998 are subject to
review by the Internal Revenue Service.
NOTE 10 FOURTH QUARTER 1996 ADJUSTMENTS (UNAUDITED):
The Company revised its accounting for the disposition of its
Intracranial Pressure Monitor (ICP) business and accordingly, an
adjustment in the amount of $236,099 ($.07 per share) was recognized
to reduce the previously reported gain on disposal.
The Company also revised its estimate of the valuation allowance for
income taxes and recognized an adjustment amounting to $100,000 ($.03)
per share) to reduce the previously reported deferred tax asset.
NOTE 11 - SUBSEQUENT EVENTS:
On July 1, 1998 nonqualified options to purchase 35,000 shares
of the Company's stock were issued to a director of the Company.
The exercise price of $.25 per share was the Company's estimate of
the market value at that date.
On July 1, 1998 the board of directors approved and ratified the
repricing of 35,000 options issued to a director on August 19, 1993
to a new option price of $.25.
<PAGE>
Part III
Item 10. Directors and Executive Officers
<TABLE>
The following table sets forth certain information relating
to the directors, executive officers and certain significant
employees of the Company:
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Albert J. Wozniak................... 60 Chairman, Chief
Executive Officer,
President
James K. Wozniak.................... 36 Director, Vice
President and
Secretary
</TABLE>
Each Director holds office until the earlier of the election
of his successor at the next annual meeting of shareholders or
his resignation or removal. Officers are elected by, and serve
at the discretion of, the Board of Directors. There are
currently four vacancies on the Board of Directors.
Mr. Albert J. Wozniak has been Chairman of the Board, Chief
Executive Officer and President of the Company since 1986.
Albert J. Wozniak is the father of James K. Wozniak.
Mr. James K. Wozniak, a director of the Company since 1991,
has been a Vice President of the Company since 1991, and
Secretary since 1992. James Wozniak is the son of Albert J.
Wozniak.
Item 11. Executive Compensation
Set forth below is disclosure of all plan and non-plan
compensation awarded to, earned by, or paid to the named
executive officer by any person for all services rendered in all
capacities to the Company and its subsidiaries, unless otherwise
specified.
<TABLE>
Summary Compensation Table
The table below sets forth information concerning
compensation paid to the named officers during the last
fiscal year.
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------------ --------
Other Securities
Name and Annual Restrct Underlying All
Principal Fiscal Salary Bonus Comp. Stock Options/ LTIP Other
Position Year ($) ($) ($) Awrds SARs(#) Payout Comp.
- --------- ------ ------ ----- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Albert J. 1998 245,200 30,000 - - 35,000 - -
Wozniak 1997 250,000 - - - 15,000 - -
Chairman, 1996 200,000 - - - 20,000 - -
CEO and
President
James K. 1998 115,351 - - - 35,000 - -
Wozniak 1997 * - - - 10,000 - -
Vice Pres., 1996 * - - - 20,000 - -
and Secretary
* - Less than $100,000.
</TABLE>
<TABLE>
Option/SAR Grants Table
The table below sets forth information concerning the grant
of stock options to the named officers during the last
fiscal year.
<CAPTION>
Option/SAR Grants in Last Fiscal Year
- ---------------------------------------------------------------------------
Potential
Realizable Value
at Assumed Annual Alternative
Rates of Stock to (f) and
Price Appreciation (g): Grant
Individual Grants for Option Term Date Value
- -------------------------------------------- ---------------- ----------
(a) (b) (c) (d) (e) (f) (g) (h)
% of
Number of Total
Securities Options
Underlying Granted to Grant
Options Employees Exercise Expira- Date
Granted In Fiscal Price tion Present
Name (#) Year ($/Sh) Date 5%($) 10%($) Value $
- -------- ---------- --------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Albert J.
Wozniak 35,000 50% $.25 6/24/08 $5,503 $13,945
James K.
Wozniak 35,000 50% $.25 6/24/08 $5,503 $13,945
</TABLE>
<TABLE>
Aggregate Options Exercised in Last Fiscal Year
and Fiscal Year-End Option Values
The table below sets forth information concerning exercises
of stock options by the named officers during the last
fiscal year and the fiscal year-end value of the named
officer's unexercised options.
