<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 28, 1996 Commission File
Number: 0-18671
NUTRAMAX PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 061200464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Blackburn Drive, Gloucester, Massachusetts 01930
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 283-1800
------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The aggregate market value of the registrant's voting stock held by
nonaffiliates (based upon the closing price of $9.875 on November 14, 1996) was
approximately $35,622,000. As of November 14, 1996 , there were 8,689,272 shares
of Common Stock, par value $.001 per share, outstanding.
Indicate by check mark if disclosure of delinquent filer 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
---
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held in 1996 are incorporated by reference into Part III. The Index to Exhibits
begins on page 29.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
NutraMax Products, Inc. (the "Company") was incorporated on April 20, 1987 under
the laws of the State of Delaware and is the successor by merger in July 1990 to
Aid-Pack, Inc. ("Aid-Pack"), formerly a wholly-owned subsidiary of MEDIQ
Incorporated ("MEDIQ").
The Company is a private label health and personal care products company. The
Company's strategy is to offer a line of quality products equivalent to national
brands at lower cost to consumers while providing greater profit potential to
retailers than the national brands. National brands dominate health and personal
care product categories. However, in recent years private label products have
captured increased market share by appealing to value conscious consumers
seeking lower cost products of comparable quality. The Company received the 1993
Retail Excellence Award as the private label company of the year, with the
selection based on a survey conducted by a major trade journal.
PRODUCTS
Feminine Needs - The Company manufactures disposable douches for sale under its
value brands Sweet*n Fresh(R) and Sweet Love(R) and on a private label basis.
In February 1996, the Company acquired certain assets of the Hospital Specialty
Company Division of the Tranzonic Companies related to the manufacture and sale
of feminine hygiene products. Sales of douche products in fiscal 1996 were 23%
of net sales, as compared to 24% in 1995 and 25% in 1994. The Company also
markets private label feminine yeast infection medication products containing
the active ingredient clotrimazole.
Cough/Cold Products - The Company is the leading manufacturer and distributor of
private label cough drops and throat lozenges, and also manufactures cough drops
on a contract basis. The Company offers an extensive line of solid dosage
cough/cold products, including cough drops, throat lozenges, sugar-free
products, vitamin C drops and liquid center items. Sales of cough/cold products
represented 31%, 34% and 33% of net sales in fiscal 1996, 1995 and 1994
respectively.
Baby Care - The Company manufactures disposable baby bottle liners on a private
label basis and under its value brand Fresh/*/n Easy(R). The Company
manufactures pediatric electrolyte oral maintenance solution, a product which is
used to replace minerals lost by children who suffer from diarrhea and vomiting,
for sale under its value brand NutraMax Baby Care Pediatric Electrolyte and on a
private label basis. During fiscal years 1996, 1995 and 1994, sales of baby care
products represented 15%, 19% and 21% of net sales respectively.
Ophthalmics - The Company manufacturers private label over-the-counter and
prescription ophthalmic products for retail and industrial customers, including
over-the-counter contact lens solutions, artificial tears and eye drops, as well
as generic prescription eye care products. Sales of ophthalmic products
represented 9%, 10% and 11% of net sales in fiscal 1996, 1995 and 1994
respectively.
Adult Nutrition Products - In March 1995, the Company introduced a new line of
adult high calorie liquid nutrition products which are sold under its value
brand NutraMax Plus High Calorie Liquid Nutrition and on a private label basis.
During fiscal 1996, the Company introduced a lower calorie version of this same
product sold under its value brand name NutraMax Complete Liquid Nutrition.
These products are the Company's entry into the growing adult nutrition
category. The products are manufactured by a third party and marketed by the
Company through its distribution channels. During fiscal 1996 and 1995 sales of
adult liquid nutrition products represented 5% and 3% of net sales respectively.
Personal Care - The Company manufactures ready-to-use disposable enemas for sale
under its value brand Pure & Gentle, on a private label basis and for the
institutional market. During fiscal 1996, 1995 and 1994 sales of Personal Care
products represented 5%, 6% and 5% of net sales respectively.
1
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Oral Care - In October 1995, the Company acquired the assets and assumed certain
liabilities of Mi-Lor Corporation, Professional Brushes, Inc. and Codent Dental
Products, Inc., companies engaged in the manufacturing and marketing of
toothbrushes, dental floss and related products for the store brand market. The
acquisition is the Company's entry into the private label oral care segment.
These products are manufactured in an 88,000 square foot manufacturing facility
located in Florence, Massachusetts which was acquired by the Company as part of
the transaction. Oral care products are being marketed by the Company through
its existing distribution channels and represented 9% of net sales for fiscal
1996.
Other Products - The Company's other products consist principally of a patented
line of sterile, prefilled, disposable dilution bottles used in laboratory
testing of water, waste water, foods, drug products, pharmaceuticals and
cosmetics. Sales of these other products totalled 3%, 4% and 5% of net sales in
fiscal 1996,1995 and 1994 respectively.
NEW PRODUCT STRATEGY
The Company's growth strategy includes the acquisition and development of new
products, and the extension or modification of existing product lines to
correspond with national branded products and product variations. The Company
expects to add new product lines through internal development, acquisition and
joint venture or partnership agreements. The Company contemplates that product
line expansion will enable the Company to capitalize on its established
distribution channels and manufacturing and marketing expertise. New products
will most likely focus on consumer packaged goods, including health and personal
care products. The Company has added a multi-purpose 4 in 1 soft contact lens
solution to its ophthalmic product line with sales beginning October 1996 under
the Company's value brand Optopics Multi-purpose Solution and on a private label
basis. The product is filled by a third party and then labelled and packaged at
the Company's Fairton New Jersey facility and marketed through the Company's
distribution channels.
MARKETING AND DISTRIBUTION
The Company utilizes national brand marketing methods to meet the specific needs
of its customers. Such marketing methods include designing contemporary
packaging to improve point-of-purchase impact and increase consumer appeal. The
Company also uses price, display, packaging, bonus and multi-pack promotions to
increase sales and retailer support. Sales are made through the Company's sales
representatives and independent brokers.
CUSTOMERS
For fiscal years 1996, 1995 and 1994, Walmart Stores, Inc. accounted for 11%, 9%
and 8% of net sales respectively and American Home Products, Inc. accounted for
11%, 14% and 17% of net sales respectively. While the Company seeks to
continually expand its distribution and customer base, the loss of one or more
of its largest customers, if not replaced with other comparable business, could
have a material adverse effect on the Company's results of operations.
COMPETITION
The markets in which the Company competes are dominated by nationally advertised
brand name products marketed by established consumer packaged goods companies,
most of which have greater marketing, financial and human resources than the
Company. The Company also competes with several other private label
manufacturers and marketers. Competition for consumer health and personal care
products is based primarily on product reliability, price, customer service, and
the ability to provide tamper resistant/evident packaging. Growth in sales of
private label products is also dependent on increasing the amount of shelf space
available at retail stores in order to maximize brand awareness and consumer
trial. The Company experiences aggressive price competition from time to time
from branded and other private label competitors. There can be no assurance that
the Company will not continue to experience price competition in the future and
that such price competition will not have a material adverse effect on the
Company's results of operations (see "ITEM 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations").
2
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GOVERNMENTAL REGULATION AND HEALTH ISSUES
The Company is registered with the Food & Drug Administration ("FDA") as a
manufacturer for certain of its products. The primary forms of governmental
regulation are the current "good manufacturing practices" and "good laboratory
practices" guidelines administered by the FDA, which set forth the protocols to
be followed in the manufacture, storage, packaging and distribution of medical
products for human use. Certain of the Company's ophthalmic products are subject
to additional FDA regulations relating to pre-market approval of products. The
Company's operations are also subject to periodic inspections by the FDA.
Promotional claims made with respect to health and personal care products are
also subject to regulation by the FDA, and by the Federal Trade Commission.
The use of health and personal care products may result in allergic or other
adverse reactions in users. Since 1952, a number of studies have been published
in medical journals concerning the relationship of douching to the incidence of
pelvic inflammatory disease. These studies provide no conclusive results on the
issue of whether douching causes this disease. A 1990 study showed an
association between douching and the disease and concluded that further studies
were needed. A 1993 study stated that the results of the study lend support to
the hypothesis that douching can predispose a woman to pelvic inflammatory
disease. Although the Company believes its douche products are safe when used in
accordance with instructions accompanying the product package, negative
publicity resulting from such studies and any future studies may affect sales of
douche products. In such event there could be a material adverse impact on the
Company's results of operations.
EMPLOYEES
The Company has approximately 625 full-time employees engaged in quality
control, marketing and sales, general corporate and administrative positions and
manufacturing operations. The Company believes that relations with its employees
are satisfactory.
ITEM 2. PROPERTIES
The Company currently operates the following facilities (which are owned unless
otherwise indicated):
<TABLE>
<CAPTION>
Approximate Location Type of Facility Square Feet
- -------------------- ---------------- -----------
<S> <C> <C>
Gloucester, Massachusetts (1) Corporate and Administrative Offices, 131,000
Manufacturing Facilities
Fairton, New Jersey Manufacturing 48,000
Brockton, Massachusetts (3) Manufacturing 66,000
Florence, Massachusetts (2) Manufacturing 88,000
</TABLE>
- --------------------------------------------------------------------------------
(1) Consists of four facilities, of which three are leased. (see Recent
Developments)
(2) Acquired in October 1995.
(3) The Company is currently constructing a 22,500 sq. ft. addition to serve
primarily as additional warehouse space. The completion of the project is
estimated for December 1996.
The Company believes that its present facilities will be adequate for all of its
reasonably foreseeable manufacturing, warehousing and distribution requirements,
or that alternative facilities can be obtained at a reasonable cost.
ITEM 3. LEGAL PROCEEDINGS
The Company, like other companies in the store brand industry, has been the
subject of claims and litigation brought by national brand name companies based
on packaging alleged to be similar to competing brand name products. The Company
is also subject to certain claims and informal complaints relating to its
products which are incidental and routine to its business and for which the
Company maintains insurance coverage. The Company knows of no litigation, either
pending or threatened, which is likely to have a material adverse effect on the
Company's financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
3
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
MARKET INFORMATION
The following table sets forth, for the periods indicated, the high and low
prices for the common stock as reported by NASDAQ. The Company's common stock is
traded on the NASDAQ SmallCap Market under the symbol "NMPC".
<TABLE>
<CAPTION>
Fiscal 1996: High Low
------------ ---- ---
<S> <C> <C>
First Quarter $10.250 $ 7.750
Second Quarter 10.250 8.500
Third Quarter 11.125 8.125
Fourth Quarter 10.000 7.500
Fiscal 1995:
------------
First Quarter $10.375 $ 8.750
Second Quarter 9.750 7.750
Third Quarter 9.375 5.750
Fourth Quarter 10.000 7.750
</TABLE>
COMMON STOCK HOLDERS
The Company believes there are approximately 2,500 holders of common stock,
including shares held in street name by brokers.
DIVIDENDS
The Company has never declared or paid any cash dividends. The declaration of
dividends by the Company in the future will at all times be subject to the sole
discretion of the Company's Board of Directors, and will depend upon operating
results, capital requirements and financial position. See notes to the
Consolidated Financial Statements included elsewhere herein.
4
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below has been derived from
the audited financial statements of the Company. This data is qualified in its
entirety by reference to, and should be read in conjunction with, Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
Company's Consolidated Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------
Sept. 28, Sept. 30, Oct. 1, Oct. 2, Sept. 30,
1996(1)(2) 1995 1994(3) 1993(4) 1992
---------- --------- ------- ------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $80,479 $63,111 $55,958 $31,144 $25,151
Cost of sales 57,686 45,916 38,752 19,598 13,908
--------- ------- ------- ------- -------
Gross profit 22,793 17,195 17,206 11,546 11,243
Selling, general and administrative expenses 11,662 8,694 9,281 5,928 5,715
--------- ------- ------- ------- -------
Operating income 11,131 8,501 7,925 5,618 5,528
Other credits (charges):
Interest expense (1,479) (1,427) (928) -- --
Other (289) 316 95 251 338
--------- ------- ------- ------- -------
Income before income tax expense 9,363 7,390 7,092 5,869 5,866
Income tax expense 3,680 2,916 2,832 2,350 2,397
--------- ------- ------- ------- -------
Net income $ 5,683 $ 4,474 $ 4,260 $ 3,519 $ 3,469
========= ======= ======= ======= =======
Earnings per share $ .67 $ .53 $ .50 $ .43 $ .43
========= ======= ======== ======= =======
Weighted average shares outstanding 8,531 8,520 8,480 8,235 8,090
========= ======= ======== ======= =======
<CAPTION>
Sept. 28, Sept. 30, Oct. 1, Oct. 2, Sept. 30,
1996(1)(2) 1995 1994(3) 1993(4) 1992
---------- --------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 9,491 $14,152 $13,172 $ 9,703 $10,235
Total assets 82,878 63,074 60,450 33,207 25,925
Long-term debt, less current maturities 11,780 12,550 16,183 -- --
Stockholders' equity 45,817 39,233 34,757 29,953 22,549
</TABLE>
- --------------------------------------------------------------------------------
(1) In February 1996, the Company acquired certain assets of a manufacturer of
feminine hygiene products for $2,367,000 in cash which was financed by
additional term loan borrowings.
(2) October 1995, the Company acquired the assets of a manufacturer of private
label toothbrushes and dental floss for $1,800,000 in cash and liabilities
assumed of $363,000, and the transaction resulted in related expenses of
$681,000 which was financed from the Company's revolving credit facility.
(3) In December 1993, the Company acquired a manufacturer and distributor of
private label cough/cold products for $13,500,000 which was financed with
proceeds from a revolving credit facility.
(4) In June 1993, the Company acquired a manufacturer of private label over-the-
counter and prescription ophthalmic products, for approximately 202,000
shares of the Company's common stock with a market value of $2,846,000.
5
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto, contained elsewhere herein.
RESULTS OF OPERATIONS
The Consolidated Statements of Operations include the results of operations of
acquired companies and businesses from the dates acquired: Certain assets of the
Hospital Specialty Company Division of the Tranzonic Companies (February 1996);
certain assets of Mi-Lor Corporation, ("Mi-Lor"), Professional Brushes, Inc.
("Professional Brushes") and Codent Dental Products, Inc. ("Codent") (October
1995); Optopics Laboratories Corporation ("Optopics") (June 1993); and Powers
Pharmaceutical Corporation ("Powers") (December 1993). The following table sets
forth, for all periods indicated, the percentage relationship that items in the
Consolidated Statements of Operations bear to net sales.
