SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended March 31, 1996 (Fee Required)
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period ________to________
Commission File No. 0-13251
MEDICAL ACTION INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2421849
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
150 Motor Parkway, Hauppauge, New York 11788
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (516)231-4600
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Class which Registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ___ No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the registrant's Common Stock, $.001 par value,
held by nonaffiliates of the registrant as of June 1, 1996 was approximately
$12,760,000 based on the closing price on that date on the NASDAQ-National
Market System. As of June 1, 1996, registrant had outstanding 8,199,789 shares
of Common Stock.
Parts of the following documents are incorporated by reference to Parts I, II,
III and IV of this Form 10-K Report: (1) Proxy Statement for registrant's 1996
Annual Meeting of Stockholders and (2) registrant's Annual Report to
Stockholders for the fiscal year ended March 31, 1996.
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PART I
ITEM ONE - BUSINESS
Medical Action Industries Inc. (the "Company" or "Medical Action")
develops, manufactures, markets and distributes a variety of disposable surgical
related products. Medical Action is a leading manufacturer and distributor of
sterile disposable laparotomy sponges and operating room towels in the United
States. Laparotomy sponges and operating room towels, the Company's core
business, are produced from cotton and used for a multitude of purposes during
operating room procedures. To compliment these products, Medical Action
introduced a line of gauze sponges, gauze fluffs, dry burn dressings and
non-adherent gauze dressings. Gauze sponges and/or fluffs are used in all health
care facilities including hospitals, health maintenance organizations, dental
facilities and veterinary centers. Gauze fluffs are pre-folded gauze squares
used for compression in soft tissue surgery. Dry burn dressings are composed of
multiple layers of folded gauze that are typically customized for hospitals as
to size, weave, folds, stitching and packaging. Non-adherent dressings reduce
sticking and skin removal during dressing changes, thereby alleviating trauma
and pain to the wound site. The Company introduced during fiscal 1995 a line of
specialty sponges, including eye spears, dissecting, stick and tonsil sponges,
all of which are used in a variety of surgical procedures.
In August 1994, the Company acquired the disposable surgical products
business of QuanTech, Inc. in consideration of the assumption of specified
liabilities and the issuance of 453,000 unregistered shares of Medical Action
Common Stock. Up to an additional 250,000 unregistered shares of Medical Action
Common Stock may be issued, provided that the continued operations of QuanTech
generate a minimum of $1,756,000 of gross margin profit during a consecutive
twelve month period through July 1996. Management does not believe that such
additional shares will be issued.
The acquired QuanTech products include a proprietary surgical light
handle cover, uniquely designed and patented, which is used as a sterile barrier
on surgical light handles in the operating room. QuanTech also produces and
markets needle counters, instrument pouches, magnetic instrument drapes, and
related products used primarily in the operating room environment.
In January 1996 the Company acquired certain assets relating to the
sterilization packaging, monitoring and contamination control products business
of Lawson Mardon Medical Products, Inc. ("Lawson Mardon" or "SBW"). The purchase
price for the acquired assets consisted of $25,000 in cash (which was paid at
closing) and a Promissory Note in the amount of $855,793, which is payable in
four (4) equal monthly installments commencing on March 1, 1996, subject,
however, to reduction depending on the actual collections by the Registrant of
the purchased accounts receivable. In addition, the Company agreed to purchase
approximately $527,000 of SBW inventory on a consignment basis through August 1,
1996 and is required to purchase substantially all remaining unsold inventory at
that time.
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The primary products acquired from Lawson Mardon include sterility
packaging, a line of sterilization indicators and integrators and such ancillary
products as infectious waste bags, laboratory specimen bags and sterility
maintenance covers. These products are used in hospital central supply,
operating rooms and in physicians' offices.
Management's growth strategy is to focus its resources on entering new
markets for its existing product lines, including alternate care, veterinary and
dental markets; accelerate the internal development of new products for its
existing markets and pursuit of acquisitions which include products that
complement existing product lines for utilization of the Company's extensive
sales and distribution channels; the introduction of its products into the
international marketplace; and to increase productivity by maximizing the
utilization of its existing facilities.
Through its existing direct sales force, manufacturers' representatives
and internal sales department, the Company's products are sold throughout the
United States and internationally. The Company intends to utilize these sales
channels to expand its product lines to include both surgical and non-surgical
products.
The products presently manufactured and/or marketed by the Company
include:
Disposable Laparotomy Sponges - Laparotomy sponges are designed
primarily for use during surgical procedures in hospitals and health facilities.
They are single use (disposable) and made of gauze and sold in varying sizes and
utilized for a multitude of purposes. Laparotomy sponges cover exposed internal
organs, isolating them from the part of the body being operated upon. They also
absorb blood and act as a buffer between medical instruments and the skin,
thereby reducing trauma to skin tissue caused by the medical instrument.
Laparotomy sponges are sold in sterile packaging or as a non-sterile component
to be used with other health care companies' products, primarily surgical
pre-packaged procedure trays. The Company's laparotomy sponges contain an x-ray
detectable element and loop handle in order to facilitate easy counting and
identification in the operating room. For the fiscal years ended March 31, 1996,
1995 and 1994, laparotomy sponges accounted for 48%, 44% and 53%, respectively,
of the Company's total sales.
Absorbent Operating Room Towels - In January 1986, the Company
introduced ACTI-SORB(Trademark), a line of cotton absorbent operating room
towels, which are used during surgery for drying hands, rolled up for propping
instruments, on back tables and mayo stands for absorbing fluids, around the
incision site for absorbing blood and to allow the surgeon to clip tubing and
instruments close to the surgical site during the surgical procedure. Operating
room towels are sold in sterile packaging for single (disposable) use and as a
non-sterile component to be used with other health care companies' products,
primarily surgical pre-packaged procedure trays. For the fiscal years ended
March 31, 1996, 1995 and 1994, operating room towels accounted for 32%, 37% and
32%, respectively, of the Company's total sales.
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Gauze Sponges - To round out its wound dressing line, the Company
developed a line of gauze sponges and gauze fluffs. The Company believes that
its brand recognition in the laparotomy sponge field will pave the way for its
entrance into the gauze sponge market. Gauze sponges are used in the operating
room as well as throughout the hospital. They are also used extensively
throughout the alternate care market, including physicians' offices, health
clinics, dentists' offices and in veterinary practices. The Company also
introduced gauze fluffs which are pre-folded gauze sponges used for compression
in soft tissue surgery.
Burn Dressings - As an extension of its product line, the Company
introduced dry burn and non-adherent gauze dressings. The dry burn dressing is
composed of multiple layers of folded gauze that are typically customized for
individual hospitals as to size, weave, folds, stitching and packaging. The
non-adherent dressings reduce sticking and skin removal during dressing changes,
thereby alleviating trauma and pain to the wound site.
Specialty Sponges - In fiscal 1995, the Company introduced a line of
specialty sponges as an extension to its laparotomy sponges. The Company's
specialty sponges are used invasively in a variety of surgical procedures and
are manufactured for a multitude of purposes and classified as follows:
(a) Dissecting Sponges - primarily utilized in surgical procedures
to separate tissue as opposed to cutting, thereby reducing bleeding and trauma
to the organ. The Company's dissecting sponges are produced in three specific
types of sponges.