<CAPTION>
Number of Value of
Unexercised Unexercised
Options at In-the-Money
FY-End Options at
Shares Value (#) FY-End ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
---- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C>
Albert J. - - 180,000/35,000 $4,062/$2,188
Wozniak
James K. - - 65,000/35,000 $3,125/$2,188
Wozniak
</TABLE>
Compensation of Directors
Directors are awarded options to purchase Common Stock of the
Company pursuant to the Stock Option Plan for their services as a
director. For the fiscal year ended June 30, 1998, options to purchase
35,000 shares of common stock previously granted to Mr. Albert J.
Wozniak were repriced from an exercise price of $1.50 per share to
$.25 per share, and options to purchase 35,000 shares of common stock
at $.25 per share were awarded to Mr. James K. Wozniak. $.25 per share
was determined by the Company to be the fair market value of a share of
common stock on the date of grant (June 24, 1998). For the fiscal
year ending June 30, 1999, options to purchase 35,000 shares of common
stock previously granted to Mr. Albert J. Wozniak were repriced
from an exercise price of $1.50 per share to $.25 per share, and
Mr. James K. Wozniak was awarded options to purchase 35,000 shares of
common stock at $.25 per share. $.25 per share was determined by the
Company to be the fair market value of a share of common stock on the
date of grant (July 1, 1998). Under the terms of the Stock Option Plan,
the maximum amount of options awarded to a director in a year, for his
or her services as such, cannot exceed options to purchase 35,000 shares
of Common Stock.
Employment Contracts
No executive officer of the Company is a party to an
employment agreement, termination of employment or change in
control arrangement, or any other compensatory plan or
arrangement. The Company has entered into an employment contract
with James K. Wozniak, an officer of the Company. The contract
is for a period of ten years commencing March 1, 1998 and ending
February 28, 2008, and provides incentive compensation in addition
to annual salary of $125,000 plus annual increases of no less than
five percent.
<TABLE>
Report on Repricing of Options
The table below sets forth information concerning the repricing
of stock options held by the named directors/officers during the last
ten completed fiscal years.
<CAPTION>
Ten Year Option Repricings
Length of
Number of Market Price Exercise Original
Securities of Stock at Price at Option Term
Underlying Time of Time of Remaining at
Options Repricing or Repricing or New Date of
Repriced or Amendment Amendment Exercise Repricing or
Name Date Amended(#) ($) ($) Price($) Amendment
- -------- ------- ---------- ------------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Albert J. 2/5/97 15,000 $ .125 $1.50 $ .125 6.5 yrs.
Wozniak 6/24/98 35,000 $ .25 $1.50 $ .25 5.25 yrs.
James K. 2/5/97 10,000 $ .125 $1.50 $ .125 6.5 yrs.
Wozniak
</TABLE>
The Board repriced options previously issued to the named directors,
in lieu of issuing new options, for their services as directors. In
each case, the option was repriced to the Company's estimate of the
fair market value of a share of its stock on the repricing date.
Stock Option Plan
The Steritek, Inc. Stock Option Plan (the "Plan"), authorizes
the granting of either Incentive Stock Options or Nonqualified
Stock Options to acquire in the aggregate up to 500,000 shares of
the Company's Common Stock. The shares available for issuance
will be increased or decreased according to any reclassification,
recapitalization, stock split, stock dividend or other such
subdivision or combination of the Company's Common Stock. The
following description of certain provisions of the Plan is
qualified in its entirety by reference to the Plan which is
available from the Company upon request.
Eligibility. Any person, including officers and directors,
employed by the Company or any parent or subsidiary of the
Company shall be eligible to receive Incentive Stock Options
under the Plan. Approximately 220 persons are eligible to
receive Incentive Stock Options as of September 1, 1998. Any
employee who owns ten percent or more of the total combined
voting power of all classes of the Company's voting stock shall
be eligible to receive Incentive Stock Options only under certain
limited circumstances. Additionally, the Plan permits
Nonqualified Stock Options to be granted to directors,
consultants, independent contractors and agents as well as
employees. An indeterminate number of persons are eligible
to receive Nonqualified Stock Options as of September 1, 1998.
