<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 1, 1996
-or-
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
------------------- -------------------
Commission file number: 0-19524
TECNOL MEDICAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1516861
- - -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
7201 INDUSTRIAL PARK BLVD.
FORT WORTH, TEXAS 76180
(Address of principal executive offices)
Registrant's telephone number, including area code: (817) 581-6424
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
------ ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--------- ---------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
19,956,825 shares common stock, par value $.001, as of July 10, 1996
<PAGE> 2
TECNOL MEDICAL PRODUCTS, INC.
FORM 10-Q INDEX
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets as of
December 2, 1995, and June 1, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income for the Quarters and
Year-to-Date Periods Ended June 3, 1995, and June 1, 1996 . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows for the Year-to-
Date Periods Ended June 3, 1995, and June 1, 1996 . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Interim Financial Statements . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to Vote of Security Holders . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TECNOL MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 2, June 1,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS (unaudited)
------
CURRENT ASSETS:
Cash and cash equivalents $ 230,401 $ 2,356,454
Accounts receivable, net of allowance
for doubtful accounts of $857,000 in 1995
and $881,000 in 1996 22,712,480 25,323,744
Inventories 34,007,789 29,164,285
Other current assets 2,567,580 3,011,763
------------ ------------
Total current assets 59,518,250 59,856,246
NET PROPERTY, PLANT AND EQUIPMENT 43,505,530 45,965,258
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $2,290,000 in 1995 and $2,946,000 in 1996 35,194,066 39,414,608
Other purchased intangible assets, net of
accumulated amortization of $2,432,000 in
1995 and $2,802,000 in 1996 1,061,102 1,079,987
Patents and trademarks, net of accumulated
amortization of $476,000 in 1995 and $590,000
in 1996 2,278,506 2,342,574
Other 1,882,196 1,787,185
------------ ------------
Total other assets 40,415,870 44,624,354
------------ ------------
Total assets $143,439,650 $150,445,858
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE> 4
TECNOL MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
Dec. 2, June 1,
1995 1996
------------ ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 4,830,532 $ 4,257,455
Bank line of credit borrowings 3,530,000 -
Accrued expenses 2,911,498 2,989,497
Income taxes payable 372,343 518,926
Current maturities of long-term debt 2,771,610 6,634,055
------------ ------------
Total current liabilities 14,415,983 14,399,933
LONG-TERM DEBT, net of current maturities 13,000,581 11,232,264
DEFERRED INCOME TAXES 5,480,589 5,080,589
------------ ------------
Total liabilities 32,897,153 30,712,786
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 1,000,000
shares authorized, no shares issued - -
Common stock, $.001 par value, 50,000,000
shares authorized, 21,091,021 shares issued
in 1995 and 21,115,925 shares issued in 1996 21,091 21,116
Additional paid-in capital 27,601,899 27,740,177
Retained earnings 87,754,688 96,854,163
------------ ------------
115,377,678 124,615,456
Less-treasury stock, at cost:
1,157,052 shares in 1995 and 1,159,489 shares in 1996 3,481,994 3,529,197
Less-unearned employee stock ownership shares,
90,000 shares in 1995 and 1996 1,353,187 1,353,187
------------ ------------
Total stockholders' equity 110,542,497 119,733,072
------------ ------------
Total liabilities and stockholders' equity $143,439,650 $150,445,858
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE> 5
TECNOL MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Quarters Ended June 3, 1995, and June 1, 1996
<TABLE>
<CAPTION>
Quarter Ended Year-To-Date
----------------------------- -------------------------------
June 3, June 1, June 3, June 1,
1995 1996 1995 1996
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
NET SALES $34,395,425 $36,338,381 $63,098,686 $71,582,002
COST OF GOODS SOLD 17,630,159 20,317,158 32,526,895 39,895,887
----------- ----------- ----------- -----------
Gross profit 16,765,266 16,021,223 30,571,791 31,686,115
SELLING EXPENSES 5,888,503 6,242,520 10,902,964 11,931,216
GENERAL AND ADMINISTRATIVE EXPENSES 1,904,112 1,948,599 3,823,889 4,016,858
RESEARCH AND DEVELOPMENT EXPENSES 469,185 403,429 835,915 861,420
----------- ----------- ----------- -----------
Income from operations 8,503,466 7,426,675 15,009,023 14,876,621
OTHER INCOME (EXPENSE):
Interest income 13,885 88,006 46,959 93,475
Interest expense (354,726) (214,695) (653,218) (600,490)
Other, net (351,527) (246,467) (740,464) (703,987)
----------- ----------- ----------- -----------
Total other income (expense) (692,368) (373,156) (1,346,723) (1,211,002)
----------- ----------- ----------- -----------
Income before provision
for income taxes 7,811,098 7,053,519 13,662,300 13,665,619
PROVISION FOR INCOME TAXES 2,873,640 2,288,170 5,016,594 4,566,144
----------- ----------- ----------- -----------
NET INCOME $4,937,458 $4,765,349 $8,645,706 $9,099,475
=========== =========== =========== ===========
Net income per common and common
equivalent share $0.25 $0.24 $0.43 $0.45
=========== =========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding 20,117,632 20,172,505 20,080,406 20,152,694
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE> 6
TECNOL MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Year-to-Date Periods Ended June 3, 1995, and June 1, 1996
<TABLE>
<CAPTION>
Year to Date
----------------------------------
June 3, June 1,
1995 1996
------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,645,706 $ 9,099,475
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,225,848 2,222,710
Amortization 997,668 1,172,787
Increase (decrease) in deferred income taxes 210,000 (400,000)
Net change in assets and liabilities, excluding acquisitions-
Accounts receivable (4,064,582) (2,611,264)
Other current assets (470,507) (444,183)
Inventories (5,536,016) 5,396,025
Accounts payable 1,742,565 (823,077)
Accrued expenses (552,731) 75,674
Income taxes payable 253,894 146,583
------------- -----------------
Total adjustments (5,193,861) 4,735,255
------------- -----------------
Net cash provided by operating activities 3,451,845 13,834,730
------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (4,050,282) (4,282,438)
Cash paid for acquisitions, net of cash acquired (2,058,325) (5,169,463)
Expenditures for patents and trademarks (188,791) (178,696)
Increase in other assets (246,976) (68,308)
------------- -----------------
Net cash used in investing activities (6,544,374) (9,698,905)
------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank line of credit 2,210,000 (3,530,000)
Proceeds from bank loan - 5,500,000
Principal payments on long-term debt (1,926,470) (4,070,872)
Net proceeds from exercise of stock options 397,970 91,100
------------- -----------------
Net cash provided by (used in) financing activities 681,500 (2,009,772)
------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,411,029) 2,126,053
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 2,559,997 230,401
------------- -----------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 148,968 $ 2,356,454
============= =================
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 749,466 $ 630,324
Income taxes $ 4,608,010 $ 5,041,927
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of note for acquisition of assets $ - $ 665,000
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE> 7
TECNOL MEDICAL PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the generally accepted accounting principles
for interim financial information and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the quarter and year-to-date periods ended June 1, 1996
are not necessarily indicative of the results that may be expected for the
fiscal year ending November 30, 1996.
The Company's fiscal year is the fifty-two or fifty-three week period ending
on the Saturday nearest to November 30. The quarter and year-to-date periods
ended June 3, 1995 and June 1, 1996 each include thirteen and twenty-six weeks,
respectively. The fiscal year ending November 30, 1996, will include 52 weeks.
NOTE 2 -- NET INCOME PER SHARE
The following table reconciles the number of common shares shown as
outstanding on the consolidated balance sheet with the number of common and
common equivalent shares used in computing primary net income per share:
<TABLE>
<CAPTION>
Quarter Year-to-Date
------------------------------ ------------------------------
June 3, June 1, June 3, June 1,
1995 1996 1995 1996
---------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Common shares outstanding 19,913,168 19,956,436 19,913,168 19,956,436
Effect of using weighted average common
and common equivalent shares
outstanding during the period (27,591) (15,935) (25,920) (16,229)
Effect of using weighted average
unearned ESOP shares (108,750) (78,750) (112,500) (82,500)
Effect of assuming exercise of
outstanding stock options based on the
treasury stock method 340,805 310,754 305,658 294,987
---------- ---------- ---------- ----------
Shares used in computing primary net
income per share 20,117,632 20,172,505 20,080,406 20,152,694
========== ========== ========== ==========
</TABLE>
Primary and fully diluted net income per share are not materially different.
7
<PAGE> 8
TECNOL MEDICAL PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
Net income per common and common equivalent share was computed by dividing
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding during the periods. Stock options are the only
common stock equivalents.
NOTE 3 -- LONG-TERM DEBT
Long-term debt at December 2, 1995, and June 1, 1996, consists of the
following:
<TABLE>
<CAPTION>
Dec. 2, June 1,
1995 1996
----------- -----------
<S> <C> <C>
Industrial Revenue Bonds $ 3,600,000 $ 3,600,000
Bank term loans 11,537,500 13,112,500
Other installment obligations 634,691 1,153,819
----------- -----------
15,772,191 17,866,319
Less-current maturities (2,771,610) (6,634,055)
----------- -----------
$13,000,581 $11,232,264
=========== ===========
</TABLE>
NOTE 4 -- INVENTORIES
Inventories at December 2, 1995, and June 1, 1996, consist of the
following:
<TABLE>
<CAPTION>
Dec. 2, June 1,
1995 1996
----------- -----------
<S> <C> <C>
Raw materials $16,162,047 $14,504,345
Work-in-process 1,008,336 1,704,471
Finished goods 16,837,406 12,955,469
----------- -----------
$34,007,789 $29,164,285
=========== ===========
</TABLE>
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 2, 1995, and June 1, 1996,
consists of the following:
<TABLE>
<CAPTION>
Dec. 2, June 1,
1995 1996
----------- -----------
<S> <C> <C>
Land $ 6,108,588 $ 6,118,717
Buildings and improvements 13,787,825 14,256,815
Automotive equipment 2,825,575 2,985,771
Manufacturing equipment 30,771,624 33,066,032
Office furniture and equipment 7,829,785 8,998,301
Construction-in-progress 3,138,329 3,718,528
----------- -----------
64,461,726 69,144,164
Less accumulated depreciation (20,956,196) (23,178,906)
----------- -----------
$43,505,530 $45,965,258
=========== ===========
</TABLE>
8
<PAGE> 9
The Company increased the useful life on certain manufacturing equipment
from 10 years to 20 years, reducing depreciation expense on these machines by
approximately $400,000 for the six month period of fiscal year 1996 as compared
to the six month period of fiscal year 1995.
NOTE 6 -- CONTINGENCIES
On August 21, 1995, a class action lawsuit was filed in the United States
District Court for the Northern District of Texas against the Company and
several executive officers of the Company. The class action suit was brought by
a stockholder on his own behalf and on behalf of other persons who purchased
the Company's stock from the period January 10, 1995, to July 17, 1995. The
suit claims that the defendants disseminated false and misleading statements to
the investing public with respect to a 1995 inventory reduction in the
Company's products taken by the Company's largest distributor, resulting in an
artificially high price for Company stock. The suit seeks an unspecified
amount of damages. Management intends to defend the allegations vigorously.
The Company is a party to certain other litigation and claims arising out of
the conduct of its business. While the final outcome of any litigation cannot
be determined with certainty, management believes that the final outcome of any
current litigation will not have a material adverse effect on the consolidated
financial position or results of operations of the Company.
9
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This analysis of the Company's operations encompassing the quarter and
year-to-date periods ended June 3, 1995, and June 1, 1996, should be considered
in conjunction with the condensed consolidated balance sheets, statements of
operations and statements of cash flows.
Results of Operations
- - ---------------------
Net sales increased 5.6% from $34.4 million in the second quarter of fiscal
1995 to $36.3 million in the second quarter of fiscal 1996. For the six month
period, net sales increased 13.4% from $63.1 million in fiscal 1995 to $71.6
million in fiscal 1996. The growth in net sales was principally the result of
increases in unit sales of existing products, new product introductions and
increased sales from contract manufacturing. The Company experienced
significant sales increases in its Specialty Markets and Industrial/Safety
divisions for the second quarter of fiscal 1996 compared to the second quarter
of fiscal 1995 (24.2% and 32.5%, respectively) and the six month period of
fiscal 1996 compared to the six month period of fiscal 1995 (25.4% and 34.6%,
respectively). Sales for the Hospital Products division increased 3.8% for the
six month period in fiscal 1996 as compared to fiscal 1995; however, sales for
the second quarter of fiscal 1996 decreased 14.1% compared to a strong second
quarter of fiscal 1995. The International division experienced a sales
increase of 20.3% for the second quarter of fiscal 1996 compared to the second
quarter of fiscal 1995 as shipments which were delayed from the first quarter
of fiscal 1996 occurred in the second quarter of fiscal 1996, resulting in
sales increasing 7.3% for the six month period of fiscal 1996 compared to the
six month period of fiscal 1995. Sales for the Orthopedics division decreased
8.5% for the second quarter and 4.3% for the six month period in fiscal 1996 as
compared to fiscal 1995 primarily because the Company lost sales in certain low
margin SPORTS SUPPORTS(R) products as prices were raised to increase overall
profitability. Contract manufacturing generated sales of approximately $2.9
million in the second quarter of fiscal 1996 and $4.2 million for the six month
period of fiscal 1996 compared to approximately $200,000 for the six month
period of fiscal 1995.
The gross profit margin decreased from 48.7% in the second quarter of fiscal
1995 to 44.1% in the second quarter of fiscal 1996. For the six month period,
the gross profit margin decreased from 48.5% in fiscal 1995 to 44.3% in fiscal
1996. The decrease in the gross profit margin during fiscal 1996 compared to
fiscal 1995 is primarily due to unabsorbed overhead costs associated with lower
production levels as the Company reduced its finished goods inventory,
inefficiencies of transitioning labor-intensive products to its Mexican
manufacturing facility, transition costs from the Sparta wound care
acquisition, and anticipated lower margins associated with contract
manufacturing. Additionally, the gross profit margin was negatively impacted
by a change in mix of products sold as the Company's highest margin division,
the Hospital Products division, accounted for 46% of sales in the second
quarter of fiscal 1996 compared to 57% for the second quarter of fiscal 1995 as
significant sales increases continued in contract manufacturing and the
alternate care and industrial safety markets. For the first six months of
fiscal 1996, the Hospital Products division accounted for 50% of Company sales.
Because significant aspects of the foregoing factors are anticipated to
continue, management does not expect gross profit margin to return to the level
of the first six months of fiscal 1995. Gross profit margin was positively
impacted as the Company increased the useful life on certain manufacturing
equipment from 10 years to 20 years, reducing depreciation
10
<PAGE> 11
expense on these machines by approximately $400,000 for the six month period of
fiscal year 1996 as compared to the six month period of fiscal year 1995.
Selling expenses increased 6.0% from $5.9 million in the second quarter of
fiscal 1995 to $6.2 million in the second quarter of fiscal 1996. The increase
in the second quarter of fiscal year 1996 compared to the second quarter of
fiscal year 1995 is primarily due to certain expenses associated with the
introduction of the PFR95(TM) respirator mask. For the six month period,
selling expenses increased 9.4% from $10.9 million in fiscal 1995 to $11.9
million in fiscal 1996. As a percentage of net sales, selling expenses have
increased slightly from 17.1% of net sales in the second quarter of fiscal 1995
to 17.2% of net sales in the second quarter of fiscal 1996 and decreased from
17.3% in the first six months of fiscal 1995 to 16.7% in the first six months
of fiscal 1996. The decrease in selling expenses as a percentage of net sales
for the six month period is primarily due to the fixed nature of most of these
expenses as the Company did not increase the number of its sales territories,
and contract manufacturing sales required minimal selling expenses.
General and administrative expenses remained constant at $1.9 million for
the second quarter of fiscal 1995 and the second quarter of fiscal 1996. For
the six month period, general and administrative expenses have increased from
$3.8 million in fiscal 1995 to $4.0 million in fiscal 1996. As a percentage of
net sales, general and administrative expenses were 5.5% in the second quarter
of 1995 (6.1% in the first six months of 1995) compared to 5.4% in the second
quarter of 1996 (5.6% in the first six months of 1996). Research and
development expenses decreased by 14.0% from approximately $469,000 in the
second quarter of fiscal 1995 to approximately $403,000 in the second quarter
of fiscal 1996. For the six month period, research and development expenses
increased 3.1% from $836,000 in fiscal 1995 to $861,000 in fiscal 1996.