(i) Peanut Sponge - a small, firm gauze sponge for dissecting
and delicate sponging. The peanut sponge is carefully folded
to encompass an x-ray element and is manufactured to allow the
surgeon to adjust firmness for specific application.
(ii) Kittner Dissector - a very firm, blunt dissector made of
ravel free abdominal tape, which is hand stitched to firmly
lock in an x-ray element and to ensure the sponge integrity.
(iii) Cherry Dissector - a round, soft dissector sponge
constructed from cotton for blunt dissection. A small hole
facilitates easy grasping with hemostatic forceps.
(b) Tonsil Sponges - a round, fiber filled gauze constructed with a
strong abdominal tape string sewn into the sponge to anchor the sponge
when used in hard to retrieve places.
(c) Stick Sponges - a round, fiber filled gauze sponge used for deep
sponging or prepping.
(d) Eye Spears - a cellulose fiber tip utilized during eye surgery,
constructed with a memory-free plastic handle in order to bend to any
angle the surgeon desires. The eye spear absorbs 10 times its weight in
fluid.
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Disposable Surgical Light Handle Covers - Light Shields(Trademark) - A
patented design assures a secure fit and acts as a sterile barrier on surgical
light handles in the operating room. Light shields(Trademark) are manufactured
of a heavy gauge flexible plastic for the optimum assurance of a sterile
barrier.
Needle Counters - Red plastic boxes manufactured from medical grade
materials designed to resist breakage and punctures. They are produced with a
variety of designs, including surgical grade magnets in order to facilitate
sharps disposal, foam blocks which adhere to most surfaces in an operating room
environment and foam strips with varying count capacity and designs.
Surgical Marking Pens - Specifically designed so that the pen barrel
fits comfortably in the surgeon's hand and is made with gentian violet color
ink. All pen barrels are embossed with a 5 cm. ruler and may also include a 15
cm. coated ruler and blank labels.
Convenience Kits - The Company offers its customers the ability to
purchase multiple products packaged with its needle counters. The Company has
the flexibility to package many different kits to individualize a hospital's
requirements.
Medical Pouches - Used to house instruments during the sterilization
process and maintain sterility of the instrument until it is needed. The pouches
are primarily used in hospital central supply, operating rooms and in
physicians' and dentists' offices as well as in any environment where sterile
instruments are needed. There are three different styles of pouches available -
self seal, heat seal and rolls. The self seal is already sealed on three sides
and includes a peel back adhesive strip on the bottom of the package, which when
folded over will seal the package. The second type is heat seal, which is also
sealed on three sides but needs a heat sealer to seal the fourth side. The
Company also markets a roll product, where the user could pull as long a pouch
as needed. This requires both ends to be sealed.
Infectious Waste Bags - Used to collect, store and transport
biohazardous and infectious waste. The bags come in a variety of sizes, and are
red with the international biohazard symbol clearly marked on the bag. The bags
are made of high quality resins with reinforced seals for puncture resistance
and to reduce the risk of leakage.
Laboratory Specimen Transport Bags - Used to collect and transport
laboratory specimens. The bag features a separate pouch which can be used for
accompanying paperwork. The pouch has a special seal that will ensure that the
paperwork does not get contaminated or contaminate the lab specimen.
Sterility Maintenance Covers - Used to cover sterile products and
protect against dust, moisture or any other contaminants that may render the
product non-sterile. They are used to package, store, and transport while
maintaining a dust-free environment for sterile packs. Sterility maintenance
covers come in a variety of sizes and are self seal like the sterilization
pouches. Sterility maintenance covers are clear so that you can view the
contents, are strong for protection, and tear in a linear fashion for easy
access to the product.
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Trademarks and Patents
The Company owns numerous trademarks. While it considers that in the
aggregate the trademarks are important in the operation of its business, it does
not consider that any of its trademarks, or any group of them, are of such
importance that termination would materially affect its business.
The Company has a United States Patent (No. 4976299) for its surgical
light handle cover which expires in 2007. Although there is no assurance that
other companies will not be successful in developing similar products without
violating the rights of the Company, management believes that the loss of this
patent could adversely affect the Company's ability to market this product.
Competition
There are many companies, both public and private, engaged in the
development and marketing of disposable sterile and non-sterile surgical
supplies, including laparotomy sponges. The Company is subject to various levels
of competition based upon performance, quality and pricing. The Company's major
competitors include large manufacturers, which have greater financial resources
than the Company. The competitors differ based upon the products being sold. In
the sale of sterile laparotomy sponges, where Kendall Healthcare Products
Company and Medline Industries, Inc. are major competitors, Medical Action's
sales represent a significant share of the domestic market. In June 1992 the
Company entered into a three-year agreement with Baxter for the purchase of
Medical Action disposable sterile laparotomy sponges. The agreement has been
extended through June 1997. The Company's primary competitors in the sale of
sterile operating room towels, in which the Company is a leading supplier, are
Baxter Surgical Products Division of Baxter Healthcare Corp., Medline
Industries, Inc. and DeRoyal, Inc. In the sale of medical pouches, where the
Company is one of the leading suppliers, the Company's primary competitors
include Tower Medical. In the sale of QuanTech products, where the Company's
portion of the market is relatively insignificant, the Company's primary
competitor is Devon Industries, Inc.
Effects of Health Care Reform
Proposed health care legislation, if enacted, could contain provisions
intended to reform the availability, delivery and financing of health care in
the United States. Such proposed legislative packages mandate universal coverage
for all legal U.S. residents and control over health care costs. While the
Company cannot predict whether any health care reform legislation will be
approved or what effect, if any, that such health care reform legislation will
have on the Company or its operations, the Company believes that based on the
Company's understanding of current proposals, health care legislation may have
some beneficial effects on its business by increasing the availability of health
care.
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Regulation
The manufacture and marketing of medical devices are regulated under
the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic Act as
administered by the Food and Drug Administration ("FDA"). The FDA considers the
Company's current products to be medical devices. The FDA has the authority to
determine the safety and effectiveness of all new medical devices introduced
into interstate commerce and to grant approval to applications to market such
products on a national basis.
If a new product is substantially equivalent (such term being used on
safety and intended use equivalence rather than indicating a similarity in
technology) to approved products that are commercially available, a "510(K)"
pre-market notification to the FDA is required before the product may be
commercially marketed. The FDA has ninety (90) days to respond to a pre- market
notification and, after satisfaction of all FDA comments, the Company can market
the product in the United States. All of the Company's products have been
approved to market under 510(K) notifications.
The Company believes that its proposed products are also considered
medical devices. However, there can be no assurance that the FDA will choose to
characterize future products as medical devices. Any such change in FDA
characterization would potentially involve a more lengthy procedure, including
detailed laboratory, clinical testing, and sampling activities.
Compliance with current Good Manufacturing Practices ("GMP")
regulations is necessary to receive FDA approval to market new products and to
continue to market current products. The Company's manufacturing, quality
control and quality assurance procedures and documentation are inspected and
evaluated periodically by the FDA.