Each director shall not, however, be eligible to receive stock
options to purchase more than 35,000 shares of Common Stock per
year, subject to such further terms and conditions as are
contained in the Plan. It is the present intent of the Company
to satisfy the regulations promulgated under Rule 16(b) of the
Securities Exchange Act of 1934, as amended, insofar as such rules
relate to participation in the Plan by directors who are
disinterested administrators, as such term is defined therein.
In connection therewith, the Company may request a No-Action
Letter from the Division of Corporate Finance of the Securities
and Exchange Commission and, consequently, may modify the terms
under which directors participate in the Plan. The Board of
Directors of the Company will determine who should be granted
stock options under the Plan.
Exercise Price of Options. Options granted pursuant to the
Plan must have an exercise price equal to the fair market value
of the Company's Common Stock at the time the option is granted,
except that in the case of an Incentive Stock Option the price
shall be at least 110 percent of the fair market value where the
option is granted to an employee who owns more than ten percent
of the total combined voting power of all classes of the
Company's voting stock. The average bid and asked prices of
the Company's Common Stock is not updated by the National
Quotation Service, Inc. The last known transaction in the Company's
Common Stock, which occurred in or about August 1998, was at
$.3125 per share. Under the terms of the Plan, the aggregate
fair market value of the stock with respect to which Incentive
Stock Options are exercisable for the first time by an individual
during any calendar year shall not exceed $100,000.
Terms. All options available to be granted under the Plan
must be granted by January 1, 2002. The Board of Directors will
determine the actual term of the options but no option will be
able to be exercised after the expiration of ten years from the
date of its grant. No Incentive Stock Option granted to an
employee who owns more than ten percent of the combined voting
power of all the outstanding classes of stock in the Company may
be exercised after five years from the date of grant.
The options granted pursuant to the Plan shall not be
transferable except by will or by the laws of descent and
distribution.
Exercise of Options. Incentive Stock Options granted to
employees under the Plan may be exercised only by the employee
during his employment with the Company or for a period not
exceeding three months after voluntary termination, or for a
period not exceeding one year if the employee ceased employment
because of permanent and total disability within the meaning of
Section 105(d)(4) of the Internal Revenue Code of 1986, as
amended, but such options may be exercised by the employee's
estate, or by any person who acquired the right to exercise such
option by bequest or inheritance from the employee for a period
of twelve months from the date of the employee's death. If such
option shall by its terms sooner expire, such options shall not
be extended as a result of the employee's death. All options
granted pursuant to the Plan must be exercised within ten years
from the date of the grant. Incentive Stock Options granted to
an employee who is the beneficial owner of ten percent or more of
the total combined voting power of all classes of the Company's
stock, or of any parent or subsidiary, must exercise such options
within five years from the date such option is granted. Options
granted under the Plan need not be exercised in the order in
which they are granted. If employment is terminated for cause or
without consent of the employee, the options granted pursuant to
the Plan shall immediately terminate.
Tax Consequences Of Stock Options
Incentive Stock Options
Certain options granted under the Plan are intended to
qualify as incentive stock options ("Incentive Stock Option")
within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended ("Code"). Set forth below is a general summary
of certain of the principal Federal income tax consequences to
participants and the Company of Incentive Stock Options granted
under the Plan.
An employee to whom an Incentive Stock Option is granted
pursuant to the Plan will not recognize any compensation income
(for regular tax purposes), and the Company will not be entitled
to a compensation deduction, at the time an Incentive Stock
Option is granted or at the time an Incentive Stock Option is
exercised. However, in the year of exercise the amount by which
the fair market value of the Common Stock at the time of exercise
exceeds the option price will generally be included in the
optionee's computation of alternative minimum taxable income.