<TABLE>
<CAPTION>
Year Ended
-------------------------------
Sept. 28, Sept. 30, Oct. 1,
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Net sales 100% 100% 100%
Cost of sales 72 73 69
-------- -------- -------
Gross profit 28 27 31
Selling, general and administrative expenses 14 14 17
-------- -------- -------
Operating income 14 13 14
Other credits (charges) (2) (1) (1)
-------- -------- -------
Income before income tax expense 12 12 13
Income tax expense 5 5 5
-------- -------- -------
Net income 7% 7% 8%
======== ======== =======
</TABLE>
Fiscal Year 1996 Compared to Fiscal Year 1995
Net Sales for 1996 were $80,479,000, an increase of $17,368,000 or 28% over 1995
net sales of $63,111,000. The net sales increase was primarily attributable to
the addition of the Oral Care division as a result of the Mi-Lor, Professional
Brushes and Codent acquisition, Cough/Cold sales volume increases resulting from
increased distribution and a more traditional cough/cold season, a full year of
Adult Liquid Nutrition sales introduced in March 1995, increased douche sales
resulting from the acquisition of certain assets of the Hospital Speciality
Company Division of the Tranzonic Companies and Pediatric Electrolyte sales
volume increases resulting from increased distribution.
Gross profit for 1996 was $22,793,000, or 28% of net sales, as compared to
$17,195,000, or 27% of net sales in 1995. The increase in gross margin is a
result of increased production levels for Cough/Cold products and Feminine
Hygiene products, the higher gross margin associated with intially high
production levels for the Oral Care Division not expected to continue in 1997,
and lower raw material costs, principally plastic resin and plastic film.
Selling, general and administrative expense for 1996 was $11,662,000 or 14% of
net sales as compared to $8,694,000 or 14% of net sales in 1995. The dollar
increase in selling, general and administrative expense is primarily
attributable to increases in bad debt expense, broker commission expense,
freight expense and promotional expense, all related to increased sales volume
and an increase in incentive compensation expense.
Interest expense for 1996 was $1,479,000 as compared to $1,427,000 in 1995. The
increase is a result of higher borrowing levels.
6
<PAGE>
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Net sales for 1995 were $63,111,000, an increase of $7,153,000, or 13%, over
1994 net sales of $55,958,000. The increase in net sales was primarily
attributable to sales of Cough/Cold products resulting from the acquisition of
Powers in December 1993 and the introduction of the Adult Nutrition product line
in March 1995, in addition to increased volume in other product categories.
Gross profit for 1995 was $17,195,000, or 27% of net sales, as compared to
$17,206,000, or 31% in 1994. The decrease in the gross margin reflects the
impact of lower production levels for Cough/Cold products, competitive pressure
on the Company's Feminine Hygiene and Personal Care products and changes in
product mix. In addition, the Company experienced higher raw material costs in
1995.
Selling, general and administrative expenses for 1995 were $8,694,000 or 14% of
net sales, compared to $9,281,000, or 17% of net sales in 1994. The decrease in
selling, general and administrative expenses was primarily attributable to a
decrease in bad debt expense and professional fees partially offset by
commissions and freight expenses associated with the increase in sales. The
decrease, as a percentage of net sales, resulted from decreased costs allocated
over higher net sales.
Interest expense for 1995 was $1,427,000, as compared to $928,000 in 1994. This
increase was primarily attributable to debt incurred in connection with the
acquisition of Powers and increases in interest rates.
SEASONALITY
During the last four months of the calendar year retailers focus their
merchandising efforts on and devote more shelf space to seasonal and holiday
merchandise. As a result, sales of certain of the Company's products tend to be
weaker in the Company's first quarter (ending in December), and normally
strengthen in the second quarter as retailers replenish their shelves with
health and personal care products. Sales of Pediatric Electrolyte and Cough/Cold
products may help mitigate weaker sales in the Company's first quarter, as the
Company's customers purchase such products to stock inventories in anticipation
of an increase in winter sales. Consequently, the results of any one quarter may
not necessarily be indicative of results of future quarters.
LIQUIDITY AND CAPITAL RESOURCES
As of September 28, 1996, the Company's working capital decreased to $9,491,000
as compared to $14,152,000 on September 30, 1995. Net cash provided by operating
activities decreased to $4,724,000 in 1996 from $7,605,000 in the prior year
which was primarily attributable to increased accounts receivable and inventory
balances related to the increased sales volume. The decrease in working capital
was primarily attributable to the reclassification of the revolving credit
facility and mortgage offset by increased inventory and accounts receivable.
Net cash used in investing activities was $16,309,000 in 1996 and primarily
consisted of the acquisition of certain of the assets of the Hospital Speciality
Company Division of the Tranzonic Companies related to the manufacture and sale
of feminine hygiene products ($2,367,000), the acquisition of the assets, net of
certain liabilities, of Mi-Lor, Professional Brushes and Codent related to the
manufacture and sales of toothbrushes, dental floss and related products
($2,230,000), capital expenditures ($6,130,000) (primarily for additional
capacity), and restricted cash ($4,742,000) to be used for equipment purchases
at the Oral Care and Powers facility as well as a building expansion at Powers
which represents the unused portion of the proceeds from the variable rate
industrial development bonds. The Company anticipates capital expenditures of
approximately $9,000,000 in fiscal 1997 for additional manufacturing capacity
and for the purchase of a leased facility in Gloucester Massachusetts. See
"Recent Developments"
Net cash provided from financing activities totalled $11,376,000 and includes
borrowings of $13,733,000 to finance the acquisitions of the feminine hygiene
and toothbrush/dental floss asset purchases, variable rate industrial
development bonds to finance capacity increases at the Oral Care and Cough/Cold
facilities, working capital borrowing and proceeds from the exercise of stock
options offset by debt repayments.
7
<PAGE>
In December 1994, the Company converted its $20,000,000 credit facility into an
$8,000,000 revolving credit facility, two term loans aggregating $9,000,000 and
a mortgage of $1,000,000, all of which are secured by substantially all of the
Company's assets. The revolving credit facility bears interest at prime or, at
the Company's option, LIBOR plus 1.5%, and expires in January 1997. On December
30, 1995, the Company's revolving credit facility was increased $1,000,000 to
$9,000,000. On February 29, 1996, the revolving credit facility was increased an
additional $1,000,000 to $10,000,000. The revolving credit facility was
temporarily increased an additional $1,000,000 to $11,000,000 on March 27, 1996
in anticipation of the Massachusetts Variable Rate Industrial Development Bond
("IDB") financing (see below) to take place. The temporary $1,000,000 line
extension expired April 29, 1996. The average amount outstanding under this
facility during the year amounted to $8,303,000 and the weighted average
interest rate computed on a monthly basis was 7.94%. As of September 28, 1996,
$8,784,000 was outstanding under this facility. The amount of available credit
fluctuated based upon the amount of eligible accounts receivable and inventory.
As of September 28, 1996, $1,162,000 of credit was available. The revolving
credit facility expires in December 1996. The term loans bear interest at prime
plus .5% (8.75% at September 28, 1996) or, at the Company's option, LIBOR plus
2.25%, (7.75% at September 28, 1996) and are payable in quarterly principal
installments of $450,000 through November 1999. The mortgage bears interest at
prime plus .5% or, at the Company's option, LIBOR plus 2.25%, and is payable in
quarterly principal installments of $17,000, with a final payment of
approximately $680,000 due November 1999. The interest rates on the term loans
and the mortgage ranged from 7.5% to 8.375% during 1996. The Company has an
additional mortgage which bears interest at 7% and is payable in monthly
installments of $7,000 including interest, with a final payment of approximately
$670,000 due in February, 1997. In addition, on February 29, 1996, the Company
obtained a $2,750,000 Acquisition Line of Credit, with the same commercial
lender, for the feminine hygiene acquisition (see Note B to the notes to the
Consolidated Financial Statements), payable on February 28, 1997 at interest
rates comparable to the Company's revolving credit facility. The revolving
credit facility and term loans, which are collateralized by substantially all of
the Company's assets, require the maintenance of certain balance sheet and
operating ratios and impose certain dividend limitations. The most restrictive
of these provisions limits the payment of cash dividends to approximately
$6,604,000 as of September 28, 1996.
On May 3, 1996, the Company completed a $4,300,000 IDB financing. Proceeds from
the financing were used to reduce the outstanding balance under the Company's
revolving credit facility which was used to fund the Oral Care acquisition and
for the capital expenditures made and scheduled to be made over the next twelve
months for the Oral Care operation. It is anticipated that all proceeds will be
expended by March 31, 1997. As of September 28, 1996, $2,728,000 of the proceeds
of the IDB financing had been used to repay a portion of the Company's
outstanding balance under it's existing revolving credit facility and to pay for
equipment purchases. The variable interest rate on the IDB as of September 28,
1996 was 3.85% and interest is payable monthly. Principal payments are funded
monthly and are payable annually beginning May 1, 1997 at $400,000 per year
through May 1, 2003, $200,000 due May 1, 2004 and $100,000 per year thereafter
through May 1, 2016. The IDB is supported by a letter of credit with State
Street Bank and Trust Company that contains certain financial covenants with
respect to minimum quarterly net earnings, tangible net worth, indebtedness to
net worth ratios and cash flows. The IDB contains certain restrictions including
limiting capital expenditures made for the Oral Care operation to $10,000,000
over the next three years.
On June 7, 1996, the Company completed a second IDB financing for $3,500,000 for
the purpose of funding the expansion of the Powers manufacturing facility and
the purchase of additional manufacturing equipment at the facility. The variable
interest rate on the bond as of September 28, 1996 was 3.85% and interest is
payable monthly. Principal payments are funded monthly and are payable annually
beginning May 1, 1997 at $400,000 per year, through May 1, 2001 and $100,000 per
year thereafter through May 1, 2016. The IDB is supported by a letter of credit
with State Street Bank and Trust Company that contains certain financial
covenants with respect to minimum quarterly net earnings, tangible net worth,
indebtedness to net worth ratios and cash flows. The IDB contains certain
restrictions including limiting capital expenditures, made for the Powers
operation, to $10,000,000 over the next three years.
8
<PAGE>
The Company believes that its existing working capital, anticipated funds to be
generated from future operations and funds available under the revolving credit
facility (and, following the repurchase of the common stock of the Company held
by MEDIQ (discussed below), the proceeds of the debt financing relating thereto
(as discussed below)) will be sufficient to meet all of the Company's operating
and capital needs through fiscal 1997. However, depending upon future growth of
the business, additional financing may be required.
RECENT DEVELOPMENTS
On October 10, 1996, the Company entered into an agreement with Aid-Pack Limited
Partnership to purchase the land and building located at 9 Blackburn Drive,
Gloucester, Massachusetts. The purchase price is $1,975,000 and will be financed
through mortgage financing. The closing is scheduled for December 15, 1996 and
is contingent upon satisfactory completion of an environmental study.
MEDIQ STOCK REPURCHASE
The Company and MEDIQ have entered into an Amended and Restated Stock Purchase
Agreement (the "Stock Purchase Agreement"), pursuant to which MEDIQ has agreed
to sell to the Company, and the Company has agreed to purchase from MEDIQ (the
"MEDIQ Stock Repurchase"), all 4,037,258 shares of Company Common Stock owned by
MEDIQ (the "MEDIQ Shares"), 2,254,902 of which were held in escrow as of
November 20, 1996 in support of MEDIQ's 7.5% subordinated debentures due 2003
(the "MEDIQ Bonds") pursuant to the terms of the indenture relating to the MEDIQ
Bonds (the "MEDIQ Indenture") and the terms of an escrow agreement relating
thereto. The aggregate purchase price of the MEDIQ Shares is $36,335,322
representing a purchase price of $9.00 per share (the "Purchase Price").
Pursuant to the terms of the Stock Purchase Agreement, the closing of the
purchase and sale of the MEDIQ Shares (the "Closing") will be held on December
31, 1996 or on such other date as the Company and MEDIQ may mutually agree. At
the Closing, the Company shall pay that portion of the Purchase Price for the
MEDIQ Shares other than the MEDIQ Shares then held in escrow (the "MEDIQ
Escrowed Shares") by delivering to MEDIQ cash in an amount equal to $9.00
multiplied by the number of such MEDIQ Shares not held in escrow, and shall pay
that portion of the Purchase Price for the MEDIQ Escrowed Shares by delivering a
promissory note (the "Note") in favor of MEDIQ in the original principal amount
equal to $9.00 multiplied by such number of MEDIQ Escrowed Shares, secured by a
letter of credit reasonably acceptable in form and substance to MEDIQ. The MEDIQ
Stock Repurchase is subject to various conditions, including shareholder
approval.
The Stock Purchase Agreement provides that MEDIQ shall, as MEDIQ Escrowed
shares are released from escrow under the MEDIQ indenture and the Escrow
Agreement, upon three business days prior notice to the company, deliver to the
Company such MEDIQ Escrowed Shares upon receipt by MEDIQ from the Company of a
prepayment of the Note in an amount equal to the Purchase Price of the MEDIQ
Escrowed Shares so delivered. Notwithstanding the foregoing, the Company shall
not be required to prepay the Note and accept delivery of any of the MEDIQ
Escrowed Shares except in lots of no less that 50,000 shares; provided, however,
if there are less than 50,000 MEDIQ Escrowed Shares remaining, the Company shall
be required to prepay the Note upon delivery of such remaining MEDIQ Escrowed
Shares.
Pursuant to the Stock Purchase Agreement, to the extent that any holder of a
MEDIQ Bond (other than MEDIQ) presents such MEDIQ Bond for exchange for MEDIQ
Escrowed Shares in accordance with the terms of the MEDIQ Indenture and MEDIQ
delivers MEDIQ Escrowed Shares to such holder, (i) the principal amount of the
Note shall be reduced by an amount equal to the product of the number of MEDIQ
Escrowed Shares so delivered by MEDIQ to such holder and $9.00, and (ii) the
principal amount of the Note shall further be reduced by an amount (the "Excess
Cash Amount") equal to the difference between (A) $1,000 divided by the then
exchange rate of the MEDIQ Bonds (as of the date hereof, 65.3595 shares of the
Company Common Stock for each $1,000 principal amount of MEDIQ Bonds
exchanged) and (B) $9.00; provided, however, that in lieu of such further
reduction in the principal amount of the Note under the foregoing clause (ii),
the Company may elect to receive an amount in cash from MEDIQ equal to the
Excess Cash Amount.
