U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ ] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1996
[ ] Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 For the transition period from ______________ to _____________
Commission file number: 2-85008-NY
Medical Sterilization, Inc.
(Exact name of Small Business Issuer as specified in its charter)
NEW YORK 11-2621408
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 UNDERHILL BOULEVARD, SYOSSET, NEW YORK 11791
(Address of principal executive offices) (Zip Code)
(516) 496-8822
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act: NONE
Check whether the Issuer: (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 Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. X Yes No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
the Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. X
The Issuer's revenues for the fiscal year ended December 31, 1996 were
$8,626,000. As of March 17, 1997, the aggregate market value of the Issuer's
voting stock (including common stock, Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock) held by non-affliiates was approximately
$2,446,911 based on the average bid and asked price of the Issuer's Common Stock
on March 17, 1997 as reported on the Nasdaq Bulletin Board System.
As of March 17, 1997, there were 3,170,496 shares of the Issuer's Common Stock,
par value $.01 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following document are incorporated by reference in Part III of
this Form 10-KSB: (1) Proxy Statement for the Issuer's 1997 Special Meeting in
Lieu of Annual Meeting of Shareholders - Items 9, 10, 11 and 12.
1
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Medical Sterilization, Inc. ("MSI" or the "Company") provides off-site
reprocessing and sterilization of the Company's standard containerized
reprocessable sterilized surgical instrument sets ("Instrument Sets") as well as
certain other items requiring sterilization ("Sterilizable Items") for
healthcare providers such as hospitals and ambulatory surgi-centers. MSI also
provides contract steam and radiation sterilization services for manufacturers
of disposable medical products such as bandages, sponges, tracheotomy kits,
surgical gloves and laboratory ware. In addition, the Company utilizes its
electron beam radiation accelerator (the "Accelerator") to process various
industrial products and to perform certain modifications to those products. In
furtherance of its decision to focus on its Instrument Set sterilization
processing business, on March 17, 1997, MSI agreed to sell its Accelerator to
Shamrock Technologies, Inc. ("Shamrock") with title to pass no later than April
30, 1998. Furthermore, in order to maximize the value of its remaining contract
sterilization and industrial processing business and to provide stability for
its accelerator processing customers, on March 19, 1997, MSI entered into a
Letter of Intent to establish a joint marketing agreement with E-BEAM Services,
Inc. ("E-BEAM").
The Company provides its off-site reprocessing and sterilization
services and pre-sterilized reprocessable Instrument Sets to hospitals and
ambulatory surgi-centers within a radius of 75 miles of its Syosset, New York
facility. As of March 25, 1997, MSI had 15 contracts with healthcare providers
in its area of operations to provide its instrument services for labor and
delivery; 22 contracts to provide its instrument services for operating rooms; 4
contracts to provide laparoscopic instruments; 5 contracts to provide basins; 5
contracts to provide gowns and/or towels; and 2 contracts to provide its
instrument services for open heart surgery. Future revenues from these contracts
as of March 25, 1997 is approximately $12,221,000. The Company provides its
contract steam and radiation sterilization services to manufacturers of
disposable medical products within a 300 mile radius of its Syosset facility.
The Company currently provides sterilization services for approximately 48
medical products manufacturers such as Busse Hospital Disposables, Elkay
Products, Inc. and Hermitage Hospital Supply Corp., and estimates that there are
approximately 200 such manufacturers in its operating area. MSI processes
industrial products for approximately 18 industrial companies principally in the
Northeastern United States and processes polytetrafluoroethylene ("PTFE"), also
known as "Teflon" ( a registered trademark of E.I. DuPont de Nemours & Co.),
solely for Precision Micron Powders, Inc., ("Precision"), a distributor of PTFE
owned by Shamrock, and for Shamrock. See "Radiation Processing of Industrial
Products".
The Company was founded in May 1982 as a New York corporation. Its
principal executive offices are located at 225 Underhill Boulevard, Syosset, New
York 11791, and its telephone number is (516) 496-8822.
Statements in this Form 10-KSB which are not historical facts,
so-called "forward-looking statements", are made pursuant to the safe harbor
provisions of the Private
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Securities Litigation Reform Act of 1995. Investors are cautioned that all
forward-looking statements involve risks and uncertainties, including those
detailed herein and in the Company's other filings with the Securities and
Exchange Commission. See "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Certain Factors That May Affect
Future Results".
STERILIZATION SERVICES FOR HEALTHCARE PROVIDERS
MSI provides off-site cleaning, decontamination and sterilization
processing of the Company's standard containerized reprocessable sterilized
surgical Instrument Sets as well as Sterilizable Items for healthcare providers
such as hospitals and ambulatory surgi-centers within a radius of 75 miles of
its Syosset, New York facility. As of March 25,1997, the Company had 53
sterilization service contracts with hospitals and ambulatory surgi-centers with
approximate future revenues in the aggregate value of $12,221,000. Demonstrating
the Company's range of services to health care providers, 15 contracts were to
provide instrument services for labor and delivery, 22 contracts were to provide
instrument services for operating rooms, 2 contracts were to provide instrument
services for open heart surgery, 4 contracts were to provide laparoscopic
instruments, 5 contracts were to provide basins and 5 contracts were to provide
gowns and/or towels. The Company estimates that there are approximately 250 such
healthcare providers in its operating area.
Sterilizable Items consist of Instrument Sets, utensils, basins,
towels, surgical gowns and wraps and other items used in healthcare facilities
which require sterilization. Instrument Sets are prepackaged, sterilized,
reprocessable instrument sets, each of which is a complete set of instruments
necessary for a given medical procedure. The Company has designed approximately
85 different Instrument Sets for operating room procedures and labor and
delivery, including gall bladder, tonsillectomy and adenoidectomy, open heart,
vascular, orthropedic, endoscopy, cesarean sections, newborn delivery,
hysterectomy and dilation and curettage. MSI packages its Instrument Sets in
rigid containers with filters and seals, thereby maintaining sterile integrity
without the risk of tearing and pinholes which occur in more traditional
wrappers. The Instrument Sets aid in the organization of the instruments for
ease of use and provide for better instrument accountability once the procedure
is completed. Once an Instrument Set has been utilized, it is returned to the
Company for cleaning, sterilization and repackaging.
The Company's services are designed to replace or supplement the
existing in-house sterilization facilities of healthcare providers. Many
hospitals have older, less efficient sterilization facilities, staff their
facilities with nurses whose skills could be more effectively used elsewhere and
underutilize their sterilization facilities by operating their equipment only
once per day. Because of the relatively low volume of sterilization activities
undertaken at many of these facilities, worker productivity may not be as high
as in other areas of the healthcare organization, causing concern for
administrators. In addition, as hospitals continue to evaluate ways in which to
utilize their available space better, many hospitals are seeking to replace
their in-house sterilization facilities with profit generating centers such as
operating rooms. Many hospitals are also looking for ways in which to improve
operating room efficiency by eliminating the sterilization processing delays and
shortages sometimes experienced with their in-house sterilization facilities.
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By utilizing state of the art, industrial size equipment, modern
sterilization technology, less expensive labor, and handling larger volumes, the
Company believes that it offers a cost- effective, high quality alternative to
in-house sterilization facilities. The Company processes Instrument Sets and
Sterilizable Items for numerous customers and has installed modern, industrial
size sterilization equipment at its Syosset facility, including ultrasonic
cleaners, two tunnel washers, two 300 cubic foot steam sterilizers and an 8
cubic foot Ethylene Oxide ("EtO") sterilizer.
The Company believes that it offers better sterility assurance levels
than those maintained at many hospitals. In order to comply with the infection
control requirements of the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO"), the Center for Disease Control ("CDC"), the Association
for Advancement of Medical Instrumentation ("AAMI"), the Association of
Operating Room Nurses ("AORN"), the policies and procedures of each respective
hospital as well as the requirements of federal, state and local government
agencies, the Company has established rigorous testing measures and procedures,
such as sterilization process monitors (including temperature and pressure
recording), chemical indicators and bacteriological spore and culture testing.
The Company is a registered contract sterilization facility with the U.S. Food
and Drug Administration ("FDA"), even though neither the Company's activities in
this area nor hospital sterilization facilities are required to be so
registered. See "Government Regulation."
CONTRACT STERILIZATION OF DISPOSABLE MEDICAL PRODUCTS
MSI provides contract steam and radiation sterilization services to
manufacturers of disposable medical products. The Company sterilizes disposable
medical products such as adhesive and gauze bandages, lap sponges, absorbent
cotton balls, tracheotomy kits, trauma dressings, operating room drapes,
surgical gloves, in vitro diagnostic kits and laboratory ware, such as pipettes,
petri dishes, flasks, roller bottles and tissue culture wells. As of March 25,
1997, the Company's customers in this area included 48 disposable medical
products manufacturers within a 300 mile radius of its Syosset, New York
facility. MSI estimates that there are approximately 200 disposable medical
products manufacturers operating in this geographic area.
The Company's contract sterilization services are utilized by
manufactures of disposable medical products which do not have in-house
sterilization capabilities or which have limited in-house capacity and utilize
the Company's services to handle overflow. The Company's services are also used
by manufacturers which require electron beam radiation sterilization either
because the nature of the product requires electron beam radiation treatment to
achieve acceptable levels of sterilization or because for certain products
electron beam radiation sterilization can be more cost-effective than other
methods. The Company believes that approximately 10% of all disposable medical
products and devices are sterilized using electron beam radiation. To meet this
need for contract sterilization services, MSI has established a radiation
facility featuring a 4.5 million electron volt, 150 kilowatt accelerator (the
"Accelerator") which provides either electron or x-ray radiation.
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Although the Company provides sterilization services for approximately
40 manufacturers of disposable medical products and is sterilizing products on a
daily basis, the Company has experienced reduced orders from certain large
customers over the preceding three
years and has a significant amount of available capacity in its contract
sterilization business. The Company's Board of Directors has determined that it
is in the best interests of the Company's shareholders that the Company focus on
its core Instrument Set sterilization processing business. The Company has
entered into an agreement as of March 17, 1997 to sell its Accelerator for the
approximate sum of $1,250,000 to Shamrock with transfer of title to occur no
later than April 30, 1998. The Company's licenses to operate the Accelerator
expire on December 31, 1997 unless renewed. The Company has been evaluating
opportunities to maximize the value of its electron beam related businesses,
including its contract sterilization of disposable medical products unit and its
radiation processing of industrial products unit either through sale, joint
venture or other commercial means. As a result, on March 19, 1997, the Company
signed a Letter of Intent to enter into a joint marketing program with E-BEAM to
provide stability for its remaining contract sterilization and industrial
processing business. The agreement provides for the transfer of the Company's
contract sterilization and industrial processing customers to E-BEAM at a price
of 15% of related revenues up to $350,000. Upon execution of the agreement the
Company will receive a nonrefundable down payment against future royalties of
$150,000. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition."
RADIATION PROCESSING OF INDUSTRIAL PRODUCTS
MSI performs radiation processing services for a number of industrial
products manufacturers. The Company's Accelerator can be used to link chemically
a long string of molecules of polyethylene and polyvinylchloride, to treat crude
rubber to achieve bonding and hardening and to link undivided chemical compounds
into a larger chemical entity. As of March 25, 1997, the Company was processing
industrial products for approximately 18 industrial companies principally in the
Northeastern United States, whose products included fabricated plastic objects,
gaskets, tubing and plastic sheet and film. As part of its radiation processing
services, the Company can also cross-link the insulation on small gauge wire.
See the previous paragraph regarding the proposed joint marketing program with
E-BEAM.
The Company's primary radiation processing activity is the irradiation
of polytetrafluoroethylene ("PTFE"), which is also known as "Teflon" (a
registered trademark of E.I. DuPont de Nemours & Co.). Once processed, the PTFE
can be ground into very small particles for use primarily as an additive for
printing inks and as a lubricant. The Company processes PTFE for Precision, and
for Shamrock pursuant to a Toll Processing Agreement, as previously amended and
further amended on March 17, 1997. Pursuant to the Toll Processing Agreement, as
amended, MSI will process PTFE only for Precision and Shamrock, and Precision
and Shamrock agree to use certain minimum levels of processing services through
September 30, 1997 at prices which will result in a gross profit to the Company
for providing these services. The term of the Toll Processing Agreement may be
extended at Shamrock's option in one month increments until December 31, 1997,
after which time MSI must cease processing PTFE, unless otherwise agreed by
Shamrock. The Company anticipates that the amended Toll Processing
5
Agreement will result in the purchase by Precision and Shamrock of approximately
$4.7 million of PTFE processing services for the period of January 1, 1996
through September 30, 1997 if the Toll Processing Agreement is performed in
accordance with its terms.
COMPETITION
The Company's principal competition with respect to its sterilization
services for healthcare providers comes from the in-house sterilization
facilities of hospitals and ambulatory surgi-centers. Most hospitals have an
in-house sterilization capability and many have invested significant capital in
their sterilization facilities. Also, the in-house sterilization facility staff
may be committed to maintaining the facility and its current staffing levels. As
a result, healthcare providers may be reluctant to shift their sterilization
activities from in-house to an off-site contractor. Furthermore, some hospitals
have union agreements that preclude or mitigate a hospital's ability to
outsource. In today's managed care driven, consolidating environment, hospitals
and hospital networks are renegotiating these agreements with yet to be
determined success.
MSI has no competitor operating in an off-site environment which can
replicate MSI's sterilization services program though variations of the MSI
model potentially exist and/or are announced in traditional hospital purchasing
news. V. Mueller/Convertors, a division of Allegiance (formerly Baxter
Healthcare's U.S. distribution group) has off-site facilities in several cities
in various modes of operation, but we understand that Allegiance recently
divested this group to a private entity. It is not clear whether this group's
focus will be instrument or gown reprocessing or both. Steriltek, a Los Angeles
based company, has announced plans to build mini versions of MSI to service
hospital clusters in dense geographic areas. Substantial know-how and capital
intensive barriers could limit competitive interest.
Several small and large companies are specializing in on-site
instrument processing, consulting and management services, providing hospitals
and hospital networks a competitive choice between MSI's off-site instrument
processing and sterilization services. A wholly owned subsidiary of Teleflex,
Inc. (a recent acquirer of a 48% control position in MSI), Endoscopic
Specialties Inc. (ESI), specializes in on-site instrument processing. However,
in January 1997, MSI and ESI started cooperative marketing of a total processing
management solution.
The market for contract sterilization of disposable medical products
services is highly competitive. There are a number of entities, most of which
have significantly greater financial and other resources than the Company, which
offer contract sterilization services. The Company's major competitors in this
area include Isomedix Inc., E-BEAM and Ethox Corp. The Company also competes
with in-house sterilization departments of disposable medical products
manufacturers. There are a number of companies, many of which have significantly
greater financial and other resources than the Company, with sterilization
capabilities, primarily Ethylene Oxide ("EtO"), radiation and steam
sterilization, as well as decontamination and packaging capabilities, which
could enter into the healthcare provider field or the disposable medical
products field in the future.
6
In the industrial products radiation processing area, the Company
competes with a number of competitors, including Isomedix Inc. and E-BEAM. Most
of these companies have significantly greater financial and other resources than
the Company. In the year ended December 31, 1996, substantially all of the
Company's revenues from radiation processing of industrial products services
were derived from the provision of PTFE processing services for Precision and
Shamrock. Pursuant to the amended Toll Processing Agreement with Shamrock, all
of the Company's PTFE processing during 1996 was, and in 1997 will be, performed
for Precision and Shamrock at established minimum production levels and the
Company is not permitted to process PTFE for any other party. As a result, the
Company does not currently face competition with the respect to its PTFE
processing services.
MSI believes that the principal bases of competition include price,
quality, reputation and rapid turnaround. The Company believes that it competes
favorably with respect to these factors, although there can be no assurance that
it will be able to continue to do so. As previously stated, the Company has
agreed to sell its Accelerator no later than April 30, 1998. Accordingly, after
that date the Company will not be involved in contract sterilization of
disposable medical products and radiation processing of industrial products
including PTFE. However, on March 19, 1997 MSI signed a Letter of Intent with
E-BEAM which contemplates the execution of a Joint Marketing Agreement in
several weeks. See "Contract Sterilization of Disposable Medical Products."
CUSTOMERS
The Company sells its sterilization services to healthcare providers
such as hospitals and ambulatory surgi-centers within a 75 mile radius of its
Syosset facility. As of March 25, 1997, the Company provided Instrument Sets and
sterilization services for Sterilizable Items pursuant to 53 sterilization
services contracts with hospitals and ambulatory surgi-centers. With respect to
contract sterilization services for disposable medical products manufacturers,
as of March 25, 1997, the Company provided contract sterilization services to 48
disposable medical products manufacturers within a 300 mile radius of its
facility in Syosset. The Company performs its PTFE processing services for
Precision and Shamrock and processes other industrial products for other
manufacturers. As of March 25, 1997, the Company was processing industrial
products for 18 industrial companies principally in the Northeastern United
States. For the fiscal year ended December 31, 1996, sales to Precision and
Shamrock accounted for substantially all of the Company's revenues from
industrial product radiation processing services and 33% of the Company's total
revenues. No other single customer accounted for 10% or more of the Company's
total revenues for the fiscal year ended December 31, 1996. The cessation of
contract sterilization of disposable medical products and processing of
industrial products including PTFE in 1998 could have a material adverse effect
on the Company's business, results of operations and financial condition.
SUPPLIERS
The Company purchases from surgical instrument manufacturers the surgical
instruments included in Instrument Sets that are provided to hospitals and
ambulatory surgi-centers. Pursuant to a sales and marketing agreement entered
into with Pilling Weck, a national surgical instrument
7
manufacturer and a division of Teleflex, Inc., the Company has agreed to
purchase substantially all of its surgical instrument requirements from Pilling
Weck, and Pilling Weck has agreed to supply surgical instruments to the Company
as well as to be the exclusive sales and marketing agent for MSI in the United
States. See "Sales and Marketing." Pursuant to this agreement, the Company will
receive certain volume pricing discounts and the Company will utilize Pilling
Weck supplied instruments in its Instrument Sets unless a particular customer
requires the use of another instrument vendor. The Company believes that
surgical instruments are readily available from other suppliers at market prices
should Pilling Weck for any reason be unable to satisfy the Company's instrument
needs in full.
SALES AND MARKETING
MSI's sales and marketing strategy is to grow existing accounts by
service expansion: for example, if the Company is serving the labor and delivery
department of a hospital it will attempt to leverage its services into the
general operating room of the hospital after a period of successful product
performance in the labor and delivery area. The Company also intends to expand
its portfolio of reprocessing services to include new service offerings such as
consulting, on-site management services and EtO sterilization. The Company's
sales and marketing efforts are coordinated by two dedicated in-house sales
professionals who are supported by a third sales coordinator who works with the
hospitals to determine the proper configuration of the Instrument Sets to be
provided to each hospital. In addition, the Company has entered into a sales and
marketing agreement with Pilling Weck which provides, among other things, for
Pilling Weck to represent and sell MSI's decontamination, reprocessing and
sterilization services to customers in the United States. During the past few
years, the Company, alone and with Pilling Weck has been actively pursuing
negotiations with hospital groups in several cities.