Income from operations decreased 12.7% from $8.5 million in the second
quarter of fiscal 1995 to $7.4 million in the second quarter of fiscal 1996.
For the six month period, income from operations decreased 1.0% from $15.0
million in fiscal 1995 to $14.9 million in fiscal 1996. Operating margin
decreased from 24.7% in the second quarter of fiscal 1995 to 20.4% in the
second quarter of fiscal 1996. For the six month period, operating margin
decreased from 23.8% in fiscal 1995 to 20.8% in 1996. The decrease in
operating margin is primarily a result of the decrease in gross profit margin
previously mentioned.
Other income (expense) represented expense of approximately $373,000 in the
second quarter of fiscal 1996, compared to expense of approximately $692,000 in
the second quarter of fiscal 1995. The decrease in expense was caused
primarily from lower interest expense resulting from a reduction in outstanding
debt, and additional interest income related to cash equivalents and past due
receivables, which were partially offset by an increase in amortization expense
of certain purchased intangible assets. For the six month period, other
expense totaled approximately $1.2 million in fiscal 1996, compared to
approximately $1.3 million in fiscal 1995. Amortization expense included in
other income (expense) was approximately $413,000 in the second quarter of
fiscal 1995, compared to approximately $504,000 in the second quarter of fiscal
1996. For the six month period, this amortization expense was approximately
$800,000 in 1995, compared to approximately $993,000 in 1996.
Tecnol's effective income tax rate decreased from 36.7% for the six month
period of fiscal 1995 to 33.4% for the six month period of fiscal 1996. This
decrease was primarily due to a revision in estimated reserves required for
federal income taxes.
11
<PAGE> 12
Net income decreased 3.5% from $4.9 million in the second quarter of fiscal
1995 to $4.8 million in the second quarter of 1996 as a result of the foregoing
factors. For the six month period, net income increased 5.2% from $8.6 million
in fiscal 1995 to $9.1 million in fiscal 1996. Net income per share decreased
4.0% from $0.25 in the second quarter of fiscal 1995 to $0.24 in the second
quarter of fiscal 1996. For the six month period, net income per share
increased 4.7% from $0.43 in fiscal 1995 to $0.45 in fiscal 1996.
There have been recent legislative proposals designed to significantly
reform the way health care services are provided in the United States. The
Company cannot predict whether any significant legislation will be enacted into
law or, if enacted, what effect the legislation will have on its business.
There are also changes in the structure and business methods within the health
care industry, initiated by the private sector through managed care and other
strategies. The objective of some of these changes is to reduce costs of
health care. These changes include changes in the methods and strategies used
in the sales, marketing, distribution and purchasing of medical devices. The
Company cannot quantify what effect, if any, these changes will have on its
business.
Liquidity and Capital Resources
- - -------------------------------
The Company believes that cash flow from operations, together with existing
cash and cash equivalents and periodic utilization of its line of credit, will
be sufficient to meet working capital requirements and normal capital
expenditures for at least the next twelve months. The Company is currently in
the process of evaluating its facilities requirements for manufacturing,
warehousing of inventory, engineering, product development and office space.
Remodeling of and additions to existing facilities to meet some of these
requirements are expected during fiscal 1996. An addition of approximately
36,000 square feet to the Company's headquarters facility to accommodate the
Company's engineering and product development groups is currently being
considered. The design has not been concluded but the current estimated cost of
this addition is $2,500,000 to $3,000,000. During fiscal 1995, the Company
paid approximately $1.8 million for 25 acres of land to build a new
distribution facility. The distribution facility is currently in the design
phase and the method of financing has not yet been determined. Construction of
this facility is anticipated to take 18 months. The Company has entered into
an interim lease of distribution space and has deferred construction of the
distribution center while adequate interim space remains available. The
Company is planning to build a second manufacturing facility in Mexico to be in
operation by early fiscal 1997. The cost of this facility, including land, is
estimated to be approximately $2,000,000. The Company may use long-term
financing for these facilities projects and any acquisition opportunities that
may arise.
The Company's working capital increased from $45.1 million at the end of
fiscal 1995 to $45.5 million at June 1, 1996. Net cash generated by operating
activities for the fiscal year-to-date period ended June 1, 1996, totaled $13.8
million. For the six month period of fiscal 1996, cash generated by operating
activities, together with $5.5 million from borrowings under a bank loan, was
used to finance a $5.2 million acquisition, $4.3 million in capital
expenditures, repayment of long-term debt of $4.1 million, and $3.5 million
repayment of the bank line of credit. Accounts receivable increased from $22.7
million at the end of fiscal year 1995 to $25.3 million at June 1, 1996,
primarily due to an increase in net sales for the second quarter of fiscal 1996
as compared to the fourth quarter of fiscal 1995. The decrease in inventory
from $34.0 million on December 2, 1995, to $29.2 million on June 1, 1996, is
due to higher sales and lower production levels as the Company continued
efforts to reduce its inventory.
12
<PAGE> 13
On June 1, 1996, the Company had no amounts outstanding and $10,000,000
available under its bank line of credit. The line of credit expires March 12,
1997. The Company also had $2,250,000 available under a reducing revolving
bank line of credit.
Forward-Looking Statements
- - --------------------------
Statements, either written or oral, which express the Company's expectation
for the future with respect to financial performance or operating strategies
can be identified as forward-looking statements. These statements are made to
provide the public with management's assessment of the Company's business.
Caution must be taken to consider these statements in light of the following
factors: the Company assumes that products in development will be introduced
successfully and on schedule; the Company will make acquisitions which
contribute to profitability; key distributors will make purchases at the same
level as their sales; demand for the Company's products will follow recent
growth trends; the Company will continue to expand into markets other than U.S.
hospitals; competitors will not introduce new products which will substantially
reduce Tecnol's market share in its most significant product lines; conversion
from standard face masks to specialty face masks will continue in the markets
Tecnol serves; and the Company will continue to manufacture high quality
products at competitive costs and maintain or increase product pricing. In the
event any of the above factors do not occur as management anticipates, actual
results could differ materially from the expectations expressed in the
forward-looking statements.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
The Company held its annual stockholders meeting on April 11, 1996. At the
annual meeting, Valerie Hubbard and Jack Johnson were re-elected as Class II
directors. The number of votes cast for, withheld from, cast against and the
number of broker nonvotes with respect to Mrs. Hubbard was 15,715,737; 560,296;
0 and 0, respectively. The number of votes cast for, withheld from, cast
against and the number of broker nonvotes with respect to Mr. Johnson was
15,770,659; 505,374; 0 and 0, respectively. The terms of office of the Class
III directors, Van Hubbard and Kirk Brunson, continue until 1997. The terms of
office of the Class I directors, James Kenney and David Radunsky, continue
until 1998.
Also at the annual meeting, the stockholders approved an amendment to the
1991 Tecnol Stock Option Plan (the "Plan") to increase the number of shares of
common stock as to which options can be granted under the Plan from 1,500,000
to 2,000,000 and to extend its term. The number of votes cast for, cast
against, the number of abstentions and the number of broker nonvotes with
respect to the proposed amendment was 15,836,724; 353,986; 62,323 and 23,000,
respectively.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - The following exhibits are filed as part of this report:
10(a)(1) Amendment to 1991 Tecnol Stock Option Plan adopted
February 25, 1993
10(a)(2) Amendment to 1991 Tecnol Stock Option Plan effective
October 12, 1995
10(b)(15) $10,000,000 Promissory Note (Revolving Line of Credit) of
Tecnol dated March 13, 1996, payable to NationsBank of
Texas, N.A.
10(b)(22) First 1996 Modification Agreement dated effective March
13, 1996, by and among Tecnol, NationsBank Texas, N.A.,
Tecnol, Inc., TCNL Technologies, Inc., Tecnol
International (V.I.), Inc., La Ada de Acuna, S.A., Tecnol
Consumer Products, Inc., Tecnadyne Scientific Incorporated
and Tecnol New Jersey Wound Care, Inc., modifying and
extending the Third Amended and Restated Loan Agreement
** 10(k) Jeffrey A. Nick Incentive Stock Option, Trade Secret,
Invention and Non-Competition Agreement dated November 20,
1995
10(o)(1) Form of Incentive Stock Option, Trade Secret, Invention
and Non-Competition Agreement
27 Financial Data Schedule
** Management contract or compensatory plan or arrangement.
(b) No reports on Form 8-K were filed during the quarter ended June 1, 1996.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECNOL MEDICAL PRODUCTS, INC.
----------------------------------------
(Registrant)
Date: July 15, 1996 /s/David Radunsky
------------- ----------------------------------------
DAVID RADUNSKY, Chief Operating Officer
Date: July 15, 1996 /s/Jeffrey A. Nick
------------- ----------------------------------------
JEFFREY A. NICK, Vice President Finance
and Accounting
15
<PAGE> 16
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
10(a)(1) Amendment to 1991 Tecnol Stock Option Plan adopted
February 25, 1993
10(a)(2) Amendment to 1991 Tecnol Stock Option Plan effective
October 12, 1995
10(b)(15) $10,000,000 Promissory Note (Revolving Line of Credit) of
Tecnol dated March 13, 1996, payable to NationsBank of
Texas, N.A.
10(b)(22) First 1996 Modification Agreement dated effective March
13, 1996, by and among Tecnol, NationsBank Texas, N.A.,
Tecnol, Inc., TCNL Technologies, Inc., Tecnol
International (V.I.), Inc., La Ada de Acuna, S.A., Tecnol
Consumer Products, Inc., Tecnadyne Scientific Incorporated
and Tecnol New Jersey Wound Care, Inc., modifying and
extending the Third Amended and Restated Loan Agreement
** 10(k) Jeffrey A. Nick Incentive Stock Option, Trade Secret,
Invention and Non-Competition Agreement dated November 20,
1995
10(o)(1) Form of Incentive Stock Option, Trade Secret, Invention
and Non-Competition Agreement
27 Financial Data Schedule
** Management contract or compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 10(A)(1)
Resolutions passed at the Meeting of the Board of Directors of Tecnol Medical
Products, Inc.
February 25, 1993
RESOLVED, that paragraph 17 of the 1991 Tecnol Stock Option Plan (the
"Plan") be and it hereby is amended to read as follows:
17. Written Agreement. Each Option granted under this
Plan will be embodied in a written agreement that will be subject to
the terms and conditions prescribed above, and will be signed by the
Optionee and by the President or any Vice President of the Company
for, in the name of, and on behalf of the Company. If the agreement
is entered into before February 25, 1993, or if the agreement is
between the Company and an officer, director or holder of 10% or more
of any class of equity securities of the Company within the meaning of
Section 16 of the Securities Exchange Act of 1934, as amended, then
the Agreement will prohibit the transfer of Common Stock issued upon
exercise of an Option for two (2) years after the date on which the
Option is exercised (excluding transfers to the Company, members of
the Optionee's immediate family, or trusts for the benefit of the
Optionee or members of the Optionee's immediate family, provided that
the Common Stock transferred in either of the latter two cases will
remain subject to the remainder of the two year prohibition on
transfer) and such other provisions as the Committee in its discretion
deems advisable.
<PAGE> 1
EXHIBIT 10(A)(2)
AMENDMENT TO 1991 TECNOL STOCK OPTION PLAN
This Amendment to the 1991 Tecnol Stock Option Plan (the "Plan") is
hereby entered into by Tecnol Medical Products, Inc. (the "Company"), and by
adoption of this amendment, it is hereby ratified and confirmed that the
following facts are true and correct.
W I T N E S S E T H:
A. Tecnol, Inc., a Texas corporation, entered into the Plan
effective as of June 27, 1991. The Plan authorized the granting of options for
up to two hundred thousand (200,000) shares of the common stock of Tecnol,
Inc., provided that the aggregate number of shares would be subject to
adjustment in the event of changes in the capital structure of Tecnol, Inc.
B. On July 1, 1991, Tecnol, Inc. was merged into the Company.
The terms of the merger provided that each share of common stock of Tecnol,
Inc. would be converted into five shares of common stock of the Company. The
terms of the merger, along with the provisions of Paragraph 14 of the Plan
regarding the effect of a merger on the number of shares for which options
could be granted under the Plan, resulted in an increase in the number of
shares for which options could be granted under the Plan to one million
(1,000,000). As of July 2, 1991, the stockholders of the Company adopted the
Plan, and the Board of Directors of the Company succeeded to the rights of the
Board of Directors of Tecnol, Inc. under the Plan.
C. On February 3, 1993, the Board of Directors of the Company
announced a three-for-two stock dividend on the shares of the common stock of
the Company. One effect of the stock dividend was to increase the number of
shares for which options could be granted under the Plan to one million five
hundred thousand (1,500,000).
D. Pursuant to Paragraph 16 of the Plan, the Board of Directors
of the Company retained the right, subject to the approval of the Company
stockholders, to modify or revise the Plan.
E. The Board of Directors of the Company desires to amend the
Plan as set forth herein.
NOW THEREFORE, the 1991 Tecnol Stock Option Plan is hereby amended as
follows:
1. The second sentence of Paragraph 3 of the Plan shall
be amended to read in its entirety as follows:
"The total amount of Common Stock for which Options may be granted
under this Plan may not exceed in the aggregate two million (2,000,000)
shares."
2. Paragraph 18 of the Plan shall be amended to read in its
entirety as follows:
"Paragraph 18. Effective Date of Plan. The Plan was originally
adopted on June 27, 1991, and is amended effective October 12, 1995, the date
of the adoption of this amendment by the Company's Board of Directors, subject
to the approval of the stockholders of the Company of this
<PAGE> 2
amendment on or before October 11, 1996. Such approval is a condition
subsequent to the approval of this amendment by the Board of Directors which,
if not satisfied, will result in this amendment being of no force or effect.
No Option will be granted pursuant to the Plan after October 11, 2005."
Except as modified herein, the Plan shall continue as adopted.
TECNOL MEDICAL PRODUCTS, INC.
By: /s/David Radunsky
---------------------------------
Its: Chief Operating Officer
---------------------------------
<PAGE> 1
EXHIBIT 10(B)(15)
68003/90066
PROMISSORY NOTE
(REVOLVING LINE OF CREDIT)
$10,000,000.00 Dallas, Texas March 13, 1996
FOR VALUE RECEIVED, TECNOL MEDICAL PRODUCTS, INC., a Delaware
corporation (herein called "Borrower") hereby promises to pay to the order of
NATIONSBANK OF TEXAS, N.A., a national banking association ("Bank") at its
banking house in the City of Dallas, Dallas County, Texas, the principal sum of
TEN MILLION DOLLARS ($10,000,000.00), or for much thereof as may be advanced,
together with interest on the unpaid principal balance of this Note from day to
day outstanding, as hereinafter provided.
1. Definitions. When used in this Note, the following terms
shall have the following meanings:
"Business Days" means any day other than a Saturday, Sunday or other
day on which commercial banks are open for business in Dallas, Texas.
"CD Interest Period" means, with respect to any CD Rate Election:
(a) initially, the period commencing on the date
such CD Rate Election is made and ending thirty, ninety, one
hundred eighty or three hundred sixty days thereafter as
selected by Borrower, and
(b) thereafter, each period commencing on the day
following the last day of the next preceding CD Interest
Period applicable to such CD Rate Election and in each case
ending thirty, ninety, one hundred eighty, or three hundred
sixty days thereafter, as selected by Borrower;
provided, however, that (i) if any CD Interest Period would end on a
day that is not a Business Day, such CD Interest Period shall be
extended to the next succeeding Business Day, and (ii) if any CD
Interest Period would otherwise end after the Maturity Date, such CD
Interest Period shall end on the Maturity Date.
"CD Margin" means one and one-half percent (1 1/2%) per annum.
