As filed with the Securities and Exchange Commission on July 8, 1997
Registration No. 33-963330
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
To
FORM SB2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MEDICAL STERILIZATION, INC.
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(Name of small business issuer as specified in its charter)
New York 8091
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(State or other jurisdiction of Primary Standard Industrial
incorporation or organization) Classification Code Number
11-2621408
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(I.R.S. Employer
Identification No.)
225 Underhill Boulevard, Syosset, New York 11791 (516) 496-8822
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(Address and telephone number of principal executive offices)
225 Underhill Boulevard, Syosset, New York 11791
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(Address of principal place of business)
D. MICHAEL DEIGNAN
President and Chief Executive Officer
Medical Sterilization, Inc., 225 Underhill Boulevard, Syosset, New York 11791
(516) 496-8822
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(Name, address and telephone number of agent for service)
Copy to:
Harvey Cohen, Esq.
Murtagh, Cohen & Byrne, 1100 Franklin Avenue, Garden City, New York 11530
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of the Post-Effective
Amendment to the Registration Statement and from time to time thereafter, when,
as and if the shareholders determine to sell their stock, the option holders and
warrant holders determine to exercise their options or warrants and sell the
stock purchased thereby and the Preferred shareholder determines to convert the
Preferred Stock and sell the stock acquired thereby.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1932, check the following box. [X]
1
MEDICAL STERILIZATION, INC.
Cross Reference Sheet
Furnished Pursuant to Rule 404(c)
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Form SB-2 Item Number and Caption Caption in Prospectus
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1. Front of the Registration Statement and
Outside Front Cover Page of Prospectus ......................................... Outside Front Cover Page
of Prospectus.
2. Inside Front and Outside Back Cover Page
of Prospectus .................................................................. Inside Front Cover Page of
Prospectus.
3. Summary Information & Risk Factors .............................................. Prospectus Summary; Risk
Factors.
4. Use of Proceeds ................................................................. Use Of Proceeds.
5. Determination of Offering Price ................................................. Not Applicable.
6. Dilution ........................................................................ Dilution.
7. Selling Security Holders ....................................................... Selling Shareholders
8. Plan of Distribution ............................................................ Plan of Distribution.
9. Legal Proceedings ............................................................... Legal Proceedings.
10. Directors and Executive Officers ............................................... Directors and Executive
Officers.
11. Security Ownership of Certain Beneficial
Owners and Management ........................................................ Security Ownership of
Certain Beneficial Owners
and Management.
12. Description of Securities ...................................................... Description of Securities.
13. Interest of Named Experts and Counsel .......................................... Experts.
14. Disclosure of Commission Position on Indem-
nification for Securities Act Liabilities .................................... Indemnification.
15. Organization within Last Five Years ............................................ Not Applicable.
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16. Description of Business ........................................................ Business.
17. Management's Discussion and Analysis of Plan
of Operation ................................................................. Management's Discussion
and Analysis of Financial
Conditions and Results of
Operation.
18. Description or Property ........................................................ Property.
19. Certain Relationships and Related Transactions ................................. Certain Relationships and
Related Transactions.
20. Market for Common Equity and Related Stock-
holder Matters ............................................................... Market for Registrant's
Common Equity and Rela-
ted Shareholder Matters.
21. Executive Compensation ......................................................... Executive Compensation.
22. Financial Statements ........................................................... Financial Statements.
23. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure ....................................... Not Applicable.
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3
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURI-TIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS
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4,181,042 Shares of Common Stock
of
MEDICAL STERILIZATION, INC.
On February 14, 1996 by Registration Statement on Form SB2 effective
that date, Medical Sterilization, Inc. (the "Company") registered 4,470,971
shares of Common Stock, par value $.01 per share (the "Shares") reserved for
issuance upon exercise of options granted or to be granted and outstanding
warrants; conversion of outstanding shares of Preferred Stock and resale of
Shares held by certain shareholders.
A Registration Statement on Form S-8 was filed on July 22, 1996
relating to the 1996 Stock Option Plan and 500,000 shares registered thereunder.
This Prospectus is applicable to the possible sale of shares of Common
Stock, par value $.01 per share of the Company (the "Shares") by the Selling
Shareholders, see "Selling Shareholders", Page 51. The Shares may be received by
the Selling Shareholders, (a) upon the exercise of up to 778,750 Shares
presently reserved for exercise of outstanding options at prices ranging from
$.74 to $9.00 per share under the 1994 Stock Option Plan, See "The 1994 and 1996
Stock Option Plans", Page 40; (b) upon the exercise of outstanding warrants to
purchase 357,500 Shares at a price of $2.00 per share, See "Warrants", Page 47;
and (c) upon the conversion at $2.00 per share of 687,500 shares of Series B
Convertible Preferred Stock (the "Series B Stock") and upon the conversion at
$1.00 per share of 1,945,625 shares of Series C Convertible Preferred Stock (the
"Series C Stock"), See "Preferred Stock", Page 48; This Prospectus is also
applicable to the following Shares: 15,000 Shares heretofore purchased by John
R. Hoover, and 5,000 Shares purchased by Carl and Anita Bruch, all upon exercise
of options, 300,000 Shares purchased by Dr. William C. Cartinhour, Jr. (now held
by the William C. Cartinhour, Jr., Trust) and 25,000 Shares purchased by
Shamrock Technologies, Inc. ("Shamrock") on private placements, 16,667 Shares
issued to Dr. Kennard H. Morganstern and 16,667 shares issued to Harvey Cohen
upon conversion of 33,334 Shares of Series A Convertible Preferred Stock (the
"Series A Stock"), and 33,333 Shares purchased by Dr. Kennard H. Morganstern
upon exercise of a warrant.
THESE SECURITIES INVOLVE A HIGH DECREE OF RISK. SEE "RISK FACTORS", PAGE 10.
THESE SECURITIES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. ANY PURCHASE OF STOCK ON EXERCISE OF A WARRANT OR
OPTION WILL RESULT IN AN IMMEDIATE AND TOTAL DILUTION OF THE ENTIRE PURCHASE
PRICE TO A NEGATIVE VALUE.
4
The Selling Shareholders have advised the Company that they have no
present intention of selling their Shares but that their Shares may be sold from
time to time in the over-the-counter market at prices prevailing at the time of
sale, or in private transactions at negotiated prices, and any commissions paid
or discounts given will be those customary in the type of transaction involved
and will be paid by the Selling Shareholder. The Company will not receive any
proceeds from the sale of such Shares.
Any brokers and dealers through whom sales of the Shares are made may
be deemed "underwriters" within the meaning of the Securities Act of 1933 with
respect to the Shares, and any profits realized or commissions received may be
deemed underwriting compensation.
Expenses of this offering (other than brokerage commissions) are
payable by the Company and estimated not to exceed approximately $21,000.
The average of the bid and asked prices for the Company's Common
Stock as reported on the NASDAQ Bulletin Board on May 30, 1997 was $1.25.
The Company is obligated to amend the Registration Statement and this
Prospectus in the event of fundamental changes in the affairs of the Company
since the date hereof. No person has been authorized to give any information or
to make any representations, other than as contained herein, in connection with
the offer contained in this Prospectus, and if given or made, such information
or representations must not be relied upon. This Prospectus does not constitute
an offer or solicitation in any jurisdiction in which such offer or solicitation
is unlawful.
The date of this Prospectus is , 1997.
5
TABLE OF CONTENTS
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Page
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Available Information 7
Prospectus Summary 7
Risk Factors 10
Management's Discussion and Analysis of Financial 16
Condition and Results of Operations
Use Of Proceeds 24
Business 24
Legal Proceedings. 33
Market for Registrant's Common Equity and Related Shareholder's Matters 33
Directors and Executive Officers 33
Executive Compensation 36
Security Ownership of Certain Beneficial Owners and Management 42
Certain Relationships and Related Transactions 44
Plan of Distributions 45
Description of Securities 45
Selling Shareholders 51
Indemnification 54
Experts 54
Legal Opinions 54
Additional Information 54
Index to Financial Statements F-1
Financial Statements F-2 - F-26
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6
AVAILABLE INFORMATION
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The Company is subject to the informational requirements of the
Securities Exchange Act or 1934, as amended, (the "Exchange Act"), and the
Company files reports and other information with the Securities and Exchange
Commission (the "Commission") as required under Section 15(d) or the Exchange
Act. Reports and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at (1)
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.; (2) 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and (3) 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
The Company has furnished and intends to continue to furnish to
shareholders, after the close of each fiscal year, an annual report relating to
the operations of the Company, containing financial statements audited and
reported upon by independent certified public accountants. In addition, the
Company may furnish to shareholders such other reports as may be authorized,
from time to time, by the Board of Directors.
PROSPECTUS SUMMARY
------------------
The following summary is qualified in its entirety by reference to
the more detailed information and financial statements and related notes set
forth elsewhere in this Prospectus. Each prospective purchaser of shares offered
hereby is urged to read this Prospectus in its entirety.
General Development of Business
Medical Sterilization, Inc. ("MSI" or the "Company") has established
and is operating sterilization facilities to provide offsite processing and
sterilization services for health care providers such as (a) hospitals; and (b)
manufacturers of disposable medical devices in the Northeast corridor consisting
of New York, New Jersey, Pennsylvania and the New England states. As of May 16,
1997 the Company entered into a joint venture agreement with TFX Equities
Incorporated ("TFX"), a wholly owned subsidiary of Teleflex Incorporated
("Teleflex") to form SSI Surgical Services, Inc. ("SSI") which would provide
offsite and onsite processing and sterilization services for health care
providers in all of North America except the Northeast corridor. MSI has a 37.5%
interest in SSI and TFX has a 62.5% interest in SSI. Furthermore, TFX acquired
100 shares of Preferred Stock for the sum of $5,000,000. In addition, MSI
performs radiation processing of different kinds of plastic materials to achieve
certain modifications of such materials.
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
7
and to provide stability for its accelerator processing customers, on April 9,
1997, MSI entered into a Joint Marketing Agreement with E-BEAM Services, Inc.
("E-BEAM").
On January 8, 1997, TFX acquired all of the Company's outstanding
Series B Convertible Preferred Stock ("Series B Stock") and Series C Convertible
Preferred Stock ("Series C Stock") from the prior owners and on January 30, 1997
TFX acquired an additional 150,000 shares of Common Stock from the Company
giving it approximately 48% of the Company's outstanding voting securities.
Sterilization Services to Health Care Providers:
The Company has entered into 53 contracts with future revenues from
these contracts of $12,221,000 as of May 30, 1997 with hospitals in its area to
sterilize their surgical instruments, utensils and other items requiring
sterilization ("Sterilizable Items") and to provide the hospitals with MSI's
standard containerized reprocessable instrument sets (the "Instrument Sets").
The Company is also negotiating contracts or purchase orders, with additional
hospitals although there is no assurance that these contracts will be executed.
Sterilization of Disposable Medical Products
MSI has also been providing contract sterilization of disposable
medical products. Using either its steam or radiation equipment, it is
sterilizing on a daily basis different kinds of disposable medical products for
approximately 48 manufacturers located within an approximately 300 mile radius
of the Company's facility in Syosset. There is no fixed term for such purchase
orders. The Company receives a purchase order and immediately performs the
sterilization.
Processing of Plastic Products
The Company has also been performing radiation processing for 18
manufacturers of plastic products. The Company's electron beam radiation
equipment is used to chemically link a long string of molecules of polyethylene
and polyvinylchloride, to treat crude rubber to achieve bonding and hardening
and to link undivided chemical constituents into a larger chemical entity.
The Company also uses its radiation facility at Syosset to irradiate
polytetrafluoroethylene ("PTFE") also known by the term "Teflon", a registered
trademark of E. I. Dupont de Nemours & Co., which can then be ground into very
small particles for use primarily as an additive for printing inks and as a
lubricant. The Company processed PTFE for Precision Micron Powders, Inc.
("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 agreed to use certain minimum levels of
processing services through September 30, 1997 at prices which will result in a
gross profit to the Company
8
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 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, 1997 through
September 30, 1997 if the Toll Processing Agreement is performed in accordance
with its terms.
Risk Factors
The purchase of the securities involves a high degree of risk. Risk
factors to be considered include the Company's history of losses since
inception; the Company's lack of working capital; the competition which could
affect growth; the Company's dependence on key personnel; the Company's
dependence on relatively few customers in its contract sterilization services
and its agreement to process PTFE for only one customer for a period ending
September 30, 1997 and to discontinue such services after the contract has been
completed; the effect of the Company's litigation with Shamrock on its
operations during the past seven years; the effect of government regulations;
the fact that dividends are not likely; the control by insiders and the
provisions for indemnification of Directors; the fact that all the Company's
principal shareholders are registering all shares owned by such persons for
resale.
Use of Proceeds
The Selling Shareholders and any warrant holders or option holders
who receive Common Stock on the exercise of options or warrants and the holders
or Series B and C Stock who receive shares of stock on conversion of Preferred
Stock will receive all of the proceeds of the sale of shares of Common Stock in
this offering. and the Company will receive no part thereof. As previously set
forth, this registration statement relates only to the sale of shares held or
acquired by the Selling Shareholders. The holders of the Preferred Stock may
convert the Preferred Stock into Common Stock, and the Company will not receive
any funds on such conversion.
Market for Registrant's Common Equity
The Company's Common Stock is sold in the over-the-counter market and
is quoted on the NASDAQ Bulletin Board. The average of the bid and asked prices
on May 30, 1997 was $1.25.
MSI was incorporated on May 27, 1982. The Company's executive offices
are located at 22 Underhill Boulevard, Syosset, New York 11791 and its telephone
number is (516) 496-8822.
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RISK FACTORS
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. THE COMPANY HAS
INCURRED SUBSTANTIAL LOSSES SINCE ITS FORMATION. ACCORDINGLY, THE SHARES SHOULD
NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS OR HER ENTIRE
INVESTMENT.
1. History of Losses, Adverse Operating History. The Company has
operated at a loss or very small profit for each year. In 1996, the net loss was
$995,442 before deduction of undeclared dividends on preferred stock of
$123,552. For the three months ended March 31, 1997, the Company's net operating
income was approximately $92,000, and the net income after deducting the
undeclared dividends on preferred stock was approximately $61,112. From
inception through March 31, 1997 the Company had an accumulated deficit of
approximately $8,482,000. There can be no assurance of the Company ever
achieving consistent profitability. During this period the Company financed its
operations through receipts from operations. the sale of stock and borrowing
money from individuals, corporations and lending institutions.
2. Lack of Working Capital; Need for Additional Financing. Since the
date or incorporation, May 27, 1982, the Company was engaged in raising capital,
leasing and equipping a sterilization facility and establishing a market
program. It reported as a development stage enterprise through December 31,
1984. Subsequent thereto it has engaged in service to hospitals, contract
radiation service and, in 1987 , the processing of PTFE for manufacture into
lubricant powders.
As of December 31, 1996, the Company had working capital of
approximately $292,000 as compared to working capital of approximately
$1,607,000 as of December 31, 1995. As of March 31, 1997 the Company had
negative working capital of approximately ($1,177,000) as compared to working
capital of approximately $1,149,000 as of March 31, 1996.
The principal of its loan with its former principal bank is $464,335.74
as of March 31, 1997 with the principal being amortized on a monthly basis at
the rate of $12,500 per month with a balloon payment of $326,836 due October,
1998.
The Company's line of credit arrangement with Rosenthal & Rosenthal,
Inc. ("Rosenthal") calls for a revolving collateralized line of credit of up to
$2,000,000 with an expiration date of January 31, 1998. The line of credit is
collateralized by basically all of the assets of the Company. The Company can
borrow up to 75% of its eligible accounts receivable. The interest rate on the
facility is prime plus 3 1/2%.
On January 3, 1996 the Company entered into a significant agreement
with Pilling Weck, Inc. a subsidiary of Teleflex providing for MSI to purchase
and Pilling Weck to supply the Company's instrument needs during the three year
term of the agreement. Pursuant to
10
the agreement, the Company can purchase instruments on terms, 60 days from date
of invoice, or on operating lease terms utilizing Pilling Weck's third party
financing facility or an MSI financing facility. Pilling Weck agreed to
represent and sell MSI's procedure specific decontamination, reprocessing and/or
sterilization services in selected areas of the United States and to selected
Integrated Healthcare Networks ("IHN") in the United States.
In January, 1997, the Company entered into a loan agreement with TFX.
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.
On April 21, 1997, the Company entered into an operating lease
agreement with North Fork Bank in the amount of $1,500,000, pursuant to which
the Bank will purchase the Company's instrument needs and lease them to the
Company. The agreement has an interest rate of prime plus 1/2%. The lease
agreement is guaranteed by Teleflex. Furthermore, on April 9, 1997, the Company
received $150,000 from E-BEAM on execution of the Joint Marketing Agreement and
no later than April 30, 1998, the Company will receive approximately $1,250,000
from the sale of the accelerator to Shamrock.
As of May 16, 1997, the Company entered into a joint venture agreement
with TFX to incorporate SSI which would provide offsite and on-site processing
and sterilization services for health care providers in all of North America
except the Northeast corridor. In this joint venture MSI has 37.5% of SSI and
TFX has 62.5%. In addition, TFX acquired 100 shares of Preferred Stock for the
sum of $5,000,000.
Management believes that with the extension of the Rosenthal
agreement, the Pilling Weck agreements, the operating lease agreement with North
Fork Bank, the loan from TFX, the moneys received from E-BEAM and to be received
from Shamrock, and the SSI joint venture the Company will have adequate working
capital for the foreseeable future. However, the Company may require additional
working capital in the future and there can be no assurance that such additional
working capital will be on acceptable terms, if at all.
3. Competition. V. Mueller/Convertors, a division of Allegiance
(formerly Baxter Healthcare's U.S. distribution group) has offsite facilities in
several cities in various modes of operation, but the Company has been advised
that Allegiance recently divested this group to a private entity. It is not
clear whether the new entity'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.
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-
11
house to an offsite contractor. Furthermore, some hospitals have union
agreements that preclude or mitigate a hospital's ability to outsource.
The number of hospitals the Company has been servicing has not
changed significantly in the last two years, averaging about 27 hospitals. The
aggregate annual revenue from the hospital contracts has also not changed in
this period of time being approximately $4,726,000 in 1996 and $4,711,000 in
1995 and $1,205,000 for the three months ended March 31, 1997. The Company's
revenues from its hospital sterilization services have been at a volume below
that which will yield a profit to the Company.
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 offsite instrument
processing and sterilization services. A wholly owned subsidiary of Teleflex,
Endoscopy Specialists, Incorporated ("ESI"), specializes in on-site instrument
processing. However, in January, 1997, MSI and ESI started cooperative marketing
of a total processing management solution.
Furthermore, as previously stated, SSI will be offering offsite
instrument processing and sterilization services throughout North America.
4. Dependence on Key Personnel. Dr. Kennard H. Morganstern, the founder
and Chairman of the Board of the Company, has entered into a transition
agreement with the Company, providing that for a period of three years
commencing September 8, 1996 Dr. Morganstern will serve as Chairman of the Board
of the Company and make available at least 50% of his time for consulting
purposes at an annual salary of $75,000. D. Michael Deignan was elected
President on September 8, 1995 and became Chief Executive Officer on January 3,
1996.