MEDIQ agreed under the terms of the Stock Purchase Agreement that, from and
after the Closing, (i) at any meeting of stockholders of the Company, however
called, or in connection with a written consent of the Company's stockholders,
MEDIQ shall deliver to the Company an irrevocable proxy authorizing the Board of
Directors of the Company to vote all of the MEDIQ Escrowed Shares in the same
proportion as the votes of all other shares of the Company's Common Stock at any
such meeting or pursuant to any such consent directed by the Company and (ii)
the Company shall be entitled to receive any and all dividends paid or payable
with respect to the MEDIQ Escrowed Shares (other than dividends apportioned to
the MEDIQ Escrowed Shares pursuant to the MEDIQ Indenture to which MEDIQ is not
entitled); provided, however, that the obligations of MEDIQ under the foregoing
clause (i) and the right of the Company to receive dividends pursuant to the
foregoing clause (ii) shall terminate upon an event of default under the Note.
9
<PAGE>
The Stock Purchase Agreement contains various customary representations and
warranties of the Company and MEDIQ relating to, among other things, (i) the
Company's and MEDIQ's organization and similar corporate matters, (ii)
authorization, execution, deliver, performance and validity of the Stock
Purchase Agreement and related matters, (iii) absence of conflicts with law or
contracts and related matters (iv) governmental approvals and other third party
consents, and (v) absence of broker's and finder's fees. In addition, the Stock
Purchase Agreement contains a customary representation and warranty of MEDIQ
relating to MEDIQ's ownership of the MEDIQ Shares and various customary
representations and warranties of the Company relating to (a) documents filed by
the Company with the SEC and the accuracy of the information contained therein,
and (b) the Company's capitalization.
The Stock Purchase Agreement provides that the obligations of the Company to
enter into and complete the transaction contemplated thereby are subject to,
among other things, (i) the Company having received financing upon terms and for
such amount necessary to fulfill its obligations under the Stock Purchase
Agreement, (ii) the Company having received a favorable vote of its stockholders
other than MEDIQ with respect to the consummation of the transactions
contemplated by the Stock Purchase Agreement, (iii) the Board of Directors of
the Company having received a fairness opinion from an internationally
recognized investment banking firm to the effect that the transactions
contemplated by the Stock Purchase Agreement are fair from a financial point of
view to the stockholders of the Company (other than MEDIQ), and (iv) the Board
of Directors of MEDIQ having received a fairness opinion from an internationally
recognized investment banking firm to the effect that the transactions
contemplated by the Stock Purchase Agreement are fair from a financial point of
view to the stockholders of MEDIQ.
The Stock Purchase Agreement provides that the obligations of MEDIQ to enter
into and complete the transactions contemplated thereby are subject to, among
other things, (i) the Company having obtained and provided to MEDIQ the letter
of credit securing the Company's obligations under the Note, (ii) the Company
having received a favorable vote of its stockholders other than MEDIQ with
respect to the consummation of the transactions contemplated by the Stock
Purchase Agreement, (iii) the Board of Directors of the Company having received
a fairness opinion from an internationally recognized investment banking firm to
the effect that the transactions contemplated by the Stock Purchase Agreement
are fair from a financial point of view to the stockholders of the Company
(other than MEDIQ), and (iv) the Board of Directors of MEDIQ having received a
fairness opinion from an internationally recognized investment banking firm to
the effect that the transactions contemplated by the Stock Purchase Agreement
are fair from a financial point of view to the stockholders of MEDIQ.
The Stock Purchase Agreement provides that each of the Company and MEDIQ (each,
an "Indemnifying Party") shall indemnify and hold the other party and its
officers, directors and stockholders (each, an "Indemnified Party") harmless
against and in respect of any and all losses, costs, expenses, claims, damages,
obligations and liabilities, including interest, costs of investigation,
penalties and reasonable attorneys' fees and disbursements which such
Indemnified Party may suffer, incur or become subject of arising out of, based
upon or otherwise in respect of any inaccuracy in or breach of any
representation or warranty of the Indemnifying Party made in or pursuant to the
Stock Purchase Agreement or any agreement or document required to be delivered
pursuant to the Stock Purchase Agreement or any breach or nonfulfillment of any
covenant or obligation of the Indemnifying Party contained in the Stock Purchase
Agreement or such other agreements and documents.
The Stock Purchase Agreement may be terminated and the transactions contemplated
thereunder may be abandoned at any time prior to the Closing (i) by the Company
or MEDIQ, if the Closing has not occurred by December 31, 1996, (ii) by mutual
consent of the Company and MEDIQ, (iii) by the Company, if any representation or
warranty of MEDIQ made in or pursuant to the Stock Purchase Agreement is untrue
or incorrect in any material respect, MEDIQ breaches its covenants or other
terms of the Stock Purchase Agreement or any of the Company's conditions
precedent to Closing contained therein are not satisfied on or before December
31, 1996, or any event or circumstance occurs such that any of such conditions
will not be satisfied as of such date, or (iv) by MEDIQ, if any representation
or warranty of the Company made in or pursuant to the Stock Purchase Agreement
is untrue or incorrect in any material respect, the Company breaches the
covenants or other terms of the Stock Purchase Agreement or any of MEDIQ's
conditions precedent to Closing contained therein are not satisfied on or before
December 31, 1996 or any event or circumstance occurs such that any of such
conditions will not be satisfied as of such date.
10
<PAGE>
FINANCING FOR THE MEDIQ STOCK REPURCHASE
In connection with the MEDIQ Stock Repurchase, the Company has received a
commitment (the "Senior Debt Commitment") from a lender (the "Senior Lender") to
provide senior financing in the aggregate principal amount of $60,000,000 (the
"Senior Debt Financing") and a commitment (the "Subordinated Debt Commitment")
from a lender (the "Subordinated Lender") to provide senior subordinated
financing in the aggregate principal amount of up to $15,000,000 (the
"Subordinated Debt Financing"). Consummation of the Senior Debt Financing and
the Subordinated Debt Financing is subject to various conditions discussed
below. In addition, the actual terms of the Senior Debt Financing and the
Subordinated Debt Financing may differ significantly from those set forth below
as a result of the Senior Lender's and Subordinated Lender's due diligence
reviews and negotiations between the parties.
SENIOR FINANCING
Pursuant to the Senior Debt Commitment, the Senior Lender has agreed to provide
the Company with senior secured credit facilities in the aggregate principal
amount of $60,000,000 (the "Senior Debt"), consisting of (i) a $20,000,000 term
loan (the "Term Loan A"), (ii) a $15,000,000 term loan (the "Term Loan B") and,
together with the Term Loan A, the "Term Loans", (iii) a $20,000,000 letter of
credit to support the Note relating to the MEDIQ Stock Repurchase (the "Stock
Repurchase Letter of Credit"), (iv) a $17,300,000 revolving credit facility (the
"Revolving Credit Facility"), and the (v) a $7,700,000 letter of credit to
support the Company's Variable Rate Industrial Development bonds (the "IDB
Letter of Credit" and, together with the Stock Repurchase Letter of Credit, the
"Letters of Credit"). The Senior Debt Commitment provides that the Company shall
use the Senior Debt Financing to finance the MEDIQ Stock Repurchase, to
refinance the Company's existing indebtedness, to satisfy the Company's working
capital requirements and for general corporate purposes not otherwise prohibited
by the terms of the Senior Debt Commitment. Pursuant to the terms of the Senior
Debt Commitment, at the closing of the Senior Debt Financing (the "Senior Debt
Closing"), $15,000,000 of the Term Loan A will be drawn by the Company and the
Stock Repurchase Letter of Credit will be issued by the Senior Lender. The Term
Loan B and the balance of the Term Loan A will be advanced only to fund drawings
under the Stock Repurchase Letter of Credit. The senior Debt Commitment also
provides that the subsidiaries of the Company shall guarantee the obligations of
the Company under the Senior Debt Financing.
Pursuant to the Senior Debt Commitment, the Term Loan A will consist of a
$20,000,000 term loan having a final maturity of five years following the Senior
Debt Closing and will be used by the Company to fund the acquisition of the
MEDIQ Shares pursuant to the MEDIQ Stock Repurchase (see above) and to refinance
certain existing indebtedness of the Company. The Senior Debt Commitment
provides that the Term Loan A will amortize in quarterly payments aggregating
$1,500,000 during the first year following the Senior Debt Closing, $3,750,000
during the second year following the Senior Debt Closing, $4,500,000 during the
third year following the Senior Debt Closing, $5,000,000 during the fourth year
following the Senior Debt Closing and $5,250,000 during the fifth year following
the Senior Debt Closing. Pursuant to the Senior Debt Commitment, the Term Loan B
will consist of a $15,000,000 term loan having a final maturity of seven years
following the Senior Debt Closing and will be used by the Company to fund the
acquisition of the MEDIQ Shares pursuant to the MEDIQ Stock Repurchase (see
above). The Senior Debt Commitment provides that the Company shall make interest
payments on the Term Loan B only during the first through the fifth years
following the Senior Debt Closing, and the Term Loan B will amortize in eight
quarterly payments aggregating $15,000,000 during the sixth and seventh years
following the Senior Debt Closing.
Pursuant to the Senior Debt Commitment, the Revolving Credit Facility will
consist of a $17,300,000 revolving loan having a final maturity of five years
following the Senior Debt Closing and will be used by the Company for working
capital and other general corporate purposes. Advances under the Revolving
Credit Facility will be subject to a borrowing base anticipated to be 85% of the
Company's eligible accounts receivable and 50% of the Company's eligible
inventory. The actual advance rates eligibility definitions will be subject to a
due diligence review by the Senior Lender of the Company's collateral. The
Senior Debt Commitment provides that the Company shall pay the entire
outstanding balance of the Revolving Credit Facility on the maturity date.
Under the terms of the Senior Debt Commitment, the Senior Debt will be cross
collateralized by a first priority security interest in all tangible and
intangible assets of the Company and its subsidiaries. The Company will be
required to prepay the Term Loans from excess cash flow and the net proceeds of
certain asset sales and equity and debt offerings, and, under certain
circumstances, the Company will be permitted to make voluntary prepayments.
Pursuant to the Senior Debt Commitment, the Company will be required to pay at
the Senior Debt Closing a fee to the Senior Lender equal to 1.5% of the
aggregate principal amount of the Senior Debt. In addition, the Company will be
required to pay an agent's fee of $10,000 per annum and a commitment fee payable
quar-
11
<PAGE>
terly at a rate of 0.375% per annum on the average daily unused portion of the
Revolving Credit facility and Term Loan B during any period for which the ratio
(the "Funded Debt Ratio") of the Company's total funded debt to earnings before
interest, taxes, depreciation and amortization ("EBITDA") is less than 3.5, and
at a rate of 0.50% per annum if the Funded Debt Ratio is greater than or equal
to 3.5.
The Senior Debt Commitment provides that interest on the Term Loan A and amounts
outstanding under the Revolving Credit Facility will be payable according to, at
the Company's option, an alternate base rate based on the Senior Lender's base
rate (or the Federal funds rate plus 0.50%, if higher) plus 0.25% to 1.00%
(depending on the Funded Debt Ratio) or LIBOR plus 1.75% to 2.50% (depending on
the Funded Debt Ratio). Outstanding amounts under the Term Loan B will be
payable according to, at the Company's option, an alternate base rate based on
the Senior Lender's base rate plus 1.5% (or the Federal funds rate plus 0.50%,
if higher) or LIBOR plus 3.00%. Overdue amounts outstanding on the Senior Debt
will bear interest at 2% above the otherwise applicable interest rate, pursuant
to the terms of the Senior Debt Commitment. Interest on the Senior Debt will be
payable at the end of each fiscal quarter of the Company, if based on the
alternate base rate, and at the end of each Interest Period as hereinafter
defined, or quarterly, if earlier, if based on LIBOR. The "Interest Periods" are
defined in the Senior Debt Commitment as one, two, three or six months, subject
to availability. The Senior Debt Commitment also provides that fees on the
Letters of Credit shall be payable by the Company quarterly in arrears at a per
annum rate equal to 1.75% to 2.50% (depending on the Funded Debt Ratio) times
the maximum amount to be drawn under the applicable Letter of Credit.
Consummation of the Senior Debt Financing is subject to the satisfaction of
certain conditions precedent, including, without limitation, completion by the
Senior Lender of due diligence, satisfactory representations and warranties,
satisfactory collateral examination and appraisals and environmental reports on
owned real estate, and satisfaction of certain minimum net worth and Funded Debt
Ratio requirements. Pursuant to the Senior Debt Commitment, the Company will be
subject to certain customary financial covenants satisfactory to the Senior
Lender including, without limitation, minimum requirements with respect to the
Funded Debt Ratio, the ratio of EBITDA to interest expense and net worth. The
Company will also be subject to, among other things, (i) limitations on capital
expenditures, liens, indebtedness, contingent liabilities, dividends,
distributions, mergers, acquisitions and assets sales, and (ii) customary events
of default including, without limitation, cross default with respect to other
indebtedness and change of control.
SUBORDINATED FINANCING
Pursuant to the Subordinated Debt Commitment, the Subordinated Lender has agreed
to provide the Company with an aggregate principal amount of $15,000,000 in the
form of senior subordinated notes (the "Senior Subordinated Notes") issued to
the Subordinated Lender. The Senior Subordinated Notes will mature approximately
seven years from the closing of the Subordinated Debt Financing (the
"Subordinated Debt Closing") and will bear interest at the greater of (i) 11.5%
per annum and (ii) the average yield on seven year Treasury Bonds as reported in
the Wall Street Journal for the previous five business days prior to the
Subordinated Debt Closing, plus 4.5%. Interest on the Senior Subordinated Notes
will be payable quarterly in arrears, commencing on the first calendar quarter
following the Subordinated Debt Closing. Interest on any overdue interest and
principal payments will accrue at a rate of 2% in excess of the applicable
interest rate on the Senior Subordinated Notes. The Company may redeem the
Senior Subordinated Notes in whole or in part at any time after three and one-
half years following the Subordinated Debt Closing at a redemption price equal
to the product of the principal amount thereof multiplied by the Call Premium
(as hereinafter defined), plus accrued interest. Pursuant to the Subordinated
Debt Commitment, the "Call Premium" is defined as an amount equal to 103% if
redemption occurs between three and one-half years and four years following the
Subordinated Debt Closing, 102% if redemption occurs between four years and five
years following the Subordinated Debt Closing, 101% if redemption occurs between
five years and six years following the Subordinated Debt Closing, and 100% if
redemption occurs after six years following the Subordinated Debt Closing.