"CD Quoted Rate" means, with respect to any CD Interest Period, the
rate of interest per annum determined by Bank (in accordance with its
customary practices) to be the rate per annum offered to Bank at
approximately 9:00 a.m. (Dallas, Texas time) on the first day of such
CD Interest Period for the purchase at face value of a domestic
certificate of
<PAGE> 2
deposit from Bank in an amount equal or comparable to the principal
amount of the corresponding CD Rate Election as of such first day and
for a period of time equal or comparable to the length of such CD
Interest Period.
"CD Rate" means, for each CD Rate Election, the rate per annum
(rounded upward if necessary, to the nearest 1/10 of 1%) determined by
Bank to be equal to the sum of (i) the quotient of (a) the CD Quoted
Rate for such CD Rate Election for such CD Interest Period divided by
(b) 1 minus the CD Reserve Requirement; plus (2) the FDIC Percentage;
plus (3) the CD Margin, all as per the following formula:
CD Quoted Rate + FDIC + CD
------------------------------
1 - CD Reserve Requirement Percentage Margin
"CD Reserve Requirement" means, for any CD Rate Election, for any CD
Interest Period therefor, the daily average of the stated maximum rate
(expressed as a decimal) at which reserves (including any marginal,
supplemental, or emergency reserves) are required to be maintained
during such CD Interest Period under Regulation D by member banks of
the Federal Reserve System in Dallas with deposits exceeding
$1,000,000,000 against new non-personal dollar time deposits in the
amount of $100,000 or more and with a maturity comparable to the CD
Interest Period for such CD Rate Election. Without limiting the
effect of the foregoing, the CD Reserve Requirement shall reflect any
other reserves required to be maintained by Bank against (a) any
category of liabilities that includes deposits by reference to which
the CD Rate for CD Rate Elections is to be determined, or (b) any
category of extension of credit or other assets that include CD Rate
Elections.
"CD Rate Election" means an election by Borrower, as hereinafter
provided, to cause a portion of the Loan to be segregated into a
separate account and to bear interest at the CD Rate rather than the
Stated Rate for the term of the Election.
"Default Rate" means, on any day, a rate per annum equal to the Stated
Rate plus five percent (5%) per annum computed using the 365/360
method described below.
"Election" means a CD Rate Election or a Libor Rate Election.
"Event of Default" means (a) any principal, interest or other amount
of money due under this Note is not paid in full when due, regardless
of how much amount may have become due and such failure continues
beyond any notice and grace period set forth in Section 7.1 of the
Loan Agreement; or (b) the occurrence of any Event of Default under
the Loan Agreement; or (c) the occurrence of any default or event of
default under Bank's $5,000,000.00 loan to Anago Incorporated and
assumed by Tecnol, Inc. pursuant to a Consent and Assumption Agreement
dated June 30, 1994 as amended and restated by an Amended and Restated
Promissory Note dated July 1, 1994 in the stated principal amount
-2-
<PAGE> 3
of $4,500,000 or any documents evidencing, governing, securing,
guaranteeing or otherwise pertaining to such loan.
"FDIC Percentage" means the net assessment rate (expressed as a
percentage rounded to the next highest .01 of 1%) that is in effect on
any day (under the regulations of the Federal Deposit Insurance
Corporation or any successor agency) for determining assessments paid
by Bank to the Federal Deposit Insurance Corporation (or any successor
agency) for insuring time deposits made in dollars at Bank's principal
offices in Dallas, Texas.
"Libor Lending Office" means the office designated by Bank as its
"Libor Lending Office" or such other office of Bank or any of its
affiliates hereafter designated by notice to Borrower.
"Libor Margin" means one and one-half percent (1 1/2%) per annum.
"Libor Rate" means a simple per annum interest rate equal to the sum
of the Libor Rate Basis plus the Libor Margin. The Libor Rate shall,
with respect to Libor Advances subject to reserve or deposit
requirements imposed by any governmental or regulatory authority, be
subject to premiums assessed therefor by Bank, which are payable
directly to Bank. Once determined, the Libor Rate shall remain
unchanged during the applicable Libor Rate Interest Period.
"Libor Rate Basis" means, for any Libor Rate Interest Period, the
interest rate per annum (rounded upward to the nearest 1/16th of one
percent) determined by Bank at approximately 9:00 a.m., on the date
which is three Business Days before the first day of such Libor Rate
Interest Period to be the offered quotations that appear on the
Reuter's Screen LIBO page for dollar deposits in the London interbank
market for a length of time approximately equal to the Libor Rate
Interest Period for the Libor Rate Election sought by Borrower. If at
least two such offered quotations appear on the Reuter's Screen LIBO
page, the Libor Rate shall be the arithmetic mean (rounded upward to
the nearest 1/16th of one percent) of such offered quotations, as
determined by Bank. If the Reuter's Screen LIBO page is not available
or has been discontinued, the Libor Rate Basis shall be the rate per
annum that Bank determines to be the arithmetic mean (rounded as
aforesaid) of the per annum rates of interest at which deposits in
dollars in an amount approximately equal to the principal amount of,
and for a length of time approximately equal to the Libor Rate
Interest Period for, the Libor Rate Election sought by Borrower are
offered to Bank in immediately available funds in the London interbank
market at 11:00 a.m., London time, on the date which is three Business
Days prior to the first day of a Libor Rate Interest Period.
-3-
<PAGE> 4
"Libor Rate Election" means an election by Borrower, as hereinafter
provided, to cause a portion of the previously advanced proceeds of
the Loan to be segregated into a separate account and bear interest at
the Libor Rate, rather than the Stated Rate for the term of the
Election.
"Libor Rate Interest Period" means, with respect to any Libor Rate
Election, the period commencing on the date such Libor Rate Election
is effective and ending not less than one month, three months, six
months, or twelve months thereafter, as selected by Borrower;
provided, however, that (i) if any Libor Rate Interest Period would
end on a day that is not a Business Day, such Libor Interest Rate
Period shall be extended to the next succeeding Business Day, and (ii)
if any Libor Rate Interest Period would otherwise end after the
Maturity Date, such Libor Interest Rate Period shall end on the
Maturity Date.
"Loan" means the loan evidenced by this Note.
"Loan Agreement" means that certain Third Amended and Restated Loan
Agreement dated as of November 15, 1993 among Bank and Borrower
governing, among other things, disbursements of proceeds of the Loan
and certain other loans from Bank to Borrower, as it may have been or
may be amended, restated, modified or supplemented from time to time,
including, but not limited to, the Modification Agreement dated as of
July 1, 1994, the Modification Agreement dated March 15, 1995, the
Second 1995 Modification Agreement dated May 8, 1995, the Third 1995
Modification Agreement dated as of December 5, 1996, and the First
1996 Modification Agreement dated of even date herewith.
"Loan Documents" has the same meaning in this Note as is given to such
term in the Loan Agreement.
"Matching Funds Election" means a CD Rate Election or a Libor Rate
Election.
"Matching Funds Principal" means the portion of the proceeds of the
Loan previously advanced to Borrower which is segregated into a
separate account pursuant to an effective Matching Funds Election.
"Maximum Rate" means the maximum nonusurious rate of interest per
annum permitted by whichever of applicable United States federal law
or Texas law permits the higher interest rate, including to the extent
permitted by applicable law, any amendments thereof hereafter or any
new law hereafter coming into effect to the extent a higher Maximum
Rate is permitted thereby. To the extent, if any, that Chapter One
("Chapter One") of Title 79, Texas Revised Civil Statutes, 1925, as
amended (the "Texas Credit Code") establishes the Maximum Rate, the
Maximum Rate shall be the "indicated rate ceiling" (as defined in
Chapter One) in effect from time to time. The Maximum Rate shall be
applied by taking
-4-
<PAGE> 5
into account all amounts characterized by applicable law as interest
on the debt evidenced by this Note, so that the aggregate of all
interest does not exceed the maximum nonusurious amount permitted by
applicable law.
"Prime Rate" means, on any day, the rate of interest per annum then
most recently established by Bank as its "prime rate." Such rate is
set by Bank as a general reference rate of interest, taking into
account such factors as Bank may deem appropriate, it being understood
that it is not necessarily the lowest or best rate actually charged to
any customer or a favored rate, that it may not correspond with future
increases or decreases in interest rates charged by other lenders or
market rates in general and that Bank may make various business or
other loans at rates of interest having no relationship to such rate.
"Prior Note" means the Promissory Note (Revolving Line of Credit)
dated May 8, 1995 executed by Borrower, payable to the order of Bank
and in the stated principal amount of $10,000,000.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as amended or supplemented from time to time.
"Stated Rate" means, on any day, a variable rate per annum equal to
the Prime Rate for that day computed using the 365/360 method
described below provided, that if on any day the Stated Rate shall
exceed the maximum permitted by application of the Maximum Rate in
effect on that day, the Stated Rate shall be fixed at the maximum
permitted by application of the Maximum Rate on that day and on each
day thereafter until the total amount of interest accrued at the
Stated Rate on the unpaid balance of this Note equals the total amount
of interest which would have accrued if there were no limitation by
the Maximum Rate and the Stated Rate had not been so fixed, or until
the earlier payment in full of this Note.
"Stated Rate Loans" means, that portion of the principal balance this
Note bearing interest at the Stated Rate prior to an Event of Default
or maturity.
2. Maturity Date. The entire principal balance of this Note then
unpaid together with all accrued and unpaid interest hereon shall be due and
payable on March 12, 1997 (the "Maturity Date").
3. Advances. This Note is a revolving promissory note evidencing
a revolving line of credit, not to exceed $10,000,000.00 at any one time
outstanding. While the aggregate of all advances under this Note may exceed
$10,000,000.00, the outstanding balance of this Note at any one time shall not
exceed $10,000,000.00. Before the Maturity Date, Borrower may borrow, repay
and borrow principal amounts again up to $10,000,00.00, subject to the terms of
this Note
-5-
<PAGE> 6
and Loan Agreement. Advances shall be made in accordance with the terms of the
Loan Agreement.
4. Interest Rate(s). As hereinafter provided, prior to default
or maturity, the principal balance of this Note may be segregated into separate
accounts and shall bear interest as follows:
(a) So much of the principal balance of this Note as is
not from time to time subject to an effective Election shall
constitute one account (the "Stated Rate Account") and shall bear
interest prior to the occurrence of an Event of Default or maturity at
the lesser of: (a) the Maximum Rate, or (b) the Stated Rate.
(b) Each portion of the principal balance hereof which
may from time to time be subject to an effective CD Rate Election
shall constitute a separate account (the "CD Funds Account") and shall
bear interest prior to the occurrence of an Event of Default or
maturity at the lesser of: (a) the Maximum Rate, or (b) the CD Rate
applicable to such Election.
(c) Each portion of the principal balance hereof, which
may from time to time be subject to an effective Libor Rate Election
shall constitute a separate account (the "Libor Rate Account") and
shall bear interest prior to an Event of Default or maturity at the
lesser of: (a) the Maximum Rate, or (b) the Libor Rate applicable to
such Election.
5. Past Due Interest. After the earlier of an Event of Default
on the Maturity Date, the entire unpaid principal balance of and to the extent
permitted by applicable law any interest on, this Note shall bear interest at a
varying rate per annum equal to the lesser of (a) the Maximum Rate, or (b) the
Default Rate.
6. 365/360 Method; Rate Fluctuations. Subject always to
limitation by the Maximum Rate, interest on this Note at the Stated Rate and
the Default Rate shall be calculated on the basis of the 365/360 method, which
computes a daily amount of interest for a hypothetical year of 360 days, then
multiplies such amount by the actual number of days elapsed in an interest
calculation period. Without notice to Borrower or anyone else, the Prime Rate
and the Maximum Rate shall each automatically fluctuate upward and downward as
and in the amount by which Bank's prime rate and such maximum nonusurious rate
of interest permitted by applicable law, respectively, fluctuate, subject
always to limitation of the Stated Rate and the Default Rate by the Maximum
Rate.
7. Interest Periods. The term "Interest Period" as used in this
Note means the time from and including the first (1st) day of each calendar
month (each such date being called a "Payment Date") through the end of the day
before the next occurring Payment Date, except that (a) the first Interest
Period is the period from and including the day the first proceeds of this Note
-6-
<PAGE> 7
are disbursed through the end of the day before the first occurring Payment
Date and (b) the last Interest Period is the period from and including the day
after the end of the next-to-last Interest Period through the end of the day
before the maturity of this Note (whether resulting from demand for payment,
the passage of time, acceleration for default, or any permitted prepayment).
The interest accruing prior to the occurrence of an Event of Default or
maturity on the Stated Rate Account shall be calculated by first determining
the amount of interest on the unpaid principal balance of the Stated Rate
Account from time to time outstanding at the Stated Rate in effect from time to
time from the date hereof through the end of each Interest Period (or, if the
Note has matured, through the end of the day before maturity), then deducting
any interest previously paid on the Stated Rate Account to determine the amount
of interest then payable; provided, however, that the total interest payable on
the Stated Rate Account through the end of each Interest Period and at maturity
shall not exceed the maximum amount of interest that may be lawfully charged on
the Stated Rate Account from the date hereof through such date. The interest
accruing prior to the occurrence of an Event of Default or maturity on the
principal balance of each Matching Funds Account shall be calculated by
determining the amount of interest on the unpaid principal balance of such
Matching Funds Account from time to time outstanding at the Matching Funds Rate
applicable to such Matching Funds Account in effect from time to time (which
Matching Funds Rate shall never exceed the maximum lawful rate applicable
thereto), and such interest shall be payable at the times and in the manner as
herein provided for the Stated Rate Account.
8. Interest Payments. Interest for each Interest Period during
the term of this Note shall be calculated as of the end of such Interest Period
and, except as hereinafter expressly provided to the contrary, shall be payable
on or before the first day of the following Interest Period and, in the case of
the last Interest Period, at maturity. Whenever any payment shall be due under
this Note on a day which is not a Business Day, the date on which such payment
is due shall be extended to the next succeeding Business Day, and such
extension of time shall be included in the computation of the amount of
interest then payable. All principal, interest and other sums payable under
this Note shall be paid, not later than 2:00 o'clock p.m. (Dallas, Texas time)
on the day when due, in immediately available funds in lawful money of the
United States of America. Any payment under this Note or under any other Loan
Document other than in the required amount in good, unrestricted U.S. funds
immediately available to the holder hereof shall not, regardless of any receipt
or credit issued therefor, constitute payment until the required amount is
actually received by the holder hereof in such funds and shall be made and
accepted subject to the condition that any check or draft may be handled for
collection in accordance with the practice of the collecting bank or banks.
9. Application of Payments. All payments made as scheduled on
this Note shall be applied, to the extent thereof, first to accrued but unpaid
interest and the balance to unpaid principal. All prepayments on this Note
made prior to an Event of Default shall be applied, to the extent thereof,
first to accrued but unpaid interest and the balance to the remaining principal
installments in inverse order of their maturity. Nothing herein shall limit or
impair any rights of the holder hereof to apply any past due payments, any
proceeds from the disposition of any
-7-
<PAGE> 8
collateral by foreclosure or other collections after an Event of Default to the
amounts owing hereunder in such manner as Bank shall elect. Except to the
extent specific provisions are set forth in this Note or another Loan Document
with respect to application of payments, all payments received by the holder
hereof shall be applied in such order and manner as the holder hereof shall
deem appropriate, any instructions from Borrower or anyone else to the contrary
notwithstanding.
10. Matching Funds Election. From time to time during the term of
the Loan, so long as no Event of Default has occurred and is continuing,
Borrower may elect to cause a portion or portions of the Loan proceeds
previously disbursed to Borrower, which portions must be at least $500,000.00
each, to bear interest at the CD Rate or the Libor Rate, as applicable, rather
than the Stated Rate; provided, however, that Borrower may not exercise a
Matching Funds Election at any time when the applicable Matching Funds Rate
would exceed the maximum lawful rate of interest applicable to the Loan. Upon
the effective date of each Election, the portion of the Loan proceeds as to
which the Election is exercised shall be segregated into a separate account
(the CD Funds Account or the Libor Rate, as the case may be) and shall bear
interest prior to the occurrence of an Event of Default or maturity from the
effective date of the Election to the end of the term CD Interest Period or
Libor Rate Interest Period, as applicable, at the CD Rate or the Libor Rate, as
applicable, in effect on the effective date of the Election; provided that CD
Rates shall be adjusted from time to time during the term of any CD Rate
Election to account for any fluctuations in the CD Reserve Requirement,
insurance, fees, assessments and surcharges, and the Libor Rate, as applicable,
shall be adjusted from time to time during the term of any Libor Rate Election,
as applicable, to account for fluctuations in reserve percentages, insurance,
fees, assessments and surcharges.