Marketing and Distribution
The Company's products are presently marketed and sold throughout the
United States through a network of direct sales personnel and manufacturers'
representatives. There are approximately 20 manufacturers' representatives and
18 direct sales personnel throughout the United States engaged in the sales and
marketing of the Company's products. Sales are primarily made to distributors,
who maintain sufficient inventory to service customer requirements. The
Company's distribution network is comprised of hospital distributors, alternate
care distributors, veterinary distributors, dental distributors and industrial
safety distributors covering the entire United States and Canadian marketplace.
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Management believes that the continuing pressure to utilize low-cost,
disposable medical products has significantly expanded the use of custom
procedure trays, which contain the necessary items designed for use in specific
procedures by surgical teams. Many of the custom tray suppliers are vertically
integrating the packaging process by buying bulk, non-sterile operating room
towels, laparotomy sponges and other products manufactured by the Company to
place in these custom trays. The trays are then sterilized, saving valuable
nursing time and the costs associated with individual product packaging.
In addition to private and public hospitals and health facilities,
customers for the Company's products include group purchasing organizations and
investor-owned hospital chains. With the emergence of these cooperative buying
groups and chains as major purchasers of medical/surgical products, a
significant portion of the Company's sales are dependent upon its ability to
provide its products throughout a wide geographical area and to service
substantially all members of the group or chain. The Company's present
distributor-oriented marketing network has enabled it to become a selected
source for many of the cooperative buying groups and chains. For the fiscal year
ended March 31, 1996, no single customer accounted for more than 10% of the
Company's net sales, except for Owens & Minor, Inc., Baxter Healthcare Hospital
Supply Division and General Medical Corporation, which accounted for
approximately 23%, 21% and 10%, respectively, of total net sales. For the fiscal
year ended March 31, 1995, Baxter Healthcare Hospital Supply Division (19%), and
Owens and Minor, Inc. (19%) were the only customers that accounted for more than
10% of total net sales. The Company's ten largest customers accounted for
approximately 80% of its net sales in fiscal 1996.
The Company believes it has established an efficient system for
marketing its products throughout the United States, and intends to utilize
these existing sales methods and channels to market new products as they are
developed or acquired.
Research and Development
Product development costs charged to income were $291,000, $211,000 and
$328,000 for the fiscal years ended March 31, 1996, 1995 and 1994, respectively.
Employees
As of June 1, 1996, the Company had 170 full-time employees with 126 in
manufacturing and distribution, 27 in marketing and sales, and 17 in
administration. None of the Company's employees are represented by a labor
union. The Company believes that its employee relations are satisfactory.
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Raw Materials
The principal raw materials used by the Company are a four-ply mesh
gauze laparotomy sponge and cotton huck towel. Other materials and supplies used
by the Company include gauze, gauze sponges, injection molded and thermoformed
plastics, foam, medical grade magnets and a variety of packaging material. The
Company presently purchases its principal raw materials primarily from the
Peoples Republic of China. The Company is currently exploring alternate sources
of supply for those raw materials. The Company's operating room towels have been
classified as a non-medical device by the U.S. Department of Customs, and
therefore, are subject to import quota restrictions which could limit the
Company's future ability to bring them into the country.
Backlog
The Company does not believe that its backlog figures are necessarily
indicative of its business since most hospitals and health related facilities
order their products on a continuous basis and not pursuant to any contractual
arrangements. Since typical shipment times range from five to seven days, the
Company must maintain sufficient inventories of all products at all times.
Manufacturing
The Company currently purchases its laparotomy sponges, burn dressings
and operating room towels from the Peoples Republic of China, including two
joint venture facilities. During the past fiscal year, the Company also
purchased certain of these products, to a lesser extent, from Mexico and the
Dominican Republic. These joint ventures were entered into in fiscal 1990. Prior
to the formation of these joint ventures, the Company purchased its laparotomy
sponges and operating room towels from these factories. The joint venture
factories are located in Wu Jiang and Lin Hai, which are rural areas of China.
After these products are manufactured, they are shipped to the Company's
domestic manufacturing facilities located in Asheville, North Carolina, where
they are packaged and sterilized.
Upon completion of the acquisition of the disposable surgical products
business of QuanTech, Inc. in August 1994 and sterilization packaging business
of Lawson Mardon Medical Products, Inc. in January 1996, the operations of the
QuanTech and Lawson Mardon product lines were transferred to the Company's
Asheville, North Carolina facilities.
As a result of our efforts to develop a new protocol for sterilization
of certain of its cotton products, in November 1993 the Company developed a
decontamination cycle to its sterilization process. This decontamination
process, which utilizes gamma radiation, is conducted by independent outside
contract facilities prior to packaging and sterilization in Asheville, North
Carolina. The Company owns substantially all of its manufacturing and ethylene
oxide sterilization equipment.
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ITEM TWO - PROPERTIES
The Company occupies approximately 100,400 square feet of
manufacturing, general office and warehouse space at its facilities in North
Carolina and New York under real estate leases expiring through fiscal 1999,
with aggregate minimum annual rental commitments of approximately $502,200. The
Company also owns a 52,000 square foot manufacturing facility in Asheville,
North Carolina. Management believes that the Company's facilities are adequate
to meet its current needs and should continue to be adequate for the foreseeable
future. Set forth below is a summary of the facilities owned or leased by the
Company.
Location Primary Use Square Feet
Asheville, North Carolina manufacturing 52,000 (a)
Fletcher, North Carolina warehouse/distribution 70,000 (b)
Asheville, North Carolina manufacturing/warehouse 17,000 (c)
Farmingdale, New York warehouse 6,000 (d)
Hauppauge, New York executive offices 7,400 (e)
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(a) The principal manufacturing facility of the Company is located on
premises which the Company owns in Asheville, North Carolina. A
mortgage in the amount of approximately $997,000 was outstanding as of
March 31, 1996.
(b) The lease may be terminated by the Company or the landlord on nine (9)
months prior written notice. The current annual rental is $272,000.
(c) Premises are leased through January 31, 1997 at an annual rental of
$34,700.
(d) Premises are leased through March 31, 1997 at an annual rental of
$33,000.
(e) Premises are leased through February 28, 2001 at a current annual
rental of $162,500.
ITEM THREE - LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is
a party or to which any of their property is subject.
ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year.
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PART II
ITEM FIVE - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information under the captions "Selected Financial Data" and "Stock
Trading" on page 1 and the inside back cover, respectively, of the Company's
1996 Annual Report to Stockholders is incorporated herein by reference.
ITEM SIX - SELECTED FINANCIAL DATA
The information contained under the caption "Selected Financial Data"
on page 1 of the Company's 1996 Annual Report to Stockholders is incorporated
herein by reference.
ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information contained under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 5 and 6
of the Company's 1996 Annual Report to Stockholders is incorporated herein by
reference.
ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its
subsidiary, which appear on pages 7 through 15 of the Company's 1996 Annual
Report to Stockholders, and the report thereon of Ernst & Young LLP dated May
24, 1996, appearing on page 16 of such Annual Report, are incorporated herein by
reference.
ITEM NINE - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The information required by Part III is incorporated by reference to
the Company's definitive proxy statement in connection with its Annual Meeting
of Stockholders scheduled to be held in August 1996, to be filed with the
Securities and Exchange Commission within 120 days following the end of the
Company's fiscal year ended March 31, 1996.