5. Dependence on Relatively Few Customers. A significant portion
(approximately 33%) of the Company's revenues in 1996 were derived from
processing PTFE powders. In that activity the Company has been dependent upon
Shamrock and its subsidiary, Precision Micron Powders, Inc. ("PMP").
The Company's revenues from processing PTFE for Shamrock and/or PMP
amounted approximately to $2,925,000 (33.9%) in 1996 and $2,720,000 (31%) in
1995. For the three months ended March 31, 1997, the Company's revenues for
processing PTFE for PMP and/or Shamrock were approximately $789,000 (34.8%).
As previously stated, the Company has contracted to sell its
accelerator to Shamrock no later than April 30, 1998. The contract to irradiate
PTFE terminates at the latest on December 31, 1997. In addition, the Company has
entered into a Joint Marketing Agreement with E-BEAM which provides for the
Company to transfer its customer lists to E-BEAM. Accordingly, the processing of
PTFE and medical disposables and products will terminate at the latest in the
first quarter of 1998.
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6. Government Regulations. The Company has complied with the
requirements of and obtained a license from the New York State Department of
Labor, Division of Safety and Health Radiological Health Unit for its electron
beam radiation sterilization and processing facility. This license is in force.
The Company also 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
unless extended.
The Company is also registered with the Department of Health and
Human Services, Public Health Service of the Food and Drug Administration
("FDA"), and conforms to the FDA compliance program with regard to the
industrial sterilization or medical devices. The Company complies with the FDA
compliance program, even though for these purposes, a hospital (the Company, by
extension) is not subject to the FDA regulations.
The Company also complies with the regulations of the New York State
Department of Health, acting through the Nassau County Department of Health,
with regard to the disposition of effluents. The Company complies with
regulations of the New York State Department of Environmental Conservation
concerning the handling and disposal of regulated medical waste.
Finally, the Company also complies with the requirements of the
Occupational Safety and Health Administration ("OSHA").
7. Dividends Not Likely. There can be no assurance that the operations
of the Company will result in sufficient revenues in the future to enable the
Company to operate at profitable levels or to generate a positive cash flow. For
the foreseeable future it is anticipated that any earnings which may be
generated from operations of the Company will be used to finance the growth of
the Company and that cash dividends will not be paid to shareholders. In
addition, the terms of certain of the Company's loan agreements, the Financing
Agreement with Rosenthal & Rosenthal, Inc. and the Series B and C Stock prohibit
the payment of dividends on Common Stock.
8. Dilution and Market Price. As of March 31, 1997, the Company had
3,170,496 Shares outstanding. The tangible book value (deficit) of the shares as
of said date is ($.20). 778,750 Shares to be received by the Selling
Shareholders upon the exercise of options granted or to be granted under the
Company's 1994 Stock Option Plan, 357,500 Shares to be received by the Selling
Shareholders upon the exercise of warrants, 2,633,125 Shares issuable to the
Selling Shareholders upon conversion of Series B and C Stock, and 411,667 Shares
presently held by Selling Shareholders and acquired either by purchase in
private placements, exercise of options and warrants or conversion of Preferred
Stock are registered hereunder for the future sale of said shares by the Selling
Shareholders and are the subject of this prospectus. Although the Company cannot
predict that any warrant holder or option holder will exercise their warrants or
options, the issuance of such Shares upon exercise of
13
the warrants, options and the conversion of the Preferred Stock will constitute
an immediate substantial dilution in earnings per share but an increase in book
value per share to existing shareholders. The Selling Shareholders may realize a
dilution of their investment because the exercise price of their options or
warrants may be higher than the book value per share of the Common Stock after
the exercise. Furthermore, any sales of substantial amounts of the Company's
stock in the open market by the Selling Shareholders could have a significantly
adverse effect on the market price of such stock. The Company will not receive
the proceeds of sales of stock by the Selling Shareholders.
9. Control by Insiders. As of May 30, 1997, all officers and directors
including designees of TFX as a group held approximately 70% of the Company's
outstanding stock. Dr. Cartinhour bought 300,000 shares of the Company's Common
Stock in a private placement on September 3, 1987. Dr. Cartinhour is not deemed
to be an insider.
On January 8, 1997, approximately 45% of the voting shares of the
Company's stock was acquired by TFX. TFX purchased the Series B Stock and Series
C 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, were elected to the Company's Board of Directors. In January,
1997, the Company issued 150,000 shares of its common stock to TFX to pay
$300,000 of accounts payable due to Pilling Weck, a subsidiary of Teleflex. This
increased TFX's interest in the outstanding voting securities to approximately
48%.
For the purposes of the foregoing calculations of percentage ownership
of stock, the securities which are not outstanding but could be outstanding on
the exercise of stock options and warrants or conversion of the Preferred Stock
have been deemed outstanding. It is clear that after the exercise of options and
warrants and conversion of Convertible Preferred Stock, the Company will be
controlled by insiders.
10. Indemnification of Directors. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant pursuant to the
Company's By-Laws or New York Law, or otherwise, the registrant has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless, in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
11. Preferred Stock. In 1994, the Company restructured the 750,000
shares of Series A Convertible Preferred Stock into what now amounts to 687,500
shares of Series B Stock
14
and 1,945,625 shares of Series C Stock. The Series C Stock is automatically
converted into Common Stock on December 30, 2004 and there are no dividends
payable or accrued on such stock. Furthermore, the Series C Stock will be
automatically converted into Common Stock if the market price of the Company's
Common Stock as quoted on NASDAQ, attains and maintains for 90 days a price of
$3.00 per share during the five years ending October 31, 1999. The Series B
Stock will be automatically converted into Common Stock if the market price of
the Company's Common Stock attains and maintains for 90 days a price of $6.00
per share during the five years ending October 31, 1999. The Series B Stock
matures December 30, 1999 and dividends accrue at the rate of 8% per year. At
that time the Company will have to pay to the Series B Shareholders the sum of
$1,373,000 plus an amount equal to all unpaid accrued dividends unless the
Series B Stock has been automatically converted as set forth above. In the event
the Series B Stock has not been converted prior to December 30, 1999, the
Company will either have to negotiate an extension of time to pay it or obtain
other financing to pay it. There is no assurance at this time that the Company
will be able to obtain sufficient funds to pay the Series B shareholders or
obtain an extension of time.
12. The Lease. The Company's old lease on the premises it occupies
expired February 28, 1996. However, on November 20, 1995, the landlord and the
Company entered into a new lease covering the period from March 1, 1996 to
February 28, 2001 at annual rates of $456,000 for the first three years and
$504,000 for the next two years.
13. Shares Registered by Selling Shareholders. All of the Company's
principal shareholders, as well as its key employees, are registering all shares
owned by such persons for resale. These persons own approximately 411,667 shares
of Common Stock, approximately 2,633,125 shares of Common Stock on conversion of
the Series B and Series C Stock, and hold options and warrants exercisable
within 60 days to acquire 1,136,250 shares in the aggregate. Sales of
substantial amounts of Common Stock in the open market following this offering
could adversely affect the market price of the Common Stock.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Overview
The Company incurred a net operating 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 has entered into a
joint venture agreement with TFX to form SSI 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 a 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 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".
On January 8, 1997, approximately 45% of the voting shares of the
Company's stock was acquired by TFX. TFX purchased the Series B Stock and Series
C 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.
In January, 1997, the Company issued 150,000 shares of its
16
common stock to TFX to pay $300,000 of accounts payable due to Pilling Weck, a
subsidiary of Teleflex increasing its interest to approximately 48% of the
voting shares of the Company.
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.
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.
The April 9, 1997 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 received a refundable deposit against future
royalties of $150,000.
Results of Operations
Three Months ended March 31, 1997 compared with three months ended March 31,
1986
Revenues
Revenues for the three months ended March 31, 1997 increased
approximately $210,000 or 10% to approximately $2,266,000 from revenues of
approximately $2,056,000 for the three months ended March 31,1996. The increase
in revenues was attributable to an approximate $88,000 increase in revenues or a
45.7% increase in the Company's radiation processing of industrial products
business, an approximate $82,000 or 12.1% increase in revenues in the Company's
contract sterilization business, and an approximate $40,000 or 3.4% increase in
the Company's revenues in its hospital services division.
Costs and Expenses
Total expenses increased approximately $21,000 or 1% to approximately
$2,174,000 for the three months ended March 31, 1997 compared to approximately
$2,153,000 for the three months ended March 31, 1996. Operating expenses have
increased approximately $75,000 or 5.1% due to increases in salaries and
supplies to support the increased sales volume. Selling, general and
administrative expenses have decreased approximately $83,000 or 13.9% due
primarily to certain national marketing expenses now being borne by Teleflex,
17
whereas last year they were borne by MSI. Interest expense increased
approximately $28,000 or 38% due to increased capital leases used to purchase
surgical instruments and the additional borrowing of $500,000 from TFX.
Net Income (Loss)
Applicable to Common Shareholders
Net income applicable to common shareholders was approximately $61,000
or $.01 per share for the three months ended March 31, 1997 compared to net
(loss) of approximately ($128,000) or ($.04) per share for the three months
ended March 31, 1996.
1996 Compared with 1995
Revenues
Revenues for the year ended December 31, 1996 decreased approximately
2% to approximately $8,626,000 from approximately $8,772,000 for the year ended
December 31, 1995. The decrease in revenues was attributable to an approximate
$41,000 or approximately 1% increase in total revenues related to the Company's
sterilization services to healthcare providers business and an approximate
$205,000 or 8% increase in total revenues related to the Company's radiation
processing of industrial products business, offset by an approximate $393,000 or
29% decrease in total revenues related to the Company's contract sterilization
business.
The increase in radiation processing revenues was primarily
attributable to increased business under the Company's toll processing agreement
with Shamrock. The decrease in the contract sterilization business was due
primarily to the loss of the Company's largest customer which moved its business
out of the Company's area of operation.
Gross Profit
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 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.
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
18
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. 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 $192,000 in
the year ended December 31,1995. The net loss was mainly the result of costs
incurred to implement its National Sales Program, providing additional reserves
for bad debt losses and costs incurred related to above normal historical levels
of legal expenses from its new legal counsel and additional one time termination
expenses incurred as result of the elimination of an Officer's position. Also,
the Company added a full-time Chief Executive Officer to direct the
nationalization and other growth programs. The former Chief Executive Officer
and Chairman of the Board of Directors now functions solely as Chairman
providing consulting services at 50% of his former salary.
19
Net Income (Loss) Applicable to Common Shareholders
Net loss per share of common stock for the year ended December 31,1996
was ($.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
$682,000 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 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.
20
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 was approximately $77,000 versus 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.
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 De-
21
cember 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.
Current Assets have increased approximately $108,000 to $2,751,152 at
March 31, 1997 compared to $2,643,213 at December 31, 1996. The increase was
primarily due to a $140,558 increase in prepaid expenses (primarily insurance)
offset partially by a $53,439 decrease in cash.
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 had negative working capital of approximately ($1,177,025)
at March 31, 1997 compared to approximately $292,458 at December 31, 1996. This
decrease of approximately $1,469,483 was the result of the reclassification of
the note payable to a commercial lender of approximately $1,274,899 from
long-term liabilities to current liabilities reflecting the due date of January,
1998, the loan agreement with TFX of $500,000 due January 31, 1998 and a
decrease of $53,439 in cash offset by a $140,558 increase in prepaid expenses
(primarily insurance) and an increase of $36,754 in accounts receivable. There
was a decrease in the working capital ratio, to .70 to 1 at March 31, 1997
versus 1.12 to 1 at December 31, 1996. This was directly the result of the loan
reclassification described above.
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, the
operating lease with North Fork Bank, the moneys received from E-BEAM and to be
received from Shamrock, and the $500,000 loan in January, 1997 from TFX, will be
sufficient to meet working capital requirements during 1997. There can be no
assurance, how-
22
ever, 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.
The principal amount of the loan is $500,000, bears interest at prime plus 1/2%
and is due and payable January 31, 1998.
In January, 1997, the Company issued 150,000 shares of its Common Stock
to TFX, for $2 per share to pay $300,000 of accounts payable to Pilling Weck.
In January, 1997, approximately 45% of the voting shares of the
Company's stock was acquired by TFX, a wholly owned subsidiary of Teleflex, a
diversified publicly held company. TFX purchased the Preferred Stock from the
previous owners of such stock. In connection with this transaction, the nominees
of TFX 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 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 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.
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.
On April 9, 1997, MSI entered into a joint marketing agreement with
E-BEAM providing 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 received an advance
payment against future royalties of $150,000.
In April, 1997, the Company entered into a master lease agreement with
North Fork Bank in the amount of $1,500,000. The lease provides for draw downs
to purchase instruments for inventory and will be classified as an operating
lease. The agreement has an interest rate of prime plus 1/2% which is set at
each draw down. The lease agreement is guaranteed by Teleflex.
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 intends to operate, is presently experiencing a
relatively low rate of inflation
23
USE OF PROCEEDS
The Selling Shareholders and any warrant holders or option holders who
receive common stock on the exercise of options or warrants and the holders of
Series B and C Stock who receive shares of stock on conversion of Preferred
Stock will receive all of the proceeds of the sale of shares of Common Stock in
this offering, and the Company will receive no part thereof. As previously set
forth, this registration statement relates only to the sale of shares held or
acquired by the Selling Shareholders. The holders of the Preferred Stock may
convert the Preferred Stock into Common Stock and the Company will not receive
any funds on such conversion.
BUSINESS
A. General Development of Business
MSI has established and is operating sterilization facilities to
provide offsite reprocessing and sterilization services for health care
providers in the general area of the facility at Syosset, New York and contract
sterilization services for manufacturers of disposable medical products as well
as radiation processing of different kinds of plastic materials. MSI was
incorporated on May 27, 1982.
B. Narrative Description of Business
The Company presently provides offsite processing and sterilization
services to healthcare providers and to manufacturers of medical disposable
products. It also processes various types of plastic products through the use of
its electron beam radiation accelerator to achieve certain modifications of such
products. The following chart shows the approximate amount and percentage of
total revenues and the net income (loss) for each of the classes of services for
the last three fiscal years and the three months ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
Amount and Percentage of Total
Revenues and Net Income (Loss) Three Months Ended Year Ended
for each Class of Service March 31 December 31
- ------------------------- -------- -----------
1997 1996 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sterilization Services to
Health Care Providers
Amount of Revenues $1,205,000 $1,165,000 $4,752,000 $4,711,000
Percent of Total 53.1 56.6 55.1 53.7
(Loss)* (25,000) (38,000) (338,000) 95,000
Sterilization of Disposable
Medical Products and
Processing of Plastic
Products
Amount of Revenues $ 272,000 $ 190,000 $ 948,000 $1,341,000
Percent of Total 12.1 9.2 11.0 15.3
Income (Loss)* 10,500 75,000 (610,000) (530,000)
Processing of PTFE**
Amount of Revenues $ 789,000 $ 701,000 $ 2,925,000 $2,720,000
Percent of Total 34.8 34.2 33.9 31.0
Income (Loss)* 75,500 (15,000) (50,000) 358,000
</TABLE>
24
* Certain operating expenses as well as certain selling, general and
administration expenses are not expenses attributable to any class of
services but have been apportioned among the classes of services. Because the
sterilization services to health care providers have been growing more
rapidly than the other services, a greater amount of expenses were allocated
to the hospital services in 1997. The Company allocated expenses to the
various categories of service by a variety of methods for example: Expenses
such as plant rentals and realty taxes are allocated based upon square
footage used by each service. Utility expenses are allocated by the power
demands of each service's equipment for which detailed records are kept.
Product liability insurance is allocated based upon levels of sales of each
service. Factory maintenance overhead expenses are allocated based upon
detailed time records kept by the Company. General overhead expenses are
allocated to each service based upon the relative sales volume of each
service.
** The Company has agreed that it will not process PTFE for any other entity
during and after the termination of its agreement with Shamrock.
(1) Sterilization Services to Healthcare Providers
MSI provides offsite 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 May 30, 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 healthcare 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'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
25
room efficiency by eliminating the sterilization processing delays and shortages
sometimes experienced with their in-house sterilization facilities.
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.
On January, 1996, the Company and Pilling Weck, Inc., a division of
Teleflex, entered into a three year sales and marketing agreement. Under the
agreement the Company agreed to purchase and Pilling Weck agreed to supply all
of the Company's instrument needs during the term of the agreement, and Pilling
Weck will market the offsite instrument reprocessing services of MSI throughout
the United States. This arrangement has been changed as a result of the
formation of SSI to market the offsite and on-site processing and sterilization
services in all of North America excluding the Northeast Corridor. See Pages 7,
11 and 16.
The Company believes that it offers better sterility assurance levels
than are maintained at most hospitals. In order to comply with the infection
control requirements of the Joint Commission on Accreditation of Health Care
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 hospital as
well as Federal, State and local governmental agencies, MSI has established
thorough testing methods, such as sterilization process monitors (including
temperature and pressure recording), chemical indicators and bacteriological
spore and culture tests. MSI is a registered FDA contract sterilization
facility, even though neither the Company's activities in this area nor hospital
sterilization facilities are required to be so registered.
MSI has also designed and engineered approximately 85 different
Instrument Sets for operating room procedures and labor and delivery, such as a
gall bladder operation, tonsillectomy and adenoidectomy, cesarean sections,
newborn delivery, hysterectomy and dilation and curettage. Each Instrument Set
contains all the instruments required for the procedure. MSI employs a system of
packaging the instrument sets using rigid containers with filters and seals,
which maintains sterile integrity, eliminates tearing and pinholes which easily
occur in traditional wrappers, aids in organizing the instruments and provides
better instrument accountability.
Notwithstanding the Company's belief that its services are less
expensive and more productive and are provided at equal or lower sterilization
costs and that it offers better sterility assurance levels than are maintained
at most hospitals, the Company's hospital service did not yield a profit to the
Company in 1996. The loss for this service in 1996 was approximately $338,000.
The loss is the result of not attaining the level of revenue necessary to ab-
26
sorb the costs incurred in establishing and growing this capital and labor
intensive business. For the three months ended March 31, 1997, the Company
showed a loss for this service of approximately $25,000.
The Company provides its services by maintaining a supply of Instrument
Sets and other Sterilizable Items at each hospital, based on a level of
requirements determined by MSI and the hospital. MSI then monitors the supply
and use of Instrument Sets and Sterilizable Items and with the hospital input
may modify the level of inventory to be maintained. Based upon these
requirements a hospital employee relays a daily order to MSI's facility at
Syosset, New York, so that the inventory at the hospital will be at all times
sufficient to meet its prescribed levels. Daily deliveries of fresh supplies of
Instrument Sets and Sterilizable Items are made in MSI's trucks to the Hospitals
and the used contaminated Instrument Sets and Sterilizable Items are picked up
daily from the Hospitals for transport to MSI's Syosset facility. When the
contaminated Instrument Sets and Sterilizable Items are received at MSI's
facility, they are cleaned and decontaminated in the ultrasonic cleaner, tunnel
washer and decontamination steam autoclave. They are then moved to the "prep and
pack" area where they are inspected and refurbished, reassembled and packaged in
rigid containers. The Instrument Sets and Sterilizable Items are then sterilized
in the Company's industrial type steam sterilizer. The trucks are steam cleaned
and disinfected before being loaded with sterile Instrument Sets and
Sterilizable Items.