11. Exercise of Elections. Borrower shall inform Bank when
Borrower wishes to exercise a Matching Funds Election, specifying a CD Rate
Election or a Libor Rate Election is requested, and Bank shall advise Borrower
of the Matching Funds Rate applicable to such Election and the periods for
which Borrower may exercise such Election. To exercise a CD Rate Election,
Borrower shall advise Bank of (a) the amount of the Matching Funds Principal as
to which Borrower wishes to exercise such CD Rate Election, and (b) the desired
term of such CD Rate Interest Period. A CD Rate Election shall become effective
three (3) Business Days following the date of Borrower's advising Bank of the
particular terms of the CD Rate Election. To exercise a Libor Rate Election,
Borrower shall advise Bank of (a) the amount of the Matching Funds Principal as
to which Borrower wishes to exercise such a Libor Rate Election, and (b) the
desired term of such Libor Rate Interest Period. A Libor Rate Election shall
be effective three (3) Business Days following the date of Borrower's advising
Bank of the particular terms of the Libor Rate Election. On or before the
effective date of each Election, Borrower shall execute and deliver to Bank a
written confirmation of (a) the amount of the Matching Funds Principal subject
to the Election, (b) the term of the Election, and (c) the initial Matching
Funds Rate applicable to such Election.
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<PAGE> 9
12. Extension of Elections. Borrower may not extend a Matching
Funds Election beyond the original term thereof at the Matching Funds Rate
applicable during the original term. However, at the end of the term of a
Matching Funds Election, Borrower may make an additional Matching Funds
Election to cause the Matching Funds Principal subject to the expired Election
to bear interest at the Matching Funds Rate applicable on the day after the
expiration of the prior Election for the term of the new Election by so
advising Bank three (3) Business Days before the expiration of a CD Rate
Election or Libor Rate Election, as applicable, and Bank shall advise Borrower
of the Matching Funds Rate available to Borrower for such new Election, and
Borrower shall give to Bank a written confirmation by the effective date of the
new Election in the manner specified in the preceding paragraph, accompanied by
the payment of any additional fee required by this Note. Otherwise, upon the
expiration of the prior Election, the Matching Funds Principal subject to the
expired Election shall be returned to the same account as the Loan proceeds
which bear interest at the Stated Rate and shall again bear interest prior to
the occurrence of an Event of Default or maturity at the Stated Rate.
13. Change of Law; Impracticability of Election. Notwithstanding
any other provision of this Note, if: (a) any change in applicable law, rule or
regulation or in the interpretation or administration thereof shall make it
unlawful for Bank to issue certificates of deposit or impair or restrict Bank's
ability to do so for terms and at rates which would permit Bank to respond to a
Matching Funds Election by obtaining funds at the CD Rate, or the Libor Rate,
as applicable, or (b) deposits in funds in the applicable amounts against which
Bank is to match Matching Funds Principal in connection with an Election are
not being offered generally to Bank in the relevant market for the applicable
period, or (c) the CD Rate or the Libor Rate, as applicable, will not
accurately and fairly reflect the cost to Bank of funding a CD Rate Election or
Libor Rate Election, as applicable, then, in the case of (a),(b) or (c) above,
any of the foregoing instances, Borrower's right to make any further Matching
Funds Elections or to continue any Matching Funds Election then in force shall
be suspended for the duration of such illegality or impairment or restriction.
If Bank makes such determination, it shall promptly notify Borrower in writing,
and Borrower shall either repay the outstanding Matching Funds Election owed to
Bank, without penalty, within thirty (30) days or convert the same to Stated
Rate Loans within thirty (30) days. So long as Bank has given Borrower the
notice required by the preceding sentence, Borrower shall indemnify and hold
harmless Bank against all costs, claims, penalties, liabilities and damages
which may result from any such change in law, rule, regulation, interpretation
or administration.
14. Limitation on Matching Funds Interest. It is expressly
understood that all provisions of this Note, including but not limited to the
provisions regarding the charging of interest at a Matching Funds Rate for the
term of a Matching Funds Election, are subject to the provisions hereof
limiting the amount of interest contracted for, charged, or collected hereunder
to the maximum amount permitted under applicable law.
15. Prepayment. Except as otherwise specifically provided in
this Note, Borrower shall have the right to prepay the outstanding principal
balance of this Note, in full at any time
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<PAGE> 10
or in part from time to time without premium or penalty, provided, that as
conditions precedent to Borrower's right to make, and Bank's obligations to
accept, any such prepayment for any portion of the principal balance of this
Note subject to a Matching Funds Election: (i) Bank shall have actually
received from Borrower at least five (5) business days' prior written notice of
Borrower's intent to prepay, of the amount of principal which will be prepaid
(the "Prepaid Principal") and of the date (the "Prepayment Date") on which the
prepayment will be made; (ii) each prepayment of principal shall be in the
amount of $50,000 or a larger multiple of $1,000.00 (unless the prepayment
retires the outstanding balance of this Note in full); (iii) each such
prepayment shall be in the amount of 100% of the principal amount to be
prepaid, plus accrued unpaid interest thereon to the Prepayment Date, plus any
other sums which have become due to Bank under the Loan Documents on or before
the Prepayment Date but have not been paid; and (iv) plus if any portion of
this Note subject to a Matching Funds Election is prepaid, the Make-Whole
Amount (hereinafter defined) if the Treasury Rate (hereinafter defined) plus
the Closing Spread (hereinafter defined) is less than per annum interest rate
of the Matching Fund Principal being prepaid (the "Loan Interest Rate"), except
as provided in Section 2.4 of the Loan Agreements.
The "Make-Whole Amount" shall equal (i) the sum of the amounts
calculated by discounting the Remaining Scheduled Payments (hereinafter
defined) from their respective scheduled due dates to the Prepayment Date, in
accordance with accepted financial practice at a discount factor equal to the
Treasury Rate plus the Closing Spread, less (ii) the Prepaid Principal; but the
Make-Whole Amount shall in no event be less than zero and nothing herein shall
be construed or operate to require Borrower to pay a Make-Whole Amount except
in connection with Borrower's exercise of the right to prepay granted above or
to pay any amount greater than is permitted by applicable law.
If a Make-Whole Amount will be due, Bank shall notify Borrower of the
amount and basis of determination of the Make-Whole Amount.
For the purposes of determining the Make-Whole Amount, the following
terms shall have the following meanings:
The "Treasury Rate" is the yield on the Treasury Constant
Maturity Series with maturity equal to the remaining weighted
average life to maturity of the Remaining Scheduled Payments
which are principal payments (calculated as of the Prepayment
Date in accordance with accepted financial practice and
rounded to the nearest quarter-year), as reported in Federal
Reserve Statistical Release H.15 (519) - Selected Interest
Rates, in the "This Week" column of the issue which, as of the
fifth business day before the Prepayment Date, has been most
recently published. If no maturity exactly corresponding to
such remaining weighted average life to maturity appears in
Release H.15, the Treasury Rate will be determined by liner
interpolation between the yields reported in Release H.15. If
for any reason
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<PAGE> 11
Release H.15 is not longer published, Bank shall select a
comparable publication to determine the Treasury Rate.
The "Remaining Scheduled Payments" are (i) each scheduled
payment of principal of this Note which is, or to the extent
that it is, paid before its scheduled due date by application
of the Prepaid Principal [in inverse order of maturity of
installments of principal] in accordance with this Note; and
(ii) each scheduled payment of interest on the Prepaid
Principal that would be due in accordance with this Note after
the Prepayment Date if no payment of the Prepaid Principal
were made prior to its scheduled due date(s).
The "Closing Spread" is the difference between the Loan
Interest Rate and the Treasury Rate with such Treasury Rate
being calculated as of the date of this Note, as if the
principal face amount of this Note were the Prepaid Principal
and the date of this Note were the Prepayment Date.
Borrower agrees that Bank shall not be obligated actually to reinvest
the amount prepaid in any Treasury obligations as a condition to receiving the
Make-Whole Amount or otherwise. All prepayments of principal shall be applied
to principal in inverse order of maturity.
16. Reimbursement of Losses Arising from Deviations in Payment of
Matching Funds Elections. If Borrower makes any payment of principal with
respect to any CD Rate Election or Libor Rate Election on any day other than
the last day of an Election or if Borrower fails to convert any portion of the
Loan bearing interest at the Stated Rate to a CD Rate Election or Libor Rate
Election after notice has been given to Bank in accordance with the terms
hereof, Borrower shall reimburse Bank on demand for any resulting loss or
expense incurred by Bank (or by any existing or prospective participant in the
related CD Rate Election or Libor Rate Election), including, without
limitation, any loss incurred in obtaining, liquidating, or redeploying
deposits from third parties, but excluding loss of margin for the period after
any such payment or failure to borrow, provided that Bank shall have delivered
to Borrower a certificate as to the amount of such loss or expense and the
basis for determining such amount. Determinations by Bank of amounts due under
this Section 16 shall be conclusive, absent manifest error.
17. Reserve Requirements. In the event of any change in any
applicable law, treaty, or regulation or in the interpretation or
administration thereof or in the event any central bank or other fiscal
monetary or other authority having jurisdiction over Bank or the Loan
contemplated by this Note imposes, modifies, or deems applicable to any CD Rate
Elections or Libor Rate Elections any reserve requirement of the Board of
Governors of the Federal Reserve System or any other reserve, special deposit,
or similar requirements against assets of, deposits with or for the account of,
or credit extended by, Bank, or imposes on Bank any other condition affecting
this Note or the CD Rate Elections or Libor Rate Elections and the result of
any of the foregoing is to increase the cost to Bank in making or maintaining
its CD Rate Elections or Libor Rate
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<PAGE> 12
Elections or to reduce any amount (or the effective return on any amount)
received by Bank hereunder, then Borrower shall pay to Bank upon demand of Bank
as additional interest on this Promissory Note such additional amount or
amounts as Bank may determine as will reimburse Bank for such additional cost
or such reduction. Upon becoming aware of any such change or imposition that
may result in any such increase or reduction, Bank shall give written notice to
Borrower thereof together with certificate of Bank setting forth the amount
necessary to compensate Bank as aforesaid and the basis for the determination
of such amount and Borrower shall, within thirty (30) days, either (i) promptly
pay such amount, (ii) convert such Matching Funding Election to a Stated Rate
Loan, or (iii) prepay the Matching Funds Election without penalty.
Determinations made by Bank for purposes of this Section 17 of the effect of
any such change in its costs of making or maintaining its Matching Funds
Elections or on amounts receivable by it in respect or such Matching Funds
Elections and of the additional amounts required to compensate Bank in respect
thereof shall be conclusive, absent manifest error.
18. Taxes. If any taxes are levied or imposed on or with respect
to the CD Funds Account and/or the Libor Rate Account or on any payment on the
CD Funds Account and/ or the Libor Rate Account made to Bank, then, and in any
such event, Borrower shall pay to Bank upon demand of Bank such additional
amounts as Bank may determine to be necessary so that every net payment of
principal and interest on the CD Funds Account and/or the Libor Rate Account,
after withholding or deduction for or on account of any such taxes, will not be
less than any amount provided herein. In addition, if at any time when the
Matching Funds Elections are outstanding any laws are enacted or promulgated,
or any court of law or governmental agency interprets or administers any law,
which, in any such case, changes the basis of taxation of payments to Bank of
principal of or interest on the CD Funds Account and the Libor Rate Account by
subjecting such payments to double taxation or otherwise (except through an
increase in the rate of tax on the overall net income of Bank) then Borrower,
within thirty (30) days will either (i) pay Bank such amounts as Bank may
determine to be necessary to compensate Bank for any such increased costs
and/or losses resulting therefrom, (ii) convert the balance of any Matching
Funds Elections to Stated Rate Loans, or (iii) prepay any Matching Funds
Elections without penalty. Bank shall give notice to Borrower upon becoming
aware of the amount of any loss incurred by it through enactment or
promulgation of any such law that changes the basis of taxation of payments to
Bank or of any such enactment or promulgation that may result in such payments
becoming subject to double taxation or otherwise. Bank shall also deliver to
Borrower a certificate of Bank setting forth the basis for the determination of
such loss and the computation of such amounts. Determinations made by Bank for
purposes of this Section 18 of the effect of such taxes on its costs of making
or maintaining Matching Funds Elections or on amounts receivable by it in
respect of such Matching Funds Elections and of the additional amounts required
to compensate Bank in respect thereof shall be conclusive, absent manifest
error.
19. Illegality, Change in Laws, Etc. If at any time the adoption
of any new law, change in existing laws, or interpretation of any new or
existing laws shall make it unlawful or impossible for Bank
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<PAGE> 13
to (1) maintain its commitment to make it unlawful or impossible for Bank to
maintain its commitment to make Matching Funds Elections, then upon such notice
to Borrower of such fact Bank's commitment, to make Matching Funds Elections
shall terminate; or (2) maintain or fund its Matching Funds Elections
hereunder, then Bank shall promptly notify Borrower in writing and Borrower
shall, within thirty (30) days, either (i) repay the outstanding Matching Funds
Elections owed to Bank, without penalty (or immediately if Bank may not
lawfully continue to maintain and fund such Matching Funds Elections) or (ii)
convert such Matching Funds Elections time to bear interest at the Stated Rate.
20. Risk-Primed Capital Requirements. In the event that Bank
determines that (a) compliance with any judicial, administrative, or other
governmental interpretation of any law or regulation or (b) compliance by Bank
or any corporation controlling Bank with any guideline or request from any
central bank or other governmental authority (whether or not having the force
of law) has the effect of requiring an increase in the amount of capital
required or expected to be maintained by Bank or any corporation controlling
Bank, and Bank determines that such increase is based upon its obligations
hereunder, and other similar obligations, Borrower shall, within thirty (30)
days, (x) pay Bank such additional amount as shall be certified by Bank to be
the amount allocable to Bank's obligation to Borrower hereunder, or (y) prepay
this Note in full without penalty. Bank will notify Borrower of any event
occurring that will entitle Bank to compensation pursuant to this Section 20
after Bank obtains knowledge thereof and determines to request such
compensation. Determinations by Bank for purposes of this Section of the
effect of any increase in the amount of capital required to be maintained by
Bank and of the amounts allocable to Bank's obligations to Borrower hereunder
shall be conclusive, absent manifest error.
21. Loan Agreement. This Note has been issued pursuant to the
terms of the Loan Agreement, to which reference is made for all purposes.
Advances against this Note by Bank or other holder hereof shall be governed by
the Loan Agreement. Bank is entitled to the benefits of and security provided
for in the Loan Agreement. Terms used herein with initial capital letters and
not defined herein, if any, have the meanings given them in the Loan Agreement.
Any notice required or which any party desires to give under this Note shall be
given and effective as provided in the Loan Agreement. Chapter 15 of the Texas
Credit Code, as amended from time to time, does not apply to this Note.
22. Defaults. Any Event of Default under this Note shall
constitute an Event of Default under each of the Loan Documents, and any
default under any of the Loan Documents shall constitute an Event of Default
under this Note and under each of the Loan Documents. Upon the occurrence of
an Event of Default, the holder hereof shall have the right to declare the
unpaid principal balance and accrued but unpaid interest on this Note at once
due and payable (and upon such declaration, the same shall be at once due and
payable), and to exercise any of its other rights, powers and remedies under
this Note, under any other Loan Document, or at law or in equity.