The amount included in income will be added to the optionee's
basis in the shares received for minimum tax computation
purposes. If the employee incurs the alternative minimum tax,
however, he or she should qualify for the credit for prior year
minimum tax liability in the first future year he or she has
regular tax liability.
In order to obtain Incentive Stock Option treatment for
Federal income tax purposes upon the subsequent sale (or other
disposition) by the optionee of the shares of Common Stock
received upon exercise of the option, the sale (or other
disposition) must not occur with two years from the date the
option was granted nor within one year after the transfer of
such shares upon exercise of the option (the "ISO holding period
requirement"). If the ISO holding period requirements are
satisfied, on the subsequent sale (or other disposition) by the
optionee of the shares of Common Stock received upon the exercise
of an option, the optionee generally will recognize income from
the sale of a capital asset equal to the difference, if any,
between the proceeds realized from the sale (or other
disposition) and the amount paid as the exercise price of the
option. On the other hand, if the ISO holding period
requirements are not satisfied, on the subsequent sale (or other
disposition) by the optionee of the shares of Common Stock
received upon the exercise of the option ("Disqualifying
Disposition"), the optionee generally will recognize income
taxable as compensation, and the Company will be entitled to a
compensation deduction (provided certain withholding requirements
are met), in an amount equal to the lesser of (a) the difference,
if any, between the fair market value of the shares on the date
of exercise and the amount paid as the exercise price of the
option, or (b) the difference, if any, between the proceeds
realized from the sale or other disposition and the amount paid
as the exercise price of the option. Any additional gain
realized on a Disqualifying Disposition (in addition to the
compensation income referred to above) would generally give rise
to income from the sale of a capital asset and taxed accordingly.
The tax basis of the shares of Common Stock received by the
optionee will be equal to the amount paid as the exercise price
plus the amount, if any, includable in his or her gross income as
compensation in the event of a Disqualifying Disposition. The
holding period for the shares will commence on the date of
exercise of the Incentive Stock Option.
Nonqualified Stock Options
Certain options to purchase Common Stock issued under the
Plan may not be intended to qualify as Incentive Stock Options
within the meaning of Section 422 of the Code. As such, the
options are generally referred to as Nonqualified Stock Options.
Set forth below is a general summary of certain of the principal
Federal income tax consequences to participants and the Company
of Nonqualified Stock Options.
An individual to whom a Nonqualified Stock Option is granted
will generally not recognize any compensation income, and the
Company will not be entitled to a compensation deduction, at the
time the Nonqualified Stock Option is granted (even if the option
price is less than the fair market value of the Common Stock at
the time of the grant). In the year of exercise or, if later,
the year in which the six month period prescribed by Section
16(b) of the Securities Exchange Act of 1934 ("Section 16(b)"),
if applicable, expires, the optionee generally will recognize
income taxable as compensation and, provided the Company meets
the applicable withholding requirements, the Company will be
entitled to a compensation deduction, in an amount equal to the
difference (if any) between the fair market value of the shares
on the date of exercise (or, if applicable, the date any Section
16(b) restrictions expire) and the amount paid as the exercise
price of the option.
An optionee who is a director or officer of the Company
within the meaning of Section 16(b), or who is otherwise subject
to Section 16(b), will be required to defer the recognition of
income on the purchase of shares pursuant to Nonqualified Stock
Options until the Section 16(b) restrictions expire. He or she
may consider electing to disregard the Section 16(b) restrictions
for tax purposes pursuant to Section 83(b) of the Code. Under
this election, the amount will be included in income in the year
of exercise (which may not be the year the Section 16(b)
restrictions lapse) and will be measured by the difference
between the option price and fair market value when the Section
16(b) restrictions lapse.
The tax basis of the shares of Common Stock received by the
optionee upon exercise will be equal to the amount paid as the
exercise price plus the amount, if any, includable in his or her
gross income as compensation. The holding period for the shares
will commence just after the exercise of the Nonqualified Stock
Option or, if applicable, just after the date the Section 16(b)
restrictions expire.