(2) Contract Sterilization of Disposable Medical Products
Inasmuch as approximately 50% of disposable medical products or devices
are sterilized with radiation, the Company has established a radiation facility,
in addition to its steam facility, incorporating a 4.5 million electron volt
("MeV") 150 kilowatt ("kw") accelerator providing either electron or x-ray
radiation. The accelerator is powered by public utility supplied electricity.
See prior discussions with regard to the sale of the accelerator and the Joint
Marketing Agreement with "E-BEAM" on Pages 7, 16 and 23.
Since the installation of its radiation accelerator, MSI has been
actively performing contracts for sterilization of disposable medical products.
Using either its steam or radiation equipment, it is sterilizing on a daily
basis different kinds of disposable medical products for many manufacturers
located within an approximately 300 mile radius of the Company's facility in
Syosset. Management estimates that there are approximately 200 such
manufacturers in the area. These manufacturers either have no in-house
sterilization capacity, or a limited capacity with a need to have their overflow
handled by an independent service. At present the Company provides sterilization
services for approximately 48 medical products manufacturers.
The Company has been sterilizing the following types of disposable
medical products: adhesive and gauze bandages, lap sponges, absorbent cotton
balls, tracheotomy kits, trauma dressings, operating room drapes, surgical
gloves and in vitro diagnostic kits and laboratory ware such as pipettes, petri
dishes, flasks, roller bottles and tissue culture wells.
27
The Company's competition in the sterilization of disposable products
is set forth under "Competition" on page 30.
(3) Processing of Plastic Products
The Company has also been performing radiation processing for a number
of manufacturers of plastic products. The Company's electron beam radiation
equipment is 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 constituents into a larger chemical entity.
Specific plastic materials which are being processed for 18 companies at the
Company's facility are fabricated plastic objects, gaskets, tubing and plastic
sheet and film. Other radiation processing includes crosslinking the insulation
on small gauge wire. See the prior discussions of the sale of the accelerator
and the Joint Marketing Agreement with E-BEAM on pages 7, 16 and 23.
The Company also uses its radiation facility at Syosset to irradiate
PTFE which can then be ground into very small particles for use primarily as an
additive for printing inks and as a lubricant. In this process, PTFE is chopped
into smaller pieces, then placed on a conveyor to be transported under the
electron beam. After irradiation the powder is micronized, or farther reduced in
size. The Company's revenues from processing PTFE for PMP and/or Shamrock
amounted approximately to $2,925,000 or (33.9%) in 1996, and $2,720,000 or
(31.0%) in 1995 and $789,000 or 34.8% for the three months ended March 31, 1997.
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 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.
(4) 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 offsite contractor. Furthermore, some hospitals
have union agreements that pre-
28
clude 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 offsite 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 offsite 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 offsite instrument
processing and sterilization services. A wholly owned subsidiary of Teleflex,
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.
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 was
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
29
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 April 9, 1997 MSI
signed a Joint Marketing Agreement with E-BEAM.
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 manufacturer and
subsidiary of Teleflex, the Company 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. The Company
also entered into an Operating Lease Agreement with North Fork Bank on April 21,
1997 in the amount of $1,500,000. Under the Agreement, North Fork Bank will
purchase instruments required by the Company and lease them to the Company. The
interest rate is prime plus 1/2%. The agreement was guaranteed by Teleflex.
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. This Agreement has been
superseded with regard to the marketing by Pilling Weck in the United States by
the joint venture agreement hereinbefore referred to creating SSI to market the
decontamination, reprocessing and sterilization services in North America,
except the Northeast Corridor. Pilling Weck will continue to represent MSI in
the Northeast Corridor.
30
As of May 16, 1997, the Company entered into a joint venture with TFX
pursuant to which SSI Surgical Services Inc. ("SSI") was formed to lease MSI'S
decontamination, reprocessing and sterilization services in selected highly
populated urban centers in North America. MSI will own 375 shares or 37.5% of
the new company for which it will pay $325.00 and lease its techniques,
processing and know-how. TFX will own 625 shares or 62.5% of the new company and
acquired 100 shares of Preferred Stock for the sum of $5,000,000.
In addition, MSI and ESI, a company which specializes in on-site
endoscopic processing services and consulting, have agreed to cooperate and
comarket on-site and offsite 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
instruments 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 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.
(5) Employees
As of May 30, 1997, the Company had 79 full time and 17 part-time
employees. Management believes its relations with its employees are good. None
of the employees are covered by any collective bargaining agreement.
(6) Government Regulations
The Company has complied with the requirements of and obtained a
license from the New York State Department of Labor, Division of Safety and
Health, Radiological Health Unit for its electron beam radiation sterilization
and processing facility. This license is in force. It also has 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 in force until December 31, 1997 unless
renewed.
31
The Company is also registered with the Department of Health and
Human Services, Public Health Service of the Food and Drug Administration
("FDA"), and conforms to the FDA compliance program with regard to the
industrial sterilization of medical devices. However, in accordance with the FDA
compliance program, a hospital is not considered to be a manufacturer of medical
devices and a contract sterilizer for a hospital, such as the Company, is
considered an extension of the hospital and, therefore, the services provided by
the Company for the hospital are not covered by the FDA regulations.
The Company also complies with the regulations of the New York State
Department of Health, acting through the Nassau County Department of Health,
with regard to the disposition of effluents.
The Company complies with the regulations of the New York State
Department of Environmental Conservation concerning the handling and disposal of
regulated medical waste.
Finally, the Company also has to comply with the requirements of the
occupational Safety and Health Administration ("OSHA" ).
(7) Backlog
The Company includes in backlog only the dollar value of signed
contracts and purchase orders with hospitals on hand at a particular date.
Backlog does not include the value of purchase orders for sterilization of
disposable medical products or processing of plastic products which are
generally performed within a short time after receipt.
The Company's backlog, as so calculated, as of December 31, 1996 was
approximately $6,784,000 of which approximately $1,181,000 was completed during
1997. The comparable amounts at December 31, 1995 were approximately $6,531,000
and $1,140,000, respectively. The backlog as of March 31, 1997 was approximately
$12,221,000 of which approximately $4,500,000 will be completed during 1997. The
comparable amounts at March 31, 1996 were approximately $6,425,000 and
$3,659,000 respectively.
(8) Insurance
The Company carries a general liability policy of $1,000,000 with
additional coverage of $4,000,000. To date, there have been no liability claims
resulting from the use of the Company's services.
(9) Property
The Company entered into a six year lease with an option to renew for
an additional term of five years. The lease commenced on March 1, 1984 covering
103,000 square feet in a building at 225 Underhill Boulevard, Syosset, New York
where the Company has set up its
32
executive offices and its sterilization facility. The lease was amended several
times extending the term to February 28, 1996. A new lease was executed between
the Landlord and the Company on November 20, 1995 covering the period from March
1, 1996 through February 28, 2001. Under the new lease the annual rental will be
$456,000 for the first three years and $504,000 for the next two years.
The facilities and equipment used by the Company are in good condition
and management believes they are suitable not only for present operations but
also for a substantial increase in operations. Furthermore, additional
facilities and equipment can be acquired if the need arises.
LEGAL PROCEEDINGS
-----------------
None
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' 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 May 30, 1997 is 278. No dividends
have been paid on Common Shares. The terms of certain of the Company's loan
agreements, the Financing Agreement with Rosenthal & Rosenthal, Inc., and the
Series B and C Stock prohibit the payment of dividends on Common Stock.
Sales Prices
------------
High Bid Low Bid
-------- -------
1997
----
First Quarter $2.625 $1.188
Second Quarter (through May 30, 1997) 1.500 1.000
1996
----
First Quarter 1.563 0.938
Second Quarter 3.000 0.938
Third Quarter 1.375 1.375
Fourth Quarter 2.625 1.000
1995
----
First Quarter 1.250 0.5000
Second Quarter 1.250 0.5000
Third Quarter 1.250 0.5000
Fourth Quarter 1.875 0.6875
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
(a) Identification of Directors
33
Set forth below is a list of the Company's Directors, their ages, their
term as a Director, their present principal occupation and business
associations, the period during which such positions have been held, and, if
less than five years, a brief account of their previous positions. This
information is as of May 30, 1997 and is based on data furnished by the
Directors. All Directors are elected for a term of one year. No arrangements,
understandings or family relationships exist among or with any of the Directors,
except that the Amendment to the Certificate of Incorporation filed November 28,
1994 gives the holders of the outstanding shares of Series B and Series C Stock
the power to elect three directors. Pursuant to this authorization, TFX, which
on January 8, 1997, acquired all the outstanding Preferred Stock from the prior
holders, nominated Larry C. Buckelew, John J. Sickler and Harold L. Zuber, Jr.
to serve as directors. They were elected at the January 8, 1997 meeting of the
Board of Directors.
Larry C. Buckelew, age 43, has been a Director since January 8, 1997.
He is and has been since December, 1996 President of TFX Surgical Group, a
division of Teleflex Incorporated, engaged in the manufacture and distribution
of medical instruments and services. Prior thereto he was President of LCB
Consultants, a consulting firm from February, 1996, Sunrise Medical Inc., a
manufacturer of medical devices from June, 1993, and President of Bio Clinic
Corp. (Sunrise Division), a manufacturer of medical devices from November, 1986.
He is a nominee of TFX Equities, Inc., which as the holder of 100% of the
outstanding Preferred Stock has the power pursuant to the Corporation's
Certificate of Incorporation to elect three directors.
D. Michael Deignan, age 53, was elected President, Chief Operating
Officer and Director of the Company on September 8, 1995 and Chief Executive
Officer on December 31, 1995. For approximately two years prior to September,
1995 he was President and Chief Executive Officer of Tonometrics, Inc., a
developer of a patented regional tissue oxygenation monitoring system. For
approximately eight years prior thereto he held various executive positions with
Baxter Healthcare Inc., a manufacturer and distributor of medical supplies and
equipment.
John R. Hoover, age 68, has been a Director since May, 1983. He is
retired but was for more than five years the director of the Medical Products
Division of W. L. Gore & Associates, Inc., a manufacturer of wire and cabling,
teflon products and medical products. He also serves on the Board of Directors
of W. L. Gore & Associates, Inc.
Kennard H. Morganstern, age 72, had been Chairman of the Board,
President and Chief Executive Officer since 1982 except for a period of
approximately six months in 1991 during which another person served as
President. On September 8, 1995, he resigned as President and on December 31,
1995, he resigned as Chief Executive Officer retaining the position of Chairman
of the Board. He previously served as Chairman of the Board and President of
Radiation Dynamics, Inc., a manufacturer of radiation accelerators.
John J. Sickler, age 55, has been a Director since January 8, 1997. He
is and has been since 1990 the President of TFX Equities Incorporated, a
subsidiary of Teleflex Incorporated
34
engaged in business development. Teleflex designs, manufacturers and distributes
products and services for the automotive, marine, industrial, medical and
aerospace markets. He is a nominee of TFX Equities, which as the holder of 100%
of the outstanding Preferred Stock has the power pursuant to the Corporation's
Certificate of Incorporation to elect three directors.
Forrest R. Whittaker, age 47, has been a Director since January 17,
1996. He is and has been since January 1, 1996 the President and Chief Executive
Officer of Paidos Health Management Services, Inc., a company providing health
services. Prior thereto, he was President and Chief Executive Officer of Paidos
Healthcare, Inc. from May, 1993 and prior thereto he was President of V. Mueller
Division of Baxter International, Inc., engaged in the production and
distribution of medical supplies.
Harold L. Zuber, Jr., age 47, has been a Director since January 8,
1997. He is and has been since 1991 Vice President and Chief Financial Officer
of Teleflex Incorporated. Teleflex designs, manufacturers and distributes
products and services for the automotive, marine, industrial, medical and
aerospace markets. He is a nominee of TFX Equities, which as the holder of 100%
of the outstanding Preferred Stock has the power pursuant to the Corporation's
Certificate of Incorporation to elect three Directors.
(b) Identification of Executive Officers
Set forth below is a list of the Company's executive officers, their
ages, their present positions with the Company, the period during which such
positions have been held and, if less than five (5) years, a brief account of
their previous positions. The information is based on data furnished by the
executive officers as of May 30, 1997.
Kennard H. Morganstern, age 72, had been Chairman of the Board,
President and Chief Executive Officer since 1982 except for a period of
approximately six months in l991 during which another person served as
President. On September 8, 1995, he resigned as President and on December 31,
1995 he resigned as Chief Executive Officer retaining the position of Chairman
of the Board. He previously served as Chairman of the Board and President of
Radiation Dynamics, Inc., a manufacturer of radiation accelerators.
D. Michael Deignan, age 53, was elected President and Chief Operating
Officer on September 8, 1995. On December 31, 1995 he became Chief Executive
Officer. For approximately two years prior thereto he was President and Chief
Executive Officer of Tonometrics, Inc., a developer of a patented regional
tissue oxygenation monitoring system. For approximately eight years prior
thereto he held various executive positions with Baxter Healthcare Inc., a
manufacturer and distributor of medical supplies and equipment.
Michael G. Fogarty, age 64, has been Vice President, Quality Assurance
and Regulatory Affairs of the Company since May, 1983. For more than five years
prior thereto he was employed as a microbiologist by Becton, Dickinson and
Company in their Medical Devices
35
Division. He was Division Manager, Bacteriology and Sterilization, from 1968 to
1980 and was Corporate Manager, Project Coordination and Liaison, from 1980 to
January, 1984.
Steven M. Nyman, age 45, has been Senior Vice President, Hospital
Division and Management Information Systems, since October, 1994, was Vice
President, Hospital Division and Management Information Systems from February 1,
1993 and was Director of Management Information Systems from July, 1992. From
June, 1988 until July, 1992, he was President of Micro Information Service,
Inc., a consultant in computer matters.
Paul V. Rossi, age 49, has been Treasurer and Chief Financial Officer
of the Company since April 11, 1994. For one year prior thereto he was Chief
Financial Officer of Melville Biologics, Inc., a company engaged in blood
fractionation. For four years prior thereto he was Chief Financial Officer and
Chief Operating Officer of Medical Action Industries, Inc., a manufacturer and
distributor of disposable medical products.
EXECUTIVE COMPENSATION
----------------------
The following table sets forth the compensation earned by the
Corporation's Chief Executive Officer and each of the three other most highly
compensated executive officers of the Corporation whose total salary and bonus
for 1996 exceeded $100,000 (collectively, the "Named Executive Officers") for
services rendered in all capacities to the Corporation for each of the fiscal
years ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
------------
Annual Compensation Securities Underlying All Other
Name & Principal Position Year Salary Bonus Options Compensation
------------------------- ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
D. Michael Deignan (1) 1996 $152,884 0 41,170 $3,700.04 (2)
President and Chief 1995 43,269 0 200,000 1,284.00 (2)
Executive Officer
Paul V. Rossi 1996 $122,307 0 2,790.24 (3)
Chief Financial Officer, 1995 119,519 0 25,000 2,762.78 (3)
Treasurer and Assistant
Secretary
Steven M. Nyman 1996 $113,425 0 50,000 2,340.08 (4)
Senior Vice President, 1995 107,673 0 60,000 2,967.06 (4)
Operations and Manage-
ment Information Systems
Kennard H. Morganstern, 1996 $131,308 0 0
Ph.D.(5) 1995 130,596 0 0 2,219.28 (6)
Chairman of the Board
of Directors
</TABLE>
- -----------------------
(1) Mr. Deignan became President and Chief Operating Officer on September 15,
1995. He then became Chief Executive Officer on December 31, 1995.
36
(2) Includes $519 contributed in 1995 and $2,250.04 in 1996 by the Corporation
to vested and unvested defined contribution plans for Mr. Deignan's benefit and
$765 in 1995 and $1,450 in 1996 of term life insurance premiums paid by the
Corporation for Mr. Deignan's benefit.
(3) Includes $1,792.78 contributed in 1995 and $1,800.24 in 1996 by the
Corporation to vested and unvested defined contribution plans for Mr. Rossi's
benefit and $970 in 1995 and $990 in 1996 of term life insurance premiums paid
by the Corporation for Mr. Rossi's benefit. (4) Includes $1,227.06 contributed
in 1995 and $600.08 in 1996 by the Corporation to vested and unvested defined
contribution plans for Mr. Nyman's benefit and $1,740 in 1995 and in 1996 of
term life insurance premiums paid by the Corporation for Mr. Nyman's benefit.
(5) Dr. Morganstern served as the Corporation's President and Chief Executive
Officer since 1982. Upon the hiring of Mr. Deignan on September 15, 1995, Dr.
Morganstern resigned as President. Dr. Morganstern then resigned to allow Mr.
Deignan to become Chief Executive Officer on December 31, 1995. Dr. Morganstern
continues to serve the Corporation as Chairman of its Board of Directors.
(6) Includes $ 1,307.28 contributed in 1995 by the Corporation to vested and
unvested defined contribution plans for Dr. Morganstern's benefit and $912 in
1995 of term life insurance premiums paid by the Corporation for Dr.
Morganstern's benefit.
Option Grants. The following table sets forth information concerning
stock options granted during the fiscal years ended December 31, 1995 and
December 31, 1996 under the Company's 1994 and 1996 Stock Plans to the Named
Executive Officers (the Company did not grant any stock appreciation rights
during fiscal 1996). (The 1996 Stock Option Plan was approved by the Board of
Directors on March 21, 1996 and by shareholders on May 30, 1996):
37
OPTION GRANTS IN FISCAL YEAR 1995
---------------------------------
Individual Grants
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
Total Options
Granted to Exercise or
Options Employees Base Price Expiration
Name Granted in Year (1) ($/Share)(2) Date
---- -------- ------------- ------------ ----
<S> <C> <C> <C> <C>
Kennard H. Morganstern, 0 -- -- --
D. Michael Deignan 200,000 70.0% $.74 9/11/05
Paul V. Rossi, 25,000 8.77% $.74 9/11/05
Steven Nyman, 60,000 21.0% $.74 7/20/05
</TABLE>
(1) A total of 285,000 options were granted to employees (including the Named
Executive Officer) in 1995 under the Company's 1994 Stock Plan.
(2) The exercise price was the fair market value of a share of the Company's
Common Stock on the date of grant.
OPTION GRANTS IN FISCAL YEAR 1996
---------------------------------
Individual Grants
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
Total Options
Granted to
Options Employees Exercise or Expiration
Name Granted in Year (1) ($/Share)(2) Date
---- -------- ------------- ------------ ----
<S> <C> <C> <C> <C>
D. Michael Deignan............. 47,170 20.77% $1.06 3/21/06
Kennard H. Morganstern,
Ph.D. ...................... 0 0 0 0
Paul V. Rossi ................. 0 0 0 0
Steven M. Nyman................ 50,000 22.02% 1.19 9/17/06
- ----------------
</TABLE>
(1) A total of 227,100 options were granted to employees (including the Named
Executive Officers) in fiscal 1996 under the Company's 1994 and 1996 Stock
Plans.