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<PAGE> 14
23. No Waiver. Neither the failure by the holder hereof to
exercise, nor delay by the holder hereof in exercising, the right to accelerate
the maturity of this Note or any other right, power or remedy upon any default
shall be construed as a waiver of such default or as a waiver of the right to
exercise any such right, power or remedy at any time. No single or partial
exercise by the holder hereof of any right, power or remedy shall exhaust the
same or shall preclude any other or further exercise thereof, and every such
right, power or remedy may be exercised at any time and from time to time. All
rights and remedies provided for in this Note and in any other Loan Document
are cumulative of each other and of any and all other rights and remedies
existing at law or in equity, and the holder hereof shall, in addition to the
rights and remedies provided herein or in any other Loan Document, be entitled
to avail itself of all such other rights and remedies as may now or hereafter
exist at law or in equity for the collection of the indebtedness owing
hereunder, and the resort to any right or remedy provided for hereunder or
under any such other Loan Document or provided for by law or in equity shall
not prevent the concurrent or subsequent employment of any other appropriate
rights or remedies. Without limiting the generality of the foregoing
provisions, the acceptance by the holder hereof from time to time of any
payment under this Note which is past due or which is less than the payment in
full of all amounts due and payable at the time of such payment, shall not (a)
constitute a waiver of or impair or extinguish the rights of the holder hereof
to accelerate the maturity of this Note or to exercise any other right, power
or remedy at the time or at any subsequent time, or (b) constitute a waiver of
the requirement of punctual payment and performance, or a novation in any
respect.
24. Collection Costs; Attorneys' Fees. If any holder of this Note
retains an attorney in connection with any default or at maturity or to
collect, enforce or defend this Note or any other Loan Document in any lawsuit
or in any probate, reorganization, bankruptcy or other proceeding, or if
Borrower sues any holder in connection with this Note or any other Loan
Document and does not prevail, then Borrower agrees to pay to each such holder,
in addition to principal and interest, all reasonable costs and expenses
incurred by such holder in trying to collect this Note or in any such suit or
proceeding, including reasonable attorneys' fees.
25. Limitation on Interest. It is the intent of Bank and Borrower
and all other parties to the Loan Documents to conform to and contract in
strict compliance with applicable usury law from time to time in effect. All
agreements between Bank or any other holder hereof and Borrower (or any other
party liable with respect to any indebtedness under the Loan Documents) are
hereby limited by the provisions of this paragraph which shall override and
control all such agreements, whether now existing or hereafter arising and
whether written or oral. In no way, nor in any event or contingency (including
but not limited to prepayment, default, demand for payment, or acceleration of
the maturity of any obligation), shall the interest taken, reserved, contracted
for, charged or received under this Note or otherwise, exceed the maximum
nonusurious amount permissible under applicable law. If, from any possible
construction of any document, interest would otherwise be payable in excess of
the maximum nonusurious amount, any such construction shall be subject to the
provisions of this paragraph and such document shall be automatically reformed
and the interest payable shall be automatically reduced to the maximum
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<PAGE> 15
nonusurious amount permitted under applicable law, without the necessity of
execution of any amendment or new document. If the holder hereof shall ever
receive anything of value which is characterized as interest under applicable
law and which would apart from this provision be in excess of the maximum
nonusurious amount, an amount equal to the amount which would have been
excessive interest shall, without penalty, be applied to the reduction of the
principal amount owing on the indebtedness evidenced hereby in the inverse
order of its maturity and not to the payment of interest, or refunded to
Borrower or the other payor thereof if and to the extent such amount which
would have been excessive exceeds such unpaid principal. The right to
accelerate maturity of this Note or any other indebtedness does not include the
right to accelerate any interest which has not otherwise accrued on the date of
such acceleration, and the holder hereof does not intend to charge or receive
any unearned interest in the event of acceleration. All interest paid or
agreed to be paid to the holder hereof shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the
full stated term (including any renewal or extension and including the term of
the Prior Note of such indebtedness so that the amount of interest on account
of such indebtedness does not exceed the maximum nonusurious amount permitted
by applicable law. As used in this paragraph, the term "applicable law" shall
mean the laws of the State of Texas or the federal laws of the United States,
whichever laws allow the greater interest, as such laws now exist or may be
changed or amended or come into effect in the future.
26. Jointly and Severally Liable. If more than one person or
entity executes this Note as Borrower, all of said parties shall be jointly and
severally liable for payment of the indebtedness evidenced hereby. Borrower
and all sureties, endorsers, guarantors and any other party now or hereafter
liable for the payment of this Note in whole or in part, hereby severally (a)
waive demand, presentment for payment, notice of dishonor and of nonpayment,
protest, notice of protest, notice of intent to accelerate, notice of
acceleration and all other notice, filing of suit and diligence in collecting
this Note or enforcing any of the security herefor; (b) agree to any
substitution, subordination, exchange or release of any such security or the
release of any party primarily or secondarily liable hereon; (c) agree that the
holder hereof shall not be required first to institute suit or exhaust its
remedies hereon against Borrower or others liable or to become liable hereon or
to enforce its rights against them or any security herefor; (d) consent to any
extension or postponement of time of payment of this Note for any period or
periods of time and to any partial payments, before or after maturity, and to
any other indulgence with respect hereto, without notice thereof to any of
them; and (e) submit (and waive all rights to object) to personal jurisdiction
in the State of Texas, and venue in Dallas County, Texas, for the enforcement
of any and all obligations under the Loan Documents.
27. Modifications. This Note may not be changed, amended or
modified except in a writing expressly intended for such purpose and executed
by the party against whom enforcement of the change, amendment or modification
is sought.
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<PAGE> 16
28. Business Purposes. The loan evidenced by this Note is made
solely for business proposes and is not for personal, family, household or
agricultural purposes.
29. CHOICE OF LAW. THIS NOTE, AND ITS VALIDITY, ENFORCEMENT AND
INTERPRETATION, SHALL BE GOVERNED BY TEXAS LAW (WITHOUT REGARD TO ANY CONFLICT
OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW.
30. Time of the Essence. Time shall be of the essence in this
Note with respect to all of Borrower's obligations hereunder.
31. Renewal, Extension and Increase. This Amended and Restated
Promissory Note is executed in renewal, extension, modification, amendment,
restatement and in increase of, but not in extinguishment of, the Prior Note.
Borrower acknowledges and agrees that certain advances made by Bank to Borrower
under the Prior Note are now evidenced by this Note.
32. No Other Agreements. THE LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Borrower has duly executed this Note as of the
date first above written.
BORROWER:
TECNOL MEDICAL PRODUCTS, INC.,
a Delaware corporation
By: /s/David Radunsky
---------------------------------
David Radunsky,
Chief Operating Officer
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<PAGE> 1
EXHIBIT 10(B)(22)
68003/90066
(TMPI Working Capital Loan)
FIRST 1996 MODIFICATION AGREEMENT
This First 1996 Modification Agreement ("Agreement") is executed to be
effective (though not necessarily on) as of the 13th day of March, 1996 by and
among TECNOL MEDICAL PRODUCTS, INC., a Delaware corporation ("Company"),
NATIONSBANK TEXAS, N.A. ("Bank"), TECNOL, INC., a Delaware corporation
("Operating Company") [the successor by merger to TECNOL ORTHOPEDIC PRODUCTS,
INC., a Delaware corporation ("Orthopedic"), POLYMED HOLDING INC., a Maryland
corporation ("PHI"), POLY-MED INDUSTRIES, INC., a Maryland corporation
("Poly-Med"), and INMAN MEDICAL CORPORATION, a Delaware corporation ("Inman"),
and the successor to substantially all of the assets and liabilities of ANAGO
INCORPORATED, a Texas corporation in liquidation ("Anago")], TCNL TECHNOLOGIES,
INC., a Delaware corporation ("Technology Company"), TECNOL INTERNATIONAL
(V.I.), INC., a U.S. Virgin Islands corporation ("International"), LA ADA DE
ACUNA S.A. ("La Ada"), TECNOL CONSUMER PRODUCTS, INC., a Delaware corporation
("Consumer"), TECNADYNE SCIENTIFIC INCORPORATED, a Florida corporation
("Tecnadyne"), and TECNOL NEW JERSEY WOUND CARE, INC., a New Jersey corporation
("Wound Care") (Operating Company, Technology Company, International, La Ada,
Consumer, Tecnadyne, and Wound Care are together called the "Subsidiaries").
R E C I T A L S:
WHEREAS, as of November 15, 1993 Bank and the Company executed and
delivered that certain Third Amended and Restated Loan Agreement (as amended
and modified from time to time, the "Loan Agreement"). All capitalized terms
used herein shall have the same meaning assigned to those terms in the Loan
Agreement, unless otherwise defined herein to the contrary.
WHEREAS, the Loans are guaranteed pursuant to the Guaranty Agreement
(together with the Guaranty Agreements executed by La Ada, Consumer, Tecnadyne,
and Wound Care, the "Guaranty") dated as of November 15, 1993 executed by
Orthopedic, International, Anago, Technology Company, Operating Company, PHI,
Poly-Med, Inman, a Guaranty Agreement dated as of March 15, 1995 executed by
Consumer and Tecnadyne, and a Guaranty Agreement dated as of December 5, 1995
executed by Wound Care.
WHEREAS, the Company previously requested that Bank consent to the
merger of Orthopedic, Inman, PHI and Poly- Med into Operating Company and the
liquidation of
<PAGE> 2
substantially all of the assets and liabilities of Anago and Bank has agreed to
such request subject to the terms and conditions of the Consent Agreement dated
as of June 30, 1994 among the parties to this Agreement, other than Consumer,
Tecnadyne and Wound Care.
WHEREAS, Bank, the Company, Operating Company, Technology Company,
International and La Ada executed and delivered a Modification Agreement dated
as of July 1, 1994 to reflect additional interest rate options and margins to
the Company, and the Company has executed three amended and restated promissory
notes to reflect such options.
WHEREAS, Bank, the Company, Operating Company, Technology Company,
International, and La Ada executed and delivered a 1995 Modification Agreement
dated as of March 15, 1995 to increase the Working Capital Loan and make
certain other modifications to the Loan Agreement, and the Company executed an
amended and restated Working Capital Note to reflect such increase.
WHEREAS, Bank, the Company, the Operating Company, Technology Company,
International, La Ada, Consumer and Tecnadyne executed and delivered a Second
1995 Modification Agreement dated as of May 8, 1995 to further increase the
Working Capital Loan and to further amend and modify certain covenants
contained in the Loan Agreement, and the Company executed an amended restated
Working Capital Note to reflect such increase.
WHEREAS, Bank, the Company and the Subsidiaries executed and delivered
a Third 1995 Modification Agreement dated as of December 5, 1995 in connection
with a new $5,500,000 Reducing Revolver Loan to the Company.
WHEREAS, the Company has requested the Bank to extend the term of
Working Capital Loan, and the Company and Bank desire to amend the Loan
Agreement to reflect such extension.
A G R E E M E N T:
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants and agreements contained herein, and other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged and
confessed, the undersigned hereby agrees as follows:
1. Bank and the Company hereby agree the commitment to lend for
the Working Capital Loan set forth in Section 2.7 of the Loan Agreement is
hereby extended to March 12, 1997.
2. The Company and the Subsidiaries (together, the "Tecnol
Parties") jointly and severally represent and warrant to Bank that the
execution and delivery of this Agreement and the consummation of the
transactions described herein (a) has been duly authorized by all necessary
action by the Tecnol Parties, as the case may be, and (b) does not violate or
create any default under the articles of incorporation, bylaws, promissory
notes, deeds of trusts, mortgages, security agreements, lien instruments, lease
covenants, conditions, easements, rights-of-way, franchises,
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<PAGE> 3
permits, licenses or other contracts of any of the Tecnol Parties (after giving
effect to the consents herein and other consents being obtained contemporaneous
herewith) that would have a material adverse effect on the business or
operations of the Tecnol Parties or which would affect the enforceability of
any of the Loan Documents. The Subsidiaries each further represent and warrant
to Bank that the Guaranty Agreements executed by them shall remain valid and
binding upon them.
3. The Company further covenants and warrants that there are no
defenses, claims, counterclaims or offsets to the Loans or the Loan Agreement
or the performance of the obligations of Company thereunder, and the Notes and
sums due and owing in connection therewith and the other documents are in full
force and effect.
4. Bank acknowledges, that the best of its knowledge, there are
no defaults by the Tecnol Parties under the Loan Agreement, the Guaranty, or
the other Loan Documents after giving effect to the terms of this Agreement.
5. Company agrees to pay all costs incurred in connection with
the execution and consummation of this Agreement, including, without
limitation, the fees and expenses of Bank's counsel.
6. THIS AGREEMENT, THE LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS EXECUTED IN CONNECTION THEREWITH, AFTER GIVING EFFECT HERETO, SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF
THE UNITED STATES APPLICABLE TO TRANSACTIONS IN TEXAS.
7. The Loan Agreement, Notes, the Guaranty and the other Loan
Documents executed in connection therewith shall remain in full force and
effect, after giving effect to the terms of this Agreement and the transactions
described herein. Except as specifically set forth herein, nothing herein
contained shall constitute a waiver or consent by the Bank to any event,
transaction, or circumstances, which, with notice or lapse of time or both,
would constitute a default under the Loans and/or the Loan Agreement.
8. The Subsidiaries, as guarantors of the obligations of the
Company to Bank arising under the Loans and the Loan Agreement, acknowledge and
consent (a) to the terms of this Agreement, and agree that the extension of the
Working Capital Loan by the Bank to the Company has not and will in no way
change, modify or affect their obligations under the Guaranty, or any other
Guaranty Agreement of the Loans and the Loan Agreement executed by them; (b)
that the Guaranty is in full force and effect; and (c) there are no claims,
counterclaims, offsets or defenses to the Guaranty or to the performance of
their obligations thereunder.
9. THIS WRITTEN AGREEMENT, THE LOAN AGREEMENT, THE NOTES AND THE
OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION THEREWITH
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<PAGE> 4
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
10. This Agreement may be executed by facsimile transmission and
in several counterparts, all of such executed counterparts shall constitute the
same agreement.
EXECUTED as of the date first written above.
NATIONSBANK OF TEXAS,
N.A., a national banking association
By: /s/ Rachel R. Johnston
---------------------------------------------
Name: Rachel R. Johnston
-------------------------------------------
Title: Vice President
------------------------------------------
TECNOL MEDICAL PRODUCTS, INC., a
Delaware corporation
By: /s/ David Radunsky
---------------------------------------------
Name: David Radunsky
Title: Chief Operating Officer
TECNOL, INC., a Delaware corporation (the
successor by merger to Orthopedic, Poly-Med, PHI
and Inman and the successor by liquidation to
Anago)
By: /s/ David Radunsky
---------------------------------------------
Name: David Radunsky
Title: Chief Operating Officer
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<PAGE> 5
TCNL TECHNOLOGIES, INC., a Delaware
corporation
By: /s/ Kenneth J. Kubachi
---------------------------------------------
Name: Kenneth J. Kubachi
Title: Vice President
TECNOL INTERNATIONAL (V.I.) INC.,
a U.S. Virgin Islands corporation
By: Van Hubbard
---------------------------------------------
Name: Van Hubbard
-------------------------------------------
Title: Secretary
------------------------------------------
LA ADA DE ACUNA S.A., a Mexican
corporation
By: /s/ David Radunsky
---------------------------------------------
Name: David Radunsky
-------------------------------------------
Title: Secretary
------------------------------------------
TECNOL CONSUMER PRODUCTS, INC.,
a Delaware corporation
By: /s/ David Radunsky
--------------------------------------------
Name: David Radunsky
Title: Chief Operating Officer
TECNADYNE SCIENTIFIC INCORPORATED,
a Florida corporation
By: /s/ David Radunsky
---------------------------------------------
Name: David Radunsky
Title: Chief Operating Officer
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<PAGE> 6
TECNOL NEW JERSEY WOUND CARE, INC., a
New Jersey corporation
By: David Radunsky
---------------------------------------------
Name: David Radunsky
Title: Chief Operating Officer
-6-
<PAGE> 1
EXHIBIT 10(K)
INCENTIVE STOCK OPTION,
TRADE SECRET, INVENTION, AND
NON-COMPETITION AGREEMENT
THIS AGREEMENT, made this 20th day of November, 1995, by and between
TECNOL MEDICAL PRODUCTS, INC., a Delaware corporation (hereinafter called
"TMPI"), and Jeffrey A. Nick (hereinafter called the "Optionee"), but effective
as of the date set forth in paragraph 2 below.