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PART IV
ITEM FOURTEEN - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Medical Action
Industries Inc. and subsidiary, included in the annual report of the Company to
its stockholders for the year ended March 31, 1996, are incorporated by
reference in Item 8:
Consolidated Balance Sheets at March 31, 1996 and 1995
Consolidated Statements of Operations
for the Years Ended March 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders'
Equity for the Years Ended March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows
for the Years Ended March 31, 1996, 1995 and 1994
Notes to Consolidated Financial
Statements
The following consolidated financial statement schedule of Medical
Action Industries Inc. and subsidiary is included in Item 14(d):
II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
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(3) Exhibits:
Exhibit No.
2.1 Agreement and Plan of Reorganization dated as of August 12,
1994 among Registrant, QuanTech Acquisition Corp. and
QuanTech, Inc. (Exhibit 2.1 to the Company's Annual Report on
Form 10-K for the year ended March 31, 1995).
2.2 Purchase Agreement dated as of January 30, 1996 among
Registrant, SBW Acquisition Corp., Lawson Mardon Medical
Products, Inc. and Lawson Mardon Medical Products, a trading
division of Lawson Mardon Packaging UK Ltd. (Exhibit 2 to the
Company's Current Report on Form 8-K dated February 6, 1996).
3.1 Certificate of Incorporation, as amended (Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended March
31, 1994).
3.2 By-Laws, as amended (Exhibit 3(b) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1988).
10.1 Incentive Stock Option Plan, as amended (Exhibit 10(a) to the
Company's Annual Report on Form 10-K for the year ended March
31, 1988).
10.2 Restricted Management Stock Bonus Plan, as amended (Exhibit
10(b) to the Company's Annual Report on Form 10-K for the year
ended March 31, 1988).
10.3 1989 Non-Qualified Stock Option Plan, as amended (Exhibit 10.4
to the Company's Annual Report on Form 10-K for the year ended
March 31, 1990).
10.4 1994 Stock Incentive Plan (Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended March 31, 1995).
10.5 Employment Agreement dated as of February 1, 1993 between the
Registrant and Paul D. Meringola (Exhibit 10.4 to the
Company's Annual Report on Form 10- K for the year ended March
31, 1993).
10.6 Modification Agreement dated as of February 5, 1996 between
the Registrant and Paul D. Meringola (Exhibit 10 to the
Company's Current Report on Form 8-K dated February 7, 1996).
10.7 Joint Venture Agreement between the Registrant and Wujiang
Medical & Health Articles Factory dated March 29, 1989
(Exhibit 10(b) to the Company's Annual Report on Form 10-K for
the year ended March 31, 1989).
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10.8* Third Amended and Restated Revolving Credit Note and
Agreement between the Registrant and a lending
institution dated as of October 24, 1995.
10.9 Change in Control Agreement dated as of June 1, 1995 between
the Registrant and certain executive officers (Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the year ended
March 31, 1995).
23* Consent of Ernst & Young LLP.
27* Financial Data Schedule
99* Additional Exhibit - Undertakings
(b) Reports on Form 8-K:
(a) Current Report on Form 8-K dated February 5, 1996 covering
Item 5 - Other Events, Item 6 - Resignation of Registrant's
Directors and Item 7 - Financial Statements, Pro Forma
Financial Information and Exhibits.
(b) Current Report on Form 8-K dated February 6, 1996 covering
Item 2 - Acquisition or Disposition of Assets and Item 7 -
Financial Statements, Pro Forma Financial Information and
Exhibits.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report.
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With the exception of the aforementioned information incorporated by
reference in this Annual Report on Form 10-K, the Company's Annual Report to
Stockholders for the year ended March 31, 1996 is not to be deemed "filed" as
part of this report.
*filed herewith
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 5th day of June,
1996.
MEDICAL ACTION INDUSTRIES INC.
By: s/ Paul D. Meringola
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Paul D. Meringola
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on June 5, 1996 by the following persons in
the capacities indicated:
s/ Joseph R. Meringola Chairman of the Board
- ------------------------ (Chief Executive Officer)
Joseph R. Meringola
s/ Paul D. Meringola President
- ------------------------ (Chief Operating Officer)
Paul D. Meringola and Director
s/ Richard G. Satin Vice President - Operations, General Counsel,
- ------------------------ Corporate Secretary and Director
Richard G. Satin
s/ Bernard Wengrover Director
- ------------------------
Bernard Wengrover
s/ Philip F. Corso Director
- ------------------------
Dr. Philip F. Corso
s/ Thomas A. Nicosia Director
- ------------------------
Dr. Thomas A. Nicosia
15
<PAGE>
S-1
Schedule II - Valuation and Qualifying Accounts
Medical Action Industries Inc. and Subsidiary
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
- --------------------------------------------------------------------------------------------------------------------------------
Additions Charged to Other
Balance at Charged to Other Changes- Balance at
Beginning Costs and Accounts- Add (Deduct) End
Description of Period Expenses Describe Describe of Period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts $110,953 $110,953
Year ended March 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts 110,953 110,953
Year ended March 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts 110,953 110,953
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED March 31, 1996
------------------
MEDICAL ACTION INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
EXHIBIT INDEX
<PAGE>
Exhibit No.
10.8 Third Amended and Restated Revolving Credit Note and Agreement
between the Registrant and a lending institution dated as of
October 24, 1995.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
99 Additional Exhibit - Undertakings
<PAGE>
EXHIBIT 10.8
EUROPEAN AMERICAN BANK
THIRD AMENDED AND RESTATED
REVOLVING CREDIT NOTE AND AGREEMENT
The within is an amendment and restatement of that certain
Amended and Restated Revolving Credit Note and Agreement in
the principal amount of $9,000,000 dated November 8, 1993 and
executed by the Borrower as hereinafter defined; said Note
having been previously amended and restated by a Second
Amended and Restated Revolving Credit Note and Agreement in
the principal amount of $10,000,000 dated August 9, 1994;
said Note having been previously modified by a Note
Modification Agreement dated February 10, 1995.
October 24, 1995
$10,000,000 Office Address: 730 Veterans Memorial Highway
Hauppauge, NY 11788
FOR VALUE RECEIVED, MEDICAL ACTION INDUSTRIES INC. (the "Borrower")
promises to pay to the order of EUROPEAN AMERICAN BANK (the "Bank") on or before
September 30, 19998 at the office of the Bank located at the place first above
stated or such other place as the holder hereof may from time to time designate
in writing, in lawful money of the United States of America in immediately
available funds, the principal sum of Ten Million ($10,000,000) Dollars (or such
lesser amount as may then be the aggregate unpaid principal balance of all loans
made by the Bank to the Borrower hereunder (each a "Loan" and collectively the
"Loans"). The Borrower also promises to pay interest (computed on the basis of a
360 day year for acutal days elapsed) at said office in like money on the unpaid
principal amount hereof from time to time outstanding from the date hereof until
maturity at the rate of one-quarter of one (0.25%) percent per annum in excess
of the Bank's Prime Rate (the rate stated by the Bank to be its prime rate as in
effect from time to time), which interest rate shall change when and as the
Prime Rate changes. Interest shall be payable monthly on the first day of each
month commencing on the first such day to occur after the date hereof and upon
payment in full of the unpaid principal amount hereof. If any payment of
principal or interest becomes due on a day on which banks in New York, New York
are required or permitted by law to remain closed, such payment may be made on
the next succeeding business day on which such banks are open, and such
extensions shall be included in computing interest in connection with such
payment. The Borrower further agrees that this Note shall bear interest after
any stated or accelerated maturity hereof at a rate of three (3%) percent per
annum in excess of the rate hereinbefore provided for, payable on demand. In no
event shall interest payable hereunder to be in excess of the maximum rate of
interest permitted under applicable law. The Borrower authorizes the Bank to
charge any of the Borrower's accounts for payments of principal and interest
hereunder.