On the subsequent sale (or other disposition) by the optionee
of the shares of Common Stock received upon the exercise of the
option, any gain or loss realized on such sale or disposition
will generally give rise to gain or loss from the sale of a
capital asset and taxed accordingly.
<TABLE>
Stock Options Issued by the Company
The following table sets forth, as to certain executive
officers of the Company and as to all executive officers of the
Company as a group, the total number of options granted between
June 20, 1992, the date of adoption of the plan, and June 30,
1998 and the average exercise price of such options. Options to
purchase 50,000 shares of common stock of the Company have been
exercised as of September 1, 1998. Options to purchase 140,000
shares have been canceled.
<CAPTION>
Options granted during period
----------------------------------
Name of individual Per share
or number in group Number of shares Exercise Price
- ------------------ ---------------- --------------
<S> <C> <C>
Albert J. Wozniak (1).......... 35,000 $ .50
Chairman, CEO and President 75,000 $1.50
20,000 $ .25
15,000 $ .125
70,000 $ .25
James K. Wozniak (2)........... 35,000 $ .50
Director, VP and Secretary 20,000 $ .25
10,000 $ .125
70,000 $ .25
Employee Group................. 20,000 $ .125
</TABLE>
- -----------------------
(1) Albert J. Wozniak is the only Executive Officer.
(2) James K. Wozniak is the only Non-Executive Officer.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
<TABLE>
The following table sets forth, as of September 1, 1998,
certain information with respect to the beneficial ownership of
the Common Stock of the Company as to each director and nominee
of the Company, each person known by the Company to own
beneficially more than 5% of its Common Stock, each executive
officer, and all directors and executive officers of the Company
as a group.
<CAPTION>
Shares
Beneficially Percent
Name and Address Owned(1) Owned
- ---------------- ------------- ------
<S> <C> <C>
Albert J. Wozniak................... 2,581,490(2) 68.27%
Steritek, Inc.
121 Moonachie Ave.
Moonachie, NJ 07074
James K. Wozniak.................... 67,000(3) 1.81%
All directors and officers
as a group (2 persons)............ 2,648,490(4) 68.86%
</TABLE>
- ---------------------------
(1) Unless otherwise indicated, each named holder has, to the best
knowledge of the Company, sole voting and investment power with
respect to the shares.
(2) Includes 145,000 shares of Common Stock of the Company that
may be acquired within 60 days upon the exercise of options.
(3) Includes 65,000 shares of Common Stock of the Company that
may be acquired within 60 days upon the exercise of options.
(4) Includes 210,000 shares of Common Stock of the Company that
may be acquired by directors and officers within 60 days upon the
exercise of options.
Item 13. Certain Relationships and Related Transactions
On April 30, 1997, the Company borrowed $50,000 from Albert J.
Wozniak, the Chairman and Chief Executive Officer of the Company.
The loan bears interest at 8.5% per annum, and is payable by the
Company on demand. On May 31, 1997, the Company borrowed an
additional $50,000 from Mr. Wozniak. The May 31, 1997 loan bears
interest at 8.5% per annum, and is payable by the Company on demand.
The loans were be repaid during the last quarter of the fiscal year
ending June 30, 1998. The proceeds of the loans were used by the
Company for working capital purposes.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Financial Statements and Financial Statement Schedules
File As Part of the Report.
The response to part (a)(1) and (2) of Item 14 is submitted
as a separate section of this report under Item 8. All schedules
have been omitted since the required information is not present
or is not present in amounts sufficient to require submission
of the schedule, or because the information required is included
in the Consolidated Financial Statements or the notes thereto.
(a)(3) Exhibits.