W I T N E S E T H:
WHEREAS, Optionee is a key employee of the Company who, during the course
of Optionee's employment with the Company has been, and in the future is
expected to be, engaged in one or more of the manufacturing, marketing,
selling, administrative, management, financial communications, legal,
engineering, product development, product quality, or other important
activities of the Company and is expected to obtain valuable and proprietary
confidential information of the Company in the course of carrying out
Optionee's duties of employment; and
WHEREAS, the Company wants to encourage Optionee's continued interest in
and loyalty and commitment to the Company and toward that end, the Company
desires to increase Optionee's proprietary interest in the success of the
Company by making it possible for Optionee to acquire an initial or increased
stock ownership interest in the Company on a basis anticipated to be
economically beneficial and favorable to Optionee; and
WHEREAS, as a condition to the Company's willingness to facilitate
Optionee's stock ownership interest in the Company and ancillary to its
undertaking to do so and to impart confidential information to Optionee, the
Company desires to obtain Optionee's commitment to the Company to not disclose
confidential information of the Company and not compete with the Company should
Optionee's employment terminate; and
WHEREAS, Optionee and the Company both recognize and agree that such
commitment by Optionee is necessary to protect the value of the Company for all
of its security holders, including Optionee:
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, TMPI and the Optionee hereby agree with each other
as follows:
1. The granting of this Option shall not impose upon the Company any
obligation to employ or continue to employ the Optionee; and the right of the
Company to terminate the
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<PAGE> 2
employment of the Optionee shall not be diminished or affected by reason of the
fact that an option has been granted to him.
2. Subject to the terms and conditions set forth herein, TMPI hereby
grants to the Optionee under the Option Plan the right to purchase up to, but
not exceeding in the aggregate, 11,667 shares of the common stock, $.001 par
value, of TMPI (the "Common Stock") during the period commencing March 1, 1996
and ending March 1, 2003, at a price per share of $17.00 (the "Option Exercise
Price"). The "Effective Date" of this agreement is November 20, 1995.
The right and option granted hereunder may be exercised from time to time
as follows: beginning March 1, 1996, as to not more than 1,667 shares covered
hereby; beginning March 1, 1997, as to any number of shares which, when added
to the number of shares previously purchased under the option, shall not exceed
3,334 shares covered hereby; beginning March 1, 1998, as to any number of
shares which, when added to the number of shares previously purchased under the
option, shall not exceed 5,001 covered hereby; beginning March 1, 1999, as to
any number of shares which, when added to the number of shares previously
purchased under the option, shall not exceed 6667 shares covered hereby;
beginning March 1, 2000, as to any number of shares which, when added to the
number of shares previously purchased under the option shall not exceed 8334 of
the total shares covered hereby; beginning March 1, 2001, as to any number of
shares which, when added to the number of shares previously purchased under the
option, shall not exceed 10,001 shares covered hereby; beginning March 1, 2002,
as to any number of shares which, when added to the number of shares previously
purchased under the option, shall not exceed the total number of shares covered
hereby.
On each occasion that any shares are purchased hereunder, the shares so
purchased shall be divided into two classes: the "Exercise Cost Shares", and
the "Residual Shares". The Exercise Cost Shares shall consist of the smallest
number of whole shares which, when multiplied by the market value of one share
of TMPI stock on the exercise date, equals (or exceeds) the Option Exercise
Price multiplied by the total number of shares being purchased on that
occasion. The Company shall use the average of the high and low prices of TMPI
stock on the day of exercise to compute the market value of one share. All
Exercise Cost Shares purchased hereunder shall be subject to the requirement
that the Optionee notify the Company of any disposition as provided in
paragraph 5 hereof.
The number of shares representing the difference between the total number
of shares the Optionee is purchasing on that occasion and the Exercise Cost
Shares shall be the "Residual Shares". Residual Shares cannot be sold,
transferred, or encumbered for a period of two (2) years after the date on
which the Option is exercised, excluding transfers to the Company, members of
the Optionee's immediate family, or trusts for the benefit of the Optionee or
members of the Optionee's immediate family, provided that any Residual Shares
so transferred (other than to the
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<PAGE> 3
Company) will remain subject to the remainder of the two-year prohibition on
transfer. In the event of the death of the Optionee, any Residual Shares held
by the Optionee's estate may be transferred free of the remainder of the
two-year prohibition on transfer. Any Residual Shares as to which the two-year
prohibition on transfer has been lifted shall be subject to the requirement
that the Optionee notify the Company of any disposition as provided in
paragraph 5 hereof. Each certificate representing shares shall bear a legend
reflecting the appropriate restriction.
The option granted hereunder is intended to qualify as an incentive stock
option under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). However, to the extent that the aggregate fair market value of the
Common Stock (determined at the date of grant of the option) with respect to
which incentive stock options are exercisable for the first time by the
Optionee during any calendar year (under all incentive stock option plans of
TMPI and any parent or subsidiary corporation of TMPI) exceeds $100,000, such
options will not be incentive stock options. For this purpose, options shall
be taken into account in the order in which they were granted.
3. The right and option granted hereunder shall be exercised by
delivering to Tecnol Medical Products, Inc. a written notification specifying
the number of shares which the Optionee desires to purchase, together with
cash, certified check, bank cashier's check or postal or express money order to
the order of Tecnol Medical Products, Inc. for an amount equal to the option
price of such shares, and specifying the address to which the certificates for
such shares are to be mailed. In lieu of payment in cash or cash equivalents,
Optionee may make payment by tendering to Tecnol Medical Products, Inc. shares
of Common Stock, or by tendering shares of Common Stock plus cash or cash
equivalents, in amounts such that the fair market value of the Common Stock
tendered, plus the amount of cash or cash equivalents paid, if any, equals the
option price for the shares to be purchased.
4. As promptly as practical after receipt of such written notification
and payment and receipt of such evidence of intent to acquire for investment as
may be required by the Company, the Company will deliver to the Optionee
certificates for the number of shares with respect to which such option has
been so exercised, issued in the Optionee's name; provided that such delivery
shall be deemed effected for all purposes when a stock transfer agent of the
Company shall have deposited such certificates in the United States mail,
postage prepaid, addressed to the Optionee, at the address specified pursuant
to paragraph 3 hereof.
5. If the Optionee shall dispose of any of the shares purchased
hereunder within the later of one year after the transfer of such shares to him
or two years from the effective date of the granting of this option, then in
order to provide the Company with the opportunity to claim the benefit of any
income tax deduction which may be available to it under the circumstances, the
Optionee shall promptly notify the Company of the dates of acquisition and
disposition of such
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<PAGE> 4
shares, the number of shares so disposed of, and the consideration, if any,
received for such shares. In addition, in order to help assure that the
Company receives notice of any such transfer, any stock certificate evidencing
any shares of Common Stock issued under this Agreement shall bear a legend
substantially as follows for the first year after issuance of such Common Stock
to the Optionee or, if sooner, until such time as the Optionee certifies in
writing to the Company that such Common Stock has been sold in a bona fide
transaction and advises the Company of the amount of the consideration received
for such shares:
"The Company has asked its stock transfer agent to notify the Secretary
of the Company if the securities represented by this certificate are held
of record at any time prior to [applicable date] in any name other than
[applicable name]."
Further, upon request of the Company, from time to time, the Optionee shall
certify in writing the dates of acquisition and any dispositions of such Common
Stock on or before the first anniversary of the issuance of such Common Stock
to the Optionee, the number of shares so disposed of, and the consideration, if
any, received for such shares.
6. Except as is otherwise expressly provided in this Agreement, the
option herein granted shall terminate immediately upon the severance of the
employment relationship between the Company and the Optionee by the Company for
good cause, and two weeks after the severance of the employment relationship
between the Company and the Optionee for any reason, other than for good cause
or on account of death or retirement in good standing from the employ of the
Company for reasons of age or total and permanent disability under the then
established rules of the Company. For purposes of this Agreement, "Company"
shall mean Tecnol Medical Products, Inc. and any corporation in which Tecnol
Medical Products Inc. owns, directly or indirectly, stock possessing eighty
percent or more of the total combined voting power of all classes of stock;
and, any corporation in which Tecnol Medical Products, Inc. owns, directly or
indirectly, stock possessing fifty percent or more of the total combined voting
power of all classes of stock, if the Board of Tecnol Medical Products, Inc.
resolves that such other corporation shall be so defined. Whether authorized
leave of absence or absence on military or government service shall constitute
severance of the employment relationship between the Company and the Optionee
shall be determined by the Committee appointed by the Board of Directors of
TMPI to administer the Option Plan (the "Committee). In the event of the death
of the Optionee while in the employ of the Company and before the date of
expiration of this option, this option shall terminate one year following the
date of death of the Optionee. After the death of the Optionee, Optionee's
executors, administrators, or any person or persons to whom this option may be
transferred by will or by the laws of descent and distribution, shall have the
right, at any time prior to such termination, to exercise the option granted
hereunder, in whole or in part. If, before the date of expiration of this
option, the Optionee shall be retired in good standing from the employ of the
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<PAGE> 5
Company for reasons of age or total and permanent disability under the then
established rules of the Company, this option shall terminate three months
(twelve months in the case of retirement for disability) after the date of such
retirement. However, in the event of such retirement, the Optionee shall have
the right prior to the termination of such option to exercise the option to the
extent to which Optionee was entitled to exercise the option immediately prior
to such retirement. Provided, however, nothing in this Section shall operate
to extend this option beyond 10 years after the Effective Date hereof.
7. Whenever the word "Optionee" is used in any provision of this
Agreement under circumstances where the provisions should logically be
construed to apply to the executors, administrators or the person or persons to
whom the option may be transferred by will or by the laws of descent and
distribution, the word "Optionee" shall be deemed to include such person or
persons.
8. This option is not transferable by the Optionee otherwise than by
will or under the laws of descent and distribution, and is exercisable, during
Optionee's lifetime, only by Optionee. No assignment or transfer of this
option, or of the rights represented thereby, whether voluntary or involuntary,
by operation of law or otherwise (except by will or by the laws of descent and
distribution) shall vest in the assignee or transferee any interest or right
herein whatsoever, but immediately upon any such assignment or transfer this
option shall terminate and become of no further effect.
9. The Optionee shall not be deemed for any purpose to be a
stockholder of TMPI in respect of any shares as to which this option shall not
have been exercised, as herein provided, and until such shares shall have been
issued to the Optionee by TMPI hereunder.
10. The existence of this option shall not affect in any way the right
or power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
11. The shares with respect to which this option is granted are shares
of the Common Stock of TMPI as presently constituted, but if, and whenever,
prior to the delivery by TMPI of all the shares of the Common Stock with
respect to which this option is granted, TMPI shall effect a subdivision or
consolidation of shares or other capital readjustment, the payment of a stock
dividend, or other increase or reduction of the number of shares of the Common
Stock outstanding, without receiving compensation therefor in money, services
or property, then (a) in
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<PAGE> 6
the event of an increase in the number of such shares outstanding, the number
of shares of Common Stock then remaining subject to option hereunder shall be
proportionately increased, and the option price per share shall be
proportionately reduced; and (b) in the event of a reduction in the number of
such shares outstanding, the number of shares of Common Stock then remaining
subject to option hereunder shall be proportionately reduced, and the option
price per share shall be proportionately increased.
12. After a merger of one or more corporations into TMPI, or after a
consolidation of TMPI and one or more corporations in which TMPI shall be the
surviving corporation, the Optionee shall, at no additional cost, be entitled
upon any exercise of this option, to receive (subject to any required action by
stockholders) in lieu of the number of shares as to which this option shall
then be so exercisable, the number and class of shares of stock or other
securities or cash or other property to which the Optionee would have been
entitled pursuant to the terms of the agreement of merger or consolidation, as
if immediately prior to such merger or consolidation the Optionee had been the
holder of record of a number of shares of Common Stock of TMPI equal to the
number of shares as to which such option shall be so exercised; provided that,
anything herein contained to the contrary notwithstanding, upon the dissolution
or liquidation of TMPI, or upon any merger or consolidation if TMPI is not the
surviving corporation, the Board of Directors of TMPI shall determine the
disposition of this option in accordance with the alternatives set forth in
paragraph 14 of the Option Plan.
13. Except as hereinbefore expressly provided, the issue by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, for cash or property or for labor or services, either upon direct
sale, upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to this option.
14. Notwithstanding any of the provisions hereof, the Optionee hereby
agrees that he will not exercise the option granted hereby, and that the
Company will not be obligated to issue any shares to the Optionee hereunder, if
the exercise hereof or the issuance of such shares shall constitute a violation
by the Optionee or the Company of any provisions of any law or regulations of
any governmental authority. If, at any time specified herein for the issuance
of shares to the Optionee, any law or regulation shall require either the
Company or the Optionee to take any action in connection with the shares then
to be issued, the issuance of such shares shall be deferred until such action
shall have been taken. Any determination in this connection by the Committee
shall be final, binding and conclusive. The Company shall in no event be
obligated to register any securities pursuant to the Securities Act of 1933 (as
now in effect or as hereafter amended) or to take any other affirmative action
in order to cause the exercise of the option or the issuance of shares pursuant
thereto to comply with any law or regulation of any governmental authority.
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<PAGE> 7
15. Every notice or other communication relating to this Agreement
shall be in writing, and shall be mailed to or delivered to the party for whom
it is intended at such address as may from time to time be designated by it in
a notice mailed or delivered to the other party as herein provided; provided
that, unless and until some other address be so designated, all notices or
communications by the Optionee to the Company shall be addressed to the
President of TMPI and mailed or delivered to TMPI at its office at 7201
Industrial Park Blvd., Fort Worth, Texas 76180, and all notices or
communications by the Company to the Optionee may be given to the Optionee
personally or may be mailed to him at Optionee's address as shown in the
records of the Company.
16. (a) The Optionee recognized and acknowledges that:
(1) "Company-Type Products" means the types of products that
the Company is and will be engaged in developing,
manufacturing, marketing and selling, such as, but not limited
to, the following: reusable orthopedic soft goods; face masks
and respirators; all disposable restraints, holders, binders,
supports, pads, protectors, straps, ice packs, telemetry unit
pouches, wash mitts, caps, shoe covers, wound dressings, and
other health care and industrial disposable items developed,
manufactured, marketed or sold by the Company during
Optionee's employment with the Company; and, if Optionee
engages in Technical Activities of the Company (as defined
below) at any time during Optionee's employment with the
Company, any components or raw materials for use in any of the
above which were the subject of research and/or development
during Optionee's employment with the Company.
(2) If Optionee, at any time during the course of Optionee's
employment with the Company, is engaged in the manufacturing,
engineering and/or product development activities of the
Company ("Technical Activities") such as manufacturing
existing Company-Type Products, improving and enhancing
Company-Type Products, and developing new Company-Type
Products, then, during the course of Optionee's employment,
Optionee will likely (a) engage in research and
experimentation to create and improve the design of such
products; (b) design and manufacture special machinery that is
used to manufacture, automatically inspect and/or package such
products; (c) develop and design sonic bonding equipment used
in such machines; (d) design and develop specifications and
manufacturing processes for materials used in Company-Type
Products including, without limitation, films, and non-woven
fabrics; and/or (e) design and
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<PAGE> 8
manufacture machines used to manufacture such materials in the
performance if Optionee's duties. The Company's success and
innovation in developing new, and in enhancing existing,
Company-Type Products and in developing and improving the
materials and machinery used in, and to manufacture, its
Company- Type Products confers on the Company a significant
competitive advantage against its competitors. The continued
confidentiality of these aspects of the Company's business are
vital to its business.
(3) If Optionee, at any time during the course of Optionee's
employment with the Company, is engaged in the financial,
legal, administrative, management, marketing, sales, or
communication activities of the Company ("Sales and
Administrative Activities") then the Optionee will become
familiar with or have access to extensive confidential
information pertaining to the business of the Company, which
may include, without limiting the forgoing, and depending upon
Optionee's specific employment duties, names of customers of
the Company and the prices it obtains or has obtained from
customers or for which it sells or has sold its products,
sources for materials used in the Company's products, contract
relationships between the Company and its customers and
suppliers, confidential business and financial data of the
Company, information pertaining to the Company's employees
(including, without limitation information concerning
compensation and benefit programs), information regarding the
Company's costs, information about the Company's products and
anticipated new products, forecasts, plans, objectives,
investment opportunities, and long term business strategies
and plans of the Company. This confidential information is of
strategic importance to the Company in its ability to
successfully compete. The continued confidentiality of this
information is vital to the Company's business.