Subject to the requirements of the Senior Debt Financing, following receipt by
the Company of proceeds from the issuance of certain debt, equity or hybrid
securities or from the disposition of certain assets, the Company will be
required to redeem the Senior Subordinated Notes at the same price as if the
Company had exercised its optional redemption rights. Pursuant to the
Subordinated Debt Commitment, the Senior Subordinated Notes will rank junior to
an amount of "Senior Indebtedness" (which shall include the Senior Debt) in an
amount not to exceed the greater of (i) 110% of $55,000,000 less all permanent
payments of principal thereof made and commitment reductions thereunder and (ii)
$25,000,000. Any other future indebtedness of the Company will rank junior to
the Senior Subordinated Notes. The Senior Subordinated Notes will have the
benefit of subordinated guarantees from each entity guaranteeing any Senior
Indebtedness and the Senior Debt.
12
<PAGE>
Pursuant to the Subordinated Debt Commitment, the Company will issue to the
Subordinated Lender warrants (the "Warrants") to purchase an aggregate of 4.5%
of the Company's Common Stock, on a fully diluted basis. The Warrants will be
exercisable for a period of ten years and will be exercisable at a price per
share equal to $9.00. In connection with the issuance of the Warrants, the
Subordinated Lender will be entitled to demand and "piggy-back" registration
rights with respect to the shares of Company Common Stock underlying the
Warrants.
Pursuant to the Subordinated Debt Commitment, the Company will be required to
pay at the Subordinated Debt Closing a fee to the Subordinated Lender equal to
1.5% of the aggregate principal amount of the Senior Subordinated Notes.
The Subordinated Debt Commitment provides that the Company and the Subordinated
Lender will enter into, among other agreements, a Note and Warrant Purchase
Agreement (the "Purchase Agreement") containing customary representations and
warranties. In addition, the Purchase Agreement will contain customary
affirmative and negative covenants satisfactory to the Subordinated Lender.
Affirmative covenants will include without limitation, compliance with laws,
maintenance of all licenses, regulatory good standing, insurance, payment of
taxes, reporting and delivery of audited financial statements and other
financial information to the Subordinated Lender. Negative covenants will
include, without limitation, limitations on business activities, limitations on
liens, limitations on additional indebtedness, contingent obligations and
preferred stock of the Company (with exceptions for additional working capital),
limitations on dividends or payments on the capital stock of the Company,
limitations on the redemption or repurchase of capital stock of the Company,
limitations on the sale of assets and subsidiary stock and transactions with
affiliates, limitations on mergers and consolidations, limitations on
investments and joint ventures and limitations on changes of control.
The Purchase Agreement will also contain customary financial covenants
including, without limitation, minimum requirements with respect to the
Company's EBITDA, minimum interest coverage ratio requirements, minimum net
worth requirements, maximum total debt to twelve-month EBITDA and minimum fixed
charge ratio requirements. Certain of the affirmative and negative covenants
will continue in effect after payment in full of the Senior Subordinated Notes
for so long as the Warrants are outstanding. The Purchase Agreement will also
contain standard default provisions including, without limitation, failure to
pay principal or interest on the Senior Subordinated Notes when due, failure to
comply with covenants under the Purchase Agreement, cross-payment default and
cross-acceleration on material obligations of the Company, certain events of
bankruptcy involving the Company and change of control of the Company.
Consummation of the Subordinated Debt Financing is subject to the satisfaction
of certain conditions precedent, including, without limitation, completion by
the Subordinated Lender of business, legal and regulatory due diligence,
consummation of the Senior Debt Financing and issuance of the Warrants to the
Subordinated Lender.
13
<PAGE>
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Although the Company believes its expectations are based upon reasonable
assumptions within the bounds of its knowledge of its business operations, there
can be no assurance that actual results will not differ materially from those
set fourth in the forward-looking statements. Certain factors that might cause
such a difference include the following: the inability of the Company to
consummate the MEDIQ Stock Repurchase, the inability of the Company to
consummate the Senior Debt Financing or the Subordinated Debt Financing on terms
satisfactory to the Company, the timing of new product introductions by the
Company, the timing of orders received from customers, the gain or loss of
significant customers, changes in the mix of products sold, competition from
other private label manufacturers, seasonal changes in the demand for the
Company's products, increases in the cost of raw materials and changes in the
retail market for health and beauty aids in general. For additional information
concerning these and other important factors which may cause the Company's
actual results to differ materially from expectations and underlying
assumptions, please refer to the reports filed by the Company with the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<S> <C>
Independent Auditors' Report 15
Consolidated Statements of Operations -
Three Years Ended September 28, 1996 16
Consolidated Balance Sheets -
September 28, 1996 and September 30, 1995 17
Consolidated Statements of Stockholders' Equity -
Three Years Ended September 28, 1996 18
Consolidated Statements of Cash Flows -
Three Years Ended September 28, 1996 19
Notes to Consolidated Financial Statements 20-28
</TABLE>
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
NutraMax Products, Inc.
Gloucester, Massachusetts
We have audited the accompanying consolidated balance sheets of NutraMax
Products, Inc. and subsidiaries as of September 28, 1996 and September 30, 1995,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended September 28,
1996. Our audits also included the financial statement schedule listed in Item
14 (a)(2). These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of NutraMax Products, Inc. and
subsidiaries as of September 28, 1996 and September 30, 1995, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended September 28, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note M, the Company has agreed, subject to various conditions,
including shareholder approval, to repurchase approximately four million shares
of its common stock.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 8, 1996 (November 18, 1996 as to Note M)
15
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES - CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------------
Sept. 28, Sept. 30, Oct. 1,
1996 1995 1994
--------- --------- -------
<S> <C> <C> <C>
Net Sales $80,479,000 $63,111,000 $55,958,000
Cost of Sales 57,686,000 45,916,000 38,752,000
----------- ----------- -----------
Gross Profit 22,793,000 17,195,000 17,206,000
Selling, General and Administrative Expenses 11,662,000 8,694,000 9,281,000
----------- ---------- -----------
Operating Income 11,131,000 8,501,000 7,925,000
Other Credits (charges):
Interest expense (1,479,000) (1,427,000) (928,000)
Interest income 95,000 13,000 60,000
Other (384,000) 303,000 35,000
----------- ----------- -----------
Income Before Income Tax Expense 9,363,000 7,390,000 7,092,000
Income Tax Expense 3,680,000 2,916,000 2,832,000
----------- ----------- -----------
Net Income $ 5,683,000 $ 4,474,000 $ 4,260,000
============ ============ ============
Earnings Per Share $ .67 $ .53 $ .50
============ ============ ============
Weighted Average Shares Outstanding 8,531,000 8,520,000 8,480,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES - CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 28, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Current Assets:
Cash $ 294,000 $ 503,000
Accounts receivable, less allowance for doubtful accounts
of $709,000 in 1996 and $601,000 in 1995 12,848,000 9,050,000
Inventories 18,321,000 12,497,000
Deferred income taxes 801,000 977,000
Prepaid expenses and other 618,000 525,000
--------------- --------------
Total Current Assets 32,882,000 23,552,000
Property, Plant and Equipment, net 29,207,000 23,714,000
Restricted Cash 4,742,000 --
Goodwill, net of accumulated amortization of $3,172,000
in 1996 and $2,609,000 in 1995 13,415,000 13,978,000
Other Assets 2,632,000 1,830,000
--------------- --------------
$ 82,878,000 $ 63,074,000
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,265,000 $ 6,191,000
Accrued payroll and related taxes 666,000 455,000
Accrued expenses - other 962,000 850,000
Current maturities of long-term debt 14,498,000 1,904,000
--------------- --------------
Total Current Liabilities 23,391,000 9,400,000
Long-Term Debt, less current maturities 11,780,000 12,550,000
Other Long Term Liabilities 286,000 312,000
Deferred Income Taxes 1,604,000 1,579,000
Stockholders' Equity:
Common stock - $.001 par value:
Authorized - 20,000,000 shares
Issued and outstanding: 8,658,000 and 8,520,000
shares in 1996 and 1995 respectively 9,000 9,000
Additional paid-in capital 23,468,000 22,567,000
Retained earnings 22,340,000 16,657,000
--------------- --------------
Total Stockholders' Equity 45,817,000 39,233,000
--------------- --------------
$ 82,878,000 $ 63,074,000
=============== ==============
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES - CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------------
Shares Additional Retained
Issued Amount Paid-In Capital Earnings Total
---------- --------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at October 2, 1993 8,439,000 $8,000 $22,022,000 $7,923,000 $29,953,000
Issuance of stock -
management compensation 53,000 -- 318,000 -- 318,000
Exercise of stock options 28,000 1,000 225,000 -- 226,000
Net income -- -- -- 4,260,000 4,260,000
----------- --------- ------------ ------------ ------------
Balance at October 1, 1994 8,520,000 $9,000 $22,565,000 $12,183,000 $34,757,000
Exercise of stock options (1) -- -- 2,000 -- 2,000
Net income -- -- -- 4,474,000 4,474,000
----------- --------- ------------ ------------ -----------
Balance at September 30, 1995 8,520,000 $ 9,000 $22,567,000 $16,657,000 $39,233,000
Exercise of stock options 150,000 -- 1,010,000 -- 1,010,000
Stock redeemed (12,000) -- (109,000) -- (109,000)
Net income -- -- -- 5,683,000 5,683,000
----------- --------- ------------ ------------ ------------
Balance of September 28, 1996 $8,658,000 $ 9,000 $23,468,000 $22,340,000 $45,817,000
=========== ========= ============ ============ ============
</TABLE>
(1) 180 stock options were exercised in 1995.
See notes to consolidated financial statements.
18
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES - CONSOLIDATED STATEMENTS OF CASH
FLOWS
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------
Sept. 28, Sept. 30, Oct. 1,
1996 1995 1994
------------- ----------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $5,683,000 $ 4,474,000 $4,260,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,437,000 3,857,000 3,527,000
Deferred taxes 228,000 732,000 419,000
Other (132,000) (227,000) 286,000
Increase (decrease), net of effect of acquisitions:
Accounts receivable (2,016,000) (838,000) (1,471,000)
Inventories (4,480,000) (1,259,000) (4,647,000)
Prepaid expenses and other (88,000) 379,000 (94,000)
Accounts payable 872,000 1,326,000 1,433,000
Accrued payroll and related taxes 169,000 (242,000) (71,000)
Accrued expenses - other 35,000 (386,000) 721,000
Income taxes 16,000 (211,000) 1,037,000
------------ ----------- ----------
Net cash provided by operating activities 4,724,000 7,605,000 5,400,000
Cash Flows from Investing Activities:
Acquisition of Oral Care net of cash acquired (2,230,000) -- --
Acquisitions of feminine hygiene assets (2,367,000) --
Acquisition of Powers Pharmaceutical Corporation -- -- 13,541,000
Purchases of property, plant and equipment (6,130,000) (3,937,000) (3,929,000)
Restricted Cash (4,742,000) -- --
Deferred packaging costs (860,000) (527,000) (532,000)
Other 20,000 158,000 74,000
------------ ------------ ----------
Net cash used in investing activities (16,309,000) (4,306,000) (17,928,000)
Cash Flows from Financing Activities:
Borrowings 13,733,000 -- 19,166,000
Proceeds from exercise of stock options and warrants 257,000 2,000 177,000
Debt repayments (1,908,000) (3,174,000) (7,838,000)
Deferred Financing Costs (679,000) -- --
Other (27,000) -- --
------------ ------------ -----------
Net cash provided by (used in) financing activities 11,376,000 (3,172,000) 11,505,000
------------ ------------ -----------
Net Increase (Decrease) in Cash (209,000) 127,000 (1,023,000)
Cash:
Beginning of year 503,000 376,000 1,399,000
------------ ------------ -----------
End of year $ 294,000 $ 503,000 $ 376,000
============ ============ ===========
Supplemental Disclosures of Cash Flow Information:
Income taxes paid $3,487,000 $ 2,384,000 $1,534,000
============ ============ ===========
Interest paid $1,310,000 $ 1,297,000 $ 831,000
============ ============ ===========
Supplemental Disclosure of Non-Cash Financing and Investing Activities:
Issuance of stock - non-cash compensation -- -- $ 318,000
============ ============ ===========
Exercise of stock options paid for in October 1996 $ 644,000 $ -- $ --
============ ============ ===========
Redemptions in connection with exercise of stock options $ 109,000 $ -- $ --
============ ============ ===========
Equipment financed with
capital lease obligations $ -- $ -- $ 794,000
============ ============= ============
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - NutraMax Products, Inc. is a manufacturer and marketer of private
label health and personal care products.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include the
accounts of NutraMax Products, Inc. and its subsidiaries (the "Company"). In
consolidation, all significant intercompany transactions and balances have been
eliminated.
Inventories - Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. The Company's policy of providing for depreciation and amortization is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings 20 years on a straight-line basis
Liquid packaging machines 32,000 to 48,000 machine hours which
approximate a five to eight and
one-half year life
Machinery, equipment, molds 5 to 10 years on a straight-line basis
and furniture and fixtures
Leasehold improvements The terms of the related lease
on a straight-line basis
Vehicles 3 to 5 years on a straight-line basis
</TABLE>
Goodwill - The purchase price in excess of net assets acquired is amortized on a
straight-line basis over periods from thirty to forty years. The Company
evaluates the carrying value of goodwill based upon current and anticipated net
income and undiscounted cash flows, and recognizes an impairment when it is
probable that such estimated future net income and/or cash flows will be less
than the carrying value of goodwill. Measurement of the amount of impairment, if
any, is based upon the difference between carrying value and fair value.
Other Assets - Other assets include intangible and deferred financing assets
which are amortized on a straight-line basis over the estimated periods of
related benefit, ranging from three to twenty years. Accumulated amortization
was $398,000 and $279,000 as of September 28, 1996 and September 30, 1995,
respectively. Other assets also include external costs deferred in connection
with tools, dies and the design of packaging materials for the Company's
products which are amortized on a straight-line basis over four years.
Income Taxes - The Company and its subsidiaries file a consolidated federal
income tax return. Deferred taxes are provided for certain income and expense
items which are accounted for differently for financial reporting and income tax
purposes.
Earnings Per Share - Earnings per share computations are based upon the weighted
average number of common shares outstanding. Stock options have been excluded
from the calculation of weighted average shares outstanding since the dilutive
effect is less than 3%.