(2) The exercise price was the fair market value of a share of the Company's
Common Stock at the time of grant as determined in accordance with the Company's
1994 and 1996 Stock Plans. The exercise price may be paid in cash or in shares
of the Company's Common Stock valued at fair market value on the exercise date.
Unexercised Option Holdings. The following table sets forth certain
information concerning unexercised stock options held as of December 31, 1996 by
each of the Named Ex-
38
ecutive Officers (no options were exercised during fiscal 1995 and 1996 by the
Named Executive Officers):
YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at
Options at Year-End Year-End (1)
------------------- ------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
D. Michael Deignan ......... 247,170 0 $ 350,981 $ 0
Paul V. Rossi .............. 75,000 25,000 111,000 37,000
Steven M. Nyman ............ 110,000 0 140,800 0
Kennard H. Morganstern,
Ph.D. .................... 275,000 0 407,000 0
</TABLE>
- -------------
(1) Value is based on the difference between the option exercise price and the
fair market value of the Corporation's Common Stock on December 30, 1996,
multiplied by the number of shares underlying the options.
(2) As of December 31, 1996 and as of March 31, 1997, there were unexercised
non-statutory stock options to purchase 62,500 shares of stock a prices ranging
from $.74 to $9.00 and ISO's to purchase 418,420 shares of stock at prices
ranging from $.74 to $1.06.
Employment Contracts and Termination of Employment Arrangements
In September, 1994, the Company entered into a transition agreement
with its then President and Chief Executive Officer, Kennard H. Morganstern.
Pursuant to the agreement Dr. Morganstern resigned as President on September 8,
1995 upon the election of D. Michael Deignan as President. Dr. Morganstern
resigned as Chief Executive Officer on December 31, 1995 at which time Mr.
Deignan became Chief Executive Officer. The agreement provides that for a period
of three years commencing September 8, 1995, Dr. Morganstern will continue to
serve as Chairman of the Board and, at the option of the new President, make
available 50% of his time for consulting purposes. During this period he will
receive a base annual compensation of 50% of his former compensation, or
$75,000, together with normal benefits provided to other officers of the
Company.
None of the Named Executive Officers has a long-term employment
agreement with the Corporation. The employment of each of the Named Executive
Officers may be terminated by the Corporation at any time. The Corporation's
policy is to make a severance payment of nine months' base salary and benefits
to Messrs. Deignan, Rossi, Nyman and Fogarty if their employment is terminated
by the Corporation.
39
THE 1994 AND 1996 STOCK OPTION PLANS
On September 29, 1994, the Board of Directors approved the Medical
Sterilization, Inc. 1994 Stock Option Plan (the "1994 Plan) and authorized the
issuance or up to 1,000,000 shares upon the exercise of options granted under
the Plan. The 1983 Stock Option Plan, which authorized the issuance of up to
800,000 shares upon the exercise of options, expired by its terms on May 11,
1993. On July 20, 1995, the shareholders approved the 1994 Stock Option Plan. On
March 31, 1996 the Board of Directors approved the 1996 Stock Plan (the "1996
Plan") and the authorization of 500,000 shares to be issued on exercise of
options granted under the 1996 Plan. This Plan succeeded the 1994 Stock Option
Plan which had no shares remaining available for option grants. The 1996 Stock
Option Plan was approved by shareholders on May 30, 1996.
GRANTS UNDER THE PLAN
Incentive Stock Options ("ISO") may be granted by the Compensation
Committee of the Board of Directors to officers and employees of the Company. An
ISO granted under the Plan may be exercisable immediately or in installments
following a period of two years after grant but must expire within ten years
from the date it is granted (five years in the case of such options granted to
holders of more than 10% of the Company's voting stock). Except in certain
circumstances an ISO may only be exercised so long as the employee continues to
be employed by the Company. The exercise price of such option must be at least
equal to the fair market value of the Company's Common Stock on the date such
option was granted (110% in the case of 10% shareholders) and must be paid in
cash or in stock of the Company valued at its then fair market value. An
employee may not receive ISO's to purchase stock having a maximum fair market
value in excess of $100,000 in any calendar year, with certain exceptions. The
options are non-transferable except by will or by the laws of descent and
distribution. The options terminate three months after the optionee's
relationship with the Company is terminated except if termination is by reason
of total disability or death. In the event of disability, under the 1994 Plan an
option must be exercised within one year after disability. Under the 1996 Plan
exercise must be before the earlier of the specified expiration date or 180
days. In the event of death, both Plans require the exercise to be before the
earlier of the expiration date or 180 days after death.
In addition, the Compensation Committee may issue Non-Statutory Stock
Options under the Plan. The exercise price of these stock options is not limited
and may be below fair market value but cannot be less than the minimum legal
consideration required under the law of the State of New York. These options may
be granted to directors, officers, consultants and key employees of the Company.
The exercise of a non-Statutory Stock Option would result in ordinary
income for the grantee and a deduction for the Company measured by the
difference between the option price and the fair market value of the shares
received at the time of exercise. Income tax withholding would be required.
40
The exercise of an ISO would not result in income for the grantee if
the grantee (i) does not dispose of the shares within two years after the date
of grant or one year after the transfer of shares upon exercise and (ii) is an
employee of the Company from the date of grant until three months before the
exercise date. If those requirements are met, the basis of the shares upon later
disposition would be the option price. Any gain will be taxed to the employee as
long-term capital gain and the Company would not be entitled to a deduction. The
excess of the market value on the exercise date over the option price is an item
of tax preference, potentially subject to the alternative minimum tax.
If the grantee disposes of the shares prior to the expiration of either
of the holding periods, the grantee would recognize ordinary income and the
Company would be entitled to a deduction equal to the lesser of the fair market
value of the shares on the exercise date minus the option price or the amount
realized on disposition minus the option price. Any gain in excess of the
ordinary income portion would be taxable as long-term or short-term capital
gain.
OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
---------------------------------
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Kennard H. Morganstern, None None 75,000 $ 79,500
Chairman of the Board (Incentive Stock Options)
Kennard H. Morganstern, None None 200,000 $212,000
Chairman of the Board (Non-Statutory Stock Options)
D. Michael Deignan, None None 125,000 $432,500
President & Chief Executive Officer (Non-Statutory Stock Options)
D. Michael Deignan, None None 122,170 $129,500
President & Chief Executive Officer (Incentive Stock Options)
Paul V. Rossi None None 100,000 $106,000
Chief Financial Officer (Non-Statutory Stock Options)
Steven Nyman None None 60,000 $ 65,400
Senior Vice President (Non-Statutory Stock Options)
</TABLE>
All the options are exercisable.
41
As of December 31, 1996, there were non-statutory options to purchase 662,500
shares of stock at prices ranging from $.74 to $9.00 and Incentive Stock Options
to purchase 206,250 shares at $.74 per share, 75,000 shares at $.75 per share
and 137,170 shares at $1.06 per share.
Compensation of Directors
On May 22, 1997, the Board of Directors approved the grant of a
Non-Statutory Stock Option to purchase 15,000 shares of common stock of the
Company at the price of $1.50 per share to each of John R. Hoover and Forrest R.
Whittaker, the two outside directors. Each option will become exercisable on
December 31, 1997 provided the director is serving as a director at the time.
The grant replaces the participation fee of $500.00 per meeting paid to the
directors prior to May 22,1997. All directors are reimbursed for expenses in
connection with attending Board and Committee meetings.
On January 17, 1996, the Company granted Mr. Whittaker a warrant to
purchase 25,000 shares of Common Stock at $2.00 per share, which is now
exercisable in full. Grants of options to Directors are set forth under Option
Grants, supra.
The Company has purchased directors' and officers' liability insurance
from National Union Fire Insurance Corporation of Pittsburgh, PA covering all of
the Company's directors and officers. The aggregate premium for this insurance
policy in 1996 was $22,770.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
AND MANAGEMENT
--------------
The following table sets forth as of May 30, 1997 certain information
regarding the ownership of the Company's voting securities by (i) each person
who, to the knowledge of the Company, beneficially owned more than 5% of the
Company's voting securities outstanding at such date, (ii) each director (or
nominee for director) of the Company, (iii) each Named Executive Officer (as
defined supra under "Executive Compensation") and (iv) all directors (and
nominees for director) and executive officers as a group:
<TABLE>
<CAPTION>
Amount and Nature of Percent of Total
Name and Address (1) Beneficial Ownership (2) Voting Securities (3)
- -------------------- ------------------------ ---------------------
<S> <C> <C>
John W. Sickler (4)........................................ 2,783,125 47.95%
c/o TFX Equities Incorporated
1787 Sentry Parkway West
Building 16, Suite 220
Blue Bell, PA 19422
Kennard H. Morganstern (5)................................ 589,400 10.16%
c/o Medical Sterilization, Inc.
225 Underhill Boulevard
Syosset, NY 11791
42
Dr. William C. Cartinhour, Jr. Trust (6).................. 364,900 6.29%
c/o Carol Haynes
First Potomac Investment Services
125 Rowell Court
Falls Church, VA 22046
D. Michael Deignan (7).................................... 300,970 5.19%
c/o Medical Sterilization, Inc.
225 Underhill Boulevard
Syosset, NY 11791
Larry C. Buckelew......................................... -- --
John R. Hoover (8)........................................ 55,200 *
Forrest R. Whittaker (9).................................. 25,000 *
Harold L. Zuber, Jr. ..................................... -- --
Paul V. Rossi (10)........................................ 112,000 1.93%
Steven M. Nyman (11)...................................... 111,000 1.91%
Michael S. Fogarty (12)................................... 75,000 1.29%
All officers and directors as a
group (10 persons) (13)................................ 4,051,695 69.81%
</TABLE>
- ----------------
* Less than 1% of total voting securities.
1) Pursuant to rules of the Securities and Exchange Commission ("SEC"),
addresses are provided only for 5% beneficial owners.
(2) Except as otherwise noted in the footnotes to this table, each person or
entity named in the table has sole voting and investment power with respect to
all shares shown as owned, based on information provided to the Company by the
persons and entities named in the table.
(3) Total Voting Securities includes 3,170,496 shares of Common Stock, 687,500
shares of Series B Stock and 1,945,625 shares of Series C Stock, outstanding as
of May 15, 1997. As of that date, each outstanding share of Preferred Stock was
convertible into one share of Common Stock. Pursuant to SEC rules, all
outstanding options and warrants which are exercisable within 60 days of May 15,
1997 ("Presently Exercisable Securities") held by the relevant person or entity
are included as outstanding Total Voting Securities for purposes of determining
that person's or entity's Percent of Total Voting Securities, but are not
included for purposes of determining any other person's or entity's Percent of
Total Voting Securities.
(4) Consists of (i) 687,500 shares of Series B Stock and 1,945,625 shares of
Series C Stock and 150,000 shares of Common Stock held by TFX. Mr. Sickler is
President of TFX and has
43
voting and investment power over the shares held by TFX. Mr. Sickler disclaims
beneficial ownership of the shares held by TFX, except to the extent of his
pecuniary interests therein.
(5) Consists of 17,000 shares of Common stock jointly held by Mrs. Rosalie M.
Morganstern over which Dr. Morganstern has shared voting and investment power,
297,400 shares of Common Stock owned by Dr. Morganstern and 275,000 Presently
Exercisable Securities.
(6) Consists of 364,900 shares of Common Stock held by the Dr. William C.
Cartinhour, Jr. Trust (the "Trust") of which Dr. Cartinhour is the beneficiary
and Ms. Marie C. Woods is the sole trustee. Ms. Woods disclaims beneficial
ownership of all shares held by the Trust.
(7) Consists of 53,800 shares of Common Stock owned and 247,170 Presently
Exercisable Securities.
(8) Consists of 15,000 shares owned by Mr. Hoover 200 shares of Common Stock
owned by Mrs. Beverly Hoover, as to which Mr. Hoover disclaims beneficial
ownership, and 40,000 Presently Exercisable Securities.
(9) Consists of 25,000 Presently Exercisable Securities.
(10) Consists of 12,000 shares of Common Stock owned and 100,000 Presently
Exercisable Securities.
(11) Consists of 1,000 shares of Common Stock owned and 110,000 Presently
Exercisable Securities.
(12) Consists of 75,000 Presently Exercisable Securities.
(13) Consists of 546,400 shares of Common Stock, 687,500 shares of Series B
Stock, 1,945,625 shares of Series C Stock and 872,170 presently Exercisable
Securities. See notes 4, 5, 7, 8, 9, 10, 11 and 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Mr. Cohen, the Secretary of the Company and a Director in 1995 and
1996, is a partner of Murtagh, Cohen & Byrne, which provided legal services to
the Company in 1995 and in part of 1996. During the 1995 fiscal year, the fees
were approximately $80,000. In 1996, when a new law firm was retained by the
Company, the fees paid to Murtagh, Cohen & Byrne were $18,500.
During the 1995 fiscal year, the Company made a payment of $100,000 on
a $300,000 note to Dr. Morganstern and in 1996 made a payment of $33,622 on the
note. The note bears interest at the rate of 1% per annum over the prime rate.
Dr. Morganstern is Chairman of the Company's Board of Directors. In addition,
the Corporation made a payment of $8,333 on a $50,000 note to Harvey Cohen.
44
On January 8, 1997, TFX acquired 687,500 shares of Series B Stock and
1,945,625 shares of Series C Stock from several of the Oxford Funds and from the
Dr. William Cartinhour, Jr. Trust. After the closing of this transaction,
Kenneth W. Rind, William R. Lonergan and Harvey Cohen resigned as Directors and
Messrs. John J. Sickler, Larry C. Buckelew and Harold L. Zuber, Jr. were elected
as Directors. All three of the new Directors are officers of Teleflex or
affiliated companies.
Prior to this transaction the Company was indebted in the sum of
$517,961 to Pilling Weck, part of TFX Surgical Group, a company with which it
had a Joint Marketing Agreement. Mr. Buckelew is President of TFX Surgical
Group. On January 30, 1997, $300,000 of the debt was converted into 150,000
shares of the Company's Common Stock at $2.00 per share which were issued to
TFX. After such conversion, TFX held 2,783,125 shares of voting stock, or 47.95%
of the outstanding voting stock. Mr. Sickler is President of TFX.
In January, 1997, the Company entered into a loan agreement with TFX.
The principal amount of the loan is $500,000, bears interest at the rate of
prime plus 1% and is due and payable on January 31, 1998.
As of May 16, 1997 the Company entered into a joint venture agreement
with TFX Equities Incorporated ("TFX"), a wholly owned subsidiary of Teleflex
Incorporated ("Teleflex") to form SSI Surgical Services, Inc. ("SSI") which
would provide offsite and onsite processing and sterilization services for
health care providers in all of North America except the Northeast corridor. MSI
has a 37.5% interest in SSI and TFX has a 62.5% interest in SSI. Furthermore,
TFX acquired 100 shares of Preferred Stock for the sum of $5,000,000.
PLAN OF DISTRIBUTION
--------------------
It is anticipated that the Selling Shareholders will individually offer
the securities presently owned by them in the manner set forth on the cover page
of this Prospectus, from time to time in the over-the-counter market at prices
prevailing at the time of sale, or in private transactions at negotiated prices.
In addition, Shares to be issued on the exercise of warrants or options or the
conversion of the Series B and C Stock may also be offered for resale by the
Selling Shareholders in the same manner. The cost of such sales is to be borne
by the Selling Shareholder. The costs of registering the Shares under the
Securities Act are to be borne by the Company. The Company will not receive any
proceeds from the sale of such Shares.
DESCRIPTION OF SECURITIES
-------------------------
COMMON STOCK
------------
The Company is authorized to issue 10,000,000 shares of Common Stock,
par value of $0.01 per share. As of May 30, 1997 there were 3,170,496 shares
outstanding. Shareholders have no preemptive rights. The outstanding shares of
the Common Stock are and the
45
Shares offered hereby by the Selling Shareholders will, when issued, be fully
paid and nonassessable.
Voting rights, Non-Cumulative Voting
Holders of shares of Common Stock of the Company are entitled to cast
one vote for each share held at all shareholders' meetings for all purposes,
including the election of directors. The Common Stock does not have cumulative
voting rights which means that the holders of more than 50% of the Common Stock
can elect 100% of the directors of the Company if they choose to do so subject
to the rights of the Preferred shareholders, as hereinafter set forth. The
By-laws of the Company require that only a majority of the issued and
outstanding shares of the Company be represented to constitute a quorum and to
transact business at a shareholders' meeting. The Series B and C Shareholders
shall vote together with the common shareholders with each Preferred Shareholder
having the number of votes per share as shall equal the number of shares of
Common Stock into which the Preferred Stock is then converted. The officers and
directors of the Company and TFX own approximately 69.81% of the outstanding
shares of Common Stock assuming exercise of all options, warrants and conversion
of all Preferred Stock. As a practical matter, such group could be in a position
to elect all of the directors of the Company and control its policies.
Furthermore, the Series B and C Shareholders have the right to elect three
directors of the seven authorized pursuant to the Amended Certificate of
Incorporation filed in November, 1994 and the consent of the prior holders of
the Preferred Shares executed September 8, 1995.
Dividends
The Company has not paid any dividends on the Common Stock and
anticipates that for the foreseeable future any earnings will be retained for
use in its business. Certain of the Company's loan agreements and the terms of
the Series B and C Stock prohibit the payment of dividends on the Common Stock.
See also Paragraph 4D in "PREFERRED STOCK" on page 48 infra regarding dividends
on Common Stock.
Liquidation Rights
In the event of any distribution of capital assets, whether voluntary
or involuntary, after creditors have been paid in full and any distribution to
holders of the Preferred Stock, the common shareholders are entitled to share
equally. Upon liquidation or dissolution, each outstanding share of Common Stock
will be entitled to share equally in the assets of the Company legally available
for distribution to shareholders after the payment of all debts and other
liabilities and the payment of $2.00 per share plus an amount equal to all
Accruing Dividends unpaid to the holders of the Series B Stock and the payment
of $1.00 per share to the holders of the Series C Stock. See Paragraph 3 in
"PREFERRED STOCK" on page 48.
Transfer Agent
46
The transfer agent for the Common Stock of the Company is American
Stock Transfer & Trust Company, 99 Wall Street, New York, New York 10005. The
transfer agent for the Series B and Series C Stock is Harvey Cohen, Esq., 1100
Franklin Avenue, Suite 303, Garden City, New York 11530.
WARRANTS
The Company has outstanding warrants to purchase an aggregate of
357,500 shares of Common Stock. The number of shares has, and the exercise
prices have, been adjusted by reason of the anti-dilution provisions of the
warrant agreements and agreement with some of the warrant holders. At this time
all warrants are exercisable at $2.00 per share. The shares of stock being
registered hereunder include the shares underlying the outstanding warrants.
(1) In July, 1990, as consideration for the five year $700,000 term
loan and extension and increase to the revolving line of credit made to the
Company, warrants to purchase an aggregate of 100,000 shares of the Company's
Common Stock at $3.00 per share, exercisable through July 20, 1995, were issued
to Apple Bank for Savings. In September, 1994, the exercise date of the warrants
was extended to July 20, 1998 and the exercise price was reduced to $2.00 per
share.