<PAGE>
In consideration of the granting of the Loans evidenced by this Note,
the Borrower hereby agrees as follows:
1. Revolving Credit Commitment.
(a) The loan evidenced by this Note is available in one or more
advances (each a "Loan" and collectively the "Loans") during the period which
commences on the date hereof and ends on September 30, 1998 (the "Credit
Period") in an aggregate principal amount up to, but not exceeding at any time
outstanding, the said principal sum of Ten Million ($10,000,000) Dollars (the
"Commitment"). During the Credit Period, the Borrower may use the Commitment by
borrowing, prepaying in whole or in part and reborrowing, on a revolving basis,
all in accordance with the terms and conditions hereof; provided, however, that
each such Loan or prepayment be in an amount not less than One Hundred Thousand
($100,000) Dollars.
(b) The date and amount of each Loan and of each payment of
principal shall be maintained by the Bank in its books and records at the time
of each Loan or payment. All such notations shall be presumed to be correct and
the aggregate net unpaid amount of Loans set forth therein shall be presumed to
be the principal balance hereof, except for manifest error.
(c) Each request for a Loan shall be subject to the satisfaction of
the following conditions precedent:
(i) The Borrower shall have given the Bank notice of such
request, setting forth the amount of the Loan requested and the date thereof.
Such notice may be written or oral and shall be sufficient if received by 1 p.m.
of the date the Loan is requested. If the request is oral it shall be thereafter
confirmed in writing by the Borrower by telecopier to the Bank.
(ii) No Event of Default, or event which would be an Event
of Default but for the giving of notice or the passage of time or both, has
occurred and is continuing; and all of the representations and warranties made
by the Borrower in Section 4 hereof shall be true and correct on and as of the
date of such request as if made on and as of such date.
(d) The outstanding principal balance of the Loans shall at no time
exceed the lesser of the Commitment or the aggregate amount available under the
following Borrowing Base (as such amount shall fluctuate from time to time):
<PAGE>
(i) an amount equal to eighty (80%) percent of the
Borrower's "Eligible Accounts Receivable", which shall be defined as all
accounts of the Borrower, less: (w) uncollectible accounts; (x) accounts
remaining unpaid after a date which is ninety (90) days after invoice date (120
days in the case of accounts due from hospitals); (y) accounts of account
debtors of which at least twenty-five (25%) percent of the sum of such accounts
remain unpaid after a date which is 90 days after invoice date (120 days in the
case of accounts due from hospitals); and (z) maximum discounts, rebates,
credits and allowances which may be taken by or granted to account debtor; plus
(ii) an amount equal to fifty-five (55%) percent of the
purchase price of inventory acquired pursuant to commercial letters of credit
(each and "L/C" and collectively the "L/Cs") issued hereunder; plus
(iii) the lesser of $5,000,000 (or $6,500,000 during the
months of April through August, inclusive), or the amount equal to fifty-five
(55%) percent of the market value of "Eligible Inventory" on hand. Eligible
Inventory shall be defined as raw materials, inventory in transit, all finished
goods and shall not include work in process, packaging material and inventory
held outside the territorial jurisdiction of the United States of America.
(e) Sublimits under the Commitment are available to the Borrower
in an amount equal to the lesser of the Borrowing Base or $2,000,000 each for
documentary Letters of Credit ("L/C"), $400,000 for Standby L/C's and $4,000,000
for banker's acceptances (each an "Acceptance" and collectively the
"Acceptances"). For any advance made for an L/C, the Borrower shall pay
one-quarter of one (0.25%) percent upon each of the opening and negotiation of
the L/C. For each Standby L/C the Borrower shall pay a fee equal to one and
one-half (1.5%) percent per annum upon the issuance of the Standby L/C. For any
advance made for an Acceptance, the Borrower shall pay a fee equal to one and
one-half (1.5%) percent per annum upon the issuance of the Acceptance. Each L/C
shall have a maximum tenor of one (1) year, and shall be evidenced by the Bank's
standard letter of credit agreement. Each Standby L/C shall have a maximum tenor
of one hundred eighty (180) days, and shall be evidenced by the Bank's standard
standby letter of credit agreement. Acceptances have a maximum tenor of one
hundred eighty (180) days and shall be evidenced by the Bank's standard
acceptance credit agreement.
(f) Notwithstanding anything to the contrary herein contained, the
amount available for direct borrowings under the Commitment, as set forth in
Subsection 1(d) hereof, shall be reduced by any and all amounts outstanding
pursuant to the borrowing sublimit set forth in Subsection 1(e) hereof.
<PAGE>
2. Commitment Fee.
As additional compensation for providing the Loans described
herein, the Borrower agrees to pay the Bank a commitment fee for the Credit
Period at the rate of one-quarter of one (0.25%) percent per annum on the
average daily unused portion of the Commitment. Such commitment fee shall be
payable quarterly, on the first day of each December, February, May and August
during the Credit Period commencing December 1, 1995.
3. Conditions Precedent.
Prior to the first Loan, the Borrower shall satisfy the
following conditions precedent including delivery to the Bank of the following:
(a) A favorable written opinion, dated of even date herewith, of
the Borrower's counsel (which counsel must be satisfactory to the Bank) with
respect to the matters set forth in Section 4 hereof with the exception of
Subsection 4(g);
(b) A copy of the resolutions passed by the Borrower's Board of
Directors certified by its Secretary as being in full force and effect on the
date of this Agreement, authorizing the Loan herein provided for, the execution,
delivery and performance of this Note and any other instrument or agreement
required hereunder and containing a certificate of incumbency as to the person
or persons authorized to execute and deliver the same;
(c) Evidence that the Bank has been named as loss payee on the
insurance maintained by the Borrower on its inventory. Said insurance policy
shall be issued by a financially sound and reputable insurance company
reasonably satisfactory to the Bank;
(d) Copies of the Borrower's certificate of incorporation, and a
certificate of good standing dated not more than sixty (60) days prior to the
date hereof;
(e) The Bank shall have received at the closing the sum of Forty
Thousand ($40,000) Dollars which represents the facility fee due from the
Borrower.
4. Representations And Warranties. The Borrower hereby
represents and warrants to the Bank that:
(a) It is duly organized, validly existing and in good standing
under the laws of the state of its incorporation and is qualified to do
business and in good standing under the laws of each state where its failure to
so qualify would have a material adverse effect on its business, operations or
properties.
<PAGE>
(b) This Note has been duly authorized, executed and delivered
and constitutes the valid and legally binding obligation of the Borrower,
enforceable in accordance with its terms.