(4) The Company has established a valuable and extensive
trade in its Company-Type Products as well as business
connections and customers which are of significant value to
it.
(5) By virtue of Optionee's employment, Optionee acknowledges
that Optionee holds a position of trust with respect to the
confidential information of the company made accessible to the
Optionee, and that the Company will suffer irreparable injury
if during Optionee's employment or at any time subsequent to
the termination of such employment, Optionee should, directly
or indirectly, enter into competition with
-8-
<PAGE> 9
the Company or divulge such secret and confidential
information to competitors or potential competitors of the
Company.
(6) It is expected that Optionee, during Optionee's
employment by the Company, may conceive or generate (alone or
together with others) inventions, discoveries or ideas, and it
is recognized that the ownership thereof should be and will be
in the Company.
(7) The covenants and conditions contained herein are
reasonable and necessary for the protection of the Company's
business. In this regard, Optionee recognizes that the
descriptive scope of the confidential information described in
Section 16 and the territory covered by the non-competition
covenants in Section 16 hereof are reasonable in light of the
fact that the work that Optionee will perform for the Company
as its employee will contribute to the manufacture or sale of
products that will be sold to end users (directly or in many
cases through intermediary distributors) located throughout
the Geographic Region described in Section 16(f).
(b) Optionee covenants and agrees that Optionee will not at
any time during Optionee's employment or thereafter, in any
fashion, form or manner, either directly or indirectly, except to
the extent necessary to carry out Optionee's employee
responsibilities for the benefit of the Company, divulge, disclose
or communicate to any person, firm, partnership, corporation, or
enterprise in any manner whatsoever any information of any kind,
nature or description concerning any matters affecting or relating
to the business of the Company, including without limitation, (i)
research conducted by the Company in connection with product
development, manufacturing processes, machinery construction,
product materials or otherwise, (ii) the manufacturing methods or
processes used or under development by the Company for its
products, machines and materials, (iii) the nature or properties of
the materials used by the Company in its products or under
development, and supply sources of such materials, (iv) the names
of any of the Company's customers and the prices it obtains or has
obtained or for which it sells or has sold its products, (v)
contract relationships between the Company and its customers and
suppliers, (vi) confidential business and financial data of the
Company, (vii) information pertaining to the Company's employees
(including, without limitation, information concerning compensation
and benefit programs), (viii) information regarding the Company's
cost, (ix) information about the Company's products and anticipated
new products, (x) forecasts, plans, objectives,
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<PAGE> 10
investment opportunities, and long term business strategies and
plans of the Company, and (xi) any other information of, about or
concerning the business of the Company, its manner of operations,
its plans, processes or other data of any kind, nature or
description. The Optionee and Company agree that the foregoing
information is important, material and confidential and
substantially effects the successful conduct of the business of the
Company, and its good will, regardless of whether any or all of the
foregoing matters would be deemed to be "trade secrets" as defined
by law. Optionee may have occasion to learn other information as a
consequence of or through Optionee's employment with the Company,
such as information from or about suppliers, customers, competitors
and others. This information generally is obtained by the Company
by studying competitive products, by requesting information from
such other companies, by doing various studies and the like. Such
information is some cases may not be proprietary to the Company but
nevertheless the Company learns such information in the course of
its business, keeps such information secret (because it is costly
and useful information), and legitimately uses such information in
connection with its business. Optionee agrees Optionee will not
use or disclose, or permit such information to be disclosed or used
except in furtherance of Optionee's duties for the Company and
agrees not to use or disclose such information in violation of any
obligations or duties which Optionee or the Company has to any
third party. The parties agree that any breach of the terms of this
Section 16(b) is a material breach of this Agreement. The Company
considers, and the Optionee agrees, that all such information is
the Company's sole and exclusive property, and Optionee agrees to
promptly deliver all such information in tangible form as well as
all other correspondence, memoranda, notes, records, reports,
plans, customer lists and all other papers (and copies thereof) and
all electronically stored or computerized data to the Company
either upon the Company's request or upon any termination of this
Agreement. The Company agrees to provide Optionee with access to
and the right to use in the performance of Optionee's duties to the
Company the confidential, proprietary and other business
information and trade secrets described above in this Section 16 in
consideration of the covenants of Optionee of non-disclosure and
non-competition set forth in this Section 16.
(c) All "Inventions" made or conceived by the Optionee,
solely or with others, while employed by the Company, either during
or after working hours, or within a period of one (1) year after
termination of Optionee's employment, which are useful in or
related to the business of the Company or which have been made or
conceived wholly or partially, with the use of the Company's time,
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<PAGE> 11
material, or facilities, shall belong exclusively to the Company.
The Optionee agrees that Optionee shall have no claim for
additional compensation for such Inventions. The Optionee agrees
promptly to disclose in accordance with Company procedures any such
Invention promptly and fully by a written report, setting forth in
detail the structures, procedures and methodology employed and the
results achieved. In addition, full reports and records shall be
kept in accordance with Company practices during and on completion
of any study or research project undertaken on the Company's
behalf, whether or not in Optionee's opinion a given study or
project has resulted in an Invention. For purposes hereof the term
"Invention" means any discovery, concept, idea, whether patentable
or not, relating to any present or prospective activities of the
Company, including, but not limited to, devices, processes,
methods, formulae, techniques, and any improvements to any of the
foregoing. The Optionee hereby assigns and agrees to assign to the
Company all of Optionee's rights to such Inventions and to all
proprietary rights therein, based thereon or related thereto,
including, but not limited to, applications for United States and
foreign letters patent and resulting letters patent. At the
request of the Company, either before or after termination of
Optionee's employment, Optionee shall assist the Company in
acquiring and maintaining patent protection upon and confirming its
title to such Inventions. Optionee's assistance shall include the
signing of applications for patent assignments and other papers,
and taking any other steps considered desirable by the Company.
(d) Ancillary to, an in order to further assure that the
Optionee will not violate Optionee's covenants of non-disclosure of
confidential, proprietary and other business information of the
Company set forth in Section 16(b) hereof or Optionee's obligations
respecting Inventions under Section 16(c), and ancillary to the
rest of this Agreement and in consideration of each of the
foregoing, Optionee covenants and agrees that for the Applicable
Period (as defined below) after termination of Optionee's
employment for any reason, Optionee will not, for any reason,
anywhere in the Geographic Region (as defined below), directly or
indirectly, as an employee, employer, consultant, agent, principal,
partner, stockholder, officer, director, or in any other individual
or representative capacity:
(1) engage or participate in any business that:
(A) is engaged, directly or indirectly, in the
sale or marketing of any product that is the same as or
similar to or
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<PAGE> 12
competitive with any Company-Type Product which was sold
or marketed by the Company during Optionee's employment
with the Company; or
(B) is engaged, directly or indirectly in
research for or the development or manufacture of any
product that is the same as or similar to or competitive
with any Company-Type Product which was the subject of
research or development or which was manufactured, by
the Company during Optionee's employment with the
Company; or
(C) is engaged, directly or indirectly, in the
research, development, manufacture, sale or marketing of
any item made from film or non-woven fabric bonded
through a sonic bonding manufacturing process; or
(D) is engaged, directly or indirectly, in the
research development, manufacture, use, sale or
marketing of any manufacturing equipment that (i) uses
computers in automated manufacturing; or (ii) is used to
produce products made of film or non-woven fabric; or
(iii) uses an automated or computerized product
inspection system, because equipment similar in function
or design to any of the foregoing equipment would be
similar to equipment developed or manufactured by the
Company during the course of Employee's employment; or
(E) is engaged, directly or indirectly, in the
business described in clause (D) above, if such machines
or designed to be used to manufacture Company-Type
Products; or
(2) recruit, or hire, or attempt to recruit or hire,
directly or or by assisting others, any other employee or
consultant of the Company or give advice or counsel with
respect to the hiring of any person who shall have been an
employee of the Company at any time within the two-year period
immediately preceding such hiring, advice or counsel.
(e) Ancillary to, and in order to further assure that
Optionee will not violate Optionee's covenants of non-disclosure of
confidential, proprietary and other business information of the
Company set forth in Section 16(b) herein, or Optionee's
obligations respecting Inventions under Section 16(c), and
ancillary
-12-
<PAGE> 13
to the rest of this Agreement and in consideration of each of the
foregoing, Optionee covenants and agrees that for the Applicable
Period after termination of Optionee's employment for any reason
Optionee will not, for any reason, anywhere outside the Geographic
Region (as defined below), directly or indirectly as an employee,
employer, consultant, agent, principal, partner, stockholder,
officer director, or in any other individual or representative
capacity engage or participate in any business described in
paragraph (d)(1) of this Section 16 if in fact such business is
shipping the products or equipment described therein to any country
included in the Geographic Region. Optionee recognizes that the
foregoing covenant is necessary to prevent Optionee from indirectly
competing with the Company in a prohibited manner inside the
Geographic Region.
(f) Geographic Region means United States, Canada, Japan,
Puerto Rico, Mexico, Australia and the countries included in the
European Economic Community; and, if Optionee was directly engaged
in selling Company-Type Products in any other country while
employed by the Company, then in such other country.
(g) If Optionee engages in Technical Activities at any time
during Optionee's employment with the Company, then, for purposes
of sections 16(d)(1) and (2) and 16(e), Applicable Period means:
<TABLE>
<CAPTION>
Period For Conduct Described in Clause
------ -------------------------------
<S> <C>
6 months (d)(1)(A)
2 years (d)(1)(B)
2 years (d)(1)(C)
2 years (d)(1)(D)
3 years (d)(1)(E)
2 years (d)(2)
</TABLE>
and, if Optionee engages in Sales and Administrative Activities at
any time during Optionee's employment with the Company, then, for
purposes of sections 16(d)(1) and (2) and 16(e), "Applicable
Period" means:
<TABLE>
<CAPTION>
Period For Conduct Described in Clause
-------------------------------------------------
<S> <C>
2 years (d)(1)(A)
2 years (d)(1)(B)
6 months (d)(1)(C)
6 months (d)(1)(D)
1 year (d)(1)(E)
</TABLE>
-13-
<PAGE> 14
<TABLE>
<S> <C>
2 years (d)(2)
</TABLE>
If Optionee engages in Technical Activities and in Sales and
Administrative Activities during Optionee's employment with Company
then the Applicable Period shall be the longer period designated
for specific conduct.
(h) Optionee agrees to provide to any future employer a copy
of the covenants contained in this Section 16 and agrees that the
Company may do so as well.
(i) During the term of Optionee's employment, Optionee shall
not do any act that is prohibited immediately following termination
of Optionee's employment under Section 16.
(j) The ownership of less than 2% of a publicly traded
company will not, in and of itself, violate Section 16.
(k) Both the Company's rights and the Optionee's duties under
this Section 16 shall survive any termination of this Agreement. If
Optionee violates any covenant contained in Section 16 of this
Agreement, the Company shall not, as a result of the time involved
in obtaining relief, be deprived of the benefit of the full period
of any such covenant. Accordingly, the covenants of Optionee
contained in Section 16 shall be deemed to have the durations
specified therein, which periods shall commence upon the later of
(i) the termination of Optionee's employment with the Company and
(ii) the later to occur of: (A) the date of entry of a final
judgment enforcing the covenants of Optionee under Section 16, as
the case may be or (B) the date on which Optionee permanently
ceases such violation.
(l) The Optionee recognizes that the remedy of damages for
breach or threatened breach of the provisions of this Section 16
would be inadequate and that the harm occasioned by such breach
would be irreparable, and accordingly, Optionee expressly agrees
that in the event of a breach or threatened breach by Optionee of
any of the provisions of this Section 16, the Company will be
entitled to an injunction, without the requirement of posting bond,
restraining Optionee from violating the terms hereof, or from
rendering services to any person, firm, corporation, association,
or other entity to whom any confidential information concerning or
relating to the business of the Company has been disclosed or may
be threatened to be disclosed, or for whom Optionee is working or
rendering services, or threatens to work or render services in
violation of the terms hereof. Nothing herein shall be construed as
prohibiting the Company from
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<PAGE> 15
pursuing any other remedies available to it for breach or
threatened breach of this Section 16, including recovery of damages
from Optionee. Optionee's allegation of or the existence of any
claim against the Company, under this Agreement or otherwise, will
not constitute a defense to the Company's enforcement of this
Section.
(m)
(1) The parties recognize and agree that it may be
difficult if not impossible for the Company to prove the
existence of a breach of the Optionee's covenants of
confidentiality and non-disclosure under Section 16(b) of this
Agreement. The parties further recognize and agree that the
non-competition covenants contained in Section 16(d) are
necessary to support the legitimate business interests of the
Company in preserving the confidentiality and secrecy of and
control over such confidential information and its business
goodwill and are ancillary to, supportive of, and a part of
this Agreement, are ancillary to the Company's undertaking to
facilitate Optionee's stock ownership in the Company, and are
necessary as a means of ensuring compliance by Optionee with
such confidentiality covenants.
(2) The existence of any claim or cause of action of
Optionee against the Company or any officer, director, or
shareholder of the Company, that is predicated on this
Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants of the Optionee
contained in this Section 16. In addition, the provisions of
this Section 16 shall continue to be binding upon Optionee in
accordance with their terms, notwithstanding the termination
of Optionee's employment with the Company for any reason.
(3) The parties acknowledge and agree that the time,
scope, territory and other provisions of this Section 16 are
reasonable under the circumstances. The parties further agree
that if at any time despite the express agreement of the
parties hereto, it is held through enforcement proceedings
that any portion of Section 16 is unenforceable by reason of
its being too extensive in any respect, then it shall be
interpreted and reformed to extend only over the maximum
period of time for which it may be enforceable and over the
maximum geographical area as to which it may be enforceable
and to the maximum extent in all other respects as to which it
may be enforceable.
-15-
<PAGE> 16
17. This Agreement constitutes the entire agreement between the parties
and may not be amended except by an instrument in writing executed by both
parties.
18. This Agreement has been executed and will be performed in the State
of Texas and will be governed by and construed in accordance with the laws of
the State of Texas subject to the extent limited in Section 20 hereof.
19. If any one or more provisions of this Agreement shall be held to be
invalid, illegal or unenforceable in any respect in any jurisdiction, the
validity, legality or enforceability of the remaining provisions of this
Agreement in such jurisdiction shall not in any way be affected or impaired
thereby. Further, in lieu of such invalid, illegal, or unenforceable
provision, there shall be deemed inserted a provision as close in scope and
content to such provision as possible while remaining valid, legal and
enforceable in such jurisdiction.
20.
(a) Any dispute arising out of or relating to the interpretation,
validity, or enforcement of Section 16 of this Agreement shall be settled
by binding arbitration in accordance with the then current commercial
Arbitration Rules of the American Arbitration Association. Either party
may initiate an arbitration proceeding in accordance with such Rules. The
arbitration shall be conducted by a panel of three independent
arbitrators appointed in accordance with such Rules. The arbitration
shall be governed solely by the United States Arbitration Act
notwithstanding any other provision of this Agreement to the contrary. If
the arbitrators determine that a breach of any of the provisions of
Section 16 has occurred or is threatened then, at the request of the
Company, the arbitrators shall award temporary or permanent injunctive
relief in favor of the Company, as it may request, restraining and
enjoining any further such breach. Such award shall be in addition to and
not in lieu of any other relief to which the Company may be entitled,
including, without limitation, damages arising out of any such breach.
The arbitrators shall enter any award in form sufficient to permit
judgment upon the award to be entered by, and to permit an order for
contempt enforcing compliance with such judgment to be entered by, a
court of competent jurisdiction.
(b) Prior to the hearing on the merits in an arbitration
proceeding to enforce the provisions of Section 16 hereof, in order to
maintain the status quo pending such hearing, the Company shall have the
right to seek and obtain temporary or preliminary injunctive relief from
a court of competent jurisdiction restraining Optionee from violating the
provisions of Section 16.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TECNOL MEDICAL PRODUCTS, INC.