(2) In February, 1993, as consideration for his pledging his credit to
obtain a supersedeas bond in the amount of $100,000 for the Company, warrants to
purchase 2,500 shares of the Company's Common Stock at $2.00 per share,
exercisable through February 1, 1998 were issued to Harvey Cohen, Secretary and
then a Director of the Company.
(3) On September 29, 1994, warrants to purchase 40,000 shares of Common
Stock at $2.00 per share were issued to each of John R. Hoover, a Director, and
Harvey Cohen, then a Director of the Company in connection with services
rendered in the settlement of the Shamrock judgment.
(4) On November 29, 1994, in connection with an agreement with
Rosenthal & Rosenthal, Inc. ("R&R") calling for a revolving secured line of
credit of $2,000,000, MSI issued warrants to R&R to purchase 50,000 shares of
Common Stock at $2.00 per share.
(5) On November 29, 1994, as part of the settlement of the judgment of
approximately $3,752,000, including interest, held by Shamrock, MSI issued
warrants to Shamrock to purchase 75,000 shares of Common Stock at $2.00 per
share.
(6) On February 8, 1995, as part of a settlement concerning payment for
Series A Stock held by Constance and Bernard Livingston, MSI issued to the
Livingstons warrants to purchase 10,000 shares of Common Stock at $2.00 per
share. These warrants expired by their terms on January 17, 1997.
(7) On February 8, 1995, MSI issued to William R. Lonergan, a newly
elected director, warrants to purchase 25,000 shares of Common Stock at $2.00
per share.
47
(8) On January 17, 1996 MSI issued to Forrest R. Whittaker, a Director,
warrants to purchase 25,000 of Common Stock at $2.00 per share.
The warrant holders have advised the Company that stock received by
them upon the exercise of their warrants may be sold from time to time in the
over-the-counter market at prices prevailing at the time of sale, or in private
transactions at negotiated prices, that they have not entered into any
arrangements with any underwriters with respect to the sale of any of the Shares
and that any commissions or discounts given or other expenses of sale will be
those customary in the type of transaction involved and will be paid by the
selling warrant holders. The Company will receive approximately $715,000 if all
the warrants are exercised. Although, in view of the fact that the warrant
prices are in excess of current market prices for the Company's stock, it is
unlikely that any warrants will be exercised unless market prices improve
significantly. The warrant holders and brokers and dealers through whom such
Shares are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended, with respect to sales, and any profits
realized or commissions received may be deemed underwriting commissions.
Unless otherwise noted, none of the warrant holders has any
relationship to the Company other than as a holder of its securities.
PREFERRED STOCK
In December, 1989, the Company issued 333,334 shares of Series A Stock
in exchange for a convertible demand note issued in January, 1989. In December,
1989, the Company issued 333,333 shares of Series A Stock for $1,000,000
collected in January, 1990. In December, 1989, debt aggregating $500,000 was
converted into 166,667 shares of Series A Stock. In November, 1994, the Company
restructured its Series A Stock (as of June 30, 1994 values) which was due to be
redeemed on December 31, 1994. Of the 800,000 shares of existing Series A Stock,
750,000 shares plus accrued dividends of $1,071,094 were exchanged for two new
series of Convertible Preferred Stock. The remaining 200,000 authorized shares
of Series A Stock were cancelled. $1,375,000 of the original principal amount of
$2,400,000 was exchanged for $1,375,000 of Series B Stock, as a result of a
further exchange. This Series B Stock is now convertible at the option of the
holder into 687,500 shares of Common Stock or cash, at $2.00 per share maturing
December 30, 1999. Dividends accrue on this Series B 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, they will be added to the face amount of the Series B
Stock at the price of $2.00 per share at the time of conversion. $1,945,625 of
the Series A Stock and accrued dividends were exchanged for what is now
1,945,625 shares of Series C Stock. The Series C 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
or accrued on the Series C Stock. At December 31, 1994, the balance due on the
50,000 outstanding shares of Series A Stock and accrued dividends aggregating
$225,000 were converted into a one (1) year term loan with monthly principal and
in-
48
terest payments. The loan bore interest at the rate of prime plus 3 1/2%. The
loan has been paid in full.
The Series B and Series C Stock have the following rights and
privileges:
1. Voting.
(A) General. The Series B and Series C Stock shall vote
together with all other classes of stock of the Company on all actions taken by
shareholders of the Company. Each holder of Series B and Series C Stock shall
have such number of votes per share as shall equal the number of shares of
Common Stock into which each share of Series B and Series C Stock is then
convertible.
(B) Board Seats. The holders of the Series B and Series C
Stock shall be entitled, voting together as a single series, to elect three
directors of the Company. In the event the Company shall fail to redeem all of
the shares of Series B Stock as required, the holders of the Series B Stock
voting as a separate series shall be entitled to elect a majority of the
directors.
(C) Board Size. The maximum number of directors shall not
exceed seven.
2. Dividends. (i) The holders of the Series B Stock shall be entitled
to receive out of funds legally available therefor, when and if declared by the
Board of Directors, quarterly dividends at the rate per annum of Eight (8%)
percent per share. The dividends may be paid in cash or accrued at the option of
the Company. If not paid in cash, the dividends shall accrue (the "Accruing
Dividend") whether or not earned or declared, and shall be cumulative and shall
be added to the face amount of the Series B Stock at the rate of $2.00 per share
at the time of conversion of the Series B Stock. (ii) There are no dividends
payable or accrued on the Series C Stock.
3. Liquidation. Upon any liquidation, dissolution or winding up of the
Company, the holders of the Series B Stock shall first be entitled to be paid an
amount equal to $2.00 per share plus an amount equal to all Accruing Dividends
unpaid thereon, and the holders of the Series C Stock shall first be entitled to
be paid an amount equal to $1.00 per share.
4. Restrictions. So long as the Series B and Series C Stock is
outstanding, the Company shall not without approval of two-thirds of the
outstanding Series B and Series C Stock
(A) Create or increase the authorized amount of any additional
class of stock unless same ranks junior to the Series B and Series C Stock as to
distribution of assets on liquidation or increase the authorized amount of the
Series B and Series C Stock.
(B) Consent to liquidation, dissolution or winding up of the
Company or consolidate or merge into or with any entity or sell all or
substantially all of its assets.
49
(C) Amend its Restated Certificate of Incorporation in a
manner adversely affecting holders of the Series B and Series C Stock.
(D) Purchase or pay any dividend or make any distribution on
any shares of stock other than the Series B Stock except dividends in the form
of additional shares of Common Stock.
(E) Redeem or acquire any shares of Series B Stock except as
provided hereinafter or pursuant to a purchase offer made pro rata to all
holders of Series B Stock.
5. Conversions. The holder of the Series B and Series C Stock shall
have the following conversion rights:
(A) Right to Convert Series B Stock. At any time prior to
December 30, 1999, at the holder's option into such number of shares of Common
Stock as is obtained by multiplying the number of shares of Series B Stock by
$2.00 and dividing the result by the conversion price of $2.00 per share as
adjusted pursuant to the anti-dilution provisions.
(B) Right to Convert Series C Stock. At any time prior to
December 30, 2004, at the holder's option, into such number of shares of Common
Stock as is obtained by multiplying the number of shares of Series C Stock by
$1.00 and dividing the result by the conversion price of $1.00 per share as
adjusted pursuant to the anti-dilution provisions.
(C) Mandatory Conversions.
(i) In the event that at any time during the period
ending October 31, 1999, the fair market price of the Company's Common Stock as
quoted on NASDAQ, attains a price of Three ($3.00) Dollars per share and
maintains such price for at least ninety (90) days, all outstanding shares of
Series C Stock shall be automatically converted into shares of Common Stock of
the Company on such ninetieth day.
(ii) In the event that at any time during the period
ending October 31, 1999, the fair market price of the Company's Common Stock as
quoted on NASDAQ, attains a price of Six ($6.00) Dollars per share and maintains
such price for at least ninety (90) days, all outstanding shares of Series B
Stock shall be automatically converted into shares of Common Stock of the
Company on such ninetieth day.
(iii) In the event that the holder of any share or
shares of Series C Stock shall not have converted such share or shares prior to
December 30, 2004, such share or shares shall be automatically converted into
shares of Common Stock of the Company on December 30, 2004.
6. Adjustment of Conversion Price. The conversion price shall be
adjusted pursuant to usual anti-dilution provisions. Whenever the Company shall
issue or sell or be deemed to have issued or sold any Common Stock for a
consideration per share less than the conversion
50
price of the Series B and Series C Stock in effect prior to such issuance or
sale, the conversion price shall be reduced to the price at which the Company
issued or sold such stock.
7. Redemption.
(A) Mandatory. On December 30, 1999, the Company shall redeem
all shares of Series B Stock.
(i) Redemption Price. The redemption price shall be
$2.00 per share plus an amount equal to all unpaid Accruing Dividends.
8. Amendments. The terms of the Series B and/or Series C Stock may not
be modified without the votes of two-thirds of the holders of the Series B
and/or Series C Stock.
9. Registration Rights. Pursuant to the Registration Rights Agreement,
the Company has agreed to include the Common Stock issuable on conversion of the
Series B and Series C Stock in any registration of its securities.
The holders of Series B and Series C Stock have advised the Company
that stock received by them upon the conversion of the Series B and Series C
Stock may be sold from time to time in the over-the-counter market at prices
prevailing at the time of sale, or in private transactions at negotiated prices,
that they have not entered into any arrangements with any underwriters with
respect to the sale of any of the Shares and that any commissions or discounts
given or other expenses of sale will be those customary in the type of
transaction involved and will be paid by the Selling Shareholders. The Company
will not receive any of the proceeds of sale. The holders and brokers and
dealers through whom such Shares are sold may be deemed "underwriters" within
the meaning of the Securities Act of 1933, as amended, with respect to sales,
and any profits realized or commissions received may be deemed underwriting
commissions.
SELLING SHAREHOLDERS
The Selling Shareholders are shareholders of the Company who have
acquired Shares, which are not registered, either upon the exercise of options
and warrants, conversion of Series A Stock or upon purchase of said Shares on a
private placement by the Company. The Selling Shareholders also include those
persons who may acquire Shares upon the exercise of options or warrants or the
conversion of Series B and C Stock. If the Selling Shareholders sell the Shares
held by them or to be received by them, it will be deemed a secondary offering
by such shareholders.
In connection with the proposed sale by the Selling Shareholders of the
Shares, the Company has agreed to keep the Registration Statement, of which this
Prospectus is a part, effective with respect to such Shares until nine months
after the date of this Prospectus. The Selling Shareholders have advised the
Company that they have no present intention of selling their Shares but that
their Shares may be sold from time to time in the over-the-counter mar-
51
ket at prices prevailing at the time of sale, or in private transactions at
negotiated prices, that they have not entered into any arrangements with any
underwriters with respect to the sale of any of the Shares and that any
commissions or discounts given or other expenses of sale will be those customary
in the type of transaction involved and will be paid by the Selling
Shareholders. The Selling Shareholders and brokers and dealers through whom such
Shares are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended, with respect to sales, and any profits
realized or commissions received may be deemed underwriting commissions.
Unless otherwise noted, none of the Selling Shareholders has any
relationship to the Company other than as a holder or its securities.
52
SELLING SHAREHOLDERS
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP AS OF MAY 30, 1997 BEFORE THE OFFERING
OF UNREGISTERED SHARES PREVIOUSLY ACQUIRED ON PRIVATE PLACEMENTS OR SHARES TO BE
ACQUIRED BY THE SELLING SHAREHOLDERS AS A RESULT OF THE EXERCISE OF WARRANTS AND
OPTIONS OR CONVERSION OF PREFERRED STOCK
<TABLE>
<CAPTION>
Percent of
Percent of Common
Amount of Common Amount of Stock
Warrants Options Series B Series C Beneficial Stock Beneficial to be
to to Convertible Convertible Ownership Owned Amount Ownership Owned
Purchase Purchase Preferred Preferred before before being after after
Shares Shares Shares Stock Stock Offering Offering* Offered Offering Offering*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apple Bank for Savings - 100,000 - - - 100,000 1.44% 100,000 0 0
Becker, Robert C. - - 48,750 - - 48,750 0.70% 48,750 0 0
Bruch, Carl and Anita 5,000 - - - - 5,000 - 5,000 0 0
Cartinhour,
William C., Jr.
Trust 300,000 - - 300,000 4.32% 300,000 0 0
Cohen, Harvey 16,667 42,500 - - 59,167 0.85% 59,167 0 0
Secretary of the
Company
Deignan, Michael D. 150,000 - - 150,000 2.16% 150,000 0 0
President of the
Company
Fogarty, Michael G. - - 75,000 - - 75,000 1.08% 75,000 0 0
Vice President of
the Company
Hanrahan, Joseph - - 3,000 - - 3,000 - 3,000 0 0
Healy, Thomas - - 2,500 - - 2,500 - 2,500 0 0
Hoover, John R. 15,000 40,000 - - - 55,000 0.79% 55,000 0 0
Director of the
Company
Iannucci, Alfonso - - 25,000 - - 25,000 0.36% 25,000 0 0
Janes, William - - 1,500 - - 1,500 - 1,500 0 0
</TABLE>
53
<TABLE>
<CAPTION>
Percent of
Percent of Common
Amount of Common Amount of Stock
Warrants Options Series B Series C Beneficial Stock Beneficial to be
to to Convertible Convertible Ownership Owned Amount Ownership Owned
Purchase Purchase Preferred Preferred before before being after after
Shares Shares Shares Stock Stock Offering Offering* Offered Offering Offering*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lonergan, William R. - 25,000 - - - 25,000 0.36% 25,000 0 0
Morganstern, David B. - - 20,000 - - 20,000 0.29% 20,000 0 0
Morganstern, Kennard H. 50,000 - 275,000 - - 325,000 4.68% 325,000 0 0
Chairman of the Board
Nyman, Steven M. - 60,000 - - 60,000 0.86% 60,000 0 0
Senior Vice President
of the Company
Repman, Calvin - - 3,000 - - 3,000 - 3,000 0 0
Rosenthal & Rosenthal, Inc. - 50,000 - - - 50,000 0.72% 50,000 0 0
Rossi, Paul V. 75,000 - - 75,000 1.08% 75,000 0 0
Treasurer of the
Company
Sengstock, Retta - - 25,000 - - 25,000 0.36% 25,000 0 0
Shamrock Technologies, Inc. 25,000 75,000 - - - 100,000 1.44% 100,000 0 0
Sharpe, John M., Jr. - - 10,000 - - 10,000 0.14% 10,000 0 0
Sims, Mildred - - 5,000 - - 10,000 0.14% 10,000 0 0
TFX Equities Incorporated 687,500 1,945,625 2,633,125 45.40% 2,633,125 0 0
Whittaker, Forrest R. 25,000 - - 25,000 0.36% 25,000 0 0
Director of the
Company
TOTAL 411,667 357,500 778,750 687,500 1,945,625 4,186,042 - 4,186,042
* Any securities which are not outstanding but could be outstanding on the
exercise of stock options or warrants or conversion of Series B or C Stock by
a person have been deemed outstanding for purposes of computing the amount of
beneficial ownership and the percentage of outstanding securities owned by
such person.
</TABLE>
54
INDEMNIFICATION
Section 726 of the Business Corporation Law of the State of New York
grants each corporation organized thereunder, such as the Company, the power to
indemnify its directors and officers against liabilities for certain of their
acts. Article XII of the Company's By-laws provides for indemnification of
officers and directors of the Company to the extent permitted by Section 726 and
establishes certain procedures to comply therewith.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company,
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
EXPERTS
The audited financial statements included in this Prospectus have been
so included in reliance upon the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
LEGAL OPINIONS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Messrs. Murtagh, Cohen & Byrne, 1100 Franklin
Avenue, Garden City, New York 11530. Certain of the members of Murtagh, Cohen &
Byrne own beneficially in the aggregate 48,057 shares of Common Stock, and
42,500 shares issuable upon exercise of warrants and 40,000 shares issuable upon
exercise of options.
ADDITIONAL INFORMATION
The Company has filed with the Washington D.C. office of the Securities
and Exchange Commission a Post Effective Amendment No. 1 to the Registration
Statement on Form SB-2 with respect to the securities offered by this
Prospectus. This Prospectus omits certain information contained in the Post
Effective Amendment No. 1, as permitted by the Rules and Regulations of the
Securities and Exchange Commission. For further information, reference is made
to the Post Effective Amendment No. 1, which may be examined without charge at
the Washington, D.C. office of the Commission and copies of all or any part
thereof may be obtained from the Commission's principal facility in Washington,
D.C. upon payment of the Commission's charge for copying. Statements contained
in this Prospectus as to the contents of any contract or other document referred
to are not complete and where such contract or other document is an exhibit to
the Post Effective Amendment No. 1, each such statement is deemed to be
qualified and amplified in all respects by the provisions of the exhibit.
55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers
Section 726 of the Business Corporation Law of the State of New York
grants each corporation organized thereunder, such as the Company, the power to
indemnify its directors and officers against liabilities for certain of their
acts. Article XII of the Company's By-laws provides for indemnification of
officers and directors of the Company, to the extent permitted by Section 726
and establishes certain procedures to comply therewith.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the registrant's by-laws or the law of the State of
New York, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Other Expenses of Insurance and Distribution
The estimated expenses of the registrant in connection with the
registration of the Common Stock registered hereby are as follows:
Legal Fees and Expenses $10,000
Accounting Fees and Expenses 5,000
Blue Sky Fees and Expenses 3,000
Cost of Copying 1,500
Miscellaneous 1,500
---------
Total $21,000
Recent Sales of Unregistered Securities
A. Common Stock
(1) On November 29, 1994, as part of a settlement with Shamrock, the
Company issued 25,000 shares of Common Stock to Shamrock.
56
(2) On July 25, 1996, 2 consultants to the Company exercised options to
purchase 25,000 shares of Common Stock at $.10 per share.
(3) On December 15, 1996, one of the consultants exercised an option to
purchase 15,000 shares of Common Stock at $.10 per share.
(4) On January 30, 1997, the Company issued 150,000 shares of Common
Stock to TFX in satisfaction of a debt of $300,000 owed to Pilling
Weck.
B. Options
On September 29, 1994, the Board of Directors approved the 1994 Stock
Option Plan authorizing the issuance of up to 1,000,000 shares upon the exercise
of options granted under the Plan. The shareholders approved the 1994 Stock
Option Plan on July 20, 1995. On May 20, 1996, the shareholders approved the
1996 Stock Option Plan authorizing the issuance of an additional 500,000 shares
upon the exercise of options granted under the 1996 Stock Option Plan.