(c) The execution and delivery of this Note and performance
hereunder will not violate any provision of law.
(d) There are no actions or proceedings pending before any
court or governmental authority, bureau or agency with respect to or threatened
against or affecting the Borrower, or any Subsidiary, which if determined
adversely would have a material adverse effect on the business, the assets or
the financial condition of the Borrower or any Subsidiary. As used herein, the
term "Subsidiary" or "Subsidiaries" means any corproation or corporations of
which the Borrower alone, or the Borrower and/or one or more of its
Subsidiaries, owns, directly or indirectly, at least a majority of the
securities having ordinary voting power for the election of directors.
(e) Neither the Borrower nor any Subsidiary is in default
under, or in violation of, any term of any agreement, ordinance, resolution,
decree, bond, note, indenture, or judgment to which it is a party or by which it
is bound, or by which any of the properties or assets owned by it or used in the
conduct of its business is affected, which default or violation may have a
material adverse effect on the business, the assets or the financial condition
of the Borrower or any Subsidiary. The operations of the Borrower and each
Subsidiary comply in all respects with all laws, ordinances and regulations
applicable to them.
(f) Neither the Borrower nor any Subsidiary is a party to or
bound by, nor are any of the properties or assets owned by it or used in the
conduct of its business affected by, any agreement, ordinance, resolution,
decree, bond, note, indenture, order or judgment, or subject to any charter or
other corporate restriction, which materially and adversely affects the business
or financial condition of the Borrower or any Subsidiary.
(g) All balance sheets, profit and loss statements and other
financial information heretofore furnished to the Bank are true, correct and
complete and present fairly the financial condition of the Borrower and its
Subsidiaries as at the dates thereof and for the periods covered thereby,
including contingent liabilities of every kind, which financial condition has
not materially adversely changed since the date of the most recently dated
balance sheets of the Borrower heretofore furnished to the Bank.
(h) No part of the proceeds of the Loans will be used directly
or indirectly for the purpose of purchasing or carrying, or for payments in full
or in part of indebtedness which was incurred for the purpose of purchasing or
carrying, any margin stock as such term is defined in Sec. 221.2 of Regulation U
of the Board of governors of the Federal Reserve System.
<PAGE>
(i) The Borrower and its Subsidiaries are in compliance in all
material respects with the Employee Retirement Income Security Act of 1974
("ERISA") and all rules and regulations thereunder. Neither the Borrower nor any
of its Subsidiaries has any unfunded vested liability under any type of plan
described in Section 4021(a) of ERISA ("Plan") and no reportable event, as set
forth in section 4043(b) of ERISA, has occurred or is continuing with respect to
any Plan.
5. Financial Statements. The Borrower shall deliver to the Bank:
(a) Annually, as soon as available, but in any event within
120 days after the last day of each of its fiscal years, the consolidated and
consolidating balance sheet of the Borrower, as at such last day of the fiscal
year, and consolidated and consolidating statements of income, retained earnings
and cash flows for such fiscal year, prepared in accordance with generally
accepted accounting principles consistently applied, in reasonable detail. The
consolidated statements delivered pursuant to this Section 5(a) shall be
certified without qualification by a firm of independent certified public
accountants satisfactory to the Bank and the consolidating statements shall be
internally prepared by the Borrower.
(b) As soon as available, but in any event within 60 days
after the end of each of its fiscal quarters, the 10-Q report filed or to be
filed with the Securities and Exchange Commission, and the consolidated and
consolidating balance sheet of the Borrower as at the last day of such fiscal
quarter, and consolidated and consolidating statements of income, retained
earnings and cash flows for the portion of the fiscal year through such date,
all in reasonable detail, each such statement to be prepared in accordance with
generally accepted accounting principles consistently applied. The consolidated
statements and the consolidating statements referred to herein shall be
internally prepared by the Borrower.
(c) Promptly after a written request therefor, such other
financial data or information as the Bank may reasonably request from time to
time.
(d) At the same time as it delivers the financial statements
required under the provisions of Subsections 5(a) and 5(b), a certificate signed
by the president and principal accounting officer of the Borrower, to the effect
that no Event of Default hereunder or under any other agreement to which the
Borrower or any Subsidiary is a party or by which it is bound, or by which any
of its properties or assets may be affected, and no event which, with the giving
of notice or the lapse of time, or both, would constitute such an Event of
Default, has occurred.
6. Affirmative Covenants. The Borrower will, and with respect
to the agreements set forth in Subsections 6(a) through 6(f) hereof, will cause
each Subsidiary to:
<PAGE>
(a) with respect to its properties, assets and business,
maintain insurance against loss or damage, to the extent that property, assets
and businesses of similar character are usually so insured by companies
similarly situated and operating like properties, assets or businesses with
responsible insurance companies satisfactory to the Bank; such insurance to be
endorsed to name the Bank as loss payee;
(b) duly pay and discharge all taxes or other claims which
might become a lien upon any of its property except to the extent that such
items are being in good faith appropriately contested;
(c) maintain, preserve and keep its properties in good repair,
working order and condition, and make all reasonable repairs, replacements,
additions, betterments and improvements thereto;
(d) conduct its business in substantially the same manner and in
substantially the same fields as such business is now carried on and conducted;
(e) comply with all statutes, rules and regulations and maintain
its corporate existence;
(f) permit the Bank to make or cause to be made, semi-annual
field audits of any books, records and papers of the Borrower at the Borrower's
sole cost and expense at times reasonably required by the Bank, and to permit
the Bank to make such other audits of its books, records and papers at the
Bank's expense at all such reasonable times and as often as the Bank may
require;
(g) use the proceeds of the Loans for the following purposes and
for no other purpose: To finance any inventory purchases by and accounts
receivable of the Borrower, and to refinance any amounts outstanding under an
existing line of credit provided to the Borrower from the Bank;
(h) deliver to the Bank, as soon as available, but in any
event within 60 days after the end of each of its fiscal quarters, a certificate
signed by the president and principal accounting officer, certifying the value
of the Borrower's Eligible Accounts Receivables and Inventory;
(i) deliver to the Bank, as soon as available, but in any
event within 15 days after the end of each calendar month, borrowing base
certificates, accounts receivable aging and inventory schedules all in form and
substance satisfactory to the Bank.