Use of Estimates - In preparing financial statements in conformity with general
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Financial Instruments - The carring values of cash, accounts receivable,
accounts payable, long-term debt and borrowings under revolving credit faclities
approximate fair value.
Reclassification of Accounts - Certain reclassifications have been made to
conform prior years' balances to the current year presentation.
20
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE B - ACQUISITIONS
On February 29, 1996, the Company purchased certain of the assets, including
machinery and inventory, of the Hospital Specialty Company Division of the
Tranzonic Companies related to the manufacture and sale of feminine hygiene
products. The purchase price consisted of $2,367,000 in cash which was financed
with long term debt (see Note F).
Effective October 23, 1995, the Company acquired substantially all of the assets
and assumed certain liabilities of Mi-Lor Corporation, Professional Brushes,
Inc. and Codent Dental Products, Inc. ("Oral Care") which manufacture and market
toothbrushes, dental floss and related products for store brand markets. The
purchase price consisted of $1,800,000 in cash and liabilities assumed of
$363,000, and the transaction resulted in related expenses of approximately
$681,000. The purchase price was not material to the Company's consolidated
financial statements. The transaction was accounted for by the purchase method
of accounting.
NOTE C - RESTRICTED CASH
In connection with the proceeds received from two Massachusetts Industrial
Finance Agency Variable Rate Industrial Development Bond (collectively, the
"IDB") (see Note F), a total of $4,742,000 of unused proceeds remained as
invested cash as of September 28, 1996. Of this total, $1,444,000 is restricted
for capital expenditures at the Oral Care facility in Florence, Massachusetts
and 3,032,000 is restricted for capital expenditures at the Powers
Pharmaceutical facility in Brockton, Massachusetts. The IDB restricts the
investment vehicles available for the excess cash. As of September 28, 1996 the
$4,476,000 was invested in the Treasury Money Market at a current yield of
4.8%. A total of $266,000 has been paid to the trustee related to monthly
payments held for the annual principal payment to bond holders. These funds are
invested in the Treasury Money Market at a current yield of 4.8%. These funds
are also included in the restricted cash balance.
<TABLE>
<CAPTION>
NOTE D - INVENTORIES
Sept. 28 Sept 30,
1996 1995
------------ ------------
<S> <C> <C>
Raw Materials $ 8,811,000 $ 5,278,000
Finished Goods 8,186,000 6,088,000
Work in process 292,000 417,000
Machinery parts, factory supplies 1,032,000 714,000
------------- -------------
$18,321,000 $12,497,000
NOTE E - PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Sept. 28, Sept 30,*
1996 1995
---------- -----------
<S> <C> <C>
Machinery and equipment $28,595,000 $21,777,000
Land, buildings and improvements 9,258,000 8,161,000
Molds 2,807,000 2,611,000
Furniture and fixtures 2,006,000 1,515,000
Vehicles 60,000 37,000
----------- -----------
42,726,000 34,101,000
Less: Accumulated depreciation and amortization (13,519,000) (10,387,000)
----------- ------------
$29,207,000 $23,714,000
=========== ===========
</TABLE>
* Reclassified to conform to current year presentation
Depreciation and amortization expense for property, plant and equipment for
1996, 1995 and 1994 was $3,180,000, $2,725,000 and $2,390,000, respectively.
Effective September 29, 1996 the Company will be required to adopt,
prospectively, Statement of Financial Accounting Standard (SFAS) No. 121,
"Accounting for Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed Of "SFAS No 121 requires that long-lived assets be reviewed for
impairment whenever circumstances indicate that the carrying value of an asset
may not be recoverable. The Company does not expect the adoption of SFAS No. 121
to have a significant effect on its financial position or results of operations.
21
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE F- LONG-TERM DEBT
<TABLE>
<CAPTION>
Sept. 28, Sept 30,
1996 1995
----------- -----------
<S> <C> <C>
Revolving credit facility $ 8,784,000 $ 5,118,000
Industrial Development Bond 7,700,000 --
Term loans 8,218,000 7,650,000
Mortgages 1,554,000 1,654,000
Capital lease obligation 22,000 32,000
----------- ----------
26,278,000 14,454,000
Less: Current maturities of long-term debt 14,498,000 1,904,000
----------- -----------
$11,780,000 $12,550,000
=========== ===========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
1997 $14,498,000
1998 2,677,000
1999 2,670,000
2000 1,933,000
2001 800,000
Thereafter 3,700,000
-----------
$26,278,000
===========
</TABLE>
On May 3, 1996, the Company completed a $4,300,000 IDB financing. Proceeds from
the financing were used to reduce the outstanding balance under the company's
revolving credit facility which was used to fund the Oral Care acquisition and
for the capital expenditures made and scheduled to be made over the next twelve
months for the Oral Care operation. It is anticipated that all proceeds will be
expended by March 31, 1997. As of September 28, 1996 $2,728,000 of the proceeds
of the IDB financing had been used to repay a portion of the Company's
outstanding balance under it's existing revolving credit facility and to pay for
equipment purchases. The variable interest rate on the bond as of September 28,
1996 was 3.85% and interest is payable monthly. Principal payments are funded
monthly and are payable annually beginning May 1, 1997 at $400,000 per year
through May 1, 2003, $200,000 due May 1, 2004 and $100,000 per year thereafter
through May 1, 2016. The IDB is supported by a letter of credit with State
Street Bank and Trust Company that contains certain financial covenants with
respect to minimum quarterly net earnings, tangible net worth, indebtedness to
net worth ratios and cash flows. The IDB contains certain restrictions including
limiting capital expenditures made for the Oral Care operation to $10,000,000
over the next three years.
On June 7, 1996, the Company completed a second IDB financing for $3,500,000 for
the purpose of funding the expansion of the Powers Pharmaceutical manufacturing
facility and the purchase of additional manufacturing equipment at the facility.
As of September 28, 1996 $447,000 of the proceeds of the bond had been used to
pay for equipment purchases. The variable interest rate on the bond as of
September 28, 1996 was 3.85% and interest is payable monthly. Principal payments
are funded monthly and are payable annually beginning May 1, 1997 at $400,000
per year, through May 1, 2001 and $100,000 per year thereafter through May 1,
2016. The IDB is supported by a letter of credit with State Street Bank and
Trust Company that contains certain financial covenants with respect to minimum
quarterly net earnings, tangible net worth, indebtedness to net worth ratios and
cash flows. The IDB contains certain restrictions including limiting capital
expenditures, made for the Powers Pharmaceutical operation, to $10,000,000 over
the next three years.
22
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
On December 30, 1995 the Company's revolving credit facility was increased an
additional $1,000,000 to $9,000,000. On February 29, 1996, the revolving credit
facility was increased an additional $1,000,000 to $10,000,000. The revolving
credit facility was temporarily increased an additional $1,000,000 to
$11,000,000 on March 27, 1996 in anticipation of the IDB financing (see above)
to take place. The temporary $1,000,000 line extension expired on April 29,
1996. The average amount outstanding under this facility during the year
amounted to $8,303,000 and the weighted average interest rate computed on the
monthly outstanding balance was 7.94%. The amount of available credit fluctuates
based upon eligible accounts receivable and inventory. As of September 28, 1996,
$1,162,000 of credit was available. The revolving credit facility expires in
December 1996. On February 29, 1996, the Company obtained a $2,750,000
acquisition line, with the same commercial lender, for the feminine hygiene
acquisition (see Note B), payable February 28, 1997 at interest rates comparable
the existing revolving credit facility. The remaining term loans bear interest
at prime plus 0.5% (8.75% at September 28, 1996) or at the Company's option,
Libor plus 2.25% (7.75% at September 28, 1996) and are payable in quarterly
principal installments of $450,000 through November 1999. The mortgage bears
interest at prime plus 0.5% or, at the Company's option, Libor plus 2.25% and is
payable in quarterly principal installments of $17,000, with a final payment of
approximately $680,000 due November 1999. The interest rates on the term loans
and the mortgage ranged from 7.5% to 8.375% during 1996 (7.75% at September 28,
1996).
The revolving credit facility and term loans, which are collateralized by
substantially all of the Company's assets, require the maintenance of certain
balance sheet and operating ratios and impose certain dividend limitations. The
most restrictive of these provisions limits the payment of cash dividends to
approximately $6,604,000 as of September 28, 1996.
The Company has an additional mortgage which bears interest at 7% and is payable
in monthly installments of $7,000 including interest, with a final payment of
approximately $670,000 due in February 1997.
In connections with the MEDIQ Stock Repurchase (see note M) the company
anticipates refinancing the revolving credit facility and term loans.
NOTE G - COMMITMENTS AND CONTINGENCIES
Leases - The Company leases certain of its administrative, manufacturing,
distribution and warehouse facilities under operating leases. The Company also
leases certain equipment under operating and capital leases. Future minimum
payments under noncancelable operating and capital leases are as follows:
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Leases Leases
--------- --------
<S> <C> <C>
1997 $ 130,000 $ 11,000
1998 14,000 11,000
1999 11,000 2,000
2000 2,000 --
--------- --------
Total minimum lease payments $ 157,000 24,000
=========
Amount representing interest 2,000
--------
Present value of minimum lease payments $ 22,000
========
</TABLE>
Rental expense for operating leases was $462,000, $387,000 and $413,000 for
1996, 1995 and 1994, respectively.
Litigation - The Company has pending certain legal actions and claims incurred
in the normal course of business and is actively pursuing the defense thereof.
In the opinion of management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's financial position, results of
operations or cash flows.
23
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE H - INCOME TAXES
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------
Sept. 28, Sept. 30, Oct. 1,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $2,621,000 $1,769,000 $2,014,000
State 507,000 415,000 399,000
---------- ---------- ----------
3,128,000 2,184,000 2,413,000
Deferred:
Federal 537,000 696,000 395,000
State 15,000 36,000 24,000
---------- ---------- ----------
552,000 732,000 419,000
---------- ---------- ----------
$3,680,000 $2,916,000 $2,832,000
========== ========== ==========
</TABLE>
The difference between the Company's income tax and the statutory federal tax is
reconciled below:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------
Sept. 28, Sept. 30, Oct. 1,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Statutory federal tax $3,183,000 $2,513,000 $2,411,000
Nondeductible goodwill amortization 189,000 189,000 179,000
State tax, net of federal benefit 345,000 298,000 279,000
Other (37,000) (84,000) (37,000)
---------- ---------- ----------
Income tax expense $3,680,000 $2,916,000 $2,832,000
========== ========== ==========
</TABLE>
As of September 28, 1996, the Company had Federal net operating loss
carryforwards of $1,735,000 which are available to offset future taxable
income. The Company also has Federal and State tax credit carryforwards of
$363,000. Utilization of the operating loss carryforwards, which expire in
fiscal years 1997 to 2007, is limited to $1,049,000 annually.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
Sept. 28, Sept. 30,
1996 1995
---------- ----------
<S> <C> <C>
Assets:
Net operating loss carryforwards $ 590,000 $ 822,000
Allowance for bad debts 259,000 236,000
Inventory 361,000 234,000
Investment tax credits 318,000 208,000
Other 531,000 331,000
---------- ----------
2,059,000 1,831,000
Valuation allowance -- --
---------- ----------
Deferred tax assets 2,059,000 1,831,000
========== ==========
Liabilities:
Depreciation and amortization 2,797,000 2,387,000
Other 65,000 46,000
---------- ----------
Deferred tax liabilities 2,862,000 2,433,000
---------- ----------
Net deferred tax liability $ 803,000 $ 602,000
========== ==========
</TABLE>
24
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE I - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) savings plan, covering substantially all employees. The
plan is subject to certain minimum age and length of employment requirements.
Under the plan, the Company matches 50% of each participant's eligible
contribution for the plan year, subject to certain limitations. In addition the
Company has a profit sharing plan; the Company's contributions to the plan are
discretionary. Contributions of $171,000, $145,000 and $104,000 were made to the
plans in 1996, 1995 and 1994 respectively.
NOTE J - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal years 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $18,148,000 $19,824,000 $20,071,000 $22,436,000
Gross profit 5,577,000 5,545,000 5,598,000 6,073,000
Net income 1,330,000 1,362,000 1,279,000 1,712,000
Earnings per share $ .16 $ .16 $ .15 $ .20
Weighted average shares outstanding 8,520,000 8,521,000 8,523,000 8,560,000
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $15,123,000 $15,055,000 $15,184,000 $17,749,000
Gross profit 4,602,000 4,279,000 3,863,000 4,451,000
Net income 1,238,000 1,111,000 857,000 1,268,000
Earnings per share $ .15 $ .13 $ .10 $ .15
Weighted average shares outstanding 8,520,000 8,520,000 8,520,000 8,520,000
</TABLE>
NOTE K - RELATED PARTY TRANSACTIONS
Services Agreement - Through December 31, 1995, the Company obtained certain
legal, accounting, tax, insurance and human resource services from MEDIQ
Incorporated ("MEDIQ"), the owner of approximately 47% of the outstanding common
stock. Subsequent to December 31, 1995 the Company received only certain tax and
insurance services from MEDIQ. Costs for such services were $85,000 in fiscal
1996 and $100,000 for each of the two preceding years. The Company believes that
MEDIQ's charges for such services are on terms no less favorable to the Company
than those that could be obtained from unaffiliated third parties for comparable
services.
Insurance - The Company obtains certain insurance coverages through programs
administered by MEDIQ. Insurance expense under these programs was $42,000,
$409,000 and $464,000 for fiscal years 1996, 1995 and 1994, respectively.
Pledge of Stock - A portion of the shares of the Company's stock owned by MEDIQ
is subject to exchange for outstanding MEDIQ debentures and a portion secures
certain MEDIQ indebtedness.
25
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE L - STOCKHOLDERS EQUITY
The Company maintains a Stock Option Plan which includes an Incentive Stock
Option Program and a Non-Qualified Stock Option Program. Incentive stock options
may be granted to key employees, including the Company's officers, at the
discretion of the Stock Option Plan Committee, until termination of the Plan.
Non-qualified stock options may be granted to employees, non-employee directors,
advisors and independent consultants at the discretion of the Committee. No
options may be granted under the programs for a term in excess of five years
from the date of grant. As of September 28, 1996, 493,000 stock options were
exercisable under such plans. The stock option prices listed below represent the
quoted market value of the common stock at dates of grant.