The following options were granted on the dates set forth:
<TABLE>
<CAPTION>
Date Position at Option
of Grant Name Time of Grant Type # Shares Price Exercisable
- -------- ---- -------------- ---- -------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
9/29/94 Michael G. Fogarty Vice President NSSO 75,000 .74 9/29/94-9/29/04
8/27/86 Thomas Healy Consultant NSSO 2,500 9.00 5/24/88-5/24/98
9/29/94 Kennard H. Morganstern President ISO 75,000 .74 9/29/94-9/29/04
9/29/94 Kennard H. Morganstern President NSSO 200,000 .74 9/29/94-9/29/04
9/29/94 Calvin Repman Supervisor ISO 3,000 .74 9/29/94-9/29/04
9/29/94 Alfonso Iannucci Manager ISO 25,000 .74 9/29/94-9/29/04
9/29/94 Retta Sengstock Manager ISO 25,000 .74 9/29/94-9/29/04
9/29/94 Mildred Simms Supervisor ISO 5,000 .74 9/29/94-9/29/04
9/29/94 David B. Morganstern Manager ISO 20,000 .74 9/29/94-9/29/04
9/29/94 Robert C. Becker Vice President ISO 48,750 .74 9/29/94-9/29/04
(terminated 3/31/96;
exercisable to 3/31/98)
9/29/94 Joseph Hanrahan Supervisor ISO 3,000 .74 9/29/94-9/29/04
9/29/94 William Janes Supervisor ISO 1,500 .74 9/29/94-9/29/04
9/29/94 John M. Sharpe, Jr. Consultant NSSO 10,000 .74 9/29/94-9/29/04
9/29/94 Paul V. Rossi Treasurer NSSO 75,000 .74 9/29/94-9/29/04
7/20/95 Steven N. Nyman Vice President NSSO 60,000 .74 7/20/95-7/20/05
9/11/95 D. Michael Deignan President NSSO 75,000 .74 9/11/95-9/11/05
9/11/95 D. Michael Deignan President ISO 75,000 .75 9/11/95-9/11/05
11/15/95 D. Michael Deignan President NSSO 50,000 .74 9/11/95-9/11/05
11/15/95 Paul V. Rossi Treasurer NSSO 25,000 .74 9/11/95-9/11/05
1/17/96 Harvey Cohen Secretary NSSO 40,000 .74 1/17/96-1/17/06
3/21/96 David Morganstern Manager ISO 25,000 1.06 25% after 3/21/96,
25% yearly
thereafter until
3/21/00
3/21/96 Retta Sengstock Manager ISO 25,000 1.06 " "
3/21/96 Alfonso Iannucci Manager ISO 25,000 1.06 " "
3/21/96 D. Michael Deignan President ISO 47,170 1.06 " "
3/21/96 Mildred Sims Supervisor ISO 5,000 1.06 " "
</TABLE>
57
<TABLE>
<CAPTION>
Date Position at Option
of Grant Name Time of Grant Type # Shares Price Exercisable
- -------- ---- -------------- ---- -------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
3/21/96 Karen Dodge Manager ISO 2,500 1.06 " "
3/21/96 Kathi O'Shaughnessy Manager ISO 2,500 1.06 " "
3/21/96 Calvin Repman Supervisor ISO 2,500 1.06 " "
3/21/96 William Wilson Supervisor ISO 2,500 1.06 " "
9/17/96 Steven M. Nyman Senior Vice President NSSO 50,000 1.19 9/17/96-9/17/06
</TABLE>
C. Warrants
As part of the restructuring of Preferred Stock in November, 1994,
warrants to purchase 800,000 shares of Common Stock held by the Preferred
Shareholders were cancelled.
The following warrants have been issued:
(1) On September 29, 1994, warrants to purchase 40,000 shares at $2.00
per share were issued to each of Harvey Cohen and John R. Hoover, Directors, in
connection with their services during the negotiation of the settlement of the
judgment held by Shamrock. These warrants are exercisable through September 29,
1999.
(2) On November 29, 1994, in connection with an agreement with
Rosenthal & Rosenthal, Inc. ("R&R"') calling for a revolving secured line of
credit of S2,000,000, MSI issued warrants to R&R to purchase 50,000 shares of
Common Stock at $2.00 per share. These warrants are exercisable through December
30, 1999.
(3) On November 29, 1994, as part of the settlement of the judgment of
approximately $3,752,000, including interest, held by Shamrock, MSI issued
warrants to Shamrock to purchase 75,000 shares of Common Stock at $2.00 per
share. These warrants are exercisable through December 30, 1999.
(4) On February 8, 1995, as part of a settlement concerning payment for
Series A Convertible Preferred Stock held by Constance and Bernard Livingston,
MSI issued to the Livingstons warrants to purchase 10,000 shares of Common Stock
at $2.00 per share. These warrants are no longer exercisable.
(5) On February 8, 1995, MSI issued to William R. Lonergan, then a
newly elected director, warrants to purchase 25,000 shares of Common Stock at
$2.00 per share. These warrants are exercisable through February 8, 2000.
(6) On January 17,1996, MSI issued to Forrest R. Whittaker, then a
newly elected director, warrants to purchase 25,000 shares of Common Stock at
$2.00 per share. These warrants are exercisable through January 17, 2001.
58
D. Preferred Stock
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 of existing Series A Convertible
Preferred Stock, 750,000 shares, plus accrued dividends of $1,071,094 were
exchanged for two (2) new series of Convertible Preferred Stock. The remaining
200,000 authorized shares of Series A Convertible Preferred Stock were
cancelled. $1,375,000 of the original principal amount of $2,400,000 was
exchanged for $1,375,000 of Series B Convertible Preferred Stock. This Series B
Convertible Preferred Stock is convertible at the option or the holder into
687,500 shares of Common Stock or cash, at $2.00 per share maturing December 30,
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, they will be added to the face amount of the Series B
Convertible Preferred Stock at the price of $2.00 per share upon conversion.
$1,945,625 of the Series A Convertible Preferred Stock and accrued dividends
were exchanged for 1,945,625 shares of Series C Convertible Preferred Stock. The
Series C Convertible Preferred Stock is automatically convertible at $l.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 or accrued on the
Series C Convertible Preferred Stock. At December 31, 1994, the balance due on
the 50,000 outstanding shares of Series A and accrued dividends aggregating
$225,000 was converted into a one (1) year term loan with monthly principal and
interest payments. The loan has been paid in full.
In November 16, 1994, the following shares of Series B and Series C
Convertible Preferred Stock were issued to named shareholders in exchange for
their Series A Convertible Preferred Stock.
Series A Series B Series C
Convertible Convertible Convertible
Name Preferred Stock Preferred Stock Preferred Stock
---- --------------- --------------- ---------------
Oxford Venture Fund II,
Limited Partnership 333,333 416,666 642,499
Oxford Venture Fund III,
Limited Partnership 266,667 333,334 514,001
Oxford Venture Fund III,
Adjunct 66,657 83,334 128,501
William C. Cartinhour, Jr.
Trust 83,333 104,166 160,624
On December 14, 1995, the Oxford Venture Funds exchanged some of their
Series B Convertible Preferred Stock for shares of Series C Convertible
Preferred Stock as follows:
59
Series B Convertible Series C Convertible
Name Preferred Stock for Preferred Stock
---- --------------- ---------------
Oxford Venture Fund II,
Limited Partnership 125,000 250,000
Oxford Venture Fund III,
Limited Partnership 100,000 200,000
Oxford Venture Fund III,
Adjunct 25,000 50,000
On January 8,1997, TFX acquired all of the Company's outstanding
Preferred Stock from the Oxford Funds and the William C. Cartinhour, Jr. Trust.
Registration of the transactions set forth above was not required under
the Securities Act of 1933, as amended, by virtue of Section 4(2) of said Act
exempting "transactions by an issuer not involving a public offering". The
recipients of said shares represented that said shares were acquired and would
be held for investment purposes and not with a view to any distribution thereof,
and the certificates for said shares bear an appropriate legend to such effect.
Furthermore, the exchange of Preferred Stock set forth above is exempt
under Section 3(a)(9) of the Securities Act of 1933, as amended.
Exhibits and Financial Statement Schedules
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 - filed as Exhibit (3)(4) to Annual Report for
the year ended December 31, 1996 on Form 10-KSB and incorporated herein by
reference.
60
(3)(5) Certificate of Amendment of Certificate of
Incorporation filed January 6, 1997 - filed as Exhibit (3)(5) to Annual Report
for the year ended December 31, 1996 on Form 10-KSB and incorporated herein by
reference.
(3)(6) Certificate of Correction of Certificate of Amendment
of Certificate of Incorporation filed January 10, 1997 - filed as Exhibit (3)(6)
to Annual Report for the year ended December 31, 1996 on Form 10-KSB and
incorporated herein by reference.
(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.
(5) Opinion of Murtagh, Cohen & Byrne
(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.
(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.
61
(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 to Form SB2 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
- - filed as Exhibit (10(13) to Annual Report for the year ended December 31, 1996
on Form 10-KSB and incorporated herein by reference.
(10)(14) Purchase and Sale Agreement dated March 17, 1997
between the Company and Shamrock Technologies, Inc. dated March 17, 1997 filed
as Exhibit (10)(14) to Annual Report for the year ended December 31, 1996 on
Form 10-KSB and incorporated herein by reference.
(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.
(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.
62
(10)(18) Letter dated June 3, 1996 from Gibney, Anthony &
Flaherty, attorneys for Shamrock Technologies, Inc. returning the original
Confession of Judgment - filed as Exhibit (10)(18) to Annual Report for the year
ended December 31, 1996 on Form 10-KSB and incorporated herein by reference.
(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 - filed as Exhibit (10)(21) to Annual
Report for the year ended December 31, 1996 on Form 10-KSB and incorporated
herein by reference.
(10)(22) Agreement between Pilling Weck, Inc. 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 to
Registration Statement No. 33-28660 and incorporated herein by reference.
(10)(24) Letter amending Credit Line and Term Loan Agreements
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. One 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 SB2 (File
No. 33-96330) and incorporated herein by reference.
63
(10)(29) Joint Venture Agreement between TFX Equities
Incorporated and the Company dated as of May 16, 1997.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule
(b) Financial Statement Schedules: All schedules are omitted because
they are not applicable, not material, or the required information is shown in
the Financial Statements or Notes thereto.
Undertakings
1. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement; (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933; (ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(b) That, for the purpose of determining any liability under
the Securities Act of 1933 each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the 1994 Stock Option Plan or at the termination of the offering.
2. The undersigned registrant also undertakes:
(a) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
(b) In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, offi-
64
cer or controlling person of the small business issuer in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
65
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant has duly caused this Post-Effective Amendment No. 1 to the
Registration Statement on Form SB2 to be signed on its behalf by the
undersigned, in the Village of Syosset, State of New York, on June 30, 1997
(Registrant) Medical Sterilization, Inc.
--------------------------------------------------------------------
By D. Michael Deignan
------------------------------------------------------------------------------
D. Michael Deignan, Principal Executive Officer & President
KNOW ALL PERSONS BY THESE PRESENTS, that each such person whose
signature appears below constitutes and appoints, jointly and severally, D.
Michael Deignan and Harvey Cohen his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Registration Statement on Form SB2 (including post-effective amendments), and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement on Form SB2 was
signed by the following persons in the capacities and the dates stated.
By Kennard H. Morganstern
------------------------------------------------------------------------------
Kennard H. Morganstern, Chairman of the Board & Director
Date June 30, 1997
-----------------------
By D. Michael Deignan
------------------------------------------------------------------------------
D. Michael Deignan, Principal Executive Officer, President and Director
Date June 30, 1997
-----------------------
By Paul V. Rossi
------------------------------------------------------------------------------
Paul V. Rossi, Treasurer, Principal Financial and Accounting Officer
Date June 30, 1997
-----------------------
By Larry C. Buckelew
------------------------------------------------------------------------------
Larry C. Buckelew, Director
Date June 30, 1997
-----------------------
By John R. Hoover
------------------------------------------------------------------------------
John R. Hoover, Director
Date June 30, 1997
-----------------------
By John J. Sickler
------------------------------------------------------------------------------
John J. Sickler, Director
Date June 30, 1997
-----------------------
By Forrest R. Whittaker
------------------------------------------------------------------------------
Forrest R. Whittaker , Director
Date June 30, 1997
-----------------------
By Harold L. Zuber, Jr.
------------------------------------------------------------------------------
Harold L. Zuber, Jr., Director
Date June 30, 1997
-----------------------
66
CONSENT OF COUNSEL
The consent of Messrs. Murtagh, Cohen & Byrne to the use of its name
in the Prospectus included in this Post-Effective Amendment No. 1 to the
Registration Statement on Form SB2 is contained in its opinion filed as Exhibit
5 to this Post-Effective Amendment No. 1 to the Registration Statement on Form
SB2.
67
MEDICAL STERILIZATION, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accounts F-2
Balance Sheet as at December 31, 1996 F-3
Statements of Operations for the years ended December 31, 1996
and 1995 F-4
Statements of Shareholders' Equity for the years ended
December 31, 1996 and 1995 F-5
Statements of Cash Flows for the years ended the years ended
December 31, 1996 and 1995 F-6 - F-7
Notes to Financial Statements F-8 - F-20
Financial Statements for three months ended March 31, 1997
and March 31, 1996 F-21 - F-26
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 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>
ASSETS:
<S> <C>
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
=========
</TABLE>
See notes to financial statements
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>
Series C
Convertible
Common stock Preferred stock Additional
------------ --------------- 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
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (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)
---------- ---------
</TABLE>
See notes to financial statements
F-6
MEDICAL STERILIZATION, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
<S> <C> <C>
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
======== ========
</TABLE>
Supplemental disclosures:
Interest payments during the years ended December 31, 1996 were and 1995
were $303,000 and $335,000 respectively
Income 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 surgical instruments under 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. 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 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.
F-10
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
==========
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
----------
1,430,609
Less, accumulated amortization 430,560
----------
$1,000,049
==========
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 (benefit) to the
effective tax rate is as follows:
1996 1995
----------------
Expected federal statutory tax rate (benefit) (34%) 34%
State and local taxes, net ( 6%) 6%
Limitation (utilization) of net operating losses 40% (40%)
----------------
Effective tax rate 0% 0%
=================
F-11
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
============
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.
6. Long-Term Debt:
<TABLE>
<CAPTION>
<S> <C> <C>
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
F-12
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.
(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.
F-13
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 215,82
----------
Present value of minimum lease payments, including
$168,160 currently payable at December 31, 1996. $ 874,536
==========
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.
F-14
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.
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.
F-15
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.
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:
F-16
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.
<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
<S> <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>
F-17
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.
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.
F-18
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.
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 through the purchase of
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
F-19
processing customers at a price of 15% of related revenues up to $350,000. Upon
execution of the agreement the Company will receive a 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-20
MEDICAL STERILIZATION, INC.
Balance Sheet
-------------
<TABLE>
<CAPTION>
March 31, 1997
(unaudited)
--------------
<S> <C>
ASSETS
------
Current assets
Cash $ 22,264
Accounts receivable, less allowance for
doubtful accounts of $207,850 2,445,809
Inventory 105,141
Prepaid expenses 177,938
------------
Total current assets 2,751,152
------------
Fixed assets, at cost, less accumulated
depreciation and amortization 5,127,477
Other assets 246,188
------------
Total assets $ 8,124,817
============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable and accrued expenses $ 1,654,494
Short term note payable 97,579
Current maturities of long-term debt 2,007,944
Current obligation under capital lease 168,160
------------
Total current liabilities 3,928,177
------------
Long-term liabilities
Long-term debt, less current maturities 531,676
Obligation under capital lease 659,244
------------
Total liabilities 5,119,097
------------
Commitment and contingencies (Note 4):
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 1,698,840
------------
</TABLE>
Continued
See notes to financial statements
F-21
MEDICAL STERILIZATION, INC.
Balance Sheet
-------------
Continued
March 31, 1997
(unaudited)
-------------
Shareholders' equity
Convertible Preferred Stock 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 3,170,496 shares 31,704
Additional paid-in capital 7,811,648
Accumulated deficit (8,482,097)
-----------
Shareholders' equity 1,306,880
-----------
Total liabilities and shareholders' equity $8,124,817
===========
See notes to financial statements
F-22
MEDICAL STERILIZATION, INC.
Statements of Operations
--------------------------
(Unaudited)
For the three months
ended March 31,
--------------------
1997 1996
---- ----
Income
- ------
Revenue $2,266,015 $2,056,090
---------- ---------
2,266,015 2,056,090
Costs and Expenses
- ------------------
Operating 1,554,386 1,479,086
Selling, general and administrative 516,167 599,081
Interest 103,462 74,992
---------- ---------
2,174,015 2,153,159
---------- ---------
Income (loss) before income taxes 92,000 (97,069)
Income taxes 0 0
---------- ----------
Net income (loss) 92,000 (97,069)
Preferred stock dividends 30,888 30,888
---------- ----------
Net income (loss) applicable to common
shareholders $ 61,112 $ (127,957)
========== ==========
Weighted average shares of common stock
outstanding 5,289,415 2,980,496
---------- ----------
Net income (loss) per share of common
stock (Note 2) $ .01 $ (.04)
========== ==========
See notes to financial statements
F-23
MEDICAL STERILIZATION, INC.
Statements of Cash Flows
------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
--------------------
<S> <C> <C>
1997 1996
Cash flows from operating activities: ---- ----
Net income (loss) $ 92,000 $ (97,069)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 188,097 151,098
Changes in assets and liabilities:
(Increase) in receivables (36,754) (162,671)
Decrease in inventory 15,934 6,523
(Increase) in prepaid expenses (140,558) (223,710)
(Increase) in other assets (85,769) (6,200)
Increase in accounts payable
and accrued expenses 54,944 407,265
-------- --------
Net cash provided by
operating activities 87,894 75,236
-------- --------
Cash flows from investing activities:
Capital expenditures (365,435) (406,966)
-------- --------
Net cash used in investing
activities (365,435) (406,966)
--------- --------
Cash flows from financing activities:
Borrowing (repayment) under
financing agreement 107,633 (362,360)
(Repayment) borrowing under
short-term notes payable (35,466) 81,514
Borrowing of long-term debt 199,067 456,018
Principal payments under capital lease
obligations (47,132) (9,251)
0
--------- ---------
Net cash provided by
financing activities 224,102 165,921
--------- ---------
Net (decrease) in cash (53,439) (165,809)
Cash at beginning of period 75,703 175,390
--------- ---------
Cash at end of period $ 22,264 $ 9,581
========= ==========
</TABLE>
See notes to financial statements
F-24
MEDICAL STERILIZATION, INC.
Notes to Financial Statements
1. Unaudited Statements:
--------------------
The accompanying unaudited financial statements have been prepared
by the Company in accordance with generally accepted accounting
principles, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying
financial statements contain all adjustments necessary to present
a fair statement of the results for the interim period presented.
It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto
included in the Company's Annual Report filed on Form 10-KSB for
the year ended December 31, 1996.
2. Net Income Per Share of Common Stock:
------------------------------------
Net Income per share of common stock is based on the weighted
average number of shares of common stock outstanding during each
period adjusted for undeclared dividends on Preferred Stock.
Common stock equivalents of approximately 2,133,000 shares have
been included for the computation of net income per share for
March 31, 1997. Common stock equivalents have been excluded from
the computation of net income per share of common stock for March
31, 1996 since the result would be anti-dilutive.