(j) maintain a minimum Capital Base ("Capital Base") (to be
equal to the sum of capital surplus, earned surplus and capital stock minus
deferred charges, intangibles, treasury stock, officer and employee loans
receivable, and joint venture investments and advances and assets held for
disposition) of not less than the following:
<PAGE>
Period Minimum Capital Base
March 31, 1995 through March 30, 1996 $ 8,200,000
March 31, 1996 through March 30, 1997 $ 8,650,000
March 31, 1997 through March 30, 1998 $ 9,500,000
March 31, 1998 through Maturity $10,250,000
(k) maintains a Current Ratio, the ratio of current assets to
current liabilities (current liabilities shall include all borrowings hereunder)
of not less than the following:
Period Minimum Current Ratio
March 31, 1995 through March 30, 1996 1.4:1
March 31, 1996 through March 30, 1997 1.4:1
March 31, 1997 through March 30, 1998 1.5:1
March 31, 1998 through Maturity 1.7:1
(l) maintain a minimum Working Capital, the excess of current
assets over current liabilities (current liabilities to include all borrowings
hereunder) of not less than the following:
Period Minimum Working Capital
March 31, 1995 through March 30, 1996 $ 5,500,000
March 31, 1996 through March 30, 1997 $ 5,500,000
March 31, 1997 through March 30, 1998 $ 6,500,000
March 31, 1998 through Maturity $ 7,500,000
(m) maintain a maximum ratio of total unsubordinated liabilities
("TUL") to Capital Base of not greater than the following:
Period Minimum TUL to Capital Base
March 31, 1995 through March 30, 1996 1.75:1
March 31, 1996 through March 30, 1997 1.6:1
March 31, 1997 through March 30, 1998 1.4:1
March 31, 1998 through Maturity 1.2:1
(n) maintain at each fiscal year end a ratio of Earnings Before
Interest and Taxes for each fiscal year to interest expenditure for such
fiscal year of not less than 1.25:1.
<PAGE>
(o) immediately give notice to the Bank that an Event of
Default has occurred or that an event which, with the giving of notice or lapse
of time, or both, would constitute an Event of Default, has occurred and
specifying the action which the Borrower has taken and proposes to take with
respect thereto.
7. Negative Covenants. The Borrower will not, and will not
permit any Subsidiary to:
(a) incur, or permit to exist, any indebtedness for borrowed
money, exclusive of borrowings hereunder and of any other loans made by the Bank
in its discretion to the Borrower or any Subsidiary, other than existing loans
for the purchase of equipment and existing indebtedness disclosed on the
Borrower's balance sheet as of 6/30/95, and future purchase money loans for the
purchase of equipment.
(b) enter into any merger or consolidation or liquidate, wind
up or dissolve itself or sell, transfer or lease or otherwise dispose of all or
any substantial part of its assets (other than sales in the ordinary course of
business) or acquire by purchase or otherwise the business or assets of, or
stock of, another corporation; except that any Subsidiary may merge into or
consolidate with any other Subsidiary which is wholly-owned by the Borrower, and
any Subsidiary which is wholly-owned by the borrower may merge with or
consolidate into the Borrower provided that the Borrower is the surviving
corporation;
(c) lend or advance money, credit or property to or invest in
(by capital contribution, loan, purchase or otherwise) any firm, corporation, or
other person other than existing loans made prior to March 31, 1992 or officer
loans in the maximum amount of Sixty Thousand ($60,000) Dollars per officer and
One Hundred Thousand ($100,000) Dollars in the aggregate, except investments in
United States Government obligations and certificates of deposit of any banking
institution with combined capital and surplus of at least Two Hundred Thousand
($200,000) Dollars;
(d) create, assume or permit to exist, any mortgage, pledge,
lien or encumbrance of or upon security interest in, any of its property or
assets now owned or hereafter acquired except (i) mortgages, liens, pledges and
security interests in favor of the Bank; (ii) other liens, charges and
encumbrances incidental to the conduct of its business or the ownership of its
property and assets which were not incurred in connection with the borrowing of
money or the obtaining of advances or credit and which do not materially impair
the use thereof in the operation of its business; and (iii) liens for taxes or
other governmental charges which are not delinquent or which are being contested
in good faith and for which a reserve shall have been established in accordance
with generally accepted accounting principles; (iv) mortgage liens existing as
of the date hereof;
<PAGE>
(e) assume, endorse, be or become liable for or guarantee the
obligations of any person except by the endorsement of negotiable instruments
for deposit or collection in the ordinary course of business;
(f) declare or pay any dividends on its capital stock (other
than dividends payable solely in shares of its own common stock), or purchase,
redeem, retire or otherwise acquire any of its capital stock at any time
outstanding, except that any Subsidiary wholly-owned by the Borrower may declare
any pay dividends to the Borrower;
(g) expend in excess of $750,000 per fiscal year in the aggregate
for the acquisition of fixed assets for the Borrower and its Subsidiaries.
(h) (i) terminate any Plan so as to result in any material
liability to The Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV or ERISA (the "PBGC"), (ii) engage in or permit any
person to engage in any "prohibited transaction" (as defined in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1954, as amended)
involving any Plan which would subject the Borrower to any material tax, penalty
or other liability, (iii) incur or suffer to exist any material "accumulated
funding deficiency" (as defined in Section 302 of ERISA), whether or not waived,
involving any Plan, or (iv) allow or suffer to exist any event or condition,
which presents a material risk of incurring a material liability to the PBGC by
reason of termination of any Plan.
8. Collateral Security. As collateral security for the payment
of any and all sums owing under this Note and all other obligations, direct or
contingent, joint, several or independent, of the Borrower and of any Subsidiary
and each endorser or guarantor hereof now or hereafter existing, due or to
become due to, or held, or to be held by, the Bank, whether created directly or
acquired by assignment or otherwise (all of such obligations, including this
Note, are hereinafter called the "Obligations"), the Borrower hereby grants to
the Bank a first priority lien on and security interest in all of the Borrower's
inventory and accounts receivable and any and all deposits or other sums at any
time credited by or due from the Bank to the Borrower, whether in regular or
special depository accounts or otherwise, and any and all monies, securities and
other property of the Borrower, and the proceeds thereof, now or hereafter held
or received by or in transit to the Bank from or for the Borrower, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, and any
such deposits, sums, monies, securities and other property, may at any time
after the occurrence of any Event of Default be set-off, appropriated and
applied by the Bank against any of the Obligations whether or not such
Obligations are then due or are secured by any collateral, or, if they are so
secured, whether or not such collateral held by the Bank is considered to be
adequate and with respect to all collateral security by the Bank shall have all
the rights and remedies available to it under the Uniform Commercial Code of New
York and other applicable law.