A summary of stock option activity for the three years ended September 28, 1996
follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
--------- ------------
<S> <C> <C>
October 2, 1993 363,000 $4.00-$12.25
Granted 524,000 $9.63-$12.00
Exercised (27,000) $4.00-$12.00
Terminated (15,000) $6.00-$12.25
---------
October 1, 1994 845,000 $6.00-$12.25
Granted 60,000 $9.38-$9.69
Exercised -(1) $6.00
---------
September 30, 1995 905,000 $6.00-$12.25
Granted 10,000 $9.875
Exercised (150,000) $6.00
Terminated (3000) $7.50-$8.00
---------
September 28, 1996 762,000 $6.00-$12.25
=========
</TABLE>
(1) 180 stock options were exercised in 1995.
In October 1995 the Financial Accounting Standards Board ("FASB") issued
statement of Financial Accounting Standards ("SFAS") No. 123 Accounting for
stock-based compensation, which the Company must adopt effective September 29,
1996. SFAS 123 is not expected to have a material effect on the Company's net
earnings or financial position.
NOTE M - THE STOCK PURCHASE AGREEMENT
The Company and MEDIQ have entered into an Amended and Restated Stock Purchase
Agreement (the "Stock Purchase Agreement"), pursuant to which MEDIQ has agreed
to sell to the Company, and the Company has agreed to purchase from MEDIQ (the
"MEDIQ Stock Repurchase"), all 4,037,258 shares of Company Common Stock owned by
MEDIQ (the "MEDIQ Shares"), 2,254,902 of which were held in escrow as of
November 20, 1996 in support of MEDIQ's 7.5% subordinated debentures due 2003
(the "MEDIQ Bonds") pursuant to the terms of the indenture relating to the MEDIQ
Bonds (the "MEDIQ Indenture") and the terms of an escrow agreement relating
thereto. The aggregate purchase price of the MEDIQ Shares is $36,335,322
representing a purchase price of $9.00 per share (the "Purchase Price").
Pursuant to the terms of the Stock Purchase Agreement, the closing of the
purchase and sale of the MEDIQ Shares (the "Closing") will be held on December
31, 1996 or on such other date as the Company and MEDIQ may mutually agree. At
the Closing, the Company shall pay that portion of the Purchase Price for the
MEDIQ Shares other than the MEDIQ Shares then held in escrow (the "MEDIQ
Escrowed Shares") by delivering to MEDIQ cash in an amount equal to $9.00
multiplied by the number of such MEDIQ Shares not held in escrow, and shall pay
that portion of the Purchase Price for the MEDIQ Escrowed Shares by delivering a
promissory note in favor of MEDIQ in the original principal amount equal to
$9.00 multiplied by such number of MEDIQ Escrowed Shares, secured by a letter of
credit reasonably acceptable in form and substance to MEDIQ. The MEDIQ Stock
Repurchase is subject to various conditions, including shareholder approval.
26
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The Stock Purchase Agreement provides that the obligations of the Company to
enter into and complete the transaction contemplated thereby are subject to,
among other things, (i) the Company having received financing upon terms and for
such amount necessary to fulfill its obligations under the Stock Purchase
Agreement, (ii) the Company having received a favorable vote of its stockholders
other than MEDIQ with respect to the consummation of the transactions
contemplated by the Stock Purchase Agreement, (iii) the Board of Directors of
the Company having received a fairness opinion from an internationally
recognized investment banking firm to the effect that the transactions
contemplated by the Stock Purchase Agreement are fair from a financial point of
view to the stockholders of the Company (other than MEDIQ), and (iv) the Board
of Directors of MEDIQ having received a fairness opinion from an internationally
recognized investment banking firm to the effect that the transactions
contemplated by the Stock Purchase Agreement are fair from a financial point of
view to the stockholders of MEDIQ.
The Stock Purchase Agreement provides that the obligations of MEDIQ to enter
into and complete the transactions contemplated thereby are subject to, among
other things, (i) the Company having obtained and provided to MEDIQ the letter
of credit securing the Company's obligations under the Note, (ii) the Company
having received a favorable vote of its stockholders other than MEDIQ with
respect to the consummation of the transactions contemplated by the Stock
Purchase Agreement, (iii) the Board of Directors of the Company having received
a fairness opinion from an internationally recognized investment banking firm to
the effect that the transactions contemplated by the Stock Purchase Agreement
are fair from a financial point of view to the stockholders of the Company
(other than MEDIQ), and (iv) the Board of Directors of MEDIQ having received a
fairness opinion from an internationally recognized investment banking firm to
the effect that the transactions contemplated by the Stock Purchase Agreement
are fair from a financial point of view to the stockholders of MEDIQ.
The Stock Purchase Agreement provides that each of the Company and MEDIQ (each,
an "Indemnifying Party") shall indemnify and hold the other party and its
officers, directors and stockholders (each, an "Indemnified Party") harmless
against and in respect of any and all losses, costs, expenses, claims, damages,
obligations and liabilities, including interest, costs of investigation,
penalties and reasonable attorneys' fees and disbursements which such
Indemnified Party may suffer, incur or become subject of arising out of, based
upon or otherwise in respect of any inaccuracy in or breach of any
representation or warranty of the Indemnifying Party made in or pursuant to the
Stock Purchase Agreement or any agreement or document required to be delivered
pursuant to the Stock Purchase Agreement or any breach or nonfulfillment of any
covenant or obligation of the Indemnifying Party contained in the Stock Purchase
Agreement or such other agreements and documents.
The Stock Purchase Agreement may be terminated and the transactions contemplated
thereunder may be abandoned at any time prior to the Closing (i) by the Company
or MEDIQ, if the Closing has not occurred by December 31, 1996, (ii) by mutual
consent of the Company and MEDIQ, (iii) by the Company, if any representation or
warranty of MEDIQ made in or pursuant to the Stock Purchase Agreement is untrue
or incorrect in any material respect, MEDIQ breaches its covenants or other
terms of the Stock Purchase Agreement or any of the Company's conditions
precedent to Closing contained therein are not satisfied on or before December
31, 1996, or any event or circumstance occurs such that any of such conditions
will not be satisfied as of such date, or (iv) by MEDIQ, if any representation
or warranty of the Company made in or pursuant to the Stock Purchase Agreement
is untrue or incorrect in any material respect, the Company breaches the
covenants or other terms of the Stock Purchase Agreement or any of MEDIQ's
conditions precedent to Closing contained therein are not satisfied on or before
December 31, 1996 or any event or circumstance occurs such that any of such
conditions will not be satisfied as of such date.
27
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE N - MAJOR CUSTOMERS
Substantially all customers are retailers. No base of customers in one
geographic area constitutes a significant portion of sales. American Home
Products, Inc. accounted for 11%, 14% and 17% of net sales in 1996, 1995, and
1994 respectively, and Wal-Mart Stores, Inc. accounted for 11%, 9% and 8% of net
sales in 1996, 1995 and 1994 respectively.
NOTE O - SUBSEQUENT EVENT
On October 10, 1996, the Company entered into an agreement with Aid-Pack Limited
Partnership to purchase the land and building located at 9 Blackburn Drive,
Gloucester, Massachusetts currently leased by the Company. The purchase price is
$1,975,000 and the Company will finance the purchase using mortgage financing.
The closing is scheduled for December 15, 1996 and is contingent upon the
satisfactory completion of an environmental study.
PART III
The information required to be included herein has been incorporated herein by
reference to the Registrant's proxy statement relating to the annual meeting of
its stockholders scheduled to be held in December 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) The response to this portion of Item 14 is submitted as a separate
section of this report commencing on page 11.
(a) (2) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts and Reserves
Other schedules are omitted because of the absence of conditions under which
they are required.
(a) (3) and (c) Exhibits (numbered in accordance with Item 601 of
Regulation S-K).
28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Method of Filing
- -------------- ----------- ----------------
<S> <C> <C>
2(a) Amended and Restated Stock Purchase
Agreement among MEDIQ Incorporated, MEDIQ
Investment Services, Inc. and the Company,
dated November 20, 1996 (9)
3(a) Restated and Amended Certificate of
Incorporation (1)
3(b) Amendment, filed June 12, 1991, to the
Company's Certificate of Incorporation (1)
3(c) Amendment, filed March 5, 1992 to the
Company's Certificate of Incorporation (2)
3(d) By-Laws (1)
10(a) Employment Agreement between the Company
and Donald E. Lepone, dated November 28, 1993 (3)
10(b) Employment Agreement between the Company
and Richard Zakin, dated January 1, 1994 (3)
10(c) Employment Agreement between the Company
and Gary A. LeDuc, dated January 1, 1994 (4)
10(h) 1988 Stock Option Plan (adopted
April 28, 1988) (5)
10(i) Amendment No. 1 to the 1988 Stock Option Plan (2)
10(j) Amendment No. 2 to the 1988 Stock Option Plan (2)
10(k) Amendment No. 3 to the 1988 Stock Option Plan (2)
10(l) Amendment No. 4 to the 1988 Stock Option Plan (3)
10(m) Tax Allocation/Sharing Agreement between
the Company and MEDIQ Incorporated, dated
July 25, 1990 (1)
10(n) Lease Agreement, dated January 1, 1987,
between The Aid-Pack Limited Partnership
and Aid-Pack, Inc. (6)
</TABLE>
29
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION METHOD OF FILING
- -------------- ----------- ----------------
<S> <C> <C>
10(o) Lease Extension Agreement, dated May 1, 1991,
between The Aid-Pack Limited Partnership
and the Company (6)
10(p) Registration Rights Agreement, dated July 1, 1991
between MEDIQ Incorporated and the Company (7)
10(q) Amendment to Registration Rights Agreement, dated
July 1, 1991 among MEDIQ, MEDIQ Investment Services,
Inc. and the Company (8)
10(r) Services Agreement, dated August 22, 1991
between MEDIQ Incorporated and the Company (7)
10(s) Revolving Credit and Security Agreement between
the Company and State Street Bank and Trust Company (8)
10(t) Revolving Credit and Security Agreement between
State Street Bank and Trust Company (8)
10(u) Letter to State Street Bank and Trust dated February 29, 1996,
re: Amendment No. 2 to Revolving Credit, Term Loan and Security (10)
Agreement and Trademark Assignment Agreement
10(v) Letter to State Street Bank and Trust dated March 4, 1996, (10)
re: Amendment No. 3 to Revolving Credit, Term Loan and Security
Agreement and Revolving Time Note
10(w) Form of Secured Acquisition Promissory Note. (10)
10(x) Form of Amended and Restated Revolving Time Note.
21 Subsidiaries of the Company (9)
23 Consent of Deloitte & Touche LLP,
Independent Certified Public Accountants (9)
27 Financial Data Schedule (9)
</TABLE>
(1) Filed as an Exhibit to the Company's Registration Statement on Form S-1
on July 5, 1991, and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal
year 1992, and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal
year 1994, and incorporated herein by reference.
(4) Filed as a Exhibit to the Company's Annual Report on Form 10-K for
Fiscal year 1995 and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1990, and incorporated herein by reference.
(6) Filed as an Exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 on August 15, 1991, and incorporated herein by
reference.
(7) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal
year 1991, and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal
1993, and incorporated herein by reference.
(9) Filed herewith.
(10) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended June 29, 1996
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the fourth
quarter of fiscal 1996.
30
<PAGE>
SIGNATURES
Pursuant to requirements of Section 13 of 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: November 20, 1996 NUTRAMAX PRODUCTS, INC.
By: /s/ Donald E. Lepone
--------------------------------
Donald E. Lepone, President
and Chief Executive Officer
By: /s/ Robert F. Burns
--------------------------------
Robert F. Burns, Vice
President, Treasurer and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, which include at least a
majority of the Board of Directors on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Bernard J. Korman Chairman of the Board November 20, 1996
- ---------------------
Bernard J. Korman
/s/ Donald E. Lepone President, Chief November 20, 1996
- -------------------- Executive Officer and
Donald E. Lepone Director
/s/ Donald M. Gleklen Director November 20, 1996
- ---------------------
Donald M. Gleklen
/s/ Frederick W. McCarthy Director November 20, 1996
- -------------------------
Frederick W. McCarthy
/s/ Dennis M. Newnham Director November 20, 1996
- ---------------------
Dennis M. Newnham
/s/ Michael F. Sandler Director November 20, 1996
- ----------------------
Michael F. Sandler
</TABLE>
31
<PAGE>
NUTRAMAX PRODUCTS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COL. A COL. B COL. C - Additions COL. D COL. E
---------- ----------------------- ---------- ---------
(1) (2)
Description Balance at Charged to Charged to Deductions Balance
Beginning Costs and Other at End
of Period Expenses Accounts of Period
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended September 28, 1996:
Allowance for doubtful accounts $ 601,000 $ 425,000 $ 296,000 $ (613,000) $ 709,000
========== ========== ========== ========== =========
Year ended September 30, 1995:
Allowance for doubtful accounts $738,000 $149,000 $ -- $(286,000) $601,000
========== ========== ========== ========== =========
Year ended October 1, 1994:
Allowance for doubtful accounts $375,000 $337,000 $ 73,000 $ (47,000) $738,000
========== ========== ========== ========== =========
</TABLE>
(1) Includes allowance from acquisition of Oral Care in 1996 and Powers in 1994.
(2) Represents accounts directly written-off net of recoveries.
32
<PAGE>
EXHIBIT C
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
This AMENDED AND RESTATED STOCK PURCHASE AGREEMENT, dated as of November 20,
1996 (the "Agreement"), among MEDIQ Incorporated, a Delaware corporation
("MEDIQ"), MEDIQ Investment Services, Inc., a Delaware corporation ("MIS" and
together with MEDIQ, collectively the "Seller"), and NutraMax Products, Inc.,
a Delaware corporation (the "Company"), amends and restates in its entirety
the Stock Purchase Agreement dated September 18, 1996, by and between Seller
and the Company.