3. 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.
4. Subsequent Events:
-----------------
In April 1997 the Company entered into a master operating lease
agreement with North Fork Bank in the amount of $1,500,000. The
lease provides for draw downs to purchase instruments for
inventory and will be classified as an operating lease. The
agreement has an interest rate of prime plus 1/2% which is set at
each draw down. The lease agreement is guaranteed by Teleflex,
Inc.
F-25
In April 1997, the Company entered into a joint marketing
agreement and an agreement to sell its contract sterilization
business effective December 31, 1997. The Company, under the terms
of the agreement, will receive a maximum purchase price of
$350,000 for the business based on a schedule of royalties earned
at up to 15% of related revenues from January 1, 1998 to December
31, 1999. The Company received a $150,000 deposit on the sale
which is nonrefundable and is to be applied to the first $150,000
of royalties. The Company is obligated to pay commissions of 10%
of revenues in excess of $50,000 per month of contract
sterilization business during the period of April 17, 1997 and the
expiration of the Company's toll processing agreement.
Upon consummation of the sale of the electron beam accelerator
(see 1996 10-KSB) to Shamrock and the remaining contract
sterilization and industrial processing business to E-BEAM (see
above), 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-26
MEDICAL STERILIZATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Current Assets have increased approximately $108,000 to $2,751,152 at
March 31, 1997 compared to $2,643,213 at December 31, 1996. The increase
was primarily due to a $140,558 increase in prepaid expenses (primarily
insurance) offset partially by a $53,439 decrease in cash. The Company had
negative working capital of approximately ($1,177,025) at March 31, 1997
compared to approximately $292,458 at December 31, 1996. This decrease of
approximately $1,469,483 was the result of the reclassification of the note
payable to a commercial lender of approximately $1,274,899 from long-term
liabilities to current liabilities reflecting the due date of January 1998,
the loan agreement with TFX Equities, Inc. of $500,000 due January 31, 1998
and a decrease of $53,439 in cash offset by a $140,558 increase in prepaid
expenses (primarily insurance) and an increase of $36,754 in accounts
receivable. There was a decrease in the working capital ratio, to .70 to 1
at March 31, 1997 versus 1.12 to 1 at December 31, 1996. This was directly
the result of the loan reclassifications described above.
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 April 1997 the Company entered into a master lease agreement with
North Fork Bank in the amount of $1,500,000. The lease provides for draw
downs to purchase instruments for inventory and will be classified as an
operating lease. The agreement has an interest rate of prime plus 1/2%
which is set at each draw down. The lease agreement is guaranteed by
Teleflex, Inc.
The Company currently plans to expand its business both geographically
and by increasing its portfolio of reprocessing services to include new
service offerings such as EtO sterilization and consulting services. 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 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.
As mentioned above the Company's working capital line of credit becomes
due in January 1998. While the Company believes it will be able to
refinance and/or restructure this agreement there can be no assurance,
however, that it will be able to do so.
F-27
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.
RESULTS OF OPERATIONS
---------------------
REVENUES
--------
Revenues for the three months ended March 31, 1997 increased
approximately $209,000 or 10% to approximately $2,266,000 from revenues of
approximately $2,056,000 for the three months ended March 31, 1996. The
increase in revenues was attributable to an approximate $87,000 increase in
revenues or a 45.7% increase in the Company's radiation processing of
industrial products business, an approximate $82,000 or 12.1% increase in
revenues in the Company's contract sterilization business, and an
approximate $40,000 or 3.4% increase in the Company's revenue in its
hospital services division.
COSTS AND EXPENSES
------------------
Total expenses increased approximately $21,000 or 1% to approximately
$2,174,000 for the three months ended March 31, 1997 compared to
approximately $2,153,000 for the three months ended March 31, 1996.
Operating expenses have increased approximately $75,000 or 5.1% due to
increases in salaries and supplies to support the increased sales volume.
Selling, general and administrative expenses have decreased approximately
$83,000 or 13.8% due primarily to certain national marketing expenses being
borne by Teleflex, Inc. whereas last year they were borne by MSI and at
reduced legal expenses. Interest expense increased approximately $28,000 or
37.9% due to increased capital leases used to purchase surgical instruments
and the additional borrowing of $500,000 from TFX Equities, Inc.
NET INCOME (LOSS)
-----------------
APPLICABLE TO COMMON SHAREHOLDERS
---------------------------------
Net income applicable to common shareholders was approximately $61,000
or $.01 per share for the three months ended March 31, 1997 compared to net
(loss) of approximately ($128,000) or ($.04) per share for the three months
ended March 31, 1996.
F-28
Exhibit (5)
LAW OFFICES
MURTAGH, COHEN & BYRNE
1100 FRANKLIN AVENUE
GARDEN CITY, N.Y. 11530
June 30, 1997
Medical Sterilization, Inc.
225 Underhill Boulevard
Syosset, New York 11791
Medical Sterilization, Inc.
Post-Effective Amendment No. 1 to Registration Statement on Form SB2
Dear Sirs:
We have acted as counsel for Medical Sterilization, Inc., a New York
corporation (the "Company"), in connection with Post-Effective Amendment No. 1
to the Registration Statement on Form SB2 (the "Registration Statement") of the
following shares of Common Stock, $.01 par value (the "Common Stock"), of the
Company:
(a) 778,750 shares of Common Stock to be issued upon the exercise of
options granted or to be granted under the Company's 1994 Stock Option Plan, as
amended (the "1994 Stock Option Plan") (the "Option Stock");
(b) 357,500 shares of Common Stock to be issued upon the exercise of
warrants heretofore issued (the "Warrant Stock");
(c) 687,500 shares of Common Stock to be issued upon conversion of
687,500 shares of the Series B Convertible Preferred Stock (the "Conversion
Stock"); and
(d) 1,945,625 shares of Common Stock to be issued upon conversion of
1,945,625 shares of Series C Convertible Preferred Stock (the "Conversion
Stock"); and
(e) 411,667 shares of Common Stock held by persons who bought the Stock
on the exercise of options or upon private placements (the "Placement Stock").
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including, but not limited to, the following (a) the Restated
Certificate of Incorporation of the Company filed May 24, 1989; (b) the
Certificates of Amendment of the Certificate of Incorporation filed January 4,
1990, November 25, 1994,
By: /s/ Harvey Cohen
Medical Sterilization, Inc. Page - 2
June 30, 1997
June 17, 1996 and January 5, 1997, and Certificate of Correction of Certificate
of Amendment of Certificate of Incorporation filed January 10, 1997; (c) the
Amended and Restated By-laws of the Company; (d) the 1994 and 1996 Option Plans;
(e) the form of warrants; (f) the Series B and C Convertible Preferred Stock;
(g) the agreements with Apple Bank; (h) the agreements with Shamrock
Technologies, Inc.; (i) the agreements with Rosenthal & Rosenthal, Inc.; (j) the
agreement with Pilling Weck, Inc.; and (k) the agreements with TFX Equities
Incorporated.
1. The Company has been duly incorporated and is a validly existing
corporation under the laws of the State of New York.
2. The Placement Stock has been duly and validly issued, fully paid and
nonassessable.
3. The Option Stock, the Warrant Stock and the Conversion Stock will
be, when issued, upon exercise of options or warrants or conversion of Series B
and C Convertible Preferred Stock, validly issued, fully paid and nonassessable.
4. The following additional action will have to be taken: Compliance
with applicable State or Foreign Securities or "Blue Sky" Laws.
5. Except as noted above, no authorization, consent or approval of any
governmental authority is necessary for the sale of the Placement Stock, or the
Option Stock, Warrant Stock and Conversion Stock after issuance.
We know that we are referred to in the Prospectus forming a part of the
Registration Statement, and also under "Legal Proceedings". We hereby consent to
the use of our name therein and to the use of this opinion as a party of Exhibit
5 thereto.
Very truly yours,
MURTAGH, COHEN & BYRNE
By: /s/ Harvey Cohen
HC:jdc
Exhibit (10)(29)
JOINT VENTURE AGREEMENT
between
TFX EQUITIES INCORPORATED
and
MEDICAL STERILIZATION, INC.
Dated as of May 16, 1997
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
BACKGROUND................................................................................................................... 1
TERMS........................................................................................................................ 3
1. Definitions and Certain Interpretative Matters ..................................................................... 3
1.1 Certain Defined Terms ..................................................................................... 3
1.2 Other Interpretive Matters ................................................................................ 7
2. Organization and Operation of SSI ................................................................................. 7
2.1 Jurisdiction of Incorporation.............................................................................. 7
2.2 Certificate of Incorporation and Bylaws.................................................................... 7
2.3 The Business of SSI: Other Business Interests and Activities of Participants .............................. 8
2.4 Location................................................................................................... 9
2.5 Directors and Officers; Actions by the Board .............................................................. 9
2.6 Auditors................................................................................................... 11
3. Capitalization of SSI............................................................................................... 11
3.1 Subscription for Common Stock by TFX....................................................................... 11
3.2 Subscription for Common Stock by MSI....................................................................... 11
3.3 Subscription for Preferred Stock by TFX.................................................................... 11
3.4 Contributions by MSI ...................................................................................... 12
3.5 Additional Capital Requirements; Other Services ........................................................... 12
4. Dividends and Distributions......................................................................................... 12
i
5. Restriction on Transfer of Shares of SSI: Options to Purchase a Participant's Shares
under Certain Circumstances......................................................................................... 13
5.1 Restrictions on Transfer of Shares......................................................................... 13
5.2 Permitted Transfers........................................................................................ 16
5.3 SSI's Option to Purchase Shares in Certain Events.......................................................... 17
5.4 SSI May Assign its Rights to Purchase Shares............................................................... 18
5.5 Purchase Price ........................................................................................... 18
5.6 Transfers in Violation of this Agreement................................................................... 19
5.7 Failure to Offer or Transfer Shares........................................................................ 19
5.8 Legends on Share Certificates.............................................................................. 20
6. Shares Acquired for Investment...................................................................................... 20
7. Assignment. ........................................................................................................ 20
7.1 Prohibited Assignment...................................................................................... 20
7.2 Permitted Transfer......................................................................................... 21
8. Joinder by SSI...................................................................................................... 21
9. Public Announcements................................................................................................ 21
10. Governing Law; Submission to Jurisdiction of Pennsylvania........................................................... 22
11. Notices............................................................................................................. 22
12. Parties in Interest................................................................................................. 23
13. Amendment and Modification.......................................................................................... 24
ii
14. Entire Agreement................................................................................................... 24
15. Headings and Titles................................................................................................ 24
16. Counterparts....................................................................................................... 24
</TABLE>
iii
JOINT VENTURE AGREEMENT
THIS IS A JOINT VENTURE AGREEMENT made as of May 16, 1997 between:
TFX EQUITIES INCORPORATED, a Delaware corporation ("TFX"), having its
principal executive office at 1787 Sentry Parkway West, Building 16, Suite 220,
Blue Bell, Pennsylvania 19422; and
MEDICAL STERILIZATION, INC., a New York corporation ("MSI"), having its
principal office at 225 Underhill Boulevard, Syosset, New York 11791.
BACKGROUND
A. TFX is a wholly owned subsidiary of Teleflex Incorporated, a
Delaware corporation ("Teleflex").
B. Teleflex, through its wholly owned subsidiary, Pilling Weck Inc., a
Delaware corporation ("Pilling Weck") manufactures, markets and distributes
throughout the world various surgical instruments and other medical products.
C. Teleflex, through its wholly owned subsidiary, Endoscopy Specialists
Incorporated ("ESI"), is in the business of supplying surgical equipment and
instrumentation to hospitals and providing management, technical and related
services to hospitals.
D. MSI is in the business of (i) leasing surgical instruments to
hospitals and (ii) providing decontaminating, cleaning, disinfecting,
sterilizing, processing, packaging, pickup and delivery of such leased surgical
instruments and related products for hospitals in the Northeast Corridor
(hereinafter defined).
E. MSI desires to expand its surgical instrument leasing and
sterilization business to provide such services to hospitals outside of the
Northeast Corridor; however, it does not presently have the financial and human
resources to successfully launch such an expansion of its business. Therefore,
MSI has determined to launch and conduct such expansion with TFX pursuant to the
terms of this Agreement.
F. TFX which owns approximately 40% of MSI's capital stock on a fully
diluted basis, desires to provide the financial and human resources, through
ESI, Pilling Weck and other subsidiaries, divisions or Affiliates (hereinafter
defined) of Teleflex, to launch and conduct with MSI a business for the leasing
of surgical instruments and related sterilization and other services to
hospitals and other health care institutions in North America (other than in the
Northeast Corridor) and such other areas as the Participants (hereinafter
defined) may agree.
G. This Agreement sets forth the terms on which the parties hereto will
participate in the organization, capitalization and operation of a new
corporation to be known as "SSI Surgical Services, Inc." ("SSI") to launch and
conduct such business of leasing surgical instruments and
2
related sterilization and other services to hospitals and other health care
facilities in North America located outside of the Northeast Corridor.
TERMS
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as
follows:
1. Definitions and Certain Interpretative Matters.
1.1 Certain Defined Terms. The following terms, when used in
this Agreement with initial capital letters, having the meanings indicated:
(a) "Affiliate" with respect to any person means any
other person which controls, is controlled by or is under common control with
such first mentioned person. For this purpose the ownership or control by any
person of 50% or more of the shares of any corporation entitled to vote
generally in the election of directors shall be deemed to evidence control of
such corporation. For all purposes relating to this Agreement, MSI shall not be
considered or deemed to be an Affiliate of TFX unless and until TFX (or an
Affiliate of TFX) shall own greater than 50% of MSI's issued and outstanding
Capital Stock.
3
(b) "Board of Directors" or "Board" means the board
of directors of SSI.
(c) "Business" means the business of SSI described in
Section 2.3(a).
(d) "Bylaws" means the bylaws of SSI as amended from
time to time in accordance with applicable law.
(e) "Capital Stock" means shares of Common Stock and
Preferred Stock of SSI.
(f) "Certificate of Incorporation" means the
certificate of incorporation of SSI as amended from time to time in accordance
with applicable law.
(g) "Common Stock" means shares of common stock, par
value $1 each, of SSI.
(h) "Instruments of Indebtedness" means any
promissory note, debenture, bond or other similar instrument of indebtedness of
SSI.
(i) "Northeast Corridor" means the geographic area
where MSI presently conducts or reasonably expects to
4
conduct its business operations, specifically being within the borders of the
States of New York, New Jersey, Pennsylvania, Maine, New Hampshire, Vermont,
Connecticut, Rhode Island and Massachusetts.
(j) "Option Events" has the meaning assigned thereto
in Section 5.3(a).
(k) "Option Exercise Date" has the meaning assigned
thereto in Section 5.3(b).
(1) "Participant" means, so long as such person is a
subscriber for or a holder of Capital Stock, (i) each of TFX and MSI, (ii) each
person to whom the interest hereunder of either of the foregoing persons shall
have been assigned by voluntary transfer or corporate merger or consolidation in
a transaction permitted by Section 5.2, and (iii) each person who purchases any
shares of Capital Stock from SSI.
(m) "Permitted Transferee" means a person to whom the
interest hereunder of a Participant shall have been assigned by voluntary
transfer or corporate merger or consolidation in a transaction permitted by
Section 5.2.
(n) "Permitted Transferee of Capital Stock" has the
meaning assigned thereto in Section 5.2.
5
(o) "Preferred Stock" means shares of preferred
stock, par value $1 each, of SSI.
(p) "Restricted Holder" means a holder of shares of
Capital Stock who is a Participant or a Permitted Transferee.
(q) "Shareholder" means each Participant so long as
such person holds any shares of Capital Stock.
(r) "SSI Territory" means all geographic areas of
North America, except specifically excluding the Northeast Corridor.
(s) "Technology" means the inventions, techniques,
processes, programs and knowhow of MSI to be licensed to SSI pursuant to the
License Agreement (hereinafter defined).
(t) "License Agreement" means the technology license
agreement between SSI and MSI referred to in Section 3.4, as the same may be
amended from time to time.
(u) "Value" has the meaning assigned thereto in
Section 5.5.
6
1.2 Other Interpretive Matters.
(a) Unless otherwise specified, all references herein
to "Articles," "Sections," "Schedules" or "Exhibits" are to Articles, Sections,
Schedules or Exhibits of or to this Agreement.
(b) No provision of this Agreement will be
interpreted in favor of, or against, any party hereto by reason of the extent to
which such party or its counsel participated in the drafting thereof or by
reason of the extent to which any such provision is inconsistent with any prior
draft hereof.
2. Organization and Operation of SSI
2.1 Jurisdiction of Incorporation. SSI will be incorporated
under the laws of the State of Delaware.
2.2 Certificate of Incorporation and Bylaws. The Certificate
of Incorporation and Bylaws of SSI will be substantially as set forth in
Exhibits "A" and "B" hereto.
7
2.3 The Business of SSI; Other Business Interests and
Activities of Participants.
(a) The business of SSI (the "Business") will be to
lease surgical instruments and related products to hospitals and other health
care facilities located within the SSI Territory together with the related
performance of decontamination, cleaning, disinfecting, sterilization,
processing, packaging, pickup and delivery services with respect to such leased
surgical instruments and related products.
(b) SSI may also engage in such other business as
the Board of Directors may from
time to time determine.
(c) SSI may engage in the Business in the Northeast
Corridor if the Participants hereafter determine that it is in their respective
best interests and the best interests of SSI to do so. Nothing herein shall be
construed or interpreted to authorize SSI's conduct of the Business in any part
of the Northeast Corridor unless and until each Participant expressly consents
to and authorizes such action.
(d) Each Participant has other business activities
and interests, some of which relate to or may be competitive with the Business
of SSI. The Participants specifically acknowledge that MSI's business as
presently conducted by it in the Northeast Corridor is competitive with the
Business of SSI as contemplated to be conducted by this Agreement. Nothing in
this Agreement or in any other agreement or instrument executed pursuant hereto
shall
8
be interpreted or construed to restrict or limit in any manner (i) MSI's ability
to conduct its business and affairs in the Northeast Corridor, (ii) TFX' ability
to conduct any business presently conducted by it or an Affiliate (including any
other related business activities which hereafter may flow therefrom by a
reasonable expansion and development of any such business activities presently
conducted by TFX or an Affiliate), whether conducted within or without the SSI
Territory or the Northeast Corridor, or (iii) MSI's or TFX' (or an Affiliate of
either) ability to conduct any business of any nature or description whatsoever
outside of the SSI Territory, whether or not any such business is similar or
dissimilar to the Business of SSI.
(e) No Participant shall have any obligation or duty
to offer to SSI any corporate or business opportunity to engage in any business
activity other than the Business of SSI specifically described in Section 2.3(a)
of this Agreement.
2.4 Location. SSI shall have offices and facilities where the
Board of Directors determines. The parties presently contemplate that the
initial headquarters of SSI will be in the vicinity of Orlando, Florida.