Furthermore, the Company is entering into a joint venture with a newly
formed subsidiary of Teleflex, Inc. to sell MSI's decontamination, reprocessing
and sterilizingservices in select highly populated urban centers. In addition,
MSI and Endoscopic Specialties, Inc., ("ESI") (a wholly owned subsidiary of
Teleflex, Inc.,) a company which specializes in on-site endoscopic processing
services and consulting, has agreed to cooperate and comarket on-site and
off-site endoscopic processing services. MSI will transfer two existing
contracts to ESI as well as MSI's endoscopic proposal list. ESI will pay MSI
commissions of 5% of sales, derived from the transferred contracts and
proposals, that convert to contracts, totaling $150,000. MSI's endoscopic
instrument inventory will be returned to the supplier, Pilling Weck, for credit.
INTELLECTUAL PROPERTY
The Company does not rely on any patents for the conduct of its
business. The Company does rely upon the know-how of its employees and has
executed non-disclosure and non-competition agreements with its employees. The
Company relies in significant part upon its hospital tracking software which
allows the Company to monitor and control the levels of Instrument Sets and
Sterilizable Items on-site with a given customer and to plan and control
sterilization activities. The Company's hospital tracking software was purchased
from its developer and the copyrights were assigned to the Company. Although the
Company believes
8
that it has all necessary ownership and copyright rights in its hospital
tracking software and that this software does not infringe upon the intellectual
property rights of third parties, any determination to the contrary could have a
material adverse effect on the Company's business, results of operations and
financial condition.
GOVERNMENT REGULATION
The Company has obtained a license from the New York State Department
of Environmental Conservation operating through the Nassau County Department of
Health to operate its radiation sterilization and processing facility. This
license is currently in force and will remain in force until December 31, 1997.
The Company believes it is in material compliance with applicable laws and
regulations with respect to its radiation sterilization and processing facility.
The Company believes that it is in material compliance with the regulations of
the Nassau County Department of Public Works with regard to the disposition of
effluents.
The Company is registered with the Department of Health and Human
Services, Public Health Service of the FDA, and believes it is in material
compliance with the FDA compliance program with regard to the industrial
sterilization of medical devices. The Company complies with this program even
though, for these purposes, a hospital (and the Company, by extension) is not
considered to be a manufacturer of medical devices and is therefore not subject
to the FDA regulations.
The Company is also subject to the requirements of the Occupational
Safety and Health Administration ("OSHA") and believes that it is in material
compliance with OSHA. The Company believes that it is in material compliance
with all other applicable federal, state and local rules and regulations
relating to the conduct of its business.
EMPLOYEES
As of December 31, 1996, the Company had 79 full-time and 17 part-time
employees. Management believes its relations with its employees are good. None
of its employees are covered by any collective bargaining agreement.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's headquarters, including its executive offices,
sterilization facility and radiation processing facility, occupy 103,000 square
feet of leased space in a building located at 225 Underhill Boulevard, Syosset,
New York. The Company originally entered into its headquarters lease on March 1,
1984. In February 1994, the Company and the Landlord amended the lease to extend
its term from March 1, 1994 to February 28, 1996, with annual rent of $432,000.
On November 20, 1995, the Company executed a new lease for its headquarters
which provides for a term of March 1, 1996 through February 28, 2001 with an
annual rent of $456,000 for the first three years and $504,000 for the next two
years.
The Company believes that its facilities and equipment are in good
condition and are suitable for its operations as presently conducted and for its
foreseeable future operations. The
9
Company currently believes that additional facilities and equipment can be
acquired if necessary, although there can be no assurance that additional
facilities and equipment will be available upon reasonable or acceptable terms,
if at all.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted for a vote of security-holders during the
Company's fiscal quarter ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock, $.01 par value per share, has been traded
in the over-the-counter market (under the symbol "MSTI") since September 26,
1983 and is now quoted on the Nasdaq Bulletin Board. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down, or commission and may
not necessarily represent actual transactions. The approximate number of record
holders of the Company's Common Stock as of March 17, 1997 was 278. The
following table sets forth the high and low bid prices for a share of the
Company's Common Stock as reported on the Nasdaq Bulletin Board for each fiscal
quarter in the last two fiscal years and for the first fiscal quarter of 1997
(through March 17, 1997):
1997 High Bid Low Bid
---- -------- -------
First Quarter (through March 17, 1997) $2.625 $1.188
1996
Fourth Quarter 2.625 1.000
Third Quarter 1.375 1.375
Second Quarter 3.000 0.938
First Quarter 1.563 0.938
1995
Fourth Quarter 1.875 0.6875
Third Quarter 1.250 0.5000
Second Quarter 1.250 0.5000
First Quarter 1.250 0.5000
The Company has never paid cash dividends with respect to its shares of
Common Stock. The Company currently intends to retain earnings, if any, for use
in its business and does not anticipate paying cash dividends on its shares of
Common Stock in the foreseeable future. The Company is required to pay dividends
at the rate of 8% per annum per share with respect to the outstanding shares of
Series B Convertible Preferred Stock. At the option of the Company, the
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dividends may be paid in cash or accrued. If accrued, the dividends shall be
added to the face amount of the Series B Convertible Preferred Stock at the rate
of $2.00 per share or at an adjusted price at the time of conversion. In
addition, the Company's loan agreements, the Financing Agreement with Rosenthal
and Rosenthal, Inc. and the terms of the Company's outstanding Series B
Convertible Preferred Stock and the Series C Convertible Preferred Stock
prohibit the payment of dividends on the shares of Common Stock. See Notes 6 and
8 of Notes to Financial Statements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company incurred a net loss of approximately $995,000 in the year
ended December 31, 1996 compared to a net income of approximately $192,000 in
the year ended December 31, 1995. The net loss was mainly the result of costs
incurred to implement its National Sales Program, providing additional reserves
for bad debt losses and costs incurred related to above normal historical levels
of legal expenses from its new legal counsel and additional one time termination
expenses incurred as result of the elimination of an Officer's position. Also,
the Company added a full-time Chief Executive Officer to direct the
nationalization and other growth programs. The former Chief Executive Officer
and Chairman of the Board of Directors now functions solely as Chairman
providing consulting services at 50% of his former salary.
The Company in 1996 made a significant investment in a national sales
program including sales personnel to introduce its service to other sections of
the country. This investment made up approximately $255,000 of the increase in
selling, general and administrative expense. The Company expects to enter into a
joint venture agreement with a yet to be formed subsidiary of Teleflex which
will pursue the national program. The Company will transfer its prospects in
several cities to the joint venture as well as its know how and proprietary
hospital tracking software in consideration for 37 1/2% interest in the joint
venture.
For the fiscal year ended December 31, 1996, the Company's
sterilization services for healthcare providers, contract sterilization of
disposable medical products and radiation processing of industrial products
businesses accounted for approximately 55.1%, 11.0% and 33.9%, respectively, of
the Company's revenues, as compared with 53.7%, 15.3% and 31.0%, respectively,
for the fiscal year ended December 31, 1995. The Company's Board of Directors
has determined that it is in the best interests of the Company's shareholders
that the Company focus on its core Instrument Set sterilization processing
business. Accordingly, it has contracted to sell its Accelerator system to
Shamrock and has executed a Letter of Intent to enter into a joint marketing
agreement with E-BEAM. Under the Agreement with Shamrock the Company would
receive approximately $1,250,000 for the Accelerator and related equipment with
a Closing Date of no later than April 30, 1998 at which time title to the beam
would be transferred to Shamrock. Shamrock has posted a $500,000 standby letter
of credit in escrow. The removal of the Accelerator would be commenced and
diligently completed after the Closing. See" Write Down of Assets".
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In January, 1997, approximately 45% of the voting shares of the
Company's stock was acquired by TFX Equities, Inc., a wholly owned subsidiary of
Teleflex, Inc., a diversified publicly held Company. TFX Equities, Inc.,
purchased the Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock (the "Preferred Stock") from the previous owners of such stock.
In connection with this transaction and after the resignation of three of the
incumbent Directors, three nominees of TFX Equities, Inc., were elected to the
Company's Board of Directors.
Price increases are governed by contract terms for sterilization
services to healthcare providers. These contracts have recognizable escalation
factors. The prices for sterilization of disposable medical products and the
processing of industrial products are determined by competition and market
conditions. Price increases normally will be reflected in increased revenues and
profits and price decreases normally will result in decreased revenues and
profits.
In July 1996, the Company extended the term of its working capital line
of credit (which was due to expire in January 1997), to January 1998. All other
terms of the agreement were left the same. See Note 6 of Notes to Financial
Statements.
In January, 1997, the Company entered into a loan agreement with TFX
Equities Inc. The principal amount of the loan is $500,000 and bears interest at
the rate of prime plus 1%. The note is due and payable on January 31, 1998.
In January, 1997, the Company issued 150,000 shares of its common stock
to pay $300,000 of accounts payable due to Pilling Weck.
The March 19, 1997 Letter of Intent to enter into a joint marketing
agreement with E-BEAM provides for the transfer of the Company's contract
sterilization and industrial processing customers at a price of 15% of related
revenues up to $350,000. Upon execution of the agreement the Company will
receive a nonrefundable deposit against future royalties of $150,000.
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995
Gross profit increased approximately $67,000 or 3% from approximately
$2,349,000 in the year ended December 31, 1995 to approximately $2,416,000 in
the year ended December 31, 1996. Gross profit as a percentage of revenues
increased approximately 1.3% from 26.7% in the year ended December 31, 1995 to
28% in the year ended December 31, 1996. The increase in the Company's gross
profit was attributable to improved production efficiencies in the Company's
plant. The major components of these efficiencies were a reduction in labor as a
percentage of revenues and a reduction in supplies used in production.
12
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by approximately
$654,000 from approximately $1,788,000 in the year ended December 31, 1995 to
approximately $2,442,000 in the year ended December 31, 1996. As a percentage of
revenues, selling, general and administrative expenses increased from 20% in the
year ended December 31, 1995 to 28% in the year ended December 31, 1996. The
major portion of the increase was the result of the Company making a significant
investment in its national sales and marketing areas. The Company strengthened
these areas as it prepared to expand from a Regional Company to a National
Company. In addition the Company had above normal historical levels of legal
expenses from its new legal counsel and additional one time termination expenses
incurred as result of the elimination of an Officer's position. Also, the
Company added a full-time Chief Executive Officer to direct the nationalization
and other growth programs. The former Chief Executive Officer and Chairman of
the Board of Directors now functions solely as Chairman providing consulting
services at 50% of his former salary.
BAD DEBT EXPENSE
Bad debt expense increased by $526,000 from $34,000 in 1995 to $560,000
in 1996. This increase is due to additional write-offs and adjustments of
$307,000 in 1996 and an increase in the allowance for doubtful accounts of
$219,000. The increase in write-offs and adjustments is due to the write-off of
a receivable from a customer in bankruptcy and the settlement of amounts in
dispute. The increase in the allowance for doubtful accounts relates to
receivables from certain hospitals whose financial condition has deteriorated.
WRITE DOWN OF ASSETS
In March 1997, the Company entered into a sales agreement to sell its
electron beam Accelerator to Shamrock Technologies, Inc. The title to the
Accelerator will pass to the purchaser no later than April 30, 1998, which is
after the end of the current Toll Processing Agreement. The sales price of the
Accelerator was approximately $1,250,000. The Company has charged $103,000 to
its operations to reflect the reduction of the value of the related assets being
sold.
INTEREST EXPENSE
Interest expense remained approximately the same for the year ended
December 31, 1995 compared to the year ended December 31, 1996.
NET LOSS
The Company incurred a net loss of approximately $995,000 in the year
ended December 31, 1996 compared to a net income of approximately $192,000 in
the year ended December 31, 1995. The net loss was mainly the result of costs
incurred to implement its National Sales Program, providing additional reserves
for bad debt losses and costs incurred related to
13
above normal historical levels of legal expenses from its new legal counsel and
additional one time termination expenses incurred as result of the elimination
of an Officer's position. Also, the Company added a full-time Chief Executive
Officer to direct the nationalization and other growth programs. The former
Chief Executive Officer and Chairman of the Board of Directors now functions
solely as Chairman providing consulting services at 50% of his former salary.
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS
Net loss per share of common stock for the year ended December 31, 1996
was ($.37) compared to net income per share of $.02 for the year ended December
31, 1995. The net loss was primarily due to the net loss described above
partially offset by a decrease in the weighted average number of common shares
outstanding, due to the exclusion of common stock equivalents in 1996.
1995 COMPARED WITH 1994
REVENUES
Revenues for the year ended December 31, 1995 increased approximately
7% to approximately $8,772,000 from approximately $8,220,000 for the year ended
December 31, 1994. The increase in revenues was attributable to an approximate
$685,000 or 8% increase in total revenues related to the Company's sterilization
services to healthcare providers business and an approximate $77,000 or 1%
increase in total revenues related to the Company's contract sterilization
business, partially offset by an approximate $207,000 or 2% decrease in total
revenues related to the Company's radiation processing of industrial products
business. The increase in total revenues related to the Company's sterilization
services to healthcare providers was attributable to market penetration of new
customers and expanded services to the Company's existing customer base. The
Company's sales strategy is to grow existing accounts by service expansion: for
example, if the Company is serving the labor and delivery department of a
hospital it will attempt to leverage its service into the general operating room
of the hospital after a period of successful product performance in the original
labor and delivery area. MSI also intends to expand its portfolio of
reprocessing services to include new service offerings such as endoscopy
procedure specific Instrument Sets. The decrease in radiation revenues was
primarily attributable to discounted prices given to its largest customer. These
price concessions, which are basically volume discounts, were given to ensure a
steady flow of production through its facility which provides for a more
consistent absorption of the Company's overhead.
GROSS PROFIT
Gross profit increased approximately $374,000 or 19% from approximately
$1,972,000 in the year ended December 31, 1994 to approximately $2,346,000 in
the year ended December 31, 1995. Gross profit as a percentage of revenues
increased 2.8% from 23.9% in the year ended December 31, 1994 to 26.7% in the
year ended December 31, 1995. The increase in the Company's gross profit was
attributable to improved production efficiencies in the Company's plant. The
major components of these efficiencies were a reduction in labor as a
14
percentage of revenues, and a reduction of utilities as the Company made
arrangements to purchase the major portion of its electricity from New York
State Power Authority at reduced rates.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses (including bad debt
expense) increased by approximately $116,000 from approximately $1,706,000 in
the year ended December 31, 1994 to approximately $1,822,000 in the year ended
December 31, 1995. As a percentage of revenues, selling, general and
administrative expenses increased from 20.7% in the year ended December 31, 1994
to 20.8% in the year ended December 31, 1995. The major portion of the increase
resulted from the recruiting and eventual hiring of a new president of the
Company and the expenses related thereto, which was a non-recurring expense. In
most other areas of selling, general and administrative expenses, the Company
experienced virtually no increases.
INTEREST EXPENSE
Interest expense increased from approximately $221,000 or 2.7% of
revenues for the year ended December 31, 1994 to approximately $335,000 or 3.8%
of revenues for the year ended December 31, 1995. This increase of $114,000 or
52% was the result of increased borrowing to support the Company's growth and an
increase in the Company's interest rate.
NET INCOME
Net income increased from approximately $52,000 or 0.6% of revenues in
1994 to approximately $192,000 or 2.2% of revenues in the year ended December
31, 1995. This represented an increase of approximately $140,000 or 269% for the
year ended December 31, 1995 compared to the year ended December 31, 1994. The
increase in net income is basically attributable to the increased sales volumes
and gross margin increases partially offset by increases in selling, general and
administrative expenses and interest expense as the Company continued to make
investments in these areas.
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS
Net income (loss) applicable to common shareholders for the year ended
December 31, 1995 increased to approximately $77,000 from a net loss of
approximately ($126,000) for the year ended December 31, 1994. This represented
an increase of approximately $203,000 for the year ended December 31, 1995
compared to the year ended December 31, 1994. The increase was the result of the
increase in net income described above and the decrease in dividends on the
Preferred Stock from approximately $178,000 in the year ended December 31, 1994
to approximately $114,000 in the year ended December 31, 1995. This decrease was
the result of the restructuring of the Company's Preferred Stock in the year
ended December 31, 1994 which reduced the amount of Preferred Stock bearing
dividends and also reduced the dividend rate.
15
NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Net income (loss) per share of common stock for the year ended December
31, 1995 increased to $.02 per share compared to a net loss per share of ($.04)
for the year ended December 31, 1994. The increase was primarily attributable to
the increased net income applicable to common shareholders described above
partially offset by an increase in the weighted average number of common shares
outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Current assets have decreased approximately $194,000 to approximately
$2,643,000 at December 31, 1996 from approximately $2,837,000 at December 31,
1995. The decrease was primarily attributable to an approximate $48,000 decrease
in net accounts receivable, a $100,000 decrease in cash and an approximate
$35,000 decrease in prepaid expenses.
The Company had working capital of approximately $293,000 at December
31, 1996, compared to working capital of approximately $1,607,000 at December
31, 1995. The Company's current ratio at December 31, 1996, was 1.12 to 1
compared to a current ratio of 2.31 to 1 at December 31, 1995. The decrease in
the Company's working capital and current ratio at December 31, 1996 compared to
December 31, 1995 was primarily the result of the Company's loss for the year
and purchase of instruments which required working capital but which are
classified for financial statement purposes as fixed assets. Therefore, the
Company's working capital is reduced as it purchases instruments for its long
term contracts. In April of 1996, the Company extended its line of credit (which
was to expire in January of 1997) to January 31, 1998.
The Company currently plans to expand its business by increasing its
portfolio of reprocessing services to include new service offerings such as
consulting, on-site management services and EtO sterilization. The Company
believes that the anticipated future cash flow from operations, along with its
cash on hand and available funds under its working capital line of credit and
the $500,000 loan in January 1997 from TFX Equities, Inc., will be sufficient to
meet working capital requirements during 1997. There can be no assurance,
however, that the Company will not require additional working capital and, if it
does require such capital, that such capital will be available to the Company on
acceptable terms, if at all.
In January, 1997, the Company entered into a loan agreement with TFX
Equities, Inc. The principal amount of the loan is $500,000 and bears interest
at the rate of prime plus 1%. The note is due and payable on January 31, 1998.
In January, 1997, the Company issued 150,000 shares of its Common Stock
to TFX Equities, Inc. to pay $300,000 of accounts payable due to Pilling Weck.
In January, 1997, approximately 45% of the voting shares of the
Company's stock was acquired by TFX Equities, Inc., a wholly owned subsidiary of
Teleflex, Inc., a diversified publicly held company. TFX Equities, Inc.,
purchased the Preferred Stock from the previous owners of such stock. In
connection with this transaction, the nominees of TFX Equities, Inc.,
16
were elected to the Company's Board of Directors after the resignation of three
(3) incumbent Directors. The acquisition of Common Stock referred to above will
increase TFX Equities, Inc. ownership to approximately 48% of the voting shares
of the Company.
In March 1997, the Company entered into a purchase and sale agreement
with Shamrock Technologies, Inc., to sell the Company's electron beam
accelerator. Under the agreement the Company would receive approximately
$1,250,000 for the Accelerator and related equipment with closing of the
transaction being estimated as April 1998, at which time title to the
Accelerator would be transferred to Shamrock Technologies, Inc. In addition,
Shamrock has posted a $500,000 standby letter of credit in escrow. Upon
consummation of the sale of the electron beam accelerator to Shamrock and the
remaining contract sterilization and industrial processing business to E-BEAM,
the Company will be relying on revenues from its sterilization processing of
Surgical Instrument Sets. Revenue generated by the Accelerator to be sold
approximated $3,900,000 and $4,061,000 in 1996 and 1995, respectively.