2.1 Plan and Agreement of Merger By and Between Steritek, Inc.
and CardioSearch Inc.(1)
3.1 Restated Certificate of Incorporation of Registrant(1)
3.2 Amended and Restated By-Laws of Registrant(1)
4.1 First Mortgage Note and Common Stock Purchase Agreement(1)
10.1 Steritek, Inc. Stock Option Plan(1)
10.2 Lease of Premises at McLean Blvd at 9th Avenue, Paterson,
NJ(1)
10.3 Lease of Premises at Moonachie, New Jersey(1)
10.4 Agreement to Purchase Certain Assets of Ladd Research
Industries, Inc.(1)
10.5 Agreement with Wim Management Corporation and William L.
Wimberly(1)
10.6 Agreement with Kapular Marketing Research, Inc.(2)
10.7 Realty Lease Amendment No. 1
10.8 Amendment to Lease, Dated September 12, 1984
10.9 Purchase Order, dated January 13, 1995(3)
10.10 Rental/Purchase Agreement, dated April 20, 1995(3)
10.11 Lease Agreement, commencing March 28, 1995(3)
10.12 Commercial Note, dated June 30, 1993(3)
10.13 Commercial Note, dated June 30, 1993(3)
10.14 Security Agreement, including Guaranties and Waiver, dated
June 30, 1993(3)
10.15 Credit Agreement, dated June 30, 1993(3)
10.16 Waiver Ltr from Bank of New York, dtd September 27, 1995(3)
10.17 Asset Sale/Purchase Agreement with RAJ Communications, Ltd.,
dated October 6, 1995(4)
10.18 Asset Sale/Purchase Agreement with RAJ Communications, Ltd.,
dated October 6, 1995(4)
10.19 Commercial Note, entered into on or about March 29, 1996 and
Guaranty(5)
10.20 Promissory Note, entered into on or about June 17, 1997
10.21 Promissory Note, entered into on or about April 30, 1997
10.22 Promissory Note, entered into on or about May 31, 1997
10.23 PROMISSORY NOTE TIME/INSTALLMENT (FIXED RATE), dated
March 12, 1998 (7)
10.24 PROMISSORY NOTE TIME/INSTALLMENT (FIXED RATE - LOANS NOT IN
EXCESS OF $250,000), dated April 13, 1998 (7)
10.25 MASTER PROMISSORY NOTE (PRIME RATE), dated March 12, 1998(7)
10.26 Employment Contract with James K. Wozniak
16.1 Certifying Accountant letter(6)
22 List of Subsidiaries of the Company*
25 Power of Attorney*
27 Financial Data Schedule
(1) - Incorporated by reference to the Registrant's Form 10 filed
November 4, 1992.
(2) - Incorporated by reference to the Registrant's Form 10-K filed
September 28, 1993.
(3) - Incorporated by reference to the Registrant's Form 10-K filed
September 28, 1995.
(4) - Incorporated by reference to the Registrant's Form 8-K filed
October 25, 1995.
(5) - Incorporated by reference to the Registrant's Form 10-Q filed
May 14, 1996.
(6) - Incorporated by reference to the Registrant's Form 8-K/A filed
August 14, 1997.
(7) - Incorporated by reference to the Registrant's Form 10-Q filed
May 19, 1998.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Steritek, Inc. has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Steritek, Inc.
By/s/ Albert J. Wozniak
----------------------------
Albert J. Wozniak, President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on
behalf of Steritek, Inc. and in the capacities and on the date(s)
indicated.
Signatures Title Date
---------- ----- ----
/s/ Albert J. Wozniak Chairman of the Board, October 1, 1998
- ----------------------- President, CEO
Albert J. Wozniak
/s/ James K. Wozniak Vice President, Chief October 1, 1998
- ------------------------ Financial Officer and
James K. Wozniak Secretary (principal
financial and account-
ing officer), Director
<PAGE>
SECURITIES AND EXCHANGE COMMISSION ANNEX IV
--------
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from..............to...................
Commission file number 0-12547
Steritek, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-2243703
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 Moonachie Avenue
Moonachie, NJ 07074
(Address of principal executive offices)
(Zip Code)
(201) 460-0500
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 3,636,285 shares of Common Stock on October 25, 1998.