<PAGE>
9. Events of Default. If any one or more of the following
events ("Events of Default") shall occur, the entire unpaid balance of the
principal of and interest on the Obligations shall immediately become due and
payable:
(a) Failure to make any payment of principal or interest in respect
of any of the Obligations when due; or,
(b) Failure to observe any of the covenants in Sections 6 and 7
hereof; or,
(c) Failure by the Borrower to perform any other term, condition
or covenant of this Note or any other agreement, instrument or document
delivered pursuant hereto or in connection herewith or therewith, which shall
remain unremedied for a period of 15 days after notice thereof shall have been
given by the Bank to the Borrower; or,
(d) (i) Failure to perform any term, condition or covenant of any
bond, note, debenture, loan agreement, indenture, guaranty, trust agreement,
mortgage or other instrument or agreement in connection with the borrowing of
money or the obtaining of advances or credit to which the Borrower or any
Subsidiary is a party or by which it is bound, or by which any of its properties
or assets may be affected (a "Debt Instrument"), so that, as a result of any
such failure to perform (regardless of the satisfaction of any requirement for
the giving of appropriate notice thereof or the lapse of time), the indebtedness
included therein or secured or covered thereby may be declared due and payable
prior to the date on which such indebtedness would otherwise become due and
payable; or,
(ii) any event or condition referred to in any Debt
Instrument shall occur or fail to occur, so that, as a result thereof
(regardless of the satisfaction of any requirement for the giving of appropriate
notice thereof or the lapse of time), the indebtedness included therein or
secured or covered thereby may be declared due and payable prior to the date on
which such indebtedness would otherwise become due and payable; or,
(iii) any indebtedness included in any Debt Instrument or
secured or covered thereby is not paid when due; or
(e) Any representation or warranty made in writing to the Bank
in this Note or in connection with the making of the Loans evidenced hereby or
any certificate, statement or report made in compliance with this Note, shall
have been false in any material respect when made; or
<PAGE>
(f) An order for relief under the United States Bankruptcy code
as now or hereafter in effect, shall be entered against the Borrower or any
Subsidiary; or the Borrower or any Subsidiary shall become insolvent, generally
fail to pay its debts as they become due, make an assignment for the benefit of
creditors, file a petition or apply to any tribunal for the appointment of a
receiver or any trustee for its or a substantial part of its assets, or shall
commence any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution, or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or if there shall have been
filed any such petition or application, or any such proceeding shall have been
commenced against it, which remains undismissed for a period of thirty days or
more; or the Borrower or any Subsidiary or endorser or guarantor hereof by any
act or omission shall indicate its consent to, approval of or acquiescence in
any such petition, application or proceeding or the appointment of a receiver of
or any trustee for it or any substantial part of any of its properties, or shall
suffer any such receivership or trusteeship to continue undischarged for a
period of thirty days or more; or,
(g) Any judgment against the Borrower or any Subsidiary or any
attachment, levy or execution against any of its properties for any amount shall
remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a
period of sixty days or more; or,
(h) The Bank shall have determined, in its sole discretion, that
one or more conditions exist or events have occurred which may result in a
material adverse change in the business, properties or financial condition of
the Borrower.
10. Interest Adjustment. Notwithstanding anything to the contrary
contained in this Note, the rate of interest payable on this Note shall never
exceed the maximum rate of interest permitted under applicable law. If at any
time the rate of interest otherwise prescribed herein shall exceed such maximum
rate, and such prescribed rate is thereafter below such maximum rate, the
prescribed rate shall be increased to the maximum rate for such period of time
as is required so that the total amount of interest received by the Bank is that
which would have been received by the Bank, except for the operation of the
first sentence of this Section 10.
11. Miscellaneous.
(a) All agreements, representations and warranties made herein
shall survive the delivery of this Note. The Borrower waives trial by jury,
set-off and counterclaim of any nature or description other than mandatory
counterclaims in any litigation in any court with respect to, in connection
with, or arising out of, this Note or any instrument or document delivered
pursuant hereto or the validity, protection, interpretation, collection or
enforcement hereof.
<PAGE>
(b) No modification or waiver of or with respect to any
provision of this Note, or consent to any departure by the Borrower from any of
the terms or conditions hereof, shall in any event be effective unless it shall
be in writing and signed by the Bank, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on the borrower in any case shall, of itself, entitle it to
any other or future notice or demand in similar or other circumstances.
(c) Each and every right granted to the Bank hereunder or
under any other document delivered hereunder or in connection herewith, or
allowed it by law or equity, shall be cumulative and may be exercised from time
to time. No failure on the part of the Bank or the holder of this Note to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor shall any single or partial exercise of any right preclude any
other future exercise thereof or the exercise of any other right.
(d) In the event that this Note is placed in the hands of an
attorney for collection by reason of any default hereunder, the Borrower agrees
to pay reasonable attorney's fees so incurred. The Borrower promises to pay all
expenses of any nature as soon as incurred whether in or out of court and
whether incurred before or after this Note shall become due at its maturity date
or otherwise and costs which the Bank may deem necessary or proper in connection
with the satisfaction of the indebtedness or the administration, supervision,
preservation, protection (including but not limited to maintenance of adequate
insurance) of or the realization upon the collateral.
(e) The Borrower hereby waives presentment, demand for
payment, protest, notice of protest, notice of dishonor, and any or all other
notices or demands except as otherwise expressly provided for herein.
(f) All accounting terms not otherwise defined in this Note
shall have the meanings ascribed thereto under generally accepted accounting
principles.
12. Notices. All notices, requests and other communications
pursuant to this Note shall be in writing, either by letter (delivered by hand
or sent by certified mail, return receipt requested) or overnight mail,
addressed as follows:
(a) If to the Borrower:
Medical Action Industries Inc.
150 Motor Parkway
Hauppauge, New York 11788
Attn: Richard G. Satin
Vice President and General Counsel
<PAGE>
and,
(b) If to the Bank:
European American Bank
730 Veterans Memorial Highway
Hauppauge, New York 11788
Attn: Richard Romano
Vice President
Any notice, request or communication hereunder shall be deemed to have been
given when deposited in the mails, postage prepaid, or in the case of
telegraphic notice, when delivered to the telegraph company, addressed as
aforesaid. Any party may change the person or address to whom or which the
notices are to be given hereunder, but any such notice shall be effective only
when actually received by the party to whom it is addressed.
13. Governing Law. This Note and the rights and obligations of
the parties shall be construed and interpreted in accordance with the laws of
the State of New York and the Borrower consents to the jurisdiction of the
courts of New York in any action brought to enforce any rights of the Bank under
this Note.
MEDICAL ACTION INDUSTRIES INC.
By: s/ Paul D. Meringola
-----------------------------
Paul D. Meringola, President
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Medical Action Industries Inc. of our report dated May 24, 1996, included in
the 1996 Annual Report to Stockholders of Medical Action Industries Inc.
Our audits also include the financial statement schedule of Medical Action
Industries Inc. listed in item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-11046) pertaining to the Incentive Stock Option Plan and
Restricted Management Stock Bonus Plan and Registration Statements (Form S-8 No.
33-41765 and Form S-8 No. 33-66038) pertaining to the Non-Qualified Stock Option
Plan of Medical Action Industries Inc. of our report dated May 24, 1996, with
respect to the consolidated financial statements incorporated herein by
reference and our report included in the preceding paragraph with respect to the
financial statement schedule included in this Annual Report (Form 10-K) of
Medical Action Industries Inc.
Melville, New York
June 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 504
<SECURITIES> 0
<RECEIVABLES> 6,122
<ALLOWANCES> 111
<INVENTORY> 10,579
<CURRENT-ASSETS> 17,702
<PP&E> 7,605
<DEPRECIATION> 3,971
<TOTAL-ASSETS> 24,390
<CURRENT-LIABILITIES> 7,367
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 12,265
<TOTAL-LIABILITY-AND-EQUITY> 24,390
<SALES> 38,846
<TOTAL-REVENUES> 38,846
<CGS> 30,689
<TOTAL-COSTS> 36,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 865
<INCOME-PRETAX> 1,204
<INCOME-TAX> 493
<INCOME-CONTINUING> 711
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 711
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
<PAGE>
EXHIBIT 99
The following undertakings are incorporated into the Company's Registration
Statements on Form S-8 (Registration Nos. 33-11046, 33-41765 and 33-66038).
(a) The undersigned registrant hereby undertakes:
(1) 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 fact 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;
(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;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) 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 thereof.
(e) 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 offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
<PAGE>
(i) 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 foregoing provisions, 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.