Management intends to replace these revenues with revenues from its Surgical
Instrument Set business.
The March 19,1997 Letter of Intent to enter into a joint marketing
agreement with E-BEAM provides for the transfer of the Company's contract
sterilization and industrial processing customers at a price of 15% of related
revenues up to $350,000. Upon execution of the agreement the Company will
receive a nonrefundable deposit against future royalties of $150,000.
INFLATION
The Company does not anticipate that inflation will have any
significant effect on its business particularly since the United States, the
only market in which the Company currently intends to operate, is presently
experiencing a relatively low rate of inflation.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made
by its employees or information included in its filings with the Securities
Exchange Commission (including this Form 10-KSB) may contain statements which
are not historical facts, so-called "forward-looking statements," which involve
risks and uncertainties. Forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
In particular, statements made above in "Item 2. Description of Property"
relating to the suitability of the Company's facilities and equipment for future
operations and the availability of additional facilities and equipment in the
future. Relating to the sufficiency of funds for the Company's working capital
requirements during 1997, the Company's expectation that future cash flow will
continue to be provided from operations and the Company's not presently
anticipating that inflation will have any significant impact on its business may
be forward-looking statements. The Company's actual future results may differ
significantly from those stated in any forward-looking statements. Factors that
may cause such differences include, but are not limited to, the factors
discussed below. Each of these factors, and others, are discussed from time to
time in the Company's filings with the Securities and Exchange Commission.
17
The Company's future results are subject to substantial risks and
uncertainties. The Company has operated at a loss or a very small profit for its
entire history and there can be no assurance of its ever achieving consistent
profitability. The Company may require additional working capital in the future
and there can be no assurance that such working capital will be on acceptable
terms, if at all. The failure of the Company to continue to compete effectively
with existing or new competitors could result in price erosion, decreased
margins and decreased revenues, any or all of which could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company historically has relied on a relatively small number of
customers, including Shamrock and Precision, for a large percentage of its total
revenues. The termination of the Toll Processing Agreement on or before December
31, 1997 could have a material adverse effect on the Company's results of
operations after 1997. The Company's healthcare provider customers are all
located in the New York metropolitan area and Long Island, New York. Any factors
affecting this market generally could have a material adverse effect on the
Company's business, results of operations and financial condition. The Company
is subject to government regulation in certain aspects of its operations and its
license to operate its Accelerator terminates December 31, 1997 unless extended.
This could have a material adverse effect on the Company's business, results of
operations and financial condition after 1997.
The Company's future success will depend in part on its ability to
convince hospitals and other healthcare providers to utilize the Company's
off-site sterilization services as opposed to their own on-site facilities.
Hospitals may resist this change for a number of reasons, including the
preferences of hospital staffs which may wish to preserve their existing
staffing intact, labor unions which may resist any staffing reductions and the
ongoing consolidation of hospitals which may impact the willingness of hospital
administrators to make operational decisions on a timely basis and which may
affect a hospital's decision to utilize an off-site processor as opposed to
retaining one or more of the consolidated hospital group's central sterilization
facilities to provide services for the entire group. The Company relies upon the
know-how of its employees and upon its hospital tracking software to efficiently
conduct its business. Any invalidation of these intellectual property rights or
lengthy and expensive defense of these rights could have a material adverse
effect on the Company.
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially and adversely effect revenues and
profitability, including: competitive pressures on selling prices and margins;
the timing and cancellation of customer orders; the lengthy sales cycle of the
Company's sterilization services to healthcare organizations; the Company's
ability to maintain state-of-the-art sterilization facilities and the
corresponding timing and amount of capital expenditures, particularly if the
Company executes its plan for expansion; and the introduction of new services by
the Company's competitors. As a result of the foregoing and other factors, the
Company may experience material fluctuations in future operating results on a
quarterly or annual basis which could materially and adversely effect its
business, operating results and stock price.
ITEM 7. FINANCIAL STATEMENTS
For the following financial information required by this Item, see
Index on Page F-1.
18
Report of Independent Accountants
Balance Sheet as at December 31, 1996
Statements of Operations for the years ended December 31, 1996 and 1995
Statements of Shareholders' Equity for the years ended December 31,
1996 and 1995
Statements of Cash Flows for the years ended December 31, 1996 and 1995
Notes to Financial Statements
ITEMS 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change of accountants nor any disagreements with
accountants on any matter of accounting principles or practices or financial
statement disclosure required to be reported under this Item.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this Item is incorporated herein by
reference to the information in the sections entitled "Proposal Relating to
Election of Directors," "Occupations of Directors and Executive Officers," and
"Compensation and Other Information Concerning Directors and Officers" contained
in the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than 120 days after the close of the fiscal year
ended December 31, 1996.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the information in the section entitled "Compensation and Other
Information Concerning Directors and Officers" contained in the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year ended
December 31,
1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to the information in the section entitled "Management and Principal
Shareholders" contained in the Company's definitive proxy statement to be filed
with the Securities and Exchange Commission not later than 120 days after the
close of the fiscal year ended December 31, 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the information in the section entitled "Certain Relationships and
Related Transactions" contained in the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission not later than 120 days
after the close of the fiscal year ended December 31, 1996.
19
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(A) EXHIBITS:
(3)(1) Restated Certificate of Incorporation filed May 24,
1989 - filed as Exhibit (3)(1) to Company's Annual Report for the fiscal year
ended December 31, 1995 on Form 10-KSB and incorporated herein by reference.
(3)(2) Certificate of Amendment of Certificate of
Incorporation filed January 4, 1990 filed as Exhibit (3)(2) to Company's Annual
Report for the fiscal year ended December 31, 1995 on Form 10-KSB and
incorporated herein by reference.
(3)(3) Certificate of Amendment of Certificate of
Incorporation filed November 25, 1994 filed as Exhibit (3)(3) to Annual Report
for the year ended December 31, 1995 on Form 10-KSB and incorporated herein by
reference.
(3)(4) Certificate of Amendment of Certificate of
Incorporation filed June 17, 1996.
(3)(5) Certificate of Amendment of Certificate of
Incorporation filed January 6, 1997.
(3)(6) Certificate of Correction of Certificate of Amendment
of Certificate of Incorporation filed January 10, 1997.
(3)(7) Amended and Restated By-Laws dated June 2, 1987 - filed
as Exhibit 3.4 to Annual Report for the year ended December 31, 1995 on Form
10-KSB and incorporated herein by reference.
(10)(1) 1994 Stock Option Plan - filed as Exhibit (10)(a)(1)
to Annual Report for the year ended December 31, 1993 on Form 10-K and
incorporated herein by reference.
(10)(2) 1996 Stock Option Plan - filed as Exhibit (10)(2) to
the Annual Report for the year ended December 31, 1995 on Form 10-KSB and
incorporated herein by reference.
(10)(3) Agreement with Mercy Hospital dated November 14, 1988.
This contract is substantially similar to the other contracts entered into with
hospitals. The basic differences relate to the type of medical sets provided,
the term of the contract and the compensation. This Agreement was filed as
Exhibit (10)(c) to Amendment No. 1 to Registration Statement on Form S-1 (File
No. 33-28660) and incorporated herein by reference.
(10)(4) Lease dated November 20, 1995 with Barlich Realty,
Inc. - filed as Exhibit (10)(4) to Annual Report for the year ended December 31,
1995 on Form 10-KSB and incorporated herein by reference.
20
(10)(5) Agreement with Oxford Venture Fund III, Limited
Partnership, and Oxford Venture Fund III Adjunct, Limited Partnership, dated
January 30, 1989 - filed as Exhibit (10)(5) to Annual Report for the year ended
December 31, 1995 on Form 10-KSB and incorporated herein by reference.
(10)(6) Agreement with Oxford Venture Fund II, Limited
Partnership, dated as of December 30, 1989 - filed as Exhibit (10)(6) to Annual
Report for the year ended December 31, 1995 on Form 10-KSB and incorporated
herein by reference.
(10)(7) Agreement with Precision Micron Powders, Inc., and
Robert S. Luniewski, dated July 25, 1988 as extended to December 31, 1991 -
filed as Exhibit (19)(g) to Annual Report for the year ended December 31, 1993
on Form 10-K and incorporated herein by reference.
(10)(8) Letter agreement with Precision Micron Powders, Inc.
extending agreement dated July 25, 1988 to December 31, 1992 - filed as Exhibit
(19)(h) to Annual Report for the year ended December 31, 1991 on Form 10-K and
incorporated herein by reference.
(10)(9) Revised agreement with Precision Micron Powders, Inc.
dated as of February 26, 1993 filed as Exhibit (19)(i) to Annual Report for the
year ended December 31, 1992 on Form 10-K and incorporated herein by reference.
(10)(10) Settlement Agreement among Shamrock Technologies,
Inc., Robert S. Luniewski and the Company dated November 1, 1994 - filed as
Exhibit (19)(j) to Annual Report for the year ended December 31, 1993 on Form
10-K and incorporated herein by reference.
(10)(11) Toll Processing Agreement between Shamrock
Technologies, Inc., and the Company dated November 1, 1994 - filed as Exhibit
(19)(k) to Annual Report for the year ended December 31, 1993 on Form 10-K and
incorporated herein by reference.
(10)(12) Extension of Toll Processing Agreement dated October
31, 1995 - filed as Exhibit (19)(k)(1) to Amendment No. 1 for Form SB-2 and
incorporated herein by reference.
(10)(13) Amendment to Toll Processing Agreement and to
Agreement Modifying and Extending Toll Processing Agreement dated March 17,
1997.
(10)(14) Purchase and Sale Agreement dated March 17, 1997
between the Company and Shamrock Technologies, Inc., dated March 17, 1997.
(10)(15) Release dated November 29, 1994 - filed as Exhibit
(19)(1) to Annual Report for the year ended December 31, 1993 on Form 10-K and
incorporated herein by reference.
(10)(16) Satisfaction of Judgment dated November 29, 1994 -
filed as Exhibit (19)(m) to Annual Report for the year ended December 31, 1993
on Form 10-K and incorporated herein by reference.
21
(10)(17) Affidavit of Confession of Judgment dated November
29, 1994 - filed as Exhibit (19)(n) to Annual Report for the year ended December
31, 1993 on Form 10-K and incorporated herein by reference.
(10)(18) Letter dated June 3, 1996 from Gibney, Anthony &
Flaherty, attorneys for Shamrock Technologies, Inc., returning the original
Confession of Judgment.
(10)(19) Financing Agreement between the Company and Rosenthal
& Rosenthal, Inc., dated October 17, 1994 - filed as Exhibit (19)(o) to Annual
Report for the year ended December 31, 1993 on Form 10-K and incorporated herein
by reference.
(10)(20) Extension of Financing Agreement with Rosenthal &
Rosenthal, Inc., dated December 22, 1995 - filed as Exhibit (19)(o)(1) to
Amendment No. 4 to Registration Statement on Form SB-2 (File No. 33-96330) and
incorporated herein by reference.
(10)(21) Extension of Financing Agreement with Rosenthal &
Rosenthal, Inc., dated April 29, 1996.
(10)(22) Agreement between Pilling Weck, and the Company dated
January 10, 1996 - filed as Exhibit (19)(p) to Amendment No. 4 to Registration
Statement on Form SB-2 (File No. 33-96330) and incorporated herein by reference.
(10)(23) Credit Line and Term Loan Agreements with Apple Bank
for Savings dated July 20, 1990 - filed as Exhibit (25) to Amendment No. 1
Registration Statement No. 33-28660 and incorporated herein by reference.
(10)(24) Letter amending Credit Line and Term Loan Agreement
from Apple Bank for Savings dated April 4, 1991 - filed as Exhibit (10)(19) to
Annual Report for the year ended December 31, 1995 on Form 10-KSB and
incorporated herein by reference.
(10)(25) Letter confirming Term Loan Agreement from Apple Bank
for Savings dated March 24, 1992 - filed as Exhibit (25)(b) to Annual Report for
the year ended December 31, 1991 on Form 10-K and incorporated herein by
reference.
(10)(26) Amendment No. 1 to Credit Agreement with Apple Bank
for Savings dated as of May 12, 1992 - filed as Exhibit (25)(c) to Form 10-K for
the year ended December 31, 1993 and incorporated herein by reference.
(10)(27) Loan Extension Agreement dated November 29, 1994
between the Company and Apple Bank for Savings - filed as Exhibit (25)(d) to
Annual Report for the year ended December 31, 1993 on Form 10-K and incorporated
herein by reference.
(10)(28) Agreement with Dr. Kennard H. Morganstern dated
February 7, 1995 - filed as Exhibit (26) to Amendment No. 1 to Form SB-2 (File
No. 33-96330) and incorporated herein by reference.
22
(10)(29) Letter of Intent between the Company and E-BEAM dated
March 19, 1997.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the Company's
fiscal quarter ended December 31, 1996.
23
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
March 31, 1997 MEDICAL STERILIZATION, INC.
By:/s/ D. Michael Deignan
--------------------------------
Name: D. Michael Deignan
Title: President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Signature Title(s) Date
/s/ D. Michael Deignan President, Chief Executive March 31, 1997
- --------------------------
D. Michael Deignan Officer and Director
(principal executive officer)
/s/ Paul V. Rossi Treasurer and Chief Financial March 31, 1997
- --------------------------
Paul V. Rossi Officer (principal financial
and accounting officer)
/s/ Larry C. Buckelew Director March 31, 1997
- --------------------------
Larry C. Buckelew
Director March 31, 1997
- --------------------------
John R. Hoover
/s/ Kennard H. Morganstern Director March 31, 1997
- --------------------------
Kennard H. Morganstern
Director March 31, 1997
- --------------------------
John J. Sickler
Director March 31, 1997
- --------------------------
Forrest R. Whittaker
/s/ Harold L. Zuber, Jr. Director March 31, 1997
- --------------------------
Harold L. Zuber, Jr.
</TABLE>
24
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
March , 1997 MEDICAL STERILIZATION, INC.
By:
------------------------------
Name: D. Michael Deignan
Title: President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Signature Title(s) Date
- ------------------ -------- ----
President, Chief Executive
- -------------------------
D. Michael Deignan Officer and Director
(principal executive officer)
Treasurer and Chief Financial
- -------------------------
Paul V. Rossi Officer (principal financial and
accounting officer)
Director
- -------------------------
Larry C. Buckelew
Director
- -------------------------
John R. Hoover
Director
- -------------------------
Kennard H. Morganstern
Director
- -------------------------
John J. Sickler
Director
- -------------------------
Forrest R. Whittaker
Director
- -------------------------
Harold L. Zuber, Jr.
</TABLE>
24
SUPPLEMENTAL INFORMATION TO BE
FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE EXCHANGE
ACT BY NON-REPORTING ISSUERS
No annual report or proxy material has been sent to the Issuer's
security holders with respect to the year ended December 31, 1996. A copy of the
Issuer's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996 and the Issuer's Proxy Statement for the 1997 Annual Meeting of
Shareholders will be furnished to shareholders and filed with the Securities and
Exchange Commission on or about April 26, 1997.
25
MEDICAL STERILIZATION, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Accountants F-2
Balance Sheet as at December 31, 1996 F-3
Statements of Operations for the years ended December 31, 1996 F-4
and 1995
Statements of Shareholders' Equity for the years ended F-5
December 31, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1996 F-6
and 1995
Notes to Financial Statements F-8
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Medical Sterilization, Inc.:
We have audited the financial statements of Medical Sterilization, Inc. listed
in the index on page F-1 of this Form 10K. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Sterilization, Inc. at
December 31, 1996 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Melville, New York
March 28, 1997.
F-2
MEDICAL STERILIZATION, INC.
BALANCE SHEET
December 31, 1996
-----------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Current assets
Cash $75,703
Trade accounts receivable (net of allowance for
doubtful accounts of $253,481) 2,409,055
Inventory 121,075
Prepaid expenses 37,380
Total current assets 2,643,213
Fixed assets, at cost, net of accumulated depreciation and amortization 4,950,139
Other assets 160,419
Total assets $7,753,771
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses 1,899,550
Current maturities of long-term debt 283,045
Obligation under capital leases 168,160
------------
Total current liabilities 2,350,755
Long-term debt less current maturites 2,082,920
Obligation under capital leases 706,376
Total liabilities 5,140,051
Commitments and contingencies (notes 12 and 13)
Preferred stock:
Convertible redeemable cumulative preferred stock, par value $.01 per share:
Series B-authorized 1,000,000 shares, issued and outstanding 687,500 shares 1,667,952
Shareholders' equity:
Convertible preferred stock, par value $.01 per share: Series C - authorized
2,000,000 shares, issued and outstanding 1,945,625 shares 1,945,625
Common stock, par value $.01 per share; authorized 10,000,000 shares, issued
and outstanding 3,020,496 shares 30,204
Additional paid-in capital 7,544,036
Accumulated deficit (8,574,097)
----------
Total shareholders' equity 945,768
----------
Total liabilities and shareholders' equity $7,753,771
==========
See notes to financial statements
</TABLE>
F-3
MEDICAL STERILIZATION, INC.
STATEMENTS OF OPERATIONS
Years ended December 31,
1996 1995
Income:
Revenue $ 8,626,482 $ 8,772,430
Interest 0 2,673
----------- ------------
8,626,482 8,775,103
----------- ------------
Costs and expenses:
Operating 6,210,270 6,426,319
Selling, general and
administrative 2,441,665 1,788,012
Bad debt expense 559,929 34,000
Write down of assets 102,709 0
Interest 307,351 335,199
----------- ------------
9,621,924 8,583,530
----------- ------------
(Loss) income before income taxes (995,442) 191,573
Income taxes 0 0
----------- ------------
Net (loss) income (995,442) 191,573
Preferred stock dividends (123,552) (114,400)
----------- ------------
Net (loss) income applicable to
common shareholders $(1,118,994) $ 77,173
=========== ============
Net (loss) income per share of
common stock $ (0.37) $ 0.02
=========== ============
Weighted average number of
shares of common stock
outstanding 2,991,893 5,099,415
=========== ============
See notes to financial statements
F-4
MEDICAL STERILIZATION, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Additional
Common stock Preferred stock paid-in Accumulated
Shares Amount Shares Amount capital deficit Total
-------- -------- -------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1994 2,980,496 $29,804 1,945,625 $1,945,625 $7,834,678 ($7,770,228) $2,039,879
Accrual of preferred stock
dividends (114,400) ( 114,400)
Costs incurred with stock
registration (32,134) (32,134)
Net income for year 191,573 191,573
--------- --------- --------- ----------- ---------- ----------- -----------
Balance,
December 31, 1995 2,980,496 $29,804 1,945,625 $1,945,625 $7,688,144 ($7,578,655) $2,084,918
Accrual of preferred stock
dividends (123,552) (123,552)
Conversion of options 40,000 400 3,600 4,000
Costs incurred with stock
registration (24,156) (24,156)
Net loss for year (995,442) (995,442)
--------- --------- --------- ----------- ---------- ----------- -----------
Balance,
December 31, 1996 3,020,496 $30,204 1,945,625 $1 ,945,625 $7,544,036 ($8,574,097) $ 945,768
=========== ======= ========= =========== ========== ============ ==========
</TABLE>
See notes to financial statements
F-5
MEDICAL STERILIZATION, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31,
-------------------------
1996 1995
---- ----
Cash flows from operating activities:
Net Income $ (995,442) $ 191,573
Adjustments to reconcile net
income to net cash
provided by
operating activities:
Depreciation and
amortization 642,123 647,762
Provision for bad debt 559,929 34,000
Write down of assets 102,709 0
Changes in assets and
liabilities:
(Increase) in receivables (614,986) (84,644)
Decrease (increase) in inventory 11,589 (61,007)
Decrease in prepaid expenses 34,376 36,018
Decrease in other assets 34,910 133,353
Increase in accounts payable
and accrued expenses 906,129 7,270
Net cash provided by
operating activities 681,337 904,325
------------- -----------
Cash flows from investing activities:
Capital expenditures (849,547) (682,976)
-------------- -----------
Net cash used in
investing activities (849,547) (682,976)
-------------- -----------
See notes to financial statements
F-6
MEDICAL STERILIZATION, INC.