W I T N E S S E T H:
WHEREAS, Seller owns 4,037,258 shares of Common Stock of the Company (the
"NutraMax Shares"); and
WHEREAS, as of the date hereof, 2,254,902 of the NutraMax Shares are held in
escrow in support of MEDIQ's 7 1/2% Subordinated Debentures due 2003 (the
"Bonds") pursuant to that certain Indenture dated as of July 30, 1993 between
MEDIQ and First Fidelity Bank, N.A., Pennsylvania (the "Indenture") and that
certain Escrow Agreement dated July 30, 1993 among MEDIQ, MIS and First
Fidelity Bank, N.A., Pennsylvania (the "Escrow Agreement"); and
WHEREAS, the Seller desires to sell and the Company desires to purchase all
of the NutraMax Shares in accordance with the terms and conditions hereof; and
WHEREAS, pursuant to Section 11.14 of the Indenture, MEDIQ has the right to
deliver cash in lieu of the Escrowed Shares upon exchange of the MEDIQ Bonds.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties, the parties hereto
agree as follows:
1. SALE OF THE SHARES
1.1 On the dates and in the amounts as set forth herein, the Seller shall
transfer, assign, sell and deliver to the Company, and the Company shall
purchase from the Seller all of the NutraMax Shares for a purchase price of
$9.00 per share (the "Purchase Price"), or $36,335,332 in the aggregate for
all NutraMax Shares. The closing (the "Closing") of the sale and purchase and
delivery of all of the NutraMax Shares other than any NutraMax Shares then
held in escrow pursuant to the Indenture and the Escrow Agreement (the
"Escrowed Shares") shall be held as provided in Section 1.2 and thereafter the
sale and purchase and delivery against payment of the Note (as hereinafter
defined) of Escrowed Shares shall occur as provided in Section 1.3.
1.2 Closing. The Closing of the purchase and sale of the NutraMax Shares
(other than the Escrowed Shares) shall be held on December 31, 1996 or such
other date as Seller and the Company may mutually agree (the "Closing Date").
At the Closing (i) the Purchase Price for the NutraMax Shares other than the
Escrowed Shares shall be paid by the Company by wire transfer pursuant to
instructions previously given by Seller to the Company for that purpose
against delivery of certificates for the NutraMax Shares so purchased duly
endorsed or accompanied by stock powers duly executed in blank; and (ii)
payment for the Escrowed Shares shall be made by delivery by the Company to
Seller of a promissory note of the Company in favor of Seller substantially in
the form attached hereto as Exhibit A, in an original principal amount equal
to the aggregate number of Escrowed Shares multiplied by $9.00 (the "Note")
secured by a letter of credit reasonably acceptable in form and substance to
Seller (the "Letter of Credit").
1.3 Delivery of Escrowed Shares. Seller shall, as Escrowed Shares are
released from escrow under the Indenture and Escrow Agreement, upon 3 business
days prior notice to the Company, sell, transfer, assign and deliver such
Escrowed Shares to the Company free and clear of all liens, claims,
encumbrances and restrictions (other than as imposed by applicable securities
laws), upon receipt by Seller from the Company of a prepayment of the Note in
an amount equal to the Purchase Price of the Escrowed Shares so delivered.
Notwithstanding the foregoing, the Company shall not be required to prepay the
Note and accept delivery of any of the Escrowed Shares except in lots of no
less than 50,000 shares; provided, however, if there are less than 50,000
Escrowed Shares remaining, the Company shall be required to prepay the Note
upon delivery of such remaining Escrowed Shares.
C-1
<PAGE>
1.4 Delivery of Cash. To the extent that any holder of a MEDIQ Bond or Bonds
(other than Seller) presents such MEDIQ Bond or Bonds for exchange for
Escrowed Shares in accordance with the terms of the Indenture and MEDIQ
delivers Escrowed Shares to such holder, (i) the principal amount of the Note
shall be reduced by an amount equal to the product of the number of Escrowed
Shares so delivered by MEDIQ to such holder and $9.00, and (ii) the principal
amount of the Note shall further be reduced by an amount (the "Excess Cash
Amount") equal to the product of the number of Escrowed Shares so delivered by
MEDIQ to such holders and the number which is equal to (X) $1,000 divided by
the then Exchange Rate (as such term is defined in the Indenture) minus (Y)
$9.00, provided, however, that in lieu of such further reduction in the
principal amount of the Note under the foregoing clause (ii), the Company may
elect to receive an amount in cash from Seller equal to the Excess Cash
Amount.
1.5 Voting of Escrowed Shares, etc. Seller agrees that, from and after the
Closing, (i) at any meeting of stockholders of the Company, however called, or
in connection with a written consent of the Company's stockholders, Seller
shall deliver to the Company an irrevocable proxy authorizing the Board of
Directors of the Company to vote all of the Escrowed Shares in the same
proportion as the votes of the holders of all the other shares of Common Stock
of the Company at any such meeting or pursuant to any such consent, and (ii)
the Company shall be entitled to receive any and all dividends paid or payable
with respect to the Escrowed Shares (other than dividends apportioned to the
Escrowed Shares pursuant to Section 11.05 of the Indenture to which Seller is
not entitled); provided, however, that the obligations of Seller under the
foregoing clause (i) and the right of the Company to receive dividends
pursuant to the foregoing clause (ii) shall terminate upon an event of default
under the Note.
2. CERTAIN REPRESENTATIONS AND WARRANTIES
2.1 Certain Representations and Warranties by the Seller. The Seller
represents and warrants to the Company that:
(a) Organization and Good Standing. Each Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has all necessary corporate power and authority to
carry on its business and to own and lease the assets which it owns and
leases.
(b) Power and Authorization. Each Seller has full legal right, power and
authority to enter into and perform its obligations under this Agreement
and the other agreements and documents required to be delivered by it
hereunder. The execution, delivery and performance by each Seller of this
Agreement and such other agreements and documents have been duly authorized
by all necessary corporate action on the part of Seller. This Agreement has
been duly and validly executed and delivered by each Seller and constitutes
its legal, valid and binding obligation, enforceable against it in
accordance with its terms. When executed and delivered by such Seller as
contemplated herein, each of such other agreements and documents shall
constitute the legal, valid and binding obligation of each Seller,
enforceable against it in accordance with its terms.
(c) No Conflicts. (i) Neither the execution of this Agreement nor the
consummation by each Seller of the transactions contemplated hereby will
constitute a violation of or default under, or conflict with, any statute
or regulation, contract, commitment, agreement, understanding, arrangement
or restriction of any kind to which such Seller is a party or by which it
or any of its properties are bound (which, in relation to a contract,
commitment, agreement, understanding, arrangement or restriction would have
a material adverse effect on the Seller or prohibit the transactions
contemplated herein) and (ii) no consent, approval, order or authorization
of any court, administrative agency, other governmental entity or any other
person is required (as opposed to voluntary) by or with respect to such
Seller in connection with the execution and delivery of this Agreement by
such Seller.
(d) Ownership of Shares. (i) Upon transfer and delivery of the NutraMax
Shares by the Seller hereunder to the Company, as provided herein, Company
shall acquire good and marketable title to such shares, free and clear of
all claims, liens, charges, proxies, encumbrances and security interests
and (ii) the Seller does not own beneficially (as hereinafter defined) or
of record any shares of common stock of the Company other than the NutraMax
Shares.
C-2
<PAGE>
(e) No Broker. Neither Seller nor any director, officer, employee of
Seller has incurred or will incur on behalf of the Company any brokerage,
finder's or similar fee in connection with the transactions contemplated by
this Agreement.
2.2 Certain Representations and Warranties by the Company. The Company
represents and warrants to the Seller that:
(a) Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has all necessary corporate power and authority to
carry on its business and to own and lease the assets which it owns and
leases.
(b) Power and Authorization. The Company has legal right, power and
authority to enter into and perform its obligations under this Agreement
and the other agreements and documents required to be delivered by it
hereunder. The execution, delivery and performance by the Company of this
Agreement and such other agreements and documents have been duly authorized
by all necessary corporate action pursuant to the Delaware General
Corporation Law and otherwise. The transactions contemplated by this
Agreement have been approved by a special committee of the board of
directors composed entirely of directors who are not officers or employees
of the Company and/or present or former employees or consultants of MEDIQ.
This Agreement has been duly and validly executed and delivered by the
Company and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms. When executed and
delivered as contemplated herein, each of such other agreements and
documents shall constitute the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms.
(c) No Conflicts. (i) Neither the execution of this Agreement nor the
consummation by the Company of the transactions contemplated hereby will
constitute a violation of or default under, or conflict with, any statute
or regulation, contract, commitment, agreement, understanding, arrangement,
obligation, duty or restriction of any kind to which the Company is a party
or by which it or any of its properties is bound and (ii) no consent,
approval, order or authorization of or by the stockholders of the Company
or of any court, administrative agency, other governmental entity or any
other person (other than that which has already been obtained) is required
(as opposed to voluntary) by or with respect to the Company in connection
with the execution and delivery of this Agreement by it.
(d) Company SEC Documents. The Company has timely filed with the
Securities and Exchange Commission (the "SEC"), and has heretofore
delivered to Seller true, correct and complete copies of, all forms,
reports, schedules, statements and other documents required to be filed
with the SEC by it since December 31, 1993 pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act") or the Securities Act of 1933
(the "Securities Act") (such documents, as supplemented and amended since
the time of filing, collectively, the "NutraMax SEC Documents"). The
NutraMax SEC Documents, including, without limitation, any financial
statements or schedules included therein, at the time filed (and in the
case of registration statements and proxy statements, on the dates of
effectiveness and the date of mailing, respectively) (a) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated herein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may
be. The financial statements of the Company included in the NutraMax SEC
Documents at the time filed (and, in the case of registration statements
and proxy statements, on the date of effectiveness and the date of mailing,
respectively) complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
Commission with respect thereto, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the
period involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q of the Commission),
and fairly present (subject in the case of unaudited statements to normal,
recurring audit adjustments) the consolidated financial position of the
Company as at the dates thereof and the consolidated results of its
operations and cash flows for the periods then ended.
C-3
<PAGE>
(e) Capitalization. The Company's authorized issued and outstanding
capital stock and its other securities are fully and accurately described
in the Company's most recent SEC reports. Except for shares subject to the
Company's employee stock option and similar employee benefits plans, no
person has any preemptive or other similar rights and with respect to any
such equity interests or other securities and there are no offers, options,
warrants, rights, agreements or commitments of any kind (contingent or
otherwise) relating to the issuance, conversion, registration, voting, sale
or transfer of any equity interests or other securities of the Company
(including, without limitation, the NutraMax Shares) or obligating the
Company or any other person to purchase or redeem any such equity interests
or other securities.
(f) No Brokers. Neither the Company nor any director, officer or employee
of the Company has incurred or will incur on behalf of the Company, any
brokerage, finder's or similar fee in connection with the transactions
contemplated by this Agreement.
3. CONDITIONS PRECEDENT
3.1 Mutual Condition. The obligation of the Company and the Seller to enter
and consummate the transactions contemplated hereby is subject to the
satisfaction of the following condition: the transactions contemplated hereby
shall not violate any order or decree of any court or governmental body of
competent jurisdiction and no suit, action, proceeding or investigation shall
have been brought or threatened by any person (other than Seller or the
Company) which questions the validity or legality of this Agreement or any of
the transactions contemplated hereby.
3.2 Certain Conditions Precedent to the Company's Obligations. The
obligation of the Company to enter into and complete the transactions
contemplated hereby is subject to the fulfillment (or waiver in writing by the
Company in its sole discretion) on or prior to the Closing Date of the
conditions that:
(a) the representations and warranties of the Seller contained in this
Agreement shall be true and correct in all material respects on and as of
the date hereof and on the Closing Date with the same force and effect as
though made on and as of the Closing Date;
(b) the Seller shall have performed and complied in all material respects
with all covenants and agreements required by this Agreement to be
performed or complied with by the Seller on or prior to the Closing Date;
(c) the Seller shall have delivered to the Company a certificate, dated
the Closing Date and signed by a duly authorized officer of the Seller, to
the foregoing effect; and
(d) the Company shall have received financing upon terms and for such
amount necessary to fulfill its obligations hereunder.
(e) Seller shall have delivered to the Company an opinion of counsel to
the Seller as to the matters set forth in Section 2.1(a), (b), (c) and (d)
hereof (provided that with respect to Sections 2.1(c) and (d) the opinion
need only relate to such factual matters as to which such counsel has
knowledge.
(f) the Company shall have received a favorable vote of its shareholders
other than Seller with respect to the consummation of the transactions
contemplated by this Agreement.
(g) the Board of Directors of the Company shall have received a fairness
opinion from an internationally recognized investment banking firm to the
effect that the transactions contemplated by this Agreement are fair from a
financial point of view to the Shareholders of the Company (other than the
Seller).
(h) the Board of Directors of the Seller shall have received a fairness
opinion from an internationally recognized investment banking firm to the
effect that the transactions contemplated by this Agreement are fair from a
financial point of view to the shareholders of the Seller.
C-4
<PAGE>
3.3 Certain Conditions Precedent to Seller's Obligations. The obligation of
the Seller to enter into and complete the transactions contemplated hereby is
subject to the fulfillment (or waiver in writing by the Seller in its sole
discretion) on or prior to the Closing Date of the conditions that:
(a) the representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on and as of
the date hereof and on the Closing Date with the same force and effect as
though made on and as of the Closing Date;
(b) the Company shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complete with the by the Company on or prior to the Closing
Date;
(c) the Company shall have delivered to Seller a certificate, dated the
Closing Date and signed by a duly authorized officer of the Company, to the
foregoing effect;
(d) the Company shall have obtained at its own expense and provided to
Seller the Letter of Credit securing its obligations under the Note; and
(e) the Company shall have delivered to Seller an opinion of counsel to
the Company as to the matters set forth in Section 2.2(a), (b), (c) hereof
(provided that with respect to Section 2.2(c) the opinion need only relate
to agreements as to which such counsel has knowledge).
(f) the Company shall have received a favorable vote of its shareholders
other than Seller with respect to the consummation of the transactions
contemplated by this Agreement.
(g) the Board of Directors of the Company shall have received a fairness
opinion from an internationally recognized investment banking firm to the
effect that the transactions contemplated by this Agreement are fair from a
financial point of view to the Shareholders of the Company (other than the
Seller).
(h) the Board of Directors of the Seller shall have received a fairness
opinion from an internationally recognized investment banking firm to the
effect that the transactions contemplated by this Agreement are fair from a
financial point of view to the shareholders of the Seller.
4. CLOSING DELIVERIES
4.1 Seller's Deliveries. At the Closing, Seller shall deliver, or shall
cause to be delivered to the Company the following:
(a) certificates for all of the NutraMax Shares other than the Escrowed
Shares, duly endorsed or accompanied by stock powers duly executed in
blank;
(b) an irrevocable proxy authorizing the Board of Directors of the
Company to vote all of the Escrowed Shares, in form and substance
reasonably satisfactory to the parties; provided that such proxy shall
terminate upon an event of default under the Note;
(c) copies of the resolutions of the Board of Directors of each Seller
authorizing the execution, delivery and performance of this Agreement,
certified as of the Closing by the Secretary or an Assistant Secretary of
Seller; and
(d) such other documents and instruments as the Company may reasonably
request to effectuate or evidence the transactions contemplated by this
Agreement;
C-5
<PAGE>
4.2 The Company's Deliveries. At the Closing, the Company shall deliver, or
shall cause to be delivered to Seller the items described below:
(a) the Closing Payment;
(b) the Note;
(c) the Letter of Credit; and
(d) a copy of the resolutions of the Board of Directors of the Company
and each committee thereof authorizing the execution, delivery and
performance by the Company of this Agreement and the other agreements and
instruments referred to herein, certified as of the Closing by the
Secretary or an Assistant Secretary of the Company.