<PAGE>
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets..................... 3
Consolidated Statements of Operations........... 5
Consolidated Statements of Cash Flows........... 6
Notes to Consolidated Financial Statements...... 7
Item 2. Management's Discussion and Analysis............. 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk...................................... 8
Part II - Other Information....................................12
Signatures.....................................................13
<PAGE>
<TABLE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<CAPTION>
September 30, June 30,
1998 1998
----------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
<S> <C> <C>
ASSETS
Current Assets:
Cash $517,227 $557,565
Trade accounts receivable, less allowance for
doubtful accounts of $7,098 930,025 863,843
Inventories 300,670 352,715
Prepaid expenses and other assets 46,186 93,219
Deferred tax asset 422,300 422,300
---------- ----------
Total current assets 2,216,408 2,289,642
Property, equipment and improvements - at cost 3,950,209 3,868,825
Less: accumulated depreciation and
amortization 2,392,438 2,294,054
---------- ----------
Net property, equipment and improvements 1,557,771 1,574,771
---------- ----------
Other assets
Security deposits 65,412 65,412
---------- ----------
Total $3,839,591 $3,929,825
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Line of Credit $150,000 -
Accounts payable 553,894 $525,613
Accrued expenses 216,448 256,901
Current portion:
Long-term debt 168,322 222,154
Capital lease obligations 7,575 9,939
Income taxes 10,918 32,091
---------- ---------
Total current liabilities 1,107,157 1,046,698
---------- ----------
Long-term debt, excluding current maturities 659,663 659,663
Capital lease obligations, less current maturities 9,439 9,439
---------- ----------
Total liabilities 1,776,259 1,715,800
Shareholders' equity:
Preferred stock, no par value, authorized
2,000,000 shares; none issued
Common stock, no par value, authorized
5,000,000 shares; issued and outstanding
3,636,285 shares 647,094 647,094
Retained earnings 1,416,238 1,566,931
---------- ----------
Total shareholders' equity 2,063,332 2,214,025
---------- ----------
$3,839,591 $3,929,825
========== ==========
</TABLE>
<PAGE>
<TABLE>
STERITEK, INC. AND SUBSIDIARY
(UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended
September 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Sales $1,617,634 $2,010,682
Cost of sales 1,118,066 1,197,935
---------- ----------
Gross profit 499,568 812,747
Selling, general and administrative expenses 632,252 621,618
---------- -----------
Operating income (132,684) 191,129
Interest expense (18,009) (16,021)
--------- ----------
Income (loss) before taxes (150,693) 175,108
---------- ----------
Provision for income taxes:
Provision for federal income taxes - deferred 47,804
Provision for state income taxes - deferred 15,760
---------- ----------
Income (loss) from operations 63,564
---------- ----------
Net income (loss) ($150,693) $111,544
=========== ==========
Weighted-average number of common shares
outstanding 3,636,285 4,001,285
=========== ==========
Net income per common share ($0.04) $0.03
=========== ==========
</TABLE>
<PAGE>
<TABLE>
STERITEK, INC. AND SUBSIDIARY
(UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
September 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($150,693) $111,544
Adjustments to reconcile net (loss) income
to net cash (used in) provided by operating
activities:
Depreciation and amortization of machinery
and equipment 98,384 81,742
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts
receivable (66,182) (367,158)
Decrease (increase) in inventories 52,045 21,081
Decrease (increase) in prepaid expenses
and other assets 47,033 62,059
Decrease (increase) in state sales
taxes payable (21,173)
Decrease in deferred tax asset 63,564
Decrease (increase) in accounts payable
and accrued expenses (12,172) 239,390
---------- ----------
Net cash (used in) provided by operating activities (52,758) 215,222
---------- ----------
Cash flows from investing activities:
Expenditures for purchase of machinery
and equipment (81,384) (352,979)
--------- ---------
Net cash used in investing activities (81,384) (352,979)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term debt (53,832) ( 35,000)
Principal payments on capital lease obligations (2,364) ( 1,501)
Borrowings on capital lease obligations 18,797
Proceeds from officer's loan 50,000
Proceeds from bank line of credit 150,000
--------- ---------
Net cash provided by (used in) financing activities 93,804 32,296
--------- ---------
Net (decrease) increase in cash (40,338) (105,461)
Cash at beginning of period 557,565 212,127
--------- ---------
Cash at end of period $517,227 $106,666
========= ==========
Supplemental disclosures of cash flow information:
Interest paid $18,009 $16,021
========== ==========
</TABLE>
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1998
1. Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting only of
normally recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
three month period ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year
ending June 30, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto
included in the Company's Form 10-K for the year ended June
30, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
Three Months Ended September 30, 1998 as Compared to the Three Months
Ended September 30, 1997
Revenues for the three months ended September 30, 1998 decreased to
$1,617,634 from $2,010,682 for the same period in 1997. Revenues for
the three months ended September 30, 1998 included approximately:
(i) $1,376,213 from contract packaging, as compared to $1,862,127 for the
same period in 1997; and (ii) $241,421 from the Physicians Fax Network, as
compared to $148,555 for the same period in 1997. The decrease in
contract packaging revenues is principally attributable to the normal
fluctuation in contract packaging activity from period to period.