STATEMENTS OF CASH FLOW
Years ended December 31,
------------------------
1996 1995
------- ------
(Continued)
Cash flows from financing activities:
Net proceeds from revolving
line of credit 333,978 503,877
Repayment of long-term debt (171,121) (285,838)
Proceeds from issuance of debt 50,000 (225,000)
Principal payments under capital lease obligations (124,178) (53,376)
Proceeds from stock options exercised 4,000 0
Costs incurred in connection with
stock registration (24,156) (32,134)
--------- ---------
Net cash provided by (used in)
financing activities 68,523 (92,471)
--------- ----------
Net (decrease) increase in cash (99,687) 128,878
Cash at beginning of year 175,390 46,512
--------- ----------
Cash at end of year $ 75,703 $ 175,390
========== ===========
Supplemental disclosures:
Interest payments during the years ended December 31, 1996 were $303,000 and
$335,000 respectively
Taxes paid during the years ended December 31, 1996 and 1995 were $11,774
and $6,498, respectively.
During 1996 and 1995, the Company accrued dividends of $123,552 and $114,400
respectively on Series B Preferred Stock, in accordance with the Series B
Preferred Stock agreement.
During 1996 the Company recorded capital lease obligations of $969,693.
See notes to financial statements
F-7
MEDICAL STERILIZATION, INC.
NOTES TO FINANCIAL STATEMENTS
1. Formation and Business:
Medical Sterilization, Inc. (the "Company") was incorporated in New
York State on May 27, 1982. The Company completed construction of its expanded
facility in 1985 and initiated off-site sterilization services to health care
providers and to manufacturers of disposable medical products, principally in
the New York metropolitan area. The Company also provides contract sterilization
services to other customers. In addition, the Company uses its radiation
facility at Syosset to irradiate polytetraflouoroethylene ("PTFE"), which can
then be ground into very small particles for use primarily as an additive to
printing inks and as a lubricant. The Company leases its facility in which it
has installed steam and radiation sterilization equipment.
For the fiscal year ended December 31, 1996, the Company's
sterilization services for healthcare providers, contract sterilization of
disposable medical products and radiation processing of industrial products
businesses accounted for approximately 55.1%, 11.0% and 33.9%, respectively, of
the Company's revenues, as compared with 53.7%, 15.3% and 31.0%, respectively,
for the fiscal year ended December 31, 1995.
One customer accounted for approximately 33% and 30% of total revenue
for 1996 and 1995, respectively. One customer accounted for 40% of revenue from
contract sterilization services in 1995. One customer accounted for all of the
revenue from PTFE processing service in 1996 and 1995 (See Note 13).
2. Summary of Significant Accounting Policies:
Inventory:
Inventory is stated at the lower of first-in, first-out cost or market.
Fixed Assets:
Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the related assets (ranging from 5 to
15 years) and, for leasehold improvements, over the shorter of the useful life
of the improvement or the term of the lease. Shrinkage-loss of surgical
instruments and containers is provided based upon incurred losses.
Maintenance and repairs are charged to income in the year incurred.
Expenditures which significantly improve or extend the life of the assets are
capitalized.
Upon disposal, the cost and related accumulated depreciation are
removed from the respective accounts and any resulting gain or loss is included
in income.
F-8
Accounting for Long-Lived Assets:
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Impairment is evaluated by comparing future cash flows
(undiscounted and without interest charges) expected to result from the use or
sale of the asset and its eventual disposition, to the carrying amount of the
asset. The adoption of SFAS No. 121 did not have a material impact on the
Company's financial position or results of operations.
Accounting for Stock-Based Compensation:
The Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS") No. 123, in 1996. As
permitted by SFAS No. 123, the Company continues to measure compensation cost in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but provides pro forma disclosures of net income and
earnings per share as if the fair value method (as defined in SFAS No. 123) had
been applied beginning 1995.
Earnings Per Share Calculation:
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"), which establishes standards for computing and presenting
Earnings per share (EPS). SFAS No. 128 will be effective for financial
statements issued for periods ending after December 15, 1997. Earlier
application is not permitted. Management has not yet evaluated the effects of
this change on the Company's financial statements.
Revenue Recognition:
The Company records revenue for hospital services monthly, in
accordance with contractual terms. Revenues for other sterilization and
radiation services are recorded upon the completion of processing and/or
shipment.
Concentration of Credit Risk:
Trade receivables arise from long-term and short-term contracts with
healthcare providers in its area of operations. The Company provides instrument
sterilization services pursuant to contracts with 53 hospitals and ambulatory
surgi-centers. In addition, the Company sterilizes disposable medical products
for 48 disposable medical products manufacturers. Receivables also arise from
the processing of polytetrafluoroethylene ("PTFE"), also know as ("Teflon.")
This process is solely performed for Shamrock Technologies, Inc. To reduce
credit risk, the Company performs credit evaluations of its customers but does
not generally require collateral. Credit risk is affected by conditions of
occurrences within the economy and the healthcare industry. The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
F-9
At December 31, 1996, four customers represented 44% of the accounts
receivable balance. The loss of any one customer could have a significant impact
on the Company's financial position or results of operations.
Income Taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes",
which requires that deferred income taxes be recognized for the tax consequences
in future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year-end based on enacted tax laws
and statutory rates applicable to the periods in which the differences are
expected to effect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Estimates:
The preparation of 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimate related to the realizability of
Accounts Receivable. Actual results could differ from those estimates. In the
fourth quarter of 1996, the Company increased the allowance for doubtful
accounts by $219,000 and recorded additional write-offs of $307,000.
Net Income (Loss) Per Share of Common Stock:
Net income (loss) per share of common stock is based on the weighted
average number of common shares outstanding during each period adjusted for
dividends on preferred stock. Common stock equivalents have been excluded in
1996 from the computation of net loss per share of common stock since the result
would be anti-dilutive. Common stock equivalents of 2,118,919 resulting from
Series C Convertible Preferred Stock and the effects of options and warrants
have been included in the calculation of weighted average shares outstanding in
1995.
Reclassification:
Certain items in the 1995 financial statement have been reclassified to
conform to the 1996 presentation.
3. Fixed Assets:
At December 31, 1996, fixed assets consists of:
Machinery and equipment $ 4,708,639
Leasehold improvements 1,921,044
Surgical instruments 4,908,690
Containers 912,176
Furniture and fixtures 252,220
-----------
12,702,769
Less, accumulated depreciation and amortization 7,752,630
-----------
$ 4,950,139
===========
F-10
Included in fixed assets at December 31, 1996 are assets recorded under
capital leases comprised of:
Machinery and equipment $ 821,635
Containers 72,245
Surgical instruments 529,089
Leasehold improvements 7,640
----------
1,410,609
Less, accumulated amortization 430,560
$ 980,049
See Note 7.
Repairs and maintenance charged to operations for the years ended
December 31, 1996 and 1995 was approximately $91,000 and $180,000, respectively.
4. Employee Benefit Plans:
The Company adopted a 401(k) defined contribution plan commencing with
the 1995 fiscal year which allows participants to make contributions based on a
percentage of their earnings. The Company's contribution for the fiscal years
ended December 31, 1996 and 1995 was approximately $34,000 and $22,000
respectively.
5. Income Taxes:
Reconciliation of the federal statutory tax rate to the effective tax
rate is as follows:
1996 1995
------- ------
Expected federal statutory tax rate (34%) 34%
State and local taxes, net ( 6%) 6%
Limitation (utilization) of net operating losses 40% (40%)
------- ------
Effective tax rate 0% 0%
======= ======
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities at December 31,
1996 are as follows:
Deferred tax liability:
Fixed Assets ($1,055,886)
Total deferred tax liability ( 1,055,886)
Deferred tax assets:
Net operating loss carryforwards 4,230,887
Other 129,892
----------
Total deferred tax assets 4,360,779
Less valuation allowance (3,304,893)
----------
Net deferred tax assets $ 0
===============
F-11
The Company has established a valuation allowance equal to the net
deferred tax asset amount as it is more likely than not that the deferred tax
asset will not be realized. The net change in the total valuation allowance for
the year ended December 31, 1996 was an increase of $362,589 related primarily
to current year net operating loss carryforwards.
During 1995, the Company utilized approximately $320,000 of net
operating loss carry forwards for income tax purposes. Such utilization served
to eliminate the Company's current tax liability.
At December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $10,577,000, which expire in varying amounts from
1998 through 2012.
<TABLE>
<CAPTION>
<S> <C> <C>
6. Long-Term Debt:
At December 31, 1996, long-term debt consists of:
Notepayable to officer and shareholder, payable in annual installments
of $50,000 with interest payable monthly at the prime rate (8.25%
at December 31, 1996) plus 1% (a) $ 166,378
Note payable to director and shareholder, on demand,
interest payable monthly at the rate of 2% per annum
over the prime rate (a) 33,334
Note payable to bank, payable in monthly installments of
$12,500, with final payment due October 1998 with interest
at the rate of 2 1/2% per annum over the prime rate (b) 615,008
Notepayable to commercial lender, due January 1998 with interest
payable monthly at the rate of 3 1/2% per annum over
the prime rate (c) 1,501,245
Note payable to officer, due on demand, at the rate of 2% per
annum over the prime rate. 50,000
----------
2,365,965
Less, current maturities (including $133,045 due
to related parties) 283,045
----------
Long-term debt (including $116,667 due to
related parties) $2,082,920
==========
</TABLE>
(a) During 1991, the Board of Directors approved a resolution to repay
the debt to the President and the Director at a rate not to exceed 10% of the
profits in any quarter and to be limited further by the Company's cash
availability. The loans are subordinate to the bank borrowing.
F-12
(b) In November of 1994, the Company renegotiated the term of its bank
borrowing facilities. The existing bank loan of $1,514,000 was replaced with a
new loan agreement. In connection with this new loan, the Company made a
$600,000 payment against the existing principal balance. The remaining principal
balance of $914,000 was converted to a four (4) year term loan which bears
interest at a rate of prime plus 2 1/2%. The principal is amortized on a monthly
basis at the rate of $12,500 per month with a balloon payment of $326,836 due in
October, 1998. In addition, the bank exchanged its first lien on the Company's
assets for a second lien position. The Company also extended the term of the
warrants being held by the bank for an additional three (3) years and reduced
the exercise price to $2.00 per share. (See Note 9).
(c) In November of 1994, simultaneously with the restructuring of its
bank loan agreement described above, the Company entered into a line of credit
arrangement with a lending institution. The agreement provides for a revolving
collateralized line of credit up to $2,000,000. The line of credit is
collateralized by substantially all assets of the Company. The Company can
borrow up to 70% of its eligible accounts receivable. The interest rate on the
facility is prime plus 3 1/2%. The expiration date has been extended to January
1998.
Average monthly borrowings under the revolving line of credit described
above for the year ended December 31, 1996 amounted to $1,558,400 and the
related weighted average interest rate was 11.9%. Maximum borrowings at any
month end were $1,810,225 in 1996.
The approximate aggregate principal payment requirements for long-term
debt are as follows: 1997 - $283,045; 1998 - $2,016,542; 1999 - $50,000; 2000 -
$16,378, and thereafter - $0.
Fair value of long-term debt approximates recorded amounts as similar
borrowings have been offered to the Company at comparable rates and maturities.
7. Capital Leases:
Future minimum payments as of December 31, 1996 under capital leases
for fixed assets are as follows:
1997 $ 283,985
1998 264,207
1999 237,189
2000 218,967
2001 86,011
----------
Total minimum lease payments $1,090,359
Less, amount representing interest 215,823
----------
Present value of minimum lease payments, including
$168,160 currently payable at December 31, 1996. $ 874,536
==========
F-13
8. Preferred Stock (See Note 9):
In November 1994, the Company restructured its Series A Convertible
Preferred Stock (as of June 30, 1994 values) which was due to be redeemed on
December 31, 1994. Of the 800,000 shares ($2,400,000 face value) of outstanding
Series A Convertible Preferred Stock, 50,000 outstanding shares ($150,000 face
value) and accrued dividends aggregating $225,000 were converted into a one (1)
year term loan with monthly principal and interest payments. This loan bears
interest at the rate of prime plus 3 1/2%. This note was paid off in 1995. The
Company also granted warrants to purchase 10,000 shares of its Common Stock at
$2.00 per share expiring in 1999. The remaining 750,000 shares ($2,250,000 face
value) plus accrued dividends of approximately $1,071,000 were exchanged for
$1,375,000 of Series B Convertible Preferred Stock and $1,945,625 of Series C
Convertible Preferred Stock. The Series B Convertible Preferred Stock is
convertible at $2.00 per share into 687,500 shares of Common Stock. This Series
B Convertible Preferred Stock is convertible at the option of the holder into
Common Stock or cash, at $2.00 per share maturing December 31, 1999. Dividends
accrue on this Series B Convertible Preferred Stock at the rate of 8% per year.
These dividends may be paid in cash or accrued at the option of the Company. If
not paid, accrued dividends are added to the face amount of the Series B
Convertible Preferred Stock.
In the event prior to October 31, 1999, the market price of the
Company's Common Stock as quoted on Nasdaq attains a price of $6.00 per share
and maintains such price for at least 90 days, the Series B Convertible
Preferred Stock will be automatically converted into Common Stock.
The Series C Convertible Preferred Stock is automatically convertible
at $1.00 per share into 1,945,625 shares of Common Stock on December 30, 2004,
or earlier at the option of the holder. There are no dividends payable nor
accrued on the Series C Convertible Preferred Stock.
In the event prior to October 31, 1999, the market price of the
Company's Common Stock as quoted on Nasdaq attains a price of $3.00 per share
and maintains such price for at least 90 days, the Series C Convertible
Preferred Stock will be automatically converted into Common Stock.
9. Common Stock Warrants (See Note 13):
In February 1993, for his guarantee for the issuance of a $100,000
bond, the Company issued warrants to purchase 2,500 shares of Common Stock at a
price of $2.00 per share exercisable through February 1998, to a director of the
Company.
In November 1994, as part of the settlement of the Shamrock litigation
(Note 13) the Company issued warrants to purchase 75,000 shares of its Common
Stock at $2.00 per share to Shamrock which expire in 1999. Also in conjunction
with the settlement, the Company issued warrants to purchase 40,000 shares of
its Common Stock at $2.00 per share to each of two directors of the Company in
consideration of their efforts in achieving the settlement. The warrants expire
in 1999.
F-14
In March 1994, the Company issued warrants to purchase 25,000 shares of
stock at $2.00 per share to a new board member. Such warrants become exercisable
as follows: 25% in 1995, 50% in 1996 and 25% in 1997. The warrants expire in
2000.
In connection with the financing described in Note 6(b), the Company
extended the term of a warrant to purchase an aggregate of 100,000 shares of
common stock for three (3) years (to expire in 1998) and reduced the exercise
price to $2.00 per share.
In November 1994, the Company issued to a financial institution
warrants to purchase 50,000 shares of its common stock at $2.00 per share,
expiring in 1999.
In December 1994, in connection with the conversion of 50,000 shares of
Class A convertible stock into debt, the Company issued warrants to purchase
10,000 shares at $2.00 per share, which warrants expire in January 1997.
In January 1996, the Company issued warrants to purchase 25,000 shares
of stock at $2.00 per share to a new board member. Such warrants become
exercisable as follows: 25% in 1996, 25% in 1997, 25% in 1998 and 25% in 1999.
The warrants expire in 2001.
At December 31, 1996, the Company had outstanding warrants to purchase
367,500 shares of common stock at a price of $2.00 per share with the expiration
dates through January 2001.
10. Stock Option Plan:
On September 29, 1994, the Board of Directors approved the 1994 Stock
Option Plan (the "1994 Plan") and authorized the issuance to up to 1,000,000
shares of Common Stock of the Company upon the exercise of Incentive and
Non-Statutory Stock Options which may be granted pursuant to the Plan. The Plan
was approved by the shareholders at a meeting held on July 20, 1995. In 1996,
the Board of Directors authorized another 500,000 shares of Common Stock to be
issued under the 1996 Plan which was approved by shareholders on May 25, 1996.
Incentive Stock Options may be granted only to key employees, including
officers or directors who are employees of the Company, and are exercisable
immediately or in installments following a period of two (2) years after grant
but within ten (10) years from the date of grant (five (5) years in the case of
options granted to holders of more than 10% of the Company's voting stock). The
exercise price must be at least equal to the fair market value of the Company's
common stock on the date granted (110% in the case of 10% shareholders). At
December 31, 1996, Incentive Stock Options for an aggregate of 418,420 shares of
common stock at exercise prices ranging from $.74 to $1.06 were outstanding.
Non-Qualified Stock Options may be granted under the Plan or otherwise
to officers, consultants, and key employees. The exercise price is not limited
and may be below the fair market value of the Company's common stock on the date
of grant. At December 31, 1996, Non-Qualified Options for an aggregate of
662,500 shares of common stock at exercise prices ranging from $.74 to $9.00,
were outstanding.
F-15
A summary of activity under the stock option plans follows:
1996 1995
---------- ---------
Shares under option, beginning of year 894,750 612,250
Options cancelled (1,000) (2,500)
Options granted: Stock options, at exercise prices
ranging from $ .74 to $1.19 227,170 285,000
Options exercised at excise price of $.10 per share (40,000)
---------- ---------
Shares under option, end of the year ranging from
$.74 to $9.00 per share 1,080,920 894,750
========== =========
Unoptioned shares available for future grants 379,080 105,250
========== =========
At December 31, 1996, options under the 1996 Plan and previous plan
were exercisable for 953,043 shares. In connection with the aforementioned plan,
1,500,000 shares of the Company's common stock have been reserved for future
issuance.
As discussed in Note 1, the Company has applied the disclosure-only
provision SFAS 123. Had compensation cost been determined based on the fair
value at the grant date consistent with the provisions of SFAS 123, the
Company's net income (loss) and earnings (loss) per share would have been
reduced to the pro forma amounts indicated below for the years ended December
31, 1996 and 1995:
1996 1995
Net (loss) income attributable to common
shareholders as reported (1,118,994) 77,173
=========== =========
Pro forma (loss) (1,216,201) (76,227)
=========== =========
(Loss) earnings per share as reported (.37) .02
=========== =========
Pro forma (loss) per share (.41) (.03)
=========== =========
The weighted average fair value of each option has been estimated on
the date of grant using the Black-Scholes options pricing model with the
following weighted average assumptions used for grants in 1996 and 1995,
respectively; no dividend yield; expected volatility of 90%; risk-free interest
rate (ranging from 5.07% - 6.57%); and expected lives ranging from approximately
1.5 to 5 years. Weighted averages are used because of varying assumed exercise
dates.