5. INDEMNIFICATION
5.1 Indemnification by Seller. Seller shall indemnify and hold the Company
and its officers, directors and shareholders harmless against and in respect
of any and all losses, costs, expenses, claims, damages, obligations and
liabilities, including interest, costs of investigation, penalties and
reasonable attorneys' fees and disbursements ("Damages") which Buyer or any
such person may suffer, incur or become subject to arising out of, based upon
or otherwise in respect of any inaccuracy in or breach of any representation
or warranty of Seller made in or pursuant to this Agreement or any agreement
or document required to be delivered pursuant to this Agreement or any breach
or nonfulfillment of any covenant or obligation of Seller contained in this
Agreement or such other agreements and documents.
5.2 Indemnification by the Company. The Company shall indemnify and hold
Seller and its officers, directors and shareholders harmless against and in
respect of any and all Damages which Seller or any such person may suffer,
incur or become subject to arising out of, based upon or otherwise in respect
of any inaccuracy in or breach of any representation or warranty of the
Company made in or pursuant to this Agreement or any agreement or document
required to be delivered pursuant to this Agreement or any breach or
nonfulfillment of any covenant or obligation of the Company contained in this
Agreement or such other agreements and documents.
5.3 Third Party Claims.
(a) Each party shall promptly notify the other of the assertion by any
third party of any claim with respect to which the indemnification set
forth in this Section relates. The indemnifying party shall have the right,
upon notice to the indemnified party within ten (10 business days after the
receipt of any such notice, to undertake the defense of or, with the
consent of the indemnified party (which consent shall not unreasonably be
withheld), to settle or compromise such claim. The failure of the
indemnifying party to give such notice and to undertake the defense of or
to settle or compromise such a claim shall constitute a waiver of the
indemnifying party's rights under this Section 5.3(a) and in the absence of
gross negligence or willful misconduct on the part of the indemnified party
shall preclude the indemnifying party from disputing the manner in which
the indemnified party may conduct the defense of such claim or the
reasonableness of any amount paid by the indemnified party in satisfaction
of such claim.
(b) The election by the indemnifying party, pursuant to Section 5.3(a),
to undertake the defense of a third party claim shall not preclude the
party against which such claim has been made also from participating or
continuing to participate in such defense, so long as such party bears its
own legal fees and expenses for so doing.
6. MISCELLANEOUS
6.1 Best Efforts. Each of the parties shall use its best reasonable efforts
to take all action and do all things necessary, proper or advisable to
consummate the transaction contemplated by this Agreement.
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<PAGE>
6.2 Parties in Interest; Assignment. Neither of the parties to this
Agreement may assign any of its rights or obligations under this Agreement
without the prior written consent of the other party hereto, provided that
Seller may pledge, assign or otherwise transfer part or all of its interest in
and to the Note without such consent. Subject to the foregoing, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted assigns.
6.3 Entire Agreement; Amendments; Waiver. This Agreement contains the entire
understanding between the Seller and the Company with respect to its specific
subject matter. This Agreement may be amended only by written instrument duly
executed by the parties hereto. No party may waive any term, provision,
covenant or restriction of this Agreement except by duly signed writing
referring to the specific provision to be waived.
6.4 Notices. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be delivered personally or transmitted
by telex, fax or telegram, to the respective parties as follows:
(a) If to the Seller, to it at:
MEDIQ Incorporated
One MEDIQ Plaza
Pennsauken, New Jersey 08110-1460
Attention: Thomas E. Carroll, President
Telecopier: (609) 661-0958
with a copy to:
Drinker, Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
Attention: F. Douglas Raymond, III, Esquire
Telecopier: (215) 988-2757
(b) If to the Company, to it at:
NutraMax Products, Inc.
9 Blackburn Drive
Gloucester, Massachusetts 01930
Attention: Donald E. Lepone, President
Telecopier: 508-281-7824
with a copy to:
Goodwin, Procter & Hoar
Exchange Place
Boston, Massachusetts 02109
Attention: Richard E. Floor, P.C.
Telecopier: 617-570-8150
or to such other address as any party may have furnished to the others in
writing.
6.5 Governing Law. This Agreement will be governed by and construed in
accordance with the internal laws of the State of Delaware.
6.6 Survival. All representations, warranties, covenants and agreements of
the parties hereto shall survive indefinitely the Closing.
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<PAGE>
6.7 Termination.
(a) This Agreement may be terminated and the transactions contemplated
herein may be abandoned at any time prior to the Closing:
(i) by Company or Seller, if the Closing has not occurred by December
31, 1996;
(ii) by mutual consent of Company and Seller;
(iii) by Company, if any representation or warranty of Seller made in
or pursuant to this Agreement is untrue or incorrect in any material
respect, Seller breaches its covenants or other terms of this Agreement
or any of the conditions precedent to Closing contained in Section 3.2
are not satisfied on or before December 31, 1996; or any event or
circumstance occurs such that any of such conditions will not be
satisfied as of such date; or
(iv) by Seller, if any representation or warranty of Company made in
or pursuant to this Agreement is untrue or incorrect in any material
respect, Company breaches the covenants or other terms of this
Agreement or any of the conditions precedent to Closing contained in
Section 3.3 are not satisfied on or before December 31, 1996 or any
event or circumstance occurs such that any of such conditions will not
be satisfied as of such date.
(b) A party terminating this Agreement pursuant to Section 6.7 shall give
written notice thereof to each other party hereto, whereupon this Agreement
shall terminate and the transactions contemplated hereby shall be abandoned
without further action by any party; provided, however, that if such
termination is pursuant to Section 6.7(a)(i) by reason of a breach by a
party hereto, such termination is by Company pursuant to Section
6.7(a)(iii) or if such termination is by Seller pursuant to Section
6.7(a)(iv), nothing herein shall affect the non-breaching party's right to
damages on account of such other party's breach.
6.8 Specific Performance. The Seller acknowledges that the NutraMax Shares
are unique and that the Company will not have an adequate remedy at law if the
Seller fails to perform any of its obligations hereunder, and the Seller
agrees that the Company shall have the right, in addition to any other right
it has, to specific performance or equitable relief by way of injunction if
the Seller fails to perform any of its obligations hereunder.
6.9 Counterparts; Headings. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same document. The article and
section headings contained herein are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
6.10 Expenses. Each of the parties hereto shall pay the fees and expenses it
incurs in connection with this Agreement, other than as a result of the breach
hereof by the other party hereto.
6.11 Certain Definitions. For purposes of the Agreement:
(a) "beneficially owned" shall have the meaning set forth in Rule 13d-3
promulgated under the Exchange Act, as such Rule is in effect on the date
hereof.
(b) "business day" means any day which is neither a Saturday or Sunday
nor a legal holiday on which banks are authorized or required to be closed
in New York, New York or Philadelphia, Pennsylvania.
6.12 Stock Splits, etc. The number of NutraMax Shares and the purchase price
therefor specified in this Agreement shall be appropriately adjusted for any
stock split, reverse stock split, stock dividend or any similar event
occurring after the date hereof and prior to the consummation of the purchase
and sale of all such NutraMax Shares.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written.
MEDIQ INCORPORATED
By: /s/ Michael F. Sandler
-----------------------------------
MEDIQ INVESTMENT SERVICES, INC.
By: /s/ Michael F. Sandler
-----------------------------------
NUTRAMAX PRODUCTS, INC.
By: /s/ Donald E. Lepone
-----------------------------------
C-9
<PAGE>
EXHIBIT A TO STOCK PURCHASE AGREEMENT
PROMISSORY NOTE
_______________________________________________________________ , 1996
FOR VALUE RECEIVED, NutraMax Products, Inc., a Delaware corporation with its
principal place of business at 9 Blackburn Drive, Gloucester, MA 01930
("Company"), hereby promises to pay to the order of MEDIQ Investment Services,
Inc. ("Seller"), a Delaware corporation with its principal place of business
c/o MEDIQ Incorporated ("MEDIQ"), One MEDIQ Plaza, Pennsauken, NJ 08110-1460,
the principal amount of Dollars ($ ) in
installments as Escrowed Shares (as defined in that certain Amended and
Restated Stock Purchase Agreement among MEDIQ, Seller and Company, dated as of
November 20, 1996 (the "Purchase Agreement")) are released from escrow under
the Indenture and the Escrow Agreement (as such terms are defined in the
Purchase Agreement) in accordance with Section 1.3 of the Purchase Agreement,
together with interest at the annual rate of 7 1/2%, payable quarterly in
arrears; provided, however, that (i) if this Note is still outstanding
eighteen (18) months after the Closing Date (as such date is defined in the
Purchase Agreement), the annual interest rate of this Note shall be reduced to
5%; (ii) if this Note is still outstanding thirty (30) months after the
Closing Date, the annual interest rate on this Note shall be reduced to 4%;
and (iii) if this Note is still outstanding forty-two (42) months after the
Closing Date, the annual interest rate on this Note shall be reduced to 3%.
Notwithstanding the foregoing, the outstanding principal amount of this Note
is subject to reduction in accordance with the terms of the Purchase Agreement
and is subject in all respects thereto.
Payments of principal and interest shall be made in lawful money of the
United States of America by wire transfer of immediately available funds to
Seller at One MEDIQ Plaza, Pennsauken, New Jersey 08110-1460 or at such other
place as Seller shall designate to Company in writing.
This Note is entitled to be benefits of, and is secured by that certain
Letter of Credit issued by The First National Bank of Boston (the "Letter of
Credit").
The failure of Company to make any payment of principal or interest when due
under this Note shall consititute an "Event of Default" hereunder. Upon the
occurrence of an Event of Default, Seller may draw on the Letter of Credit to
satisfy the obligations of Company hereunder.
Payment under this Note is subject to the terms and conditions of the
Purchase Agreement, including, without limitation, the delivery of Escrowed
Shares to Company pursuant to Section 1.3 thereof.
This Note shall inure to the benefit of Seller and its successors and
assigns and shall be binding upon Company and its successors and assigns.
Subject to applicable law, this Note may be amended, modified and supplemented
only by written agreement of both Company and Seller.
Any notice, request or other communication pursuant to this Note shall be
deemed duly given if delivered pursuant to the notice provisions contained in
the Purchase Agreement.
No failure or delay on the part of Seller to insist on strict performance of
Company's obligations hereunder or to exercise any remedy shall constitute a
waiver of Seller's rights in that or any other instance. No waiver of any of
Seller's rights shall be effective unless in writing, and any waiver of any
default or any instance of non-compliance shall be limited to its express
terms and shall not extend to any other default or instance of non-compliance.
Company hereby waives presentment, notice of nonpayment or dishonor,
protest, notice of protest and all other notices in connection with the
delivery, acceptance, performance, default or enforcement of payment of this
Note, and hereby waives all notice or right of approval of any extensions,
renewals, modifications or forbearances which may be allowed.
C-10
<PAGE>
Company shall pay all reasonable costs and expenses (including attorneys'
fees) incurred by Seller relating to the enforcement of this Note.
Any provision hereof found to be illegal, invalid or enforceable for any
reason whatsoever shall not affect the validity, legality or enforceability of
the remainder hereof.
If the effective interest rate on this Note would otherwise violate any
applicable usury law, then the interest rate shall be reduced to the maximum
permissible rate and any payment received by Seller in excess of the maximum
permissible rate shall be treated as a prepayment of the principal of this
Note.
The execution, delivery and performance of this Note shall be governed by
and construed in accordance with the laws of the State of Delaware.
C-11
<PAGE>
IN WITNESS WHEREOF, Company has caused this Note to be executed under seal
by its duly authorized representatives as of the date set forth above.
NUTRAMAX PRODUCTS, INC.
By:
-----------------------------------
Name:
Title:
ATTEST:
--------------------------
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<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Set forth below is a list of NutraMax Products, Inc.'s subsidiaries, as of
November 20, 1996, with their respective states of incorporation. All of such
subsidiaries were wholly-owned by the Company as of such date.
<TABLE>
<CAPTION>
Name State of Incorporation
<S> <C>
Optopics Laboratories Corporation DE
Fairton Realty Holdings, Inc. DE
Powers Pharmaceutical Corporation (1) DE
Certified Corp. DE
Oral Care, Inc. DE
Florence Realty, Inc. MA
</TABLE>
(1) Subsidiary of Certified Corp.
<PAGE>
EXHIBIT 23
AUDITORS' CONSENT
INDEPENDENTS AUDITORS' CONSENT
We Consent to the incorporation by reference in Registration Statement No. 33-
46553 of NutraMax Products, Inc. Form S-3, Registration Statement No. 33-61724
of NutraMax Products, Inc. on From S-3 and Registration Statement No. 33-47175
of NutraMax Products, Inc. on Form S-8 of our report dated November 8, 1996,
(November 18, 1996 as to Note M) (which expresses an unqualified opinion and
includes an explanatory paragraph relating to the Company's agreement, subject
to various conditions, including shareholder approval, to repurchase
approximately four million shares of its common stock) appearing in the Annual
Report on Form 10-K of NutraMax Products, Inc. for the year ended September 28,
1996.
Deloitte & Touche LLP
Boston Massachusetts
November 21, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 294
<SECURITIES> 0
<RECEIVABLES> 13,557
<ALLOWANCES> 709
<INVENTORY> 18,321
<CURRENT-ASSETS> 32,882
<PP&E> 42,726
<DEPRECIATION> 13,519
<TOTAL-ASSETS> 82,878
<CURRENT-LIABILITIES> 23,391
<BONDS> 11,780
0
0
<COMMON> 9
<OTHER-SE> 45,808
<TOTAL-LIABILITY-AND-EQUITY> 82,878
<SALES> 80,479
<TOTAL-REVENUES> 80,479
<CGS> 57,686
<TOTAL-COSTS> 57,686
<OTHER-EXPENSES> 11,662
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,479
<INCOME-PRETAX> 9,363
<INCOME-TAX> 3,680
<INCOME-CONTINUING> 5,683
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,683
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
</TABLE>