2.5 Directors and Officers; Actions by the Board.
(a) The Board of Directors of SSI will consist of
such number of directors as may be fixed by the Board pursuant to the Bylaws;
provided that such number of directors shall not be less than three. The initial
Board will consist of the following persons:
9
Scott Bartos
Larry C. Buckelew
D. Michael Deignan
(b) The parties contemplate that SSI may organize one
or more wholly owned subsidiaries from time to time to conduct the Business in
specific geographic regions within the SSI Territory.
(c) Except as the Board or the shareholders of SSI
may hereafter determine from time to time, the directors of SSI will serve
without compensation. SSI will reimburse each director for all reasonable
expenses incurred by such director in the performance of his or her duties,
including attendance at Board meetings.
(d) The Board of Directors will appoint the officers
of SSI in accordance with applicable law. It is not presently contemplated by
the parties that any of MSI's officers or employee's will serve as an officer of
SSI.
(e) Each Participant will nominate one person to
serve as its representative on SSI's Board of Directors (a "Participant's
Representative"). The Participants will at all times vote their shares of
Capital Stock to elect each such Participant's Representative to the Board of
Directors. In any transaction, business activity or other matter which requires
the consent of a Participant, the consent or approval of a Participant's
Representative at any meeting of SSI's Board of Directors or shareholders shall
constitute the required consent of a Participant.
10
The Participants contemplate that MSI's initial Representative on SSI's Board of
Directors will be D. Michael Deignan and TFX' initial Representative will be
Larry C. Buckelew. A Participant may change its designated Representative at any
time and from time to time by providing notice of such change to SSI and the
other Participants.
2.6 Auditors. The auditors of SSI will be selected by the
Board of Directors. Such auditors may also be the auditors for any Participant.
It is anticipated that the initial auditors of SSI will be Price Waterhouse.
3. Capitalization of SSI.
3.1 Subscription for Common Stock by TFX. TFX will subscribe
for 625 shares of Common Stock at the price per share of $1.00, being $625 in
the aggregate.
3.2 Subscription for Common Stock by MSI. MSI will subscribe
for 375 shares of Common Stock at the price per share of $1.00, being $375 in
the aggregate.
3.3 Subscription for Preferred Stock by TFX. TFX will
subscribe for 100 shares of Preferred Stock at a price per share of $50,000,
being $5,000,000 in the aggregate, which Preferred Stock will have terms and
conditions substantially as set forth in Exhibit C (the "Series A Preferred
Stock"). TFX will pay the $5,000,000 aggregate purchase price for the Series A
Preferred Stock by paying One Hundred Thousand Dollars ($100,000) in cash to SSI
11
and issuing to SSI its Demand Note in the amount of $4,900,000 in substantially
the form of Exhibit D hereto.
3.4 Contributions by MSI. MSI will license to SSI the
Technology for SSI's exclusive use and benefit in the SSI Territory pursuant to
a License Agreement in substantially the form of Exhibit E hereto.
3.5 Additional Capital Requirements; Other Services.
(a) The Participants contemplate that SSI will
require additional capital financing, which it is anticipated will be realized
by long term and short term borrowings by SSI and by its sale of Instruments of
Indebtedness. TFX may make available to SSI all or a part of such financing from
its own resources, but TFX has no obligation to do so.
(b) The Participants contemplate that TFX and MSI
will provide management and other services to SSI, including from time to time
temporary or parttime service of employees of TFX, MSI or an Affiliate of
either, the cost of which will be charged to SSI.
4. Dividends and Distributions. SSI will pay such dividends and
distributions to the holders of its Capital Stock as may be declared by the
Board of Directors from time to time in accordance with applicable law.
12
5. Restriction on Transfer of Shares of SSI; Options to Purchase a
Participant's Shares under Certain Circumstances.
5.1 Restrictions on Transfer of Shares.
(a) No Transfer Without Compliance with this
Article. No Participant will sell, transfer or otherwise dispose of any shares
of Capital Stock held by such Participant except in compliance with this Section
5.1 or as permitted by Section 5.2. The term "sell", "transfer" or "otherwise
dispose" with respect to any share of Capital Stock means any voluntary action
intended to create an interest in or change the ownership of any such share, or
having the same effect, including but not limited to any sale, gift or exchange
or any transfer by reason of a corporate merger or consolidation.
(b) Right of First Refusal. If a Participant
proposes to sell or otherwise dispose of any Shares otherwise than in a
transaction permitted by Section 5.2, such Participant (a "Selling Holder") will
give written notice thereof (the "Selling Holder's Notice") to SSI and each
other Participant (the "Other Participants"), stating (i) the identity of the
proposed transferee and the number of shares of Capital Stock to be transferred,
(ii) the value of the consideration to be received by the Selling Holder
therefor and (iii) the other terms and conditions of such transaction, and such
Participant will offer to sell such shares on the same terms and conditions
(except that the price shall be the lesser of (x) the value of the consideration
from the proposed transferee and (y) the Value as determined pursuant to Section
5.5 hereof) to SSI and, to the
13
extent that such offer shall not be accepted as to all such shares, to the Other
Participants, as hereinafter provided. SSI may assign its rights to purchase any
such shares to such persons, including Other Participants, as its Board of
Directors may determine.
(c) Purchase by SSI and its Assigns. SSI and its
assignees referred to in paragraph (b) of this Section may accept all or any
part of such offer by giving written notice to the Selling Holder, specifying
the number of whole shares to be purchased, within thirty (30) days after SSI's
receipt of the Selling Holder's Notice.
(d) Purchase by Other Participants. If SSI and its
assignees shall not have accepted such offer to purchase all such shares within
the time provided therefor in paragraph (c), the Selling Holder will forthwith
give notice thereof to the Other Participants. Such notice shall include a copy
of the Selling Holder's Notice, a statement of the number of shares so accepted
for purchase by SSI and its assignees, and an offer to sell the balance of the
shares referred to in such Selling Holder's Notice (the "Remaining Shares") to
the Other Participants on the terms and conditions referred to in paragraph (b)
of this Section. Such Other Participants may accept such offer by giving notice
in writing to such Selling Holder, specifying the number of whole shares to be
purchased. Any such notice of acceptance shall be given within thirty (30) days
after such Participant's receipt of the copy of the Selling Holder's Notice and
statement given pursuant to this paragraph. If more than one such Other
Participant elects to purchase any of such shares, each will have the right to
purchase that number of whole shares which bears the same ratio (treating
fractional amounts as the closest whole number) to the total
14
number of Remaining Shares as the number of shares of Capital Stock then held by
such Other Participant bears to the total number of shares held by the all
Participants who have elected to purchase any such shares. If any Participant's
notice of acceptance specifies a number of shares greater than the proportionate
amount which such Participant has the right to purchase hereunder, such
acceptance will be deemed to be reduced to the maximum number of whole shares
which such Participant may so purchase.
(e) Election to Purchase Less Than All Shares Offered
is Revocable By Selling Holder. If SSI, its assignees and the Other Participants
shall have given notices of election to purchase less than all the shares
offered for sale by a Selling Holder's Notice, the Selling Holder's offer to
sell such shares to SSI and such Other Participants pursuant to his Section may
be revoked by such Selling Holder within ten (10) days after the expiration of
the period specified in paragraph (d) of this Section.
(f) Selling Holder May Transfer Unaccepted Shares. If
all such shares shall not have been sold to one or more of SSI, its assignees
and the Other Participants pursuant to the foregoing provisions of this Section,
then the Selling Holder may sell or otherwise dispose of such shares to the
proposed transferee on the terms and conditions specified in the Selling
Holder's Notice within a period of thirty (30) days following the expiration of
the time during which SSI and the Other Participants were entitled to accept the
offer to purchase any such shares. If such shares shall not be so sold or
otherwise disposed of by the Selling Holder, such shares will again be subject
to the restrictions of this Agreement.
15
5.2 Permitted Transfers. The following transfers of shares of
Capital Stock may be made by a Participant without compliance with Section 5.1;
provided that in the case of a transfer provided for in paragraph (a) of this
Section, such shares shall continue to be subject, with respect to any further
transfer by the transferee thereof, to the restrictions set forth in this
Article, and each such transferee, as a condition to the registration by SSI of
the transfer of such shares, will deliver to SSI a written undertaking to be
bound by the provisions of this Article. Each transferee of shares pursuant to a
transaction permitted by this Section is sometimes herein referred to as a
"Permitted Transferee of Capital Stock."
(a) Successors and Affiliates of the TFX Participant.
Any transfer to (i) any Affiliate of the TFX Participant or (ii) any successor
(by merger, sale or otherwise) to all or any substantial part of the business of
the TFX Participant or any Affiliate thereof
(b) Acquisition of Substantially All Shares. A
transfer to a person pursuant to an offer to acquire all outstanding shares of
Capital Stock on substantially the same terms, which offer shall have been
approved by the Participants holding at least 51% of all shares of Capital Stock
then held by Participants.
(c) Public Offering. Any sale and transfer of shares
of Capital Stock pursuant to an effective registration statement filed by SSI
under the Securities Act of 1933.
16
5.3 SSI's Option to Purchase Shares in Certain Events.
(a) Upon the occurrence of any of the following
events (an "Option Event") affecting or relating to a Restricted Holder or the
shares of Capital Stock held by a Restricted Holder, SSI shall have the option
to purchase all (but not less than all) of the shares of Capital Stock held by
such Participant at such time:
(i) a Restricted Holder shall purport to
transfer any shares of Capital Stock
held by such Restricted Holder in
violation of the provisions of
Section 5.1;
(ii) any shares of Capital Stock held by
a Restricted Holder shall be
attached, levied upon or executed
against in connection with the
enforcement of any lien, judgment or
encumbrance or otherwise be
transferred by operation of law; or
(iii) an order for relief against a
Restricted Holder shall be entered
in an involuntary case under the
United States Bankruptcy Code, or a
Restricted Holder shall be
adjudicated a bankrupt or insolvent,
or an order shall be entered
appointing a receiver or trustee for
such Restricted Holder's property or
approving a petition seeking
reorganization or other similar
relief under the bankruptcy or other
similar laws of the United States or
any state or any other jurisdiction,
or a Restricted Holder shall file a
petition, answer or other document
seeking or consenting to any of the
foregoing or otherwise seeking to
take advantage of any debtor's act.
17
(b) Such option may be exercised by SSI (or any
assignee of SSI) at any time within ninety (90) days after the date SSI shall
have received written notice that an Option Event has occurred.
5.4 SSI May Assign its Rights to Purchase Shares. SSI may,
upon due authorization by the Board of Directors, assign to one or more persons
(each of whom then is, or upon acquisition of any shares of Capital Stock shall
become, a party to this Agreement) all or any part of SSI's right to purchase
any shares of Capital Stock pursuant to the option provided for in Section 5.3
hereof.
5.5 Purchase Price. The purchase price of the shares of a
Restricted Holder purchased by exercise of the option under Section 5.3 will be
the Value thereof determined pursuant to this Section. The Participants may at
any time and from time to time agree in writing upon the "Value" of each share,
which writing shall be signed by each Participant and attached to this
Agreement, shall stipulate the period of time during which such Value shall
remain effective, and may contain any other limiting terms and conditions as the
Participants may agree. In the absence of an effective written agreement, the
"Value" of each such share will be the amount, determined pursuant to the
procedure provided for in the balance of this Section, which would be
distributed to such Restricted Holder in respect of such shares if (i) all of
the assets and business of SSI were sold on the date when SSI exercises its
option under Section 5.3 (the "Determination Date") at such reasonable price as
might be paid by a willing buyer thereof who assumed all of SSI's obligations
and liabilities and (ii) the net proceeds of such sale, after deducting taxes
18
payable by SSI and SSI's expenses of such sale and the windingup of its
business, were distributed to the stockholders of SSI as liquidating
distributions. If SSI (or its assignee) and such Restricted Shareholder shall
not have agreed in writing on the Value of the shares, within 60 days after the
Determination Date, such parties will endeavor to agree upon an appraiser whose
determination of Value shall be final. If such parties are unable to agree upon
such an appraiser within 90 days after the Determination Date, each such party
will designate a qualified appraiser of recognized standing in the United
States, and the Value of such shares will be the mean of the amounts thereof
determined by such appraisers. If such Restricted Holder fails to appoint such a
qualified appraiser, the Value will be the amount determined by the appraiser
appointed by SSI.
5.6 Transfers in Violation of this Agreement. SSI shall not
register any transfer of a share of Capital Stock made in violation of this
Agreement.
5.7 Failure to Offer or Transfer Shares. If, upon the exercise
of the option provided for in Section 5.3, any person holding shares of Capital
Stock subject to purchase hereunder does not assign and transfer such shares to
the purchaser thereof upon tender of the purchase price therefor, such tender
will result in an immediate assignment and transfer of such shares to such
purchaser. Upon receipt of notice thereof, SSI will mark its records to indicate
that the certificate or certificates for such shares are canceled and will issue
new certificates therefor to such purchaser. Each Participant and Permitted
Transferee hereby appoints irrevocably the Secretary of SSI from time to time in
office the attorney for such person to make
19
assignments and transfers on SSI's books on behalf of such person in accordance
with the foregoing.
5.8 Legends on Share Certificates. All certificates
representing shares of Capital Stock at any time held by a Participant will bear
thereon a legend in substantially the following form:
"The shares represented by this certificate may not
be transferred except in compliance with a certain
agreement among the issuer hereof and certain of its
shareholders, dated as of May 16, 1997."
6. Shares Acquired for Investment. Each Participant represents that it
is acquiring the shares of Capital Stock to be acquired by it pursuant hereto
for investment only and without any view to the distribution thereof.
7. Assignment.
7.1 Prohibited Assignment. Except for Permitted Transfers, no
Participant may assign (by conveyance, merger, operation of law or otherwise)
any of its rights or interests in this Agreement.
20
7.2 Permitted Transfer. A "Permitted Transfer" is any of the
following:
(a) A transfer by any Participant of any of such
Participant's interest hereunder or in SSI to a person who is at the time a
Participant.
(b) A transfer by any Participant of any shares of
Capital Stock permitted by or in compliance with Article 5.
(c) A transfer by any Participant of substantially
all of its other interests hereunder to a person to whom a Permitted Transfer
referred to in paragraph (b) of this Section is made.
8. Joinder by SSI. SSI will join in this Agreement as a party by
executing a counterpart hereof. Thereafter SSI will be bound by the
restrictions, and be entitled to the benefits, of this Agreement.
9. Public Announcements. Without the prior written consent of the
other Participants, which consent will not be unreasonably withheld, no
Participant will make any public announcement including, but not limited to, any
press release concerning the existence or terms of this Agreement, any other
agreement or instrument executed pursuant hereto, or the transactions
contemplated hereby and thereby.
21
10. Governing Law; Submission to Jurisdiction of Pennsylvania. This
Agreement will be governed by and construed in accordance with the internal
substantive laws of the Commonwealth of Pennsylvania without giving effect to
conflicts of laws provisions. For the purpose of any suit, action or proceeding
arising out of or relating to this Agreement, each Participant and SSI hereby
irrevocably consents and submits to the jurisdiction and venue of any of the
courts of the Commonwealth of Pennsylvania or of any Federal Court located in
Pennsylvania including, without limitation, the Court of Common Pleas of
Philadelphia County and the United States District Court for the Eastern
District of Pennsylvania. Each Participant and SSI hereby irrevocably agrees to
service of process by certified mail, return receipt requested, postage prepaid,
to their respective addresses set forth in Section 11 of this Agreement. Each
Participant and SSI irrevocably waives any objection which any of them may now
or hereafter have to the laying of the venue of any such suit action or
proceeding brought in any such court and any claim that such suit, action, or
proceeding brought in such a court has been brought in an inconvenient forum and
agrees that service of process in accordance with this Article shall be deemed
in every respect effective and valid personal service of process upon such
party.
11. Notices. All notices, consents and other communications required
or permitted hereunder or in connection herewith or the transactions
contemplated hereby shall be in writing and shall be deemed to have been duly
given if delivered or sent by receipt verified telefax (or any similar means of
electronic communication) to a party at the following addresses or to such other
address as such party may hereafter specify by notice:
22
If to TFX or SSI
(before it shall establish its office pursuant to Section 2.4)
to:
TFX Equities Incorporated
1787 Sentry Parkway West
Suite 220
Blue Bell, PA 19422
Attn: John J. Sickler
Telefax: (215) 6419465
With a required copy to:
Beckman and Associates
235 South 17th Street
Philadelphia, PA 19103
Attn: Bradley T. Beckman
Telefax: (215) 7323630
If to MSI to:
Medical Sterilization, Inc.
225 Underhill Boulevard
Syosset, NY 11791
Attn: D. Michael Deignan
Telefax: (516) 4968328
With a required copy to:
Murtagh, Cohen & Byrne
1100 Franklin Avenue
Garden City, New York 11530
Attn: Harvey Cohen
Telefax: (516) 7471355
12. Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
23
13. Amendment and Modification. No amendment or modification of or
supplement to this Agreement will be effective unless it is in writing and duly
executed by each party to be charged thereunder.
14. Entire Agreement. This Agreement and the documents and instruments
executed pursuant hereto contain the entire agreement among the parties hereto
with respect to the subject matter hereof and supersede any other prior
agreements or understandings between any of them relating thereto.
15. Headings and Titles. The headings and titles of articles,
sections, paragraphs and the like in this Agreement are inserted for convenience
of reference only, form no part of this Agreement and shall not be considered
for the purpose of interpreting or construing the provisions hereof.
16. Counterparts. This 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
TFX EQUITIES INCORPORATED
By: /S/ John J. Sickler
--------------------------
John J. Sickler, President
MEDICAL STERILIZATION, INC.
By: /S/ D. Michael Deignan
------------------------------
D. Michael Deignan, President
Joinder by:
SSI SURGICAL SERVICES, INC.
By: /S/ Scott Bartos
-----------------------------
Scott Bartos, President
25
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 1 to
the Registration Statement on Form SB2 of our report dated March 28, 1997 on our
audits of the financial statements of Medical Sterilization, Inc. We also
consent to the reference to our Firm under the caption "Experts".
Melville, New York
July 1, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 75,703 22,264
<SECURITIES> 0 0
<RECEIVABLES> 2,662,536 2,653,659
<ALLOWANCES> (253,481) (207,850)
<INVENTORY> 121,075 105,141
<CURRENT-ASSETS> 37,380 177,938
<PP&E> 12,702,769 13,086,790
<DEPRECIATION> (7,752,630) (7,959,313)
<TOTAL-ASSETS> 7,753,771 8,124,817
<CURRENT-LIABILITIES> 2,350,755 3,928,177
<BONDS> 0 0
0 0
1,667,952 1,698,840
<COMMON> 30,204 31,704
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 7,753,771 8,124,817
<SALES> 8,626,482 2,266,015
<TOTAL-REVENUES> 8,626,482 2,266,015
<CGS> 6,210,270 1,554,386
<TOTAL-COSTS> 6,210,270 2,070,553
<OTHER-EXPENSES> 102,709 0
<LOSS-PROVISION> 559,929 0
<INTEREST-EXPENSE> 307,351 103,462
<INCOME-PRETAX> (995,442) 92,000
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (995,442) 92,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,118,994) 61,112
<EPS-PRIMARY> (0.37) 0.01
<EPS-DILUTED> 0 0
</TABLE>