A summary of the status of the Company's stock option plans as of
December 31, 1996 and 1995, and changes during the years ended on those dates is
presented below.
F-16
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 894,750 .76 612,250 .77
Granted 227,170 1.03 285,000 .83
Exercised (40,000) .10 (2,500) 9.00
Canceled (1,000) .74
----------- ----------
Outstanding at end of year 1,080,920 .84 894,750 .76
=========== ==========
Options exercisable at year end 953,043 701,000
=========== ==========
Weighted average fair value of
options granted during the year $ .73 $ .54
=========== ==========
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1996 (shares in thousands):
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Shares Contractual Exercise Shares Exercisable
Prices Outstanding Life Price Exercisable Price
<C> <C> <C> <C> <C> <C>
$.74 to $.75 841,250 8 $ .74 816,250 $ .74
$1.06 137,170 4 1.06 34,293 1.06
$1.19 to $1.25 100,000 10 1.22 100,000 1.22
$9.00 2,500 2 9.00 2,500 9.00
--------- ----------- --------- ---------- -------------
$ .74 to $9.00 1,080,920 8 $ .84 953,043 $ .82
</TABLE>
11. Related Party Transactions:
As of December 31, 1996 and 1995, members of the law firm previously
serving as general counsel for the Company owned 48,057 shares of common stock.
Fees for legal services rendered by the law firm approximated $20,500 and
$80,000 for the years ended December 31, 1996 and 1995, respectively.
See Notes 6 and 9 for other related party transactions.
12. Commitments and Contingencies:
The Company leases its operating facility and certain equipment under
operating leases. The lease for the facility in Syosset, New York, was renewed
in November 1995, with the following terms: (a) term of the lease is five (5)
years until March 2001, (b) annual rental to be $456,000 for the first three (3)
years and $504,000 for the remaining two (2) years.
F-17
The equipment leases have terms up to five (5) years.
Minimum annual rental commitments for non-cancelable operating leases
at December 31, 1996, are as follows:
Year ending
December 31, Amount
------------- --------------
1997 $ 646,000
1998 606,000
1999 593,000
2000 519,000
2001 87,000
------------
$2,451,000
============
The accompanying financial statements reflect rent expense on a
straight line basis over the terms of the leases as required by generally
accepted accounting principles. Rent expense was approximately $705,000 and
$684,000 and for the years ended December 31, 1996 and 1995, respectively.
The Company purchases from surgical instrument manufacturers the
surgical instruments included in Instrument Sets that are utilized in providing
the Company's services. Pursuant to a sales and marketing agreement entered into
with Pilling Weck, a national surgical instrument manufacturer and a division of
Teleflex, Inc., the Company has agreed to purchase the majority of its surgical
instrument requirements from Pilling Weck, and Pilling Weck has agreed to supply
surgical instruments to the Company, as well as to be the exclusive sales and
marketing agent for MSI in the United States.
13. Litigation:
(a) In November 1994, the Company reached an agreement with the
plaintiff, Shamrock Technologies Inc. ("Shamrock"), in which the judgment that
had been awarded in the approximate amount of $3,500,000, including interest,
was satisfied. The Company had given to Shamrock, as security, a confession of
judgment in the amount of $1,250,000. In June 1996, the Company received from
Shamrock the release of the Confession of Judgment.
As part of the settlement, Shamrock agreed to purchase $3.3 million of
tolling or processing services for 18 months beginning November 1994, at prices
which provide a gross margin to the Company on such services. At the end of the
tolling agreement, the Company must refrain from participating in the PTFE
processing business.
In November 1995, the Company and Shamrock entered into an agreement
modifying and extending the Toll Processing Agreement. The agreement was
extended through June 30, 1997 with Shamrock having the right to extend it
further to December 31, 1997.
F-18
14. Subsequent Events:
In January 1997, approximately 45% of the voting shares of the
Company's stock was acquired by TFX Equities, Inc., a wholly owned subsidiary of
Teleflex, Inc., a diversified publicly held company. TFX Equities, Inc.,
purchased the Series B and Series C Convertible Preferred Stock from the
previous owners of such stock. In connection with this transaction, TFX
Equities, Inc., received three (3) seats out of the seven (7) seats on the
Company's Board of Directors.
In January 1997, the Company entered into a loan agreement with TFX
Equities, Inc. The principal amount of the loan is $500,000 and bears interest
at the rate of prime plus 1%. The note is due and payable on January 31, 1998.
In February 1997, the Company issued an additional 150,000 shares of
its common stock to TFX Equities, Inc., for $2.00 per share. The shares were
used to reduce accounts payable owed to another subsidiary of Teleflex, Inc.,
incurred for instrument purchases.
In March 1997, the Company entered into a purchase and sale agreement
with Shamrock Technologies, Inc., to sell the Company's electron beam
accelerator. Under the agreement the Company, would receive approximately
$1,250,000 for the beam and related equipment with closing of the sale of the
beam being estimated as April 30, 1998, at which time title to the beam would
transfer to Shamrock Technologies, Inc. In addition, Shamrock has posted a
$500,000 standby letter of credit in escrow.
In conjunction with this sale, the Company has expensed approximately
$103,000 in 1996 as a reduction of the recorded amount of the assets to be sold
to Shamrock Technologies, Inc.
The March 19, 1997 Letter of Intent to enter into a joint marketing
agreement with E-BEAM provides for the transfer of the Company's contract
sterilization and industrial processing customers at a price of 15% of related
revenues up to $350,000. Upon execution of the agreement the Company will
receive a nonrefundable deposit against future royalties of $150,000.
Upon consummation of the sale of the electron beam accelerator to
Shamrock and the remaining contract sterilization and industrial processing
business to E-BEAM, the Company will be relying on revenues from its
sterilization processing of Surgical Instrument Sets. Revenue generated by the
Accelerator to be sold approximated $3,900,000 and $4,061,000 in 1996 and 1995,
respectively. Management intends to replace these revenues with revenues from
its Surgical Instrument Set business.
F-19
Registration No. 2-85008-NY
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
EXHIBITS
Filed With
FORM 10-KSB
Under
THE SECURITIES ACT OF 1934
-------------------
MEDICAL STERILIZATION, INC.
================================================================================
EXHIBIT 3.4
CT 07
F 96O617000029
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MEDICAL STERILIZATION, INC.
- --------------------------------------------------------------------------------
Under Section 805 of the New York Business Corporation Law
- --------------------------------------------------------------------------------
IT IS HEREBY CERTIFIED THAT:
FIRST: The name of the corporation is Medical Sterilization, Inc. (the
"Corporation"). The original name under which the Corporation was formed was
General Sterilization Services, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed
by the Department of State of New York on May 27, 1982. Restated Certificates of
Incorporation and Certificates of Amendment were filed on May 12, 1983, August
5, 1983, May 24, 1989, January 4, 1990 and November 28, 1994.
THIRD: The amendment of the Certificate of Incorporation of the
Corporation effected by this Certificate of Amendment is to permit the
Corporation to issue certain additional securities without triggering
anti-dilution provisions with respect to the Corporation's Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock.
FOURTH: To accomplish the foregoing amendment, Paragraph FOURTH
A(g)(vi) of the Certificate of Incorporation of the Corporation is hereby
amended to read in its entirety as follows:
-2-
(vi) Certain Issues of Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not be required
to make any adjustment of the Conversion Price in the case of the
issuance of: stock options, stock awards or rights to purchase shares
of Common Stock issued or awarded pursuant to any stock plan adopted
and approved by the Board of Directors of the Corporation, provided
that, for so long as any shares of Series B Convertible Preferred Stock
of Series C Convertible Preferred Stock are outstanding, at least one
director nominated by the holders of the then outstanding shares of
Series B Convertible Preferred Stock and Series C Convertible Preferred
Stock shall have voted in favor of the adoption and approval of such
stock plan; the issuance of 1,542,000 shares of Series C Convertible
Preferred Stock with a conversion price of $1 .00 per share; and the
issuance of warrants to purchase 80,000 shares of common stock of the
Corporation at a price of $1.00 per share.
FIFTH: The foregoing amendment of the Certificate of Incorporation of
the Corporation was authorized by the Board of Directors of the Corporation,
followed by the consent of the holders of two-thirds of the outstanding shares
of Series B Convertible Preferred Stock and Series C Convertible Preferred Stock
in the aggregate, and a majority of the votes cast by the holders of Common
Stock entitled to vote on the said amendment of the Restated Certificate of
Incorporation.
IN WITNESS WHEREOF, the undersigned subscribed this document on the
date set forth below and do hereby affirm, under the penalties of perjury, that
the statements contained herein have been examined by the undersigned and are
true and correct.
Dated: May 31, 1996
/s/ D. Michael Deignan
-----------------------------------
D. Michael Deignan, Chief Executive Officer
and President
/s/ Harvey Cohen
-----------------------------------
Harvey Cohen, Secretary
CT-07
F 96O617000029
CERTIFICATE OF AMENDMENT
OF
MEDICAL STERILIZATION, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION
LAW OF NEW YORK
ICC
STATE OF NEW YORK
DEPARTMENT OF STATE
FILED JUNE 17 1996
TAX $__________
BY: JCC
------------
NASSAU
TESTA, HURWITZ & THIBEAULT
125 HIGH STREET
HIGH STREET TOWER
BOSTON, MA 02110
3
960617000030
EXHIBIT 3.5
CSC 45
F 97O106000353
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF
MEDICAL STERILIZATION, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
IT IS HEREBY CERTIFIED THAT:
1. The name of the corporation is MEDICAL STERILIZATION, INC., (the
"Corporation"). The original name under which the Corporation was formed was
General Sterilization Services, Inc.
2. The Certificate of Incorporation of the Corporation was filed by the
Department of State of New York on May 27, 1982. Restated Certificates of
Incorporation and Certificates of Amendment were filed on May 12, 1983, August
5, 1983, May 24, 1989, January 4, 1990, November 28, 1994 and June 17, 1996.
3. The amendment of the Certificate of Incorporation effected by this
Certificate of Amendment is to confirm the increase of the number of authorized
shares constituting the Series C Convertible Preferred Stock of the Corporation
from 1,542,000 to 1,945,265 shares.
4. To accomplish the foregoing amendment Paragraph Fourth A(b)(iii) is
hereby amended to read in its entirety as follows:
"(iii) 1,945,265 shares of the authorized Preferred Stock of the par
value of $.01 each shall be issued in and as a series to be designated
"Series C Convertible Preferred Stock."
5. The foregoing amendment of the Certificate of Incorporation was
authorized by the Board of Directors of the Corporation at a meeting of the
Board duly held on December 14, 1994, followed by the written consent of the
holders of two-thirds of the outstanding shares of Series B Convertible
preffered Stock and two-thirds of the holders of the outstanding shares of
Series C Convertible Preferred Stock.
IN WITNESS WHEREOF, we have hereunto subscribed this Certificate on
January 3, 1997, as of December 14, 1994.
/s/ K. H. Morganstern
-----------------------------
Kennard H. Morganstern
Chairman of the Board
/s/ Harvey Cohen
-----------------------------
Harvey Cohen, Secretary
VERIFICATION
STATE OF NEW YORK)
)SS.:
COUNTY OF NASSAU )
HARVEY COHEN, being duly sworn deposes and says, that he is the
Secretary of Medical Sterilization, Inc., the corporation named in and described
in the foregoing certificate, and is one of the persons described in and who
executed the foregoing certificate, that he has read the foregoing Certificate
of Amendment of the Certificate of Incorporation and knows the contents thereof,
and that the statements contained therein are true.
/s/ Harvey Cohen
-----------------------------
Harvey Cohen
Sworn to before me this
3rd day of January, 1997
/s/ Joel B. Cutler
- ------------------------
Notary Public
Joel B. Cutler
Notary Public, State of New York
No. 30-4765483
Qualified in Nassau County
Commission Expires December 31, 1997
CSC 45
F 970106000353
CERTIFICATE OF AMENDMENT
OF
MEDICAL STERILIZATION, INC.
--------------------------
Section 805 of the Business Corporation Law
ICC
Filer: Joel B. Cutler, Esq STATE OF NEW YORK
Murtagh Cohen & Byrne DEPARTMENT OF STATE
1100 Franklin Ave
Garden City, NY 11530 FILED JAN 06 1997
TAX $_____________
BY: /s/ SAC
---------------
Nassau
970106000377
BILLED
jeh
EXHIBIT 3.6
CSC 45
F970110000798
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
UNDER SECTION 105 OF THE BUSINESS CORPORATION LAW
The undersigned President and Secretary of Medical Sterilization, Inc.
("MSI") pursuant to Business Corporation Law Section 105 certify:
1. The name of the corporation is MEDICAL STERILIZATION, INC., (the
"Corporation").
2. The Certificate of Amendment being corrected was filed by the
Department of State on January 6, 1997.
3. The Certificate of Amendment contains an error in Paragraph 3 in
which it is stated that the increased number of authorized shares of Series C
Convertible Preferred Stock of the Corporation is 1,945,265. The corrected
number should be 1,945,625.
4. Paragraph Fourth A(b)(iii) is hereby corrected to read as follows:
"(iii) 1,945,625 shares of the authorized Preferred Stock of the par
value of $.01 each sha11 be issued in and as a series to be designated
"Series C Convertible Preferred Stock."
IN WITNESS WHEREOF, we have hereunto subscribed this Certificate on
January 10, 1997.
1
/s/ D. Michael Deignan
------------------------------------
D. Michael Deignan, Chief Executive Officer
and President
/s/ Harvey Cohen
------------------------------------
Harvey Cohen, Secretary
VERIFICATION
STATE OF NEW YORK )
)ss.:
COUNTY 0F NASSAU )
HARVEY COHEN, being duly sworn deposes and says, that he is the
Secretary of Medical Sterilization, Inc., the corporation named in and described
in the foregoing certificate, and is one of the persons described in and who
executed the foregoing certificate, that he has read the foregoing Certificate
of Correction of the Certificate of Amendment of the Certificate of
Incorporation and knows the contents thereof, and that the statements contained
therein are true.
/s/ Harvey Cohen
-----------------------
Harvey Cohen
Sworn to before me this
10th day of January, 1997
/s/ Joel B. Cutler
- -------------------------
Notary Public
Joel B. Cutler
Notary Public, State of New York
No. 30-4785483
Qualified in Nassau County
Commission Expires December 31, 1997
CSC 45
F970110000798
CERTIFICATE OF CORRECTION
OF
MEDICAL STERILIZATION, INC.
-------------------------------
SECTION 105 OF THE BUSINESS CORPORATION LAW
Filer: Joel B. Cutler, Esq
Murtagh, Cohen & Byrne
1100 Franklin Ave.
Garden City, NY 11530
lcc
STATE OF NEW YORK
DEPARTMENT OF STATE
FILED JAN 10 1997
TAX $_______________
BY: /s/ POC
-----------------
NASS
BILLED
97011000828
EXHIBIT 10.13
AMENDMENT TO TOLL PROCESSING AGREEMENT AND TO
AGREEMENT MODIFYING AND EXTENDING THE
TOLL PROCESSING AGREEMENT BETWEEN MSI AND SHAMROCK
This is an amendment made on March 17, 1997 to the Toll
Processing Agreement dated November 1, 1994 (the "Toll Processing Agreement")
between Medical Sterilization, Inc. ("MSI") and Shamrock Technologies, Inc.
("Shamrock") and to the Agreement dated November 1, 1995, modifying and
extending the terms of the Toll Processing Agreement (the "Modification and
Extension Agreement"). The Toll Processing Agreement as modified by the
Modification and Extension Agreement shall remain in full force and effect
except as further modified hereby.
1. Pursuant to Paragraph 2 of the Modification and Extension Agreement,
Shamrock hereby elects to extend the term of the Toll Processing Agreement for
three months to September 30, 1997.
2. Shamrock may elect to extend the term of the Toll Processing
Agreement for one month increments through December 31, 1997, provided Shamrock
notifies MSI in writting of such intent not less than three months prior to the
beginning of the month to which the extension applies.
3. Section 4.1(a) of the Modification and Extension Agreement is
amended effective January 1, 1996 as follows:
Item Price
a) Blender Irradiation $3.75 per Kilowatt hour
4. Effective January 1, 1996, Section 5.1 of the Modification and
Extension Agreement are hereby eliminated.
5. Effective November 1, 1994, Section 4 of the Toll Processing
Agreement is deleted.
6. Effective January 1, 1997 Section 8 of the Toll Processing Agreement
is amended to read as follows:
8. Invoicing and Payment: (a) With respect to Blender Irradiation of
PTFE, MSI shall invoice Shamrock not more than twice per month. Payment
of such invoices shall be due 60 days from the date of the invoice and
Shamrock shall be entitled to a discount of 3% for any payment made
within 10 days of receipt of the invoice by Shamrock.
(b) With respect to all services other than Blender Irradiation of PTFE,
MSI shall invoice Shamrock at the time the materials processed are shipped
from MSI's premises. Payment of such invoices shall be due 30 days from the
date of the invoice. Notwithstanding the foregoing, any amounts remaining
unbilled at the date of termination of the Toll Processing
Agreement shall be billed as of such date and shall be due 30 days thereafter,
without discount for early payment.
Agreed: Agreed:
Medical Sterilization, Inc. Shamrock Technologies, Inc.
/s/ D. Michael Deignan /s/ William B. Neuberg
--------------------------- ---------------------------
D. Michael Deignan William B. Neuberg
-2-
EXHIBIT 10.14
PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT dated as of March 17, 1997, by and between
MEDICAL STERILIZATION, INC., a New York corporation having its principal place
of business at 225 Underhill Boulevard, Syosset, New York 11791 ("MSI") and
SHAMROCK TECHNOLOGIES, INC., a New York corporation having its principal place
of business at Foot of Pacific Street, Newark, New Jersey 07114 ("Shamrock").
WHEREAS, MSI currently performs for Shamrock irradiation of
polytetrafluroethylene and other services ("PTFE Services") pursuant to the Toll
Processing Agreement dated November 29, 1994 between MSI and Shamrock, as
amended (the "Toll Processing Agreement"); and
WHEREAS, MSI and Shamrock are parties to a certain Option and Right of
First Refusal Agreement dated November 29, 1994 (the "Option Agreement"); and
WHEREAS, MSI has received an offer from E-Beam Services, Inc. (the
"E-Beam Offer") to purchase MSI's electron beam accelerator and related
equipment, including spare parts thereto; and
WHEREAS, Shamrock has notified MSI that it will purchase MSI's electron
beam accelerator and related equipment on the same terms as the E-Beam Offer;
and
WHEREAS, the E-Beam Offer is subject to a definitive written agreement
between the parties, and Shamrock and MSI have agreed to certain additional and
different terms and wish to set forth the terms pursuant to which Shamrock will
purchase MSI's electron beam accelerator and spare parts thereto; and
WHEREAS, simultaneously with the execution of this Agreement, MSI and
Shamrock are entering into an Amendment to Toll Processing Agreement and to
Agreement Modifying and Extending the Toll Processing Agreement Between MSI and
Shamrock (the "Toll Processing Amendment") and a certain Release and Ancillary
Agreement (the "Ancillary Agreement") (the Toll Processing Amendment, The
Ancillary Agreement and each of the documents delivered or entered into in
furtherance thereof are hereinafter referred to as the "Related Agreements");
NOW, THEREFORE in consideration of the premises and in reliance upon
the mutual representations, warranties, covenants and agreements hereinafter set
forth and in further consideration of each of the Related Agreements, each of
which is an essential part hereof and a material inducement to Shamrock's and
MSI's entering into this Agreement, MSI and Shamrock agree as follows:
1
1.1 Purchase and Sale of Accelerator and Spare Parts.
On the terms and subject to the conditions set forth herein,
at the Closing (as hereinafter defined) MSI will sell, assign,
transfer, grant, convey and deliver ("Transfer") to Shamrock and
Shamrock will purchase and accept from MSI, the electron beam
accelerator and related equipment listed on Schedule 1.1 hereto (the
"Accelerator"), together with all spare parts for the Accelerator (the
"Spare Parts") owned by MSI on the Closing Date (as hereinafter
defined) (collectively, the "Assets").