The Company has continued to aggressively market its contract packaging
business and its Physicians Fax Network.
The Company's cost of sales represented 69.1% of sales (or $1,118,066)
for the quarter ended September 30, 1998, as compared to 59.6% of sales (or
$1,197,935) for the quarter ended September 30, 1997. The increase in
cost of sales, as a percent of sales, is a result of the change in the
mix of the products packaged by the Company during the respective
periods.
Selling, general and administrative expenses ("SG&A") was 39.1% of
sales (or $632,252) for the quarter ended September 30, 1998, as
compared to 30.9% of sales (or $621,618) for the quarter ended
September 30, 1997. SG&A expenditures remained relatively constant
during the two periods.
The Company earned a profit of $111,544 (or 5.5% of sales) for the
quarter ended September 30, 1997, as compared to an operating loss of
($150,693) for the quarter ended September 30, 1998. The loss is
attributable to the Company's lower first quarter revenues and lower
margins resulting from the change in product mix.
There were no other material changes in the results of
operations in the Company's business.
Health care packaging services are typically provided by the
Company to its customers on an "as-needed" (purchase order-by-
purchase order) basis, and not pursuant to a long-term contract.
Because of the nature of the contract packaging business, the
Company's operating results can vary significantly from period to
period.
Liquidity and Capital Resources
The Company's working capital on June 30, 1998 was $1,242,944, as
compared to working capital of $1,109,251 on September 30, 1998.
The decrease in working capital is principally a result of the
operating activities of the Company during the first quarter.
On March 12, 1998, the Company executed a Note with the Bank of
New York in the amount of $785,000, payable over four years at a
fixed interest rate of 8.09%. The Note was issued to provide working
capital and to refinance a loan on June 17, 1997, in the amount of
$700,000 from the Bank of New York, payable monthly until June 17,
2002, at prime plus 1%. The proceeds of the June 17, 1997 borrowing
were used to retire prior indebtedness of the Company and to provide
working capital for operations. On April 13, 1998, the Company
executed an additional Note with the Bank of New York in the
amount of $146,000, payable over three years at a fixed interest
rate of 8.09%. The Note was issued to provide working capital
to the Company.
On March 12, 1998, the Company obtained a line of credit from
the Bank of New York in the amount of $250,000, at prime plus 1/2%.
The Company has drawn $150,000 on this line of credit as of the
date hereof.
The Company believes that funding for anticipated operations
and capital needs will come from existing working capital and
anticipated future operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company has no market risk sensitive instruments. The
amounts included in the balance sheets for cash and cash
equivalents, accounts receivable, prepaid expenses and other
assets, and accounts payable and accrued expenses approximated fair
value due to the short term nature of these instruments. The carrying
amount of long term debt and capital lease obligations approximate
fair value based on borrowing rates currently available to the
Company.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27. Financial Data Schedule
<PAGE>
STERITEK, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements 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.
Steritek, Inc.
By/s/ James K. Wozniak
James K. Wozniak, Vice President and
Treasurer (principal financial and accounting officer)
Date: October 27, 1998