2. Purchase Price.
2.1 Base Purchase Price. The purchase price to be paid by Shamrock for
the Accelerator and the Spare Parts is $1,250,000 payable as follows:
(i) $1,000,000, less any adjustment required pursuant to
Section 2.2 hereof, shall be paid at the Closing;
(ii) $250,000 shall be paid upon completion of the removal of
the Accelerator as provided in Section 6 hereof;
2.2 Adjustment of Purchase Price. The purchase price for the
Accelerator as set forth in Section 2.1 assumes that the Value (as
hereinafter defined) of the Spare Parts on the Closing Date is not less
than $150,000. In the event that the Value of the Spare Parts is less
than $150,000, then the purchase price shall be reduced by the amount
by which the Value of the Spare Parts is less than $150,000.
2.3 Payment of Purchase Price. The Purchase Price to be paid hereunder
shall, at the option of MSI, be paid by Shamrock by certified check or
by wire transfer of immediately available federal funds.
2.4 Security for Payment of the Purchase Price. On the date hereof,
Shamrock shall deliver to Harvey Cohen, Esq., as Escrow Agent a letter
of credit in the amount of $500,000 in the form attached as Exhibit I
to the Escrow Agreement which is attached as Exhibit A hereto, as
security for payment of the purchase price. Such letter of credit shall
be returned to Shamrock at the Closing upon payment by Shamrock to MSI
of the amount set forth in Section 2.1(i).
2
3. Representations and Warranties of MSI. MSI hereby covenants,
represents and warrants to Shamrock as follows:
3.1 Organization of MSI. MSI is a duly organized corporation, validly
existing and in good standing under the laws of the State of New York
with full power and authority to own its assets and conduct its
business in the manner in which it is now conducted.
3.2 Authorization of Transaction. MSI has full corporate power and
authority to execute and deliver this Agreement and each of the Related
Agreements and to perform its obligations hereunder and thereunder.
This Agreement and each of the Related Agreements constitutes the valid
and legally binding obligation of MSI, enforceable in accordance with
its terms and conditions. MSI need not give any notice to, make any
filing with, or obtain any authorization, consent or approval of any
government or governmental agency in order to consummate the
transactions contemplated by this Agreement or the Related Agreements.
3.3 Noncontravention. Neither the execution and the delivery of this
Agreement and the Related Agreements nor the consummation of the
transactions contemplated hereby or thereby, will violate any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any government,
governmental agency or court to which MSI is subject, or any provision
of its charter or bylaws or conflict with or which result in a breach
of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which MSI is a party or by which it
is bound or to which any of its assets is subject.
3.4 Ownership. MSI is the owner of the Accelerator and the Spare Parts
and has full power to transfer the Accelerator and the Spare Parts free
and clear of all liens, encumbrances, security interests, equities,
options, claims, charges and restrictions except those listed on
Schedule 3.4, each of which shall be removed on or before the Closing.
3.5 Actions and Proceedings. Except as described in Schedule 3.5, there
are no actions, disputes, claims, suits, proceedings, arbitrations,
investigations, either administrative or judicial, pending or, to the
best knowledge of MSI, threatened or contemplated, by, against or
affecting or relating to MSI, the Accelerator or the Spare Parts, at
law or in equity or otherwise before or by any court or governmental
agency or body, domestic or foreign, or before an arbitrator of any
kind. MSI has not been charged with, nor to its best knowledge is MSI
under investigation with respect to, any charge concerning any
violation of any provisions of federal, state or local law or
administrative regulation.
3
3.6 Brokerage. No brokers, finders or similar agents on behalf of MSI
are entitled to any brokerage commission, finder's fee or any similar
compensation, in connection with this Agreement or the transactions
contemplated hereby, except for fees payable solely by MSI.
3.7 Compliance With Laws. Except as disclosed on Schedule 3.7, MSI has
on the date hereof complied with all and will at all times through the
Closing Date remain in compliance with laws, rules, regulations and
orders applicable to the operation and sale of the Accelerator
including, but not limited to, environmental laws, rules, regulations
and orders.
3.8 Accelerator Specifications and Performance Standards. On the date
hereof the Accelerator meets, and on the Closing Date the Accelerator
will meet the specifications and performance standards set forth on
Schedule 3.8 hereto.
3.9 Spare Parts. Schedule 3.9 hereto sets forth a true, correct and
complete list and brief description of all Spare Parts owned on the
date hereof, together with the Radiation Dynamics, Inc. ("RDI") list
price for each such part on February 28, 1997 for each part acquired
from RDI and in the case of Spare Parts which were not acquired from
RDI, the manufacturer's list price of such part on February 28, 1997.
With respect to any Spare Part for which there is no RDI list price or
other manufacturer's list price, Schedule 3.9 sets forth the price paid
by MSI for such parts.
3.10. Complete Transfer. Schedule 1.1 hereto lists all equipment, parts
and fixtures which are a part of MSI's electron beam accelerator and no
piece of equipment presently used in the operation of such electron
beam accelerator is not listed on Schedule 1.1.
3.11. Assignment and Bill of Sale. The Assignment and Bill of Sale and
evidence of the filing of the Termination Statements to be delivered at
the Closing will be sufficient to deliver to Shamrock good and
marketable title to the Assets, free and clear from all liens and
encumbrances (other than those in favor of Shamrock).
3.12 Accuracy of Representations and Warranties. Each of the
representations and warranties of MSI contained in this Agreement will
be true and correct on the Closing Date as if made anew and as of such
date.
4. Representations and Warranties of Shamrock Shamrock hereby
covenants, represents and warrants to MSI as follows:
4
4.1 Organization of Shamrock. Shamrock is duly organized, validly
existing and in good standing under the laws of the State of New York
with full power to conduct its operation as now conducted.
4.2 Authorization of Transaction. Shamrock has full corporate power and
authority to execute and deliver this Agreement and each of the Related
Agreements and to perform its obligations hereunder and thereunder.
This Agreement and each of the Related Agreements constitutes the valid
and legally binding obligation of Shamrock enforceable in accordance
with its terms and conditions. Shamrock need not give any notice to,
make any filing with, or obtain any authorization, consent or approval
of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement or the Related Agreements.
4.3 Noncontravention. Neither the execution and the delivery of this
Agreement or the Related Agreements, nor the consummation of the
transactions contemplated hereby or thereby, will violate any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any government,
governmental agency or court to which Shamrock is subject, or any
provision of its charter or bylaws or conflict with or which result in
a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease,
license, instrument or other arrangement to which Shamrock is a party
or by which it is bound or to which any of its assets is subject.
4.4 Accuracy or Representations and Warranties. Each of the
representations and warranties of Shamrock contained in this Agreement
will be true and correct on the Closing Date as if made anew and as of
such date.
5. Spare Parts.
5.1 Value of Spare Parts. For the purpose of Section 2.2 hereof, the
"Value" of the Spare Parts shall mean 50% of the Radiation Dynamics,
Inc. ("RDI") list price for each such spare part acquired from RDI as
of the last day of the month prior to the month in which the Closing
Date occurs (the "RDI List Price"). In the event the Spare Parts
include any part which was not acquired from RDI, the "Value" of such
parts shall be 50% of the manufacturer's list price of such part on the
last day of the month prior to the month in which the Closing Date
occurs. With respect to any spare part for which there is no RDI List
Price or other manufacturer's list price, the "Value" of such part
shall be equal to 50% of the price paid by MSI for such part.
5
5.2 Documentation of Spare Parts. Thirty days prior to the Closing
Date, MSI shall set aside all spare parts for inspection and assessment
of value by Shamrock and shall deliver to Shamrock a true, correct and
complete list identifying all Spare Parts to be delivered at the
Closing and the value thereof (the "Spare Parts Schedule"). In
addition, MSI shall make available to Shamrock documentation sufficient
to allow Shamrock to verify MSI's calculation of Value of the Spare
Parts, including copies of the RDI Price List as of the last day of the
month prior to the month in which the Closing Date occurs.
5.3 Representation Regarding Spare Parts. MSI represents and warrants
that each item listed on the Spare Parts Schedule will be of the type
normally useable as a part of the Accelerator, will be in good working
order and except as set forth in Schedule 3.9 will not have been
previously used or be refurbished or rebuilt parts.
6. Removal of the Accelerator.
6.1 Removal. Promptly after the Closing Date Shamrock shall commence
and diligently complete removal of the Accelerator and Spare Parts from
the MSI premises. Removal of the Accelerator shall be performed by
Shamrock or at Shamrock's direction in a workmanlike manner and at
Shamrock's sole cost and expense, provided that MSI shall make
available to assist Shamrock at no cost, (i) one supervisory-level MSI
employee at all times during scheduled removal activities for
coordination purposes and for hands-on participation and (ii)
approximately 50% of Alphonse Iannucci's time or if Alphonse Iannucci
is not at such time employed by or otherwise obligated to perform
services for MSI, MSI shall (x) make available equivalent time of an
individual having technical knowledge and experience of Accelerator
operations sufficient to perform the services contemplated to be
performed by Alphonse Iannucci or (y) compensate Shamrock for its
actual out of pocket costs incurred in hiring an individual as
described in the preceding clause.
6.2 Access to Premises. From and after the Closing Date, and until
removal of the Accelerator is completed, MSI will, at no cost to
Shamrock, allow Shamrock, its employees and agents 24 hour per day
access to MSI's premises for the purpose of removing the Accelerator.
6.3 Restoration of Premises. Shamrock, its employees and agents shall
not be responsible for restoration of the MSI premises or for any
damage to the MSI premises resulting from removal of the Accelerator
except for damage caused by the gross negligence or willful misconduct
of Shamrock or its employees or agents.
6.4 Plan for Removal. Not later than June 30, 1997 MSI shall, in
consultation with Shamrock prepare and deliver to Shamrock a
preliminary plan for removal activities. MSI shall, in consultation
with Shamrock prepare and deliver to Shamrock
6
a comprehensive recommendation for removal of the Accelerator not less
than 45 days prior to the Closing Date. Shamrock may modify or amend
the MSI proposal for removal activities in such manner as it deems
appropriate in its sole discretion, subject, however, to Shamrock's
obligations under Section 6.1 hereof.
7. Certain Additional Covenants of MSI.
7.1 Spare Parts. MSI covenants and agrees that from the date hereof
until the Closing Date it will maintain the quality, type and amount of
inventory of Spare Parts for the Accelerator consistent with its past
practices and will not sell, transfer or otherwise dispose of any of
the Spare Parts, except for use in the Accelerator in the ordinary
course of business.
7.2 No Liens. MSI covenants and agrees that from the date hereof until
the Closing Date, it will not mortgage, pledge, assign, grant a
security interest in or in any way encumber the Assets whether now
owned or hereafter acquired.
7.3. Accelerator Drawings, Specifications and Operating Information.
Within 30 days from the date hereof MSI covenants and agrees to provide
Shamrock with a complete set of maintenance records for the
Accelerator, and not later than June 30, 1997 MSI shall provide to
Shamrock Accelerator drawings and related facility drawings, equipment
specifications, software validation records and operator logs for at
lease three years prior to the date of such request. On the request of
Shamrock, MSI shall provide updated operating logs to Shamrock on a
monthly basis from the date hereof through the Closing Date.
7.4 Access to Premises. MSI shall allow Shamrock to inspect the
Accelerator from time to time upon reasonable notice from the date
hereof until completion of removal activities.
7.5 Insurance. MSI shall maintain sufficient property and liability
insurance covering the Assets until the Assets are transferred to
Shamrock. Property insurance shall be in an amount not less than the
replacement cost of the Assets.
8. The Closing
8.1 Conditions Precedent to the Obligations of Shamrock and MSI. The
obligations of Shamrock and MSI under this Agreement to consummate the
transactions
7
contemplated hereby will be subject to the satisfaction, at or prior to
the Closing, of the condition that there shall not have been entered a
preliminary or permanent injunction, temporary restraining order or
other judicial or administrative order or decree in any jurisdiction
the effect of which prohibits the Closing.
8.2 Additional Conditions Precedent to the Obligations of Shamrock. The
obligations of Shamrock under this Agreement to consummate the
transactions contemplated hereby will be further subject to the
satisfaction, at or prior to the Closing, of all the following
conditions, any one or more of which may be waived by Shamrock at its
option:
8.2.1 Accuracy of Representations and Warranties. The representations
and warranties of MSI contained in this Agreement shall be true and
correct in all material respects both on and as of the date of this
Agreement and on and as of the Closing Date (with the same force and
effect as if made anew on and as of the Closing Date).
8.2.2 Compliance With Covenants. All terms, covenants and conditions of
MSI contained in this Agreement to be performed and complied with by
MSI on or before the Closing Date shall have been fully performed and
complied with.
8.2.3 No Litigation. Etc. No investigation, suit, action or other
proceeding shall be pending or threatened before any governmental
entity which, in the reasonable opinion of Shamrock or its counsel, is
likely to result in a restraint or prohibition on, or an award of
damages or other relief in connection with, this Agreement or the
consummation of the transactions contemplated hereby.
8.2.4 Delivery of Documents on Behalf of MSI. At or prior to the
Closing MSI shall have caused to be effected the deliveries required
pursuant to Section 8.4 (b).
8.3 Additional Conditions to the Obligations of MSI. The obligations of
MSI under this agreement to consummate the transactions contemplated
hereby will be further subject to the satisfaction, at or prior to the
Closing, of all of the following conditions, any one or more of which
may be waived by MSI at its option:
8.3.1 Accuracy of Representations and Warranties. The representations
and warranties of Shamrock contained in this Agreement will be true and
correct in all material respects both on and as of the date of this
Agreement and on and as of the Closing Date (with the same force and
effect as if made anew on and as of the Closing Date).
8.3.2 Compliance With Covenants. All terms, covenants and conditions
contained in this Agreement to be performed and complied with by
Shamrock on or before the Closing Date shall have been full performed
and complied with.
8
8.3.3 No Litigation, Etc. No investigation, suit, action or other
proceeding shall be pending or threatened before any governmental
entity which, in the reasonable opinion of MSI or its counsel, is
likely to result in a restraint or prohibition on, or an award of
damages or other relief in connection with, this Agreement or the
consummation of the transactions contemplated hereby.
8.3.4 Delivery of Documents on Behalf of Shamrock. At or prior to the
Closing, Shamrock shall have effected the deliveries required pursuant
to Section 8.4(c).
8.4 The Closing. (a) Subject to the fulfillment or waiver of the other
conditions precedent specified in Sections 8.1, 8.2 and 8.3 hereof, the
consummation of the purchase and sale of the Assets contemplated hereby
(the "Closing") will take place on the date which is four months after
the termination of the Toll Processing Agreement, but not later than
April 30, 1998. The Closing will take place at the offices of Gibuey,
Anthony & Flaherty, 665 5th Avenue, New York, New York.
(b) At the Closing, MSI will deliver to Shamrock the
following:
(1) Certificate of MSI. A certificate of MSI, signed by an
authorized officer of MSI certifying that the conditions set
forth in Sections 8.2.1, 8.2.2 and 8.2.3 have been
satisfied;
(2) Transfer Documents. Such bills of sale, assignments, UCC
termination statements and other instruments of transfer
(the "Transfer Documents") as may be necessary or
appropriate to Transfer to Shamrock all right, Title and
interest in, to and under the Assets free and clear of all
liens and encumbrances, duly executed by MSI and in form and
substance reasonably satisfactory to Shamrock and its
counsel;
(3) Board of Directors Resolutions. Certified copies of
resolutions of the Board of Directors of MSI authorizing
this Agreement and each of the Related Agreements and each
of the transactions contemplated hereby and thereby; and
(4) Escrow Agent Direction Agreement. Authorization
directing the Escrow Agent to release the letter of credit
referred to in Section 2.4 hereof.
(c) At the Closing Shamrock will deliver to MSI the following:
9
(1) Certificate of Shamrock. A certificate of Shamrock,
signed by an authorized officer of Shamrock certifying that
the conditions set forth in Sections 8.3. I, 8.3.2 and 8.3.3
have been satisfied; and
(2) Payment of the Purchase Price. An amount equal to the
portion of the Purchase Price to be paid at the Closing as
set forth in Section 2.1 (i) of this Agreement.
9. Further Assurances/Cooperation.
9.1.1 Further Assurances. After the Closing, MSI will, from time to
time, at Shamrock's request and at no charge to Shamrock, perform such
other acts and execute and deliver such other instruments as may be
required for the more effective conveyance of the Accelerator to
Shamrock.
9.1.2 Cooperation. Shamrock and MSI shall cooperate with each other and
shall act in good faith in performing their respective obligations
under this Agreement and each of the Related Agreements.
10. Expenses. Each party will pay its own expenses (including expenses of
counsel and accountants) incidental to the preparation and carrying out of this
Agreement and the Related Agreements.
11. Miscellaneous.
11.1 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns. This Agreement may not be assigned or
transferred by Shamrock or MSI without the written consent of the
non-assigning party. The representations, warranties and covenants of
Shamrock and MSI made hereunder will equally apply to any permitted
assignees.
11.2 Notices. Any notice or communication given pursuant hereto shall
be in writing and deemed given when delivered personally or when mailed
by certified mail, postage prepaid, as follows:
If to Shamrock:
Shamrock Technologies, Inc.
Foot of Pacific Street
Newark, NJ 07114
Attn: William B. Neuberg
Tel: (201) 242-2999
10
with a copy to:
Gibney, Anthony & Flaherty, LLP
665 Fifth Avenue
New York, NY 10022
Attn: Frederick W. Anthony, Esq.
Tel: (212) 688-S151
If to MSI:
Medical Sterilization, Inc.
225 Underhill Boulevard
Syosset, NY 11791
Attn: D. Michael Deignan, President & CEO
Tel: (516) 496-8822
with a copy to:
Harvey Cohen, Esq.
Murtagh, Cohen & Byrne
1100 Franklin Avenue
Garden City, NY 11530
Tel: (516) 747-1000
Any party may change the name or address of the persons designated to
receive notice by a written notice delivered to the other party.
11.3 Waiver; Remedies. No delays on the part of any party hereto in
exercising any right, power or privilege hereunder shall operate as a
waiver, nor shall any waiver on the part of any such party or any
right, power or privilege hereunder operate as a waiver of any other
right, power or privilege hereunder, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power
or privilege hereunder. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies which any
party hereto may otherwise have at law or in equity.
11.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of
which together shall constitute a single instrument.
11
11.5 Governing Law. This Agreement shall be construed in accordance
with the laws of the State of New York without giving effect to
conflict of laws that would result in the application of the laws of
another jurisdiction.
11.6 Effect of Invalidity. Should any part of this Agreement, for any
reason, be declared invalid, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain
in force and effect as if this Agreement had been executed with the
invalid portion thereof eliminated.
11.7 Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or any breach thereof, shall be settled by
arbitration in accordance with the Commercial Rules of the American
Arbitration Association. Judgment upon an award rendered by the
arbitrator or arbitrators may be entered into in any court having
jurisdiction thereof. Each party shall bear its own costs of the
arbitration including, but not limited to, fees and disbursements of
counsel.
IN WITNESS WHEREOF, the parties have executed this Purchase and Sale
Agreement on the date first above written.
SHAMROCK TECHNOLOGIES, INC.
By: /s/ William B. Neuberg
------------------------
William B. Neuberg
Title: President
MEDICAL STERILIZATION, INC.
By: /s/ Michael Deignan
------------------------
D. Michael Deignan
Title: President and CEO
12
SCHEDULE 1.1
The Accelerator consists of the RDI 4.5 MeV industrial accelerator model
4500-34-1220 and all equipment and related components which enable normal
operation and maintenance, including but not limited to: controls and control
console; window blower and ducting; vacuum pumps and controllers; SF6 gas
handling system, gas, gas cylinders, and gas storage vessel; conveyor system,
including carts (including battery driven drum carts) and perforated trays;
water cooling system; all instrumentation, data recorders, and printers; ozone
exhaust fans and ductwork; ventilation fans; safety system equipment; video
monitoring system; radiochromic dosimetry readers; accelerator-related
diagnostic and maintenance equipment, including I-beam platform for vessel
openings, hoists, etc.; spare parts for all the above; and other
auxiliary-equipment related to the above items. In addition, the definition of
the "Accelerator" includes removable components of the electron beam processing
facility, such as major structural steel pieces, certain portions of the
radiation shielding, electrical components, etc., but does not include the
following equipment utilized by MSI that is not owned by MSI:
2 Fork Lift Trucks - Mitsubishi Model FBC15:
Serial No. AFB1-50750
Serial No. AFB1-50582
GE Credit is the Lessor
SCHEDULE 3.4
Liens on Accelerator and Spare Parts
Rosenthal & Rosenthal, Inc. ("Rosenthal") has a security interest in all
machinery, equipment and furniture and fixtures, accounts, contract rights and
general intangibles of MSI pursuant to a security agreement dated November 29,
1994. Apple Bank also has a security interest in the same assets. Pursuant to
Intercreditor Agreement dated the same date, Apple Bank subordinated its
security interest to Rosenthal, and Shamrock subordinated its security interest
to Rosenthal and Apple Bank.
SCHEDULE 3.5
Actions, Disputes, Etc.
NONE
SCHEDULE 3.7
Compliance with Laws
MSI has complied with all laws as of this date. The NYS Department of
Environmental Conservation operating through the Nassau County Department of
Health has issued certificates to operate for emission points subject to a final
expiration date of 12/31/97.
SCHEDULE 3.8
Performance Standards
A performance test will include: verification of voltage (MeV), maximum beam
output (milliamps), scan uniformity, and consistency of output (operation for an
8 hour period of time at full beam output with no more than 4 processing
interruptions). The Accelerator must deliver 4.5 MeV and at least 22 milliamps
of beam output.
SCHEDULE 3.9
Spare Parts
CONTRACT DEPARTMENT - SPARE PARTS
EPTEK 700 CARDS (SPARES)
95715-L1 C.P.U. CHASSIE INTERFACE $ 1,025.00
95778-L1 MEMORY BOARD OBSOLETE
95773-L1 MEMORY BOARD OBSOLETE
95717-L1 R.S. 232 INTERFACE 555.00
95744-L1 A/D CONVERTER MODULE 295.00
95750-L1 ANALOG INPUT 1,500.00
95757-L1 ANALOG OUTPUT 845.00
95711-L1 C.P.U. P.C. BOARD (OBSOLETE) 795.00
95713-L1 (3) LOAD TRACK DRIVER 1,025.00
95722-L1 BIT INPUT ASSY 815.00
95725-L1 PUSH BUTTON PAD P.C.B. (OBSOLETE) 325.00
95726-L1 DUAL BYTE I/O ASSY 1,025.00
95732-L1 BIT OUTPUT ASSY 815.00
95735-L1 DATA ENTRY KEYPAD ASSY (OBSOLETE) 1,050.00
95730-A6 (17) OUTPUT INTERFACE 120V BLOCK
($50 EACH) 850.00
95720-F1 (6) I/O BLOCK ($60 EACH) 360.00
95720-A6 (19) INPUT INTERFACE 120V BLOCK
($50 EACH) 950.00
95762-001 APTAK POWER SUPPLY (OBSOLETE) 1,050.00
95714-A6 (3) INTERFACE MODULE ASSY ($500 EACH) 1.500.00
----------
$14,780.00
All of the Above Items Were
Purchased from Ribble Engineering Corporation
SCHEDULE 3.9
Spare Parts
OSCILLATOR SPARE PARTS
RG 220 ANODE CABLE $ 1,000.00
R-90044-010 SCR POWER MODULE 1,780.00
R-90044-002 SCR LOGIC P.C.B. 981.00
R-90044-11 SCR FAULT DETECTION P.C.B. 500.00
M.S.I. DESIGN D.C. FILTER CHOCKE 8,168.00(1)
R-45004 R.F. GRID CHOCKE 1.2 M.H. 5A. 232.06
R-00011 GRID CHOCKE ASSY CAP. 39.22
R-72029 H.V. RESISTOR 40.03
R-87027 FILTER CAP 2.0 MFD 20KVDC 1,400.10
R-87052 FILTER CAP .25 MFD 15KVDC 432.50
R-87053 FILTER CAP .25 MFD 17.5 KVDC 375.48
R-74054-01 .10 100W. RESISTOR 91.48
R-03051 (20) 100 100W GRID RESISTOR 625.00
R-13098-004 GRID CURRENT METER 125.00
----------
$15,789.87
(1) Purchased from Tech-Tran Corp.
SCHEDULE 3.9
Spare Parts
VACUUM SYSTEM
R-51118-001 TURBO PUMP SIDE INLET $13,560.00 (1)*
R-83074-004 ROUGHING PUMP 2,350.00 (2)*
R-83078 ION GAUGE CONTROLLER 1,150.00
R-51120 TURBO PUMP CONTROLLER 3,150.OO (1)*
M.S.I. SCAN WINDOWS MATERIAL
C-00-09615-018 (6) WINDOW "O" RING 240.00
C-00-10459-004 (2) SCAN COILS 116 TURNS 1,909.44
D-00-10884-001 (4) DYNODE & GLASS ASSY 67,289.40
C-00-13256 ELECTRON GUN 3,950.00
R-83034-001 (11) ION GAUGE COPPER GASKET 30.00
R-83034-004 (8) PUMP COPPER GASKET 35.00
R-83034-005 (9) VALVE COPPER GASKET 45.00
VARION ION GAUGE
938-41 VARIAN LEACK DETECTOR 7,000.00 (3)
D-0013523 BEAM TUBE MANIFOLD 11,837.00
C-00-14435 FLANGE L.V. 8" B.T. TO B.T.
C-00-14434 FLANGE B.T. TO ELECTRON GUN
C-0014433 FLANGE B.T. TO B.T. H.V. END
C-00-14436 FLANGE 8" B.T. TO MANIFOLD
B-00-10464-001 (2)B. GUN "O~ RING
C-00-11267-003 (6)"O" RING PAIRED B.T.
C-00-11267-001 "O" RING PAIRED B.T. TO B.T.
B-00-10464-007 "O" RING B.T. TO MANIFOLD
R-50065-453 "O" RING INTERFACE FLANGE
SPENCER BLOWER CAT30104A 840CFM 3,600.00 (4)
6" VARIAN GATE VALVE 2.665.00 (3)
-----------
$118,810.84
(1) Purchased from Balzer's
(2) Purchased from Alcatel Pumps
(3) Purchased from Varian
(4) Purchased from Spencer Blower Inc.
* When the bearings on these items became bad they were rebuilt according to the
manufacturer~s specs.
SCHEDULE 3.9
SPARE PARTS
CONTROL CONSOLE
R-37103-005 4 - 15 VOLT P.S. $ 131.25
R-37114-006 5 VOLT P.S. 86.25
E-00-98002-001 BEAM CONTROL AMP, P.C.B. 2,294.66
E-00-98018 BEAM REGULATOR CARD 2,445.00
E-00-98014 SCAN FUNCTION GEN. 3,650.00
R-95092 C.P.U. VIDEO DISPLAY 865.00
SCAN AMP. (BULOVA) 8,000.00 (1)
----------
$17,472.16
ACCELERATOR
R-00-10395 R.F. SWITCH CONTACT $ 16.00
R-24021-003 R.F. SWITCH CAM 49.00
C-00-10416 (4) R.F. CHOCKE 3,403.80
D-00-11086 SOLID STATE RECTIFIERS (SPACE PARTS)
R-30054-001 PHOTOMULTIPLIER TUBE 272.56
R-75034 BEAM CONTROL POT 4.5KD 89.11
H.V. DEVIDER BOARD
(3 SECT NO. RESISTOR) 1,500.00
R-87039 (2) .028 MFD. CAP. 597.70
R-87040 (2) .037 MFD. CAP. 720.72
R-87041 (1) .047 MFD. CAP. 349.96
B-00-10711-002(10)H.V.D. RESISTOR STRING 810.75
C-00-11050 (4) ZENER DIODE ASSY 3,481.41
PHOTOCELL FEMLSEC SAFETY SYSTEM 400.00
5 H.P. MOTOR FOR CONVEYER SYSTEM 350.00
-----------
GRAND TOTAL $178,893.88
(1) Purchased from Bulova
EXHIBIT A
ESCROW AGREEMENT
among
SHAMROCK TECHNOLOGIES, INC.,
MEDICAL STERILIZATION, INC.
AND
HARVEY COHEN, ESQ.
Entered into
March 17, 1997
ESCROW AGREEMENT
ESCROW AGREEMENT dated March [ ], 1997 by and among Shamrock
Technologies, Inc. a New York corporation ("Shamrock"), Medical Sterilization,
Inc. a New York corporation ("MSI") and Harvey Cohen, Esq. as escrow agent
("Escrow Agent").
WHEREAS, Shamrock and MSI are parties to a certain Purchase and Sale
Agreement of even date herewith (the"Purchase Agreement"); and
WHEREAS, the Purchase Agreement requires Sharurock to deliver a letter
of credit in the amount of $500,000 at the time of execution of the Purchase
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Establishment of the Escrow Fund. Simultaneously with the execution
and delivery of this Escrow Agreement, Shamrock is delivering to the Escrow
Agent a clean, irrevocable standby letter of credit substantially in the form
attached hereto as Exhibit I in the amount of $500,000, issued by First Union
and having an expiration date of May 30, 1998 (the "Letter of Credit") to secure
the Buyer's obligation to pay the portion of the Purchase Price to be paid
pursuant to Section 2. l(i) of the Purchase Agreement.
The Letter of Credit shall be deposited with the Escrow Agent and any
amounts received by the Escrow Agent as a result of any drawings against the
Letter of Credit, less distributions provided for herein shall be known as the
"Escrow Fund." All amounts held in the Escrow Fund (other than the Letter of
Credit) shall be deposited by the Escrow Agent into an interest-bearing account
(the "Escrow Account") and such deposits shall be from time to time invested and
reinvested as herein provided. The Escrow Agent will hold, and dispose of the
Escrow Fund, and any accretions thereto or income with respect thereto, in
accordance with the terms and conditions hereof. Defined terms used but not
defined herein shall have the meanings
-2-
assigned to them in the Purchase Agreement. In the event of the death or
incapacity of the Escrow Agent, Shamrock and MSI shall mutually agree on a
successor escrow agent.
2. Investment of the Escrow Fund.
2.1 Investment. The Escrow Agent shall invest any or all of
the Escrow Account, and any undistributed accretions thereto or income with
respect thereto, as directed in writing by Shamrock, or in the absence of such
directions, as the Escrow Agent may from time to time determine, in any of the
following, in each case not maturing later than six months:
(i) interest-bearing savings accounts with national banks or
corporations endowed with trust powers having capital and surplus in excess of
$1,000,000,000;
(ii) obligations issued or guaranteed by the United States of
America or any agency or instrumentality thereof;
(iii) certificates of deposit of or accounts with national
banks or corporations endowed with trust powers having capital and surplus in
excess of $1,000 000,000; or
(iv) commercial paper at the time of investment rated A-1 by
Standard & Poor's Corporation or Pnme-l by Moody's Investor's Service, Inc. (the
Escrow Agent having no liability to determine or inquire into the rating of said
investment).
2.2 No Liability. The Escrow Agent shall not have any
liability for any loss sustained as a result of any investment made pursuant to
the instructions of Shamrock or as a result of any liquidation of any such
investment prior to its maturity or for the failure of Shamrock to give the
Escrow Agent any instruction to invest or reinvest the Escrow Fund or any
earnings thereon.
-3 -
2.3 Escrow Ledger. The Escrow Agent shall maintain a ledger
(the "Escrow Ledger") setting forth (i) the amount of the Letter of Credit held
by the Escrow Agent; (ii) the extent the Letter of Credit has been drawn upon;
and (iii) all income or other items added to and distributiors from or other
items charged against the Escrow Fund.
3. Procedure or drawing on the Letter of Credit. In the event that the
Closing has not occurred on or before May 10, 1998, MSI may give notice to the
Escrow Agent and Shamrock directing that the Escrow Agent draw upon the Letter
of Credit ("a Drawing Notice"); provided, however, in no event may MSI give the
Escrow Agent a Drawing Notice in the event that the Closing has not occurred as
a result of the failure of any of the conditions to Shamrock's obligation to
Close set forth in Sections 8.1, or 8.2 of the Purchase Agreement to have been
satisfied. The Drawing Notice shall certify that (i) the Closing has not taken
place and (ii) that each of the conditions set forth in Sections 8.1 and 8.2 of
the Purchase Agreement have been satisfied, and shall be signed by the President
of MSI. The Escrow Agent shall draw upon the Letter of Credit by delivery to the
issuer thereof a Drawing Certificate in the form attached hereto as Exhibit II.
4. Disposition of the Escrow Fund. After drawing upon the Letter of
Credit, the Escrow Agent shall disburse the Escrow Fund only (i) upon written
direction signed by Shamrock and MSI, (ii) upon written direction of the
Arbitrator appointed to resolve disputes under the Purchase Agreement or (iii)
upon direction of any court of competent jurisdiction. The Arbitrator shall
determine any actual damages of MSI (if any) incurred as a result of Shamrock's
failure to Close in breach of its obligations under the Purchase Agreement ("MSI
Damages") and shall direct that such damages be paid to MSI from the Escrow Fund
and that the balance of the Escrow Fund be promptly returned to Shamrock Nothing
herein shall prevent Shamrock from recovering from MSI its actual damages
resulting from any breach by MSI of any of its representations, warranties or
covenants under the Purchase Agreement.
5. Return of the Letter of Credit to Shamrock. The Escrow Agent shall
return the Letter of Credit to Shamrock on the earlier of (i) receipt of written
notice from MSI that the purchase
-4-
price to be paid pursuant to Section 2.1 (i) of the Purchase Agreement has been
paid, or (ii) 10 days after delivery by Shamrock to the Escrow Agent and to MSI
of a certificate of its President stating that the purchase price required to be
paid pursuant to Section 2.1 (i) of the Purchase Agreement has been paid, unless
the Escrow Agent has, prior to the expiration of such 10 day period received a
certificate from MSI stating that such amount has not been paid.
6. Termination. This Agreement shall terminate upon the return of the
Letter of Credit to Shamrock or the distribution of all of the Escrow Fund and
all other sums held by the Escrow Agent pursuant to this Agreement.
7. Duties of the Escrow Agent.
7.1 Duties. It is agreed that the duties and obligations of
the Escrow Agent are those herein specifically provided and no other. The Escrow
Agent shall not have any liability under, nor duty to inquire into, the terms
and provisions of any agreement or instrument, other than this Escrow Agreement.
The Escrow Agent's duties are ministerial in nature and the Escrow agent shall
not incur any liability whatsoever other than for his own willful misconduct or
gross negligence.
7.2 Right to Follow Instructions. The Escrow Agent shall not
incur any liability for following the instructions herein contained or expressly
provided for, or written instructions given by the parties hereto.
7.3 No Duty to Verify. In the absence of willful misconduct or
gross negligence, the Escrow Agent shall not have any responsibility for the
genuineness or validity of any document or other material presented to or
deposited with him nor any liability for any action taken, suffered or omitted
in accordance with any written instructions or certificates given to him
hereunder and believed by him to be signed by the proper party or parties.
-5-
7.4 Consu1tation with Counsel. The Escrow Agent may consult
with counsel of his choice, and shall not be liable for any action taken,
suffered or omitted by him in accordance with the advice of such counsel.
7 5 Conflicting Instructions. In the event that the Escrow
Agent shall be uncertain as to his duties or rights hereunder or shall receive
instructions, claims or demands from any party hereto which, in his opinion,
conflict with any of the provisions of this Escrow Agreement, he shall be
entitled to refrain from taking any action and his sole obligation shall be to
keep safely all property held in escrow until he shall be directed otherwise in
writing by all parties hereto (other than the Escrow Agent) or by a final order
or judgment of an arbitrator or a court of competent jurisdiction.
7.6 Legal Proceedings. The Escrow Agent shall not be required
to institute legal proceedings of any kind and shall not be required to initiate
or defend any legal proceedings which may be instituted against him in respect
of the subject matter of this Escrow Agreement. If the Escrow Agent does elect
to act, he will do so only to the extent that he is indemnified to his
satisfaction against the cost and expense of such defense or initiation.
7.7 Release of Escrow Agent. The Escrow Agent may at any time
resign by giving written notice of his resignation to the parties hereto at
their respective addresses set forth in this Escrow Agreement, at least twenty
(20) days prior to the date specified for such resignation to take effect and,
upon the effective date of such resignation, all property then held by the
Escrow Agent shall be delivered by him to such a person as may be designated in
writing by the other parties hereto, whereupon all of the Escrow Agent's duties
and obligations hereunder shall cease and terminate. If no such person shall
have been designated by such time, all duties and obligations of the Escrow
Agent shall nevertheless cease and terminate. The Escrow Agent's sole
responsibility thereafter shall be to keep safely all property then held by him
pursuant to this Escrow Agreement and to deliver the same to a person or persons
designated by all of the other
-6-
parties hereto or in accordance with the directions of a formal order or
judgment of a court of competent jurisdiction.
8. Termination of the Escrow Agent. Shamrock and MSI together may
terminate the appointment of the Escrow Agent hereunder upon notice specifying
the date upon which such termination shall take effect. In the event of such
termination, Shamrock and MSI shall within sixty (60) days of such notice
jointly appoint a successor Escrow Agent and the Escrow Agent shall turn over to
such successor Escrow Agent the Letter of Credit and all amounts in the Escrow
Fund held by him pursuant to this Escrow Agreement. Upon receipt of the Letter
of Credit, and any funds and other amounts, the successor Escrow Agent shall
thereupon be bound by all of the provisions hereof.
9. Miscellaneous.
9.1 Notices. Any notice or other communication required or
which may be given hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile transmission, overnight
delivery service or sent by certified, registered or express mail, postage
prepaid and shall be deemed given when so delivered personally, telegraphed,
telexed, or sent by facsimile transmission or overnight delivery service or, if
mailed, tour days after the date of mailing, as follows:
If to Shamrock:
Shamrock Technologies, Inc.
Foot of Pacific Street
Newark, NJ 07114
Attn: William B. Neuberg, President
Tel: (201) 242-2999
-7-
with a copy to
Gibney, Anthony & Flaherty, LLP
665 Fifth Avenue
New York, NY 10022
Attn: Frederick W. Anthony, Esq.
Tel: (212) 688-5151
If to MSI:
Medical Sterilization, Inc.
225 Underhill Boulevard
Syosset, NY 11791
Attn: D. Michael Deignan, President & CEO
Tel: (516) 496-8822
with a copy to:
Harvey Cohen, Esq.
Murtagh, Cohen & Byrne
1100 Franklin Avenue
Garden City, NY 11530
Tel: (516) 747-1000
If to the Escrow Agent:
Harvey Cohen, Esq.
Murtagh, Cohen & Byrne
1100 Franklin Avenue
Garden City, NY 11530
Tel: (516) 747-1000
Any party may change the name or address of the persons
designated to receive notice by a written notice delivered to
the other party.
9.2 Waivers and Amendments. This Escrow Agreement may be
amended, modified, superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, the party waiving compliance. No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any
-8-
right, power or privilege hereunder, nor any single or partial exercise of any
right, power or privilege hereunder, preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. The
Escrow Agent shall not be bound by any modification, amendment, termination,
cancellation, rescission or supersession of this Agreement unless the same shall
be in writing and signed by all of the other parties hereto and, if his rights,
duties, immunities or indemnities as Escrow agent are affected thereby, unless
he shall have given his prior written consent thereto.
9.3 Governing Law. This Escrow Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed entirely within that State. The parties
hereto irrevocably consent to the jurisdiction of the courts at that State.
9.4 Assignment. The Escrow Agreement shall be binding upon the
successors and permitted assigns of the parties. Except as otherwise provided
herein, no assignment of any rights or delegation of any obligations provided
for herein may be made by any party without the express written consent of all
other parties hereto.
9.5 Further Assurances. Each of the parties shall execute such
documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby.
9.6 Variations of Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
9.7 Counterparts. This Escrow Agreement may be executed in two
or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
9
9.8 Headings. The headings in this Escrow Agreement are for
reference, purposes only and shall not in any way affect the meaning or
interpretation of this Escrow Agreement.
IN WITNESS WHEREOF, the parties have executed this Escrow
Agreement on the date first above written.
SHAMROCK TECHNOLOGIES, INC.
By:
--------------------------
William B. Neuberg, President
MEDICAL STERILIZATION, INC.
By:
--------------------------
D. Michael Deignan, President & CEO
ESCROW AGENT
By:
--------------------------
Harvey Cohen, Esq.
-10-
EXHIBIT II
Drawing Certificate
Under First Union
Irrevocable Standby Letter of Credit No._________
I refer to the above-referenced Irrevocable Letter of Credit ("Letter
of Credit"). The terms defined in the Letter of Credit have the same meanings
when used herein.
Harvey Cohen ("Escrow Agent") under that certain Escrow Agreement
dated March [ ], 1997 (the "Escrow Agreement") by and among the Escrow Agent,
Shamrock Technologies, Inc. ("Shamrock") and Medical Sterilization, Inc.
("MSI"), hereby certifies to First Union with reference to the Letter of Credit
that:
1. Escrow Agent has received a notice from MSI as provided in Section
3 of the Escrow Agreement that Shamrock has failed to pay the Purchase Price.
2. The Escrow Agent hereby draws upon your Letter of Credit No. in the
amount of $500,000.
3. You shall pay the amount referred to in the preceding paragraph by
transfer of same day funds to Account No. of the Escrow Agent.
IN WITNESS WHEREOF, the Escrow Agent has executed and delivered this
Certificate this _______ day of ________ , 19__.
HARVEY COHEN, ESQ.
as Escrow Agent
------------------------
- 11 -
EXHIBIT I
[FORM OF APPLICATION AND AGREEMENT FOR IRREVOCABLE STANDBY LETTER OF CREDIT]
EXHIBIT II
Drawing Certificate
Under First Union
Irrevocable Standby Letter of Credit No. _________
I refer to the above-referenced irrevocable Letter of Credit ("Letter
of Credit"). The terms defined in the Letter of Credit have the same meanings
when used herein.
Harvey Cohen ("Escrow Agent") under that certain Escrow Agreement
dated March [ ], 1997 (the "Escrow Agreement") by and among the Escrow Agent,
Shamrock Technologies, Inc. ("Shamrock") and Medical Sterilization, Inc.
("MSI"), hereby certifies to First Union with reference to the Letter of Credit
that:
1. Escrow Agent has received a notice from MSI as provided in Section
3 of the Escrow Agreement that Shamrock has failed to pay the Purchase Price.
2. The Escrow Agent hereby draws upon your Letter of Credit No. ______
in the amount of $500,000.
3. You shall pay the amount referred to in the preceding paragraph by
transfer of same day funds to Account No. __________ of the Escrow Agent.
IN WITNESS WHEREOF, the Escrow Agent has executed and delivered this
Certificate this __________ day of______ , l9__.
HARVEY COHEN. ESQ.
as Escrow Agent
----------------------
-l1-
EXHIBIT 10.18
[LETTERHEAD OF]
GIBNEY, ANTHONY & FLAHERTY, LLP
ATTORNEYS AT LAW
665 FIFTH AVENUE
NEW YORK, NEW YORK 10022-5305
(212) 688-5151
-------
FAX: (212) 688-8315
June 3, 1996
BY Fed Ex
- ---------
Harvey Cohen, Esq.
Murtaugh, Cohen & Byrne
1100 Franklin Avenue
Garden City, NY 11530
Re: Shamrock Technologies, Inc
Dear Mr. Cohen:
Per the instructions of Messrs. Neuberg and Luniewski, I am returning
to you enclosed the original executed Confession of Judgment from Medical
Sterilization, Inc. to Shamrock Technologies, Inc. dated November 29, 1994. All
other rights and obligations of Shamrock Technologies, Inc. and Medical
Sterilization, Inc. remain in full force and effect pursuant to the Settlement
Agreement between the parties dated September 14, 1994.
Sincerely,
/s/ Frederick W. Anthony
------------------------
Frederick W. Anthony
FWA\SF
Enclosure
cc: William B. Neuberg
Robert S. Luniewski
Supreme Court Of The State Of New York
County Of New York
Shamrock Technologies, Inc.,
Plaintiff,
AFFIDAVIT OF CONFESSION
-Against- OF JUDGMENT
Medical Sterilization, Inc.
Defendant.
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
Kennard H. Morganstern being duly sworn, deposes and says:
1. That he is the president of Medical Sterilization, Inc., the
defendant in the above-entitled action, and is duly authorized to make this
affidavit on behalf of the corporate defendant and has the power to execute this
Affidavit of Confession of Judgment on behalf of the defendant.
2. That he resides at 8 Hunters Lane, Roslyn, New York 11576.
3. Subject to the provisions of paragraph 5 that defendant hereby
confesses judgment herein in favor of Shamrock Technologies, Inc., the
above-named plaintiff, for the sum of $1,250,000, and hereby authorizes entry of
judgment in favor of plaintiff against defendant for that sum.
4. That defendant authorizes entry of judgment in New York County, New
York, if said residence address is not in New York State.
5. That this confession of judgment is to secure the plaintiff against
all liability arising upon the following facts: Plaintiff and defendant and
other parties have entered into a settlement agreement dated September 14, 1994
and various related agreements pursuant to which, among other things, a judgment
of the United States District Court for the Eastern District of New York entered
in favor of plaintiff and against defendant in the amount of $2,677,728.70,
together with interest on the sum of $2,057,294.30 at the rate of 1.5% above the
prime rate from August 21, 1989, shall be discharged by plaintiff. This
Confession of Judgment is executed in order to secure the plaintiff against the
contingent liability in the amount of $1,250,000 which will become due in the
event the settlement agreement is rejected under the provisions of the
Bankruptcy Code or otherwise terminated, amended or modified in a proceeding in
which Medical Sterilization, Inc. is the debtor. The sum confessed does not
exceed the amount of the contingent liability.
This affidavit, if made in connection with an agreement for the
purchase of $1,500.00 or less of any commodities for any use other than a
commercial or business use upon any plan of deferred payments whereby the price
or cost is payable in two or more installments, was executed subsequent to the
time a default occurred in the payment of an installment thereunder.
Dated: New York, NY
November 29th, 1994 MEDICAL STERILIZATION, INC.
By: /s/ Kennard H. Morganstern
-----------------------------
Kennard H. Morganstern, President
Sworn to before me on this
29 day of November, 1994
/s/ Harvey Cohen
- --------------------------------
HARVEY COHEN
Notary Public, State of New York
No. 30-573 8950
Qualified in Nassau County
Commission Expires Oct. 31, 1996
EXHIBIT 10.21
April 29, 1996
MEDICAL STERILIZATION, INC.
225 Underhill Blvd.
Syosset, NY 11701
RE:FINANCING AGREEMENT
DATED: October 17, 1994
-----------------------
It is mutual1y agreed that the above mentioned agreement between us shall be
amended as hereinafter provided:
- - The rate of advance specified in paragraph 1.l is hereby amended to read:
seventy-five (75%) percent.
- - The renewal date specified in the first sentence of Paragraph 9.l is hereby
amended to read: January 31, 1998.
The foregoing amendment shall be effective as of: May 1, l996. In all other
respects the terms and conditions of the aforesaid agreement, as the same may
have heretofore been amended, shall remain unchanged.
ROSENTHAL & ROSENTHAL, INC.
By: /s/ Illegible
-----------------------
THE FOREGOING IS ACKNOWLEDGED
AND AGREED TO:
MEDICAL STERILIZATION INC.
By: /s/ Paul V. Rossi
-----------------------
EXHIBIT 10.29
E-BEAM Services Inc.
146 DuPont Street, Plainview, New York 11803
Tel: 516-349-1940 Fax: 516-349-1945
Mr. D. Michael Deignan
Chief Executive Officcr
Medical Sterilization Inc.
225 Underhill Blvd.
Syosset, NY 11791
March 19, 1997
Dear Mike;
This letter constitutes a Letter of Intent between E-BEAM Services, Inc.
(E-BEAM) and Medical Sterilization Inc (MSI) to enter into a Joint Marketing
Agreement ("JMA"). The purpose of the JMA would be:
1) to enhance MSI's contract electron beam processing business ("Contract
Processing") prior to the end of the MSI/Shamrock toll processing
agreement, and
2) to transfer MSI's Contract Processing customers (other than Shamrock
Technologies, Inc., "Shamrock") to E-BEAM during a "Transaction Processing
Phase", such that MSI can exit the Contract Processing business in an
orderly manner.
This letter will refer to the actual last day of the MSI/Shamrock toll
processing agreement as "D-Day". "D-Day" will be September 30, October 31,
November 30, or October 31, l997 -- at Shamrock's option with 90 days prior
notice to MST.
The Terms of the Proposed Joint Marketing Agreement are as follows:
MSI would continue to be responsible for electron beam accelorator operations,
quality control, and maintenance; E-BEAM would take over responsibility for
marketing, sales, and account management for MSI customers and prospects -- in
cooporation with Mike Fogarty, Diane Motorella, and other MSI personnel. This
would enable E-BEAM to prepare for the orderly transition of the customers to
E-BEAM when MS1 ceases accelerator operations in Syosset. E-BEAM would pay MSI
"Commissions" totalling $350,000 for the successful transfer of MSI 4.5 MeV
accelerator customers to routine processing on E-BEAM's 4.5 MeV accelerator
facility. Although most or even all of MSI customers are not expected to be
transferred until after "D-Day", E-BEAM would make a $150,000 advance payment to
MSI toward future Commissions when the joint Marketing Agreement is signed. At
that time MSI would provide E-BEAM with a Customer List and a Prospect List,
tabulating the product description, historical volumes, and pricing for each
customer product.
Commissions would be calculated at 15% of E-BEAM's production sales revenues
from trasferred MSI customers. For the first $300,000 of calculated Commissions,
one half would be credited toward "covering" the advance payment and the
remaining one half would be paid out to MSI. The remaining $50,000 in
Commissions would be paid out at the 15% rate. Commissions would be payable 10
working days after the end of each calendar month.
For E-BEAM's sales and markeking efforts prior to "D-Day", MSI would pay E-BEAM
a fec of 10% of MSI's Contract Processing revenues in excess of $50,000 per
month (excluding Shamrock processing revenues), payable l0 working days after
the end of each calendar month.
As part of the Joint Marketing Agreement, MSI would agree not to extend the toll
processing agreement with Shamrock past "D-Day" and not to make commitments for
electron beam processing beyond "D-Day" to anyone without the prior agreement of
E-BEAM. MSI would agree to provide up to 24 beam
Page 2 of 3
Minbiole to Deignan
March l9, 1997
hours per month of processing time to E-BEAM for non-PTFE processing during the
MSI/Shamrock toll processing agreement, at a price of $450 per beam hour,
however, for the three months prior to "D-Day", MSI would agree to provide
E-BEAM up to 48 beam hours per month and E-BEAM would buy a minimum of 24 beam
hours in each of those three months.
As part of the JMA, MSI would agree to "Transition Processing Phase" commencing
on the day after "D-Day". During this phase of operation at Syosset, the beam
time would be used exclusively for processing of MSI's customors awaiting the
transition to B-BEAM or for processing of E-BEAM's customers, at E-BEAM's
discretion. E-BEAM would collect thc actual revenues from the customers and MSI
would get paid by B-BEAM a fixed hourly price of $45O per beam hour. The
Transition Processing Phase will be a minimum of three months long, and can be
extended by up to four months, month-by-month, with 30 days prior written notice
from E-BEAM to MSI, provided that the Transition Processing Phase would not
extend beyond April 30, 1998. As part of an orderly phase down of operations,
(unless agreed otherwise): during the first two months of the Transition
Processing Phase, E-BEAM would expect to require 350 to 400 beam hours and would
buy a minimum of 250 beam hours; during the third month (and any additional
months) of the Transition Processing Phase, E-BEAM would expect to require 200
beam hours and would buy a minimum of 100 beam hours. If E-BEAM does not buy the
minimum beam hours as specified in this paragraph and the prior paragraph,
E-BEAM would pay MSI $250 for each such unused beam hour. The Transition
Processing Phase may be limited in 1998 by Nassau County air emissions permit
considerations; MSI would use its best effort to overcome or minimize any such
limitations to the extent economically reasonable, and E-BEAM would contribute
50% to reasonable out-of-pocket expenses to alleviate any such situation.
MSI would agree not to consumate the sale of the MSI accelerator to Shamrock or
any other party before the completion of the Transition Processing Phase. In the
event that Shamrock does not consumate the sale of the accelerator on or before
April 30, 1998, or if Shamrock is not willing or able to consumate the sale on
or before April 30, 1998, or if Shamrock and/or MSI do not intend to consumate
their agreement for the sale of the accelerator on or before April 30, 1998,
then MSI would give E-BEAM the option for 30 days to commit to buy the
accelorator according to the terms contained in the Letter of intent (signed but
not consumated) between MSI and E-BEAM dared January 20, 1997.
Execution and consummation of the JMA is premised on the active cooperation of
MSI personnel, particularly Mike Fogarty. On the front end of this JMA, active
cooperation would consist primarily of introducing E-BEAM sales representatives
to the customers of MSI and providing information on such customers' companies,
products, sales history, and key employees. MSI would provide an office,
telephone (with voicemail) for E-BEAM representatives when they are at the plant
in Syosset, and would also assist in setting up a website and e-mail for E-BEAM.
Then, over a period of time, active cooperation would include: providing copies
of dose maps and processing specifications; explanation of dose maps and
processing procedures; ready access to Device Master Records and processing
agreements at MSI; joint development of forward plans for effective transfer of
processing to B-BEAM; It is estimated that 20 - 40% of Mr. Fogarty's time would
be required during the first 2-3 months after execution of the JMA, primarily
for the purpose of meeting the customers (including up to 3 day - long trips per
month at E-BEAM's direction). It is estimated that approximately 20 - 30%, of
Mr. Fogarty's time would be required during the remaining term of the
MSI/Shamrock toll proccessing agreement and during the Transition Proccessing
Phase to facilitate preparations for the transfer of the customers to processing
at E-BEAM. In addition, E-BEAM would have the option of arranging utilization of
20-40% of Mr. Fogarty's services following the Transition Processing Phase with
$600 per-diem reimbursment from E-BEAM to MSI; MSI will cooperate with E-BEAM in
this regard.
Page 3 of 3
Minbiole to Deignan
March 19, 1997
To facilitate the transfer of MSI customers. MSI would provide its contract
processing operations software to E-BEAM without charge on an exclusive basis.
(E-BEAM would first evaluate the software and determine that it intended to
utilize the software.) MSI would provide initial installation on-site and enough
training and documentation to enable E-BEAM to effectively use the software
however, any future maintenance or customization by MSI's Steve Nyman would be,
provided at an extra charge to E-BEAM of $90 per hour. E-BEAM would not be
required to adopt the software for its routine use.
MSI and E-BEAM intend to make a joint press release within two weeks of the
signing of the JMA, announcing the existence of the Joint Marketing Agreement
and its purpose of providing current and prospective customers with electron
beam processing continuity. The two companies will agree on the content of the
press release prior to its release.
This Letter of Intent is not binding on either MSI or E-BEAM. Each will be bound
only if and when both execute and deliver a formal written agreement with
customary provisisions satisfactory to our respective attorneys, which is
expected to be accomplished on or about April 5, 1997. The agreement would
include representation from MSI that nothing contained therein is inconsistent
with or breaches any provision of any agreement between Shamrock and MSI.
Mike, if this Letter of Intent is acceptable to Medical Sterilization, Inc.,
please sign both the original and the copy and return one copy to me. I will
then have Mr. Michael Shef promptly propare a proposed formal written agreement
for execution by both companies.
Sincerely,
E-BEAM Services, Inc.
/s/ Paul R. Minbiole
--------------------
Paul R. Minbiole
President
Accepted: /s/ D.Michael Deignan 3/19/97
------------------------------
D.Michael Deignan Date
Chief Executive Officer
Medical Sterilization Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-8 (File # ______ ) of our report dated March 28, 1997, on our audits of
the financial statements of Medical Sterilization, Inc. as of December 31, 1996,
and for the years ended December 31, 1996 and 1995, which report is included in
this Annual Report on Form 10-KSB.
COOPERS & LYBRAND L.L.P.
Melville, New York
March 28, 1997.
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<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 75,703
<SECURITIES> 0
<RECEIVABLES> 2,662,536
<ALLOWANCES> (253,481)
<INVENTORY> 121,075
<CURRENT-ASSETS> 37,380
<PP&E> 12,702,769
<DEPRECIATION> (7,752,630)
<TOTAL-ASSETS> 7,753,771
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1,667,952
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<SALES> 8,626,482
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