By: /s/ Van Hubbard
----------------------------------------
President
/s/ Jeffrey A. Nick
--------------------------------------------
Optionee
704 Giltin Court
--------------------------------------------
Street address
Arlington TX/USA 76006
--------------------------------------------
City State/County Zip Code
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<PAGE> 1
EXHIBIT 10(O)(1)
INCENTIVE STOCK OPTION, TRADE SECRET,
INVENTION, AND NON-COMPETITION AGREEMENT
THIS AGREEMENT, made this _____ day of _____________, 19__, by and
between TECNOL MEDICAL PRODUCTS, INC., a Delaware corporation (hereinafter
called "TMPI"), and _________________________________________________
(hereinafter called the "Optionee"), but effective as of the date set forth in
paragraph 2 below.
W I T N E S S E T H:
WHEREAS, Optionee is a key employee of the Company who, during the course
of Optionee's employment with the Company has been, and in the future is
expected to be, engaged in one or more of the manufacturing, marketing,
selling, administrative, management, financial, communications, legal,
engineering, product development, product quality, or other important
activities of the Company and is expected to obtain valuable and proprietary
confidential information of the Company in the course of carrying out
Optionee's duties of employment; and
WHEREAS, the Company wants to encourage Optionee's continued interest in
and loyalty and commitment to the Company and toward that end, the Company
desires to increase Optionee's proprietary interest in the success of the
Company by making it possible for Optionee to acquire an initial or increased
stock ownership interest in the Company on a basis anticipated to be
economically beneficial and favorable to Optionee; and
WHEREAS, as a condition to the Company's willingness to facilitate
Optionee's stock ownership interest in the Company and ancillary to its
undertaking to do so and to impart confidential information to Optionee, the
Company desires to obtain Optionee's commitment to the Company to not disclose
confidential information of the Company and not compete with the Company should
Optionee's employment terminate; and
WHEREAS, Optionee and the Company both recognize and agree that such
commitment by Optionee is necessary to protect the value of the Company for all
of its security holders, including Optionee;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, TMPI and the Optionee hereby agree with each other
as follows:
1. The granting of this Option shall not impose upon the Company any
obligation to employ or continue to employ the Optionee; and the right of the
Company to terminate the
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<PAGE> 2
employment of the Optionee shall not be diminished or affected by reason of the
fact that an option has been granted to Optionee.
2. Subject to the terms and conditions set forth herein, TMPI hereby
grants to the Optionee under the Option Plan the right to purchase up to, but
not exceeding in the aggregate, the number of shares of the common stock, $.001
par value, of TMPI (the "Common Stock") stated below, during the period
commencing one year after the Effective Date hereof (as stated below) and
ending ten (10) years after the Effective Date hereof, at a price per share
(the "Option Exercise Price") as stated below.
Number of Shares ( )
---------------------------
Option Exercise Price Dollars ($ . )
---------------------------
Effective Date
---------------------------
The right and option granted hereunder may be exercised from time to time
as follows: beginning one year after the Effective Date, as to not more than
1/9 of the total number of shares covered hereby; beginning two years after the
Effective Date as to any number of shares which, when added to the number of
shares previously purchased under the option, shall not exceed 2/9 of the total
number of shares covered hereby; beginning three years after the Effective
Date, as to any number of shares which, when added to the number of shares
previously purchased under the option, shall not exceed 3/9 of the total number
of shares covered hereby; beginning four years after the Effective Date, as to
any number of shares which, when added to the number of shares previously
purchased under the option, shall not exceed 4/9 of the total number of shares
covered hereby; beginning five years after the Effective Date, as to any number
of shares which, when added to the number of shares previously purchased under
the option shall not exceed 5/9 of the total shares covered hereby; beginning
six years after the Effective Date, as to any number of shares which, when
added to the number of shares previously purchased under the option, shall not
exceed 6/9 of the total number of shares covered hereby; beginning seven years
after the Effective Date, as to any number of shares which, when added to the
number of shares previously purchased under the option, shall not exceed 7/9 of
the total number of shares covered hereby; beginning eight years after the
Effective Date, as to any number of shares which, when added to the number of
shares previously purchased under the option, shall not exceed 8/9 of the total
number of shares covered hereby; beginning nine years after the Effective Date,
as to any number of shares which, when added to the number of shares previously
purchased under the option shall not exceed the total number of shares covered
hereby.
On each occasion that any shares are purchased hereunder, the shares so
purchased shall be divided into two classes: the "Exercise Cost Shares", and
the "Residual Shares". The Exercise Cost Shares shall consist of the smallest
number of whole shares which, when multiplied by the
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<PAGE> 3
market value of one share of TMPI stock on the exercise date, equals (or
exceeds) the Option Exercise Price multiplied by the total number of shares
being purchased on that occasion. The Company shall use the average of the
high and low prices of TMPI stock on the day of exercise to compute the market
value of one share. All Exercise Cost Shares purchased hereunder shall be
subject to the requirement that the Optionee notify the Company of any
disposition as provided in paragraph 5 hereof.
The number of shares representing the difference between the total number
of shares the Optionee is purchasing on that occasion and the Exercise Cost
Shares shall be the "Residual Shares". Residual Shares cannot be sold,
transferred, or encumbered for a period of two (2) years after issued under
this option, excluding transfers to the Company, members of the Optionee's
immediate family, or trusts for the benefit of the Optionee or members of the
Optionee's immediate family, provided that any Residual Shares so transferred
(other than to the Company) will remain subject to the remainder of the
two-year prohibition on transfer. In the event of the death of the Optionee,
any Residual Shares held by the Optionee's estate may be transferred free of
the remainder of the two-year prohibition on transfer. Any Residual Shares as
to which the two-year prohibition on transfer has been lifted shall be subject
to the requirement that the Optionee notify the Company of any disposition as
provided in paragraph 5 hereof. Each certificate representing shares shall
bear a legend reflecting the appropriate restriction.
The option granted hereunder is intended to qualify as an incentive stock
option under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). However, to the extent that the aggregate fair market value of the
Common Stock (determined at the date of grant of the option) with respect to
which incentive stock options are exercisable for the first time by the
Optionee during any calendar year (under all incentive stock option plans of
TMPI and any parent or subsidiary corporation of TMPI) exceeds $100,000, such
options will not be incentive stock options. For this purpose, options shall
be taken into account in the order in which they were granted.
The option granted hereunder is granted pursuant to and is governed by
the terms of the 1991 Tecnol Stock Option Plan (the "Option Plan").
3. The right and option granted hereunder shall be exercised by
delivering to Tecnol Medical Products, Inc. a written notification specifying
the number of shares which the Optionee desires to purchase, together with
cash, certified check, bank cashier's check or postal or express money order to
the order of Tecnol Medical Products, Inc. for an amount equal to the option
price of such shares, and specifying the address to which the certificates for
such shares are to be mailed. In lieu of payment in cash or the cash
equivalents as described above, Optionee may make payment by tendering to
Tecnol Medical Products, Inc. shares of Common Stock, or by tendering shares of
Common Stock plus cash or such cash equivalents, in amounts such that the
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<PAGE> 4
fair market value of the Common Stock tendered, plus the amount of cash or cash
equivalents paid, if any, equals the option price for the shares to be
purchased.
4. As promptly as practical after receipt of such written notification
and payment and receipt of such evidence of intent to acquire for investment as
may be required by the Company, the Company will deliver to the Optionee
certificates for the number of shares with respect to which such option has
been so exercised, issued in the Optionee's name; provided that such delivery
shall be deemed effected for all purposes when a stock transfer agent of the
Company shall have deposited such certificates in the United States mail,
postage prepaid, addressed to the Optionee, at the address specified pursuant
to paragraph 3 hereof.
5. If the Optionee shall dispose of any of the shares purchased
hereunder within the later of one year after the transfer of such shares to
Optionee or two years from the effective date of the granting of this option,
then in order to provide the Company with the opportunity to claim the benefit
of any income tax deduction which may be available to it under the
circumstances, the Optionee shall promptly notify the Company of the dates of
acquisition and disposition of such shares, the number of shares so disposed
of, and the consideration, if any, received for such shares. In addition, in
order to help assure that the Company receives notice of any such transfer, any
stock certificate evidencing any shares of Common Stock issued under this
Agreement shall bear a legend substantially as follows for the first year after
issuance of such Common Stock to the Optionee or, if sooner, until such time as
the Optionee certifies in writing to the Company that such Common Stock has
been sold in a bona fide transaction and advises the Company of the amount of
the consideration received for such shares:
"The Company has asked its stock transfer agent to notify the Secretary
of the Company if the securities represented by this certificate are held
of record at any time prior to [applicable date] in any name other than
[applicable name]."
Further, upon request of the Company, from time to time, the Optionee shall
certify in writing the dates of acquisition and any dispositions of such Common
Stock on or before the first anniversary of the issuance of such Common Stock
to the Optionee, the number of shares so disposed of, and the consideration, if
any, received for such shares.
6. Except as is otherwise expressly provided in this Agreement, the
option herein granted shall terminate immediately upon the severance of the
employment relationship between the Company and the Optionee by the Company for
serious violation of Company policy or intentional misconduct, and two weeks
after the severance of the employment relationship between the Company and the
Optionee for any reason, other than for serious violation of Company policy or
intentional misconduct or on account of death or retirement in good standing
from the employ
-4-
<PAGE> 5
of the Company for reasons of age or total and permanent disability under the
then established rules of the Company. For purposes of this Agreement,
"Company" shall mean Tecnol Medical Products, Inc. and any corporation in which
Tecnol Medical Products, Inc. owns, directly or indirectly, stock possessing
eighty percent or more of the total combined voting power of all classes of
stock; and, any corporation in which Tecnol Medical Products, Inc. owns,
directly or indirectly, stock possessing fifty percent or more of the total
combined voting power of all classes of stock, if the Board of Tecnol Medical
Products, Inc. resolves that such other corporation shall be so defined.
Whether authorized leave of absence or absence on military or government
service shall constitute severance of the employment relationship between the
Company and the Optionee shall be determined by the Committee appointed by the
Board of Directors of TMPI to administer the Option Plan (the "Committee"). In
the event of the death of the Optionee while in the employ of the Company and
before the date of expiration of this option, this option shall terminate one
year following the date of death of the Optionee. After the death of the
Optionee, Optionee's executors, administrators, or any person or persons to
whom this option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to such termination, to
exercise the option granted hereunder, in whole or in part. If, before the
date of expiration of this option, the Optionee shall be retired in good
standing from the employ of the Company for reasons of age or total and
permanent disability under the then established rules of the Company, this
option shall terminate three months (twelve months in the case of retirement
for disability) after the date of such retirement. However, in the event of
such retirement, the Optionee shall have the right prior to the termination of
such option to exercise the option to the extent to which Optionee was entitled
to exercise the option immediately prior to such retirement. Provided,
however, nothing in this Section shall operate to extend this option beyond 10
years after the Effective Date hereof.
7. Whenever the word "Optionee" is used in any provision of this
Agreement under circumstances where the provisions should logically be
construed to apply to the executors, administrators or the person or persons to
whom the option may be transferred by will or by the laws of descent and
distribution, the word "Optionee" shall be deemed to include such person or
persons.
8. This option is not transferable by the Optionee otherwise than by
will or under the laws of descent and distribution, and is exercisable, during
Optionee's lifetime, only by Optionee. No assignment or transfer of this
option, or of the rights represented thereby, whether voluntary or involuntary,
by operation of law or otherwise (except by will or by the laws of descent and
distribution) shall vest in the assignee or transferee any interest or right
herein whatsoever, but immediately upon any such assignment or transfer this
option shall terminate and become of no further effect.
-5-
<PAGE> 6
9. The Optionee shall not be deemed for any purpose to be a
stockholder of TMPI in respect of any shares as to which this option shall not
have been exercised, as herein provided, and until such shares shall have been
issued to the Optionee by TMPI hereunder.
10. The existence of this option shall not affect in any way the right
or power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
11. The shares with respect to which this option is granted are shares
of the Common Stock of TMPI as presently constituted, but if, and whenever,
prior to the delivery by TMPI of all the shares of the Common Stock with
respect to which this option is granted, TMPI shall effect a subdivision or
consolidation of shares or other capital readjustment, the payment of a stock
dividend, or other increase or reduction of the number of shares of the Common
Stock outstanding, without receiving compensation therefor in money, services
or property, then (a) in the event of an increase in the number of such shares
outstanding, the number of shares of Common Stock then remaining subject to
option hereunder shall be proportionately increased, and the option price per
share shall be proportionately reduced; and (b) in the event of a reduction in
the number of such shares outstanding, the number of shares of Common Stock
then remaining subject to option hereunder shall be proportionately reduced,
and the option price per share shall be proportionately increased.
12. After a merger of one or more corporations into TMPI, or after a
consolidation of TMPI and one or more corporations in which TMPI shall be the
surviving corporation, the Optionee shall, at no additional cost, be entitled
upon any exercise of this option, to receive (subject to any required action by
stockholders) in lieu of the number of shares as to which this option shall
then be so exercisable, the number and class of shares of stock or other
securities or cash or other property to which the Optionee would have been
entitled pursuant to the terms of the agreement of merger or consolidation, as
if immediately prior to such merger or consolidation the Optionee had been the
holder of record of a number of shares of Common Stock of TMPI equal to the
number of shares as to which such option shall be so exercised; provided that,
anything herein contained to the contrary notwithstanding, upon the dissolution
or liquidation of TMPI, or upon any merger or consolidation if TMPI is not the
surviving corporation, the Board of Directors of TMPI shall determine the
disposition of this option in accordance with the alternatives set forth in
paragraph 14 of the Option Plan.
-6-
<PAGE> 7
13. Except as hereinbefore expressly provided, the issue by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, for cash or property or for labor or services, either upon direct
sale, upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to this option.
14. Notwithstanding any of the provisions hereof, the Optionee hereby
agrees that Optionee will not exercise the option granted hereby, and that the
Company will not be obligated to issue any shares to the Optionee hereunder, if
the exercise hereof or the issuance of such shares shall constitute a violation
by the Optionee or the Company of any provisions of any law or regulations of
any governmental authority. If, at any time specified herein for the issuance
of shares to the Optionee, any law or regulation shall require either the
Company or the Optionee to take any action in connection with the shares then
to be issued, the issuance of such shares shall be deferred until such action
shall have been taken. Any determination in this connection by the Committee
shall be final, binding and conclusive. The Company shall in no event be
obligated to register any securities pursuant to the Securities Act of 1933 (as
now in effect or as hereafter amended) or to take any other affirmative action
in order to cause the exercise of the option or the issuance of shares pursuant
thereto to comply with any law or regulation of any governmental authority.
15. Every notice or other communication relating to this Agreement
shall be in writing, and shall be mailed to or delivered to the party for whom
it is intended at such address as may from time to time be designated by it in
a notice mailed or delivered to the other party as herein provided; provided
that, unless and until some other address be so designated, all notices or
communications by the Optionee to the Company shall be addressed to the
President of TMPI and mailed or delivered to TMPI at its office at 7201
Industrial Park Blvd., Fort Worth, Texas 76180, and all notices or
communications by the Company to the Optionee may be given to the Optionee
personally or may be mailed to Optionee at Optionee's address as shown in the
records of the Company.
16. (a) The Optionee recognizes and acknowledges that:
(1) "Company-Type Products" means the types of products that
the Company is and will be engaged in developing, manufacturing,
marketing and selling, such as, but not limited to, the following:
reusable orthopedic soft goods; face masks and respirators; all
disposable restraints, holders, binders, supports, pads,
protectors, straps, ice packs, telemetry unit pouches, wash mitts,
caps, shoe covers, wound dressings, and other health care and
industrial disposable items developed, manufactured, marketed or
sold by the Company during Optionee's
-7-
<PAGE> 8
employment with the Company; and, if Optionee engages in Technical
Activities of the Company (as defined below) at any time during
Optionee's employment with the Company, any components or raw
materials for use in any of the above which were the subject of
research and/or development during Optionee's employment with the
Company.
(2) If Optionee, at any time during the course of Optionee's
employment with the Company, is engaged in the manufacturing,
engineering and/or product development activities of the Company
("Technical Activities") such as manufacturing existing
Company-Type Products, improving and enhancing Company-Type
Products, and developing new Company-Type Products, then, during
the course of Optionee's employment, Optionee will likely (a)
engage in research and experimentation to create and improve the
design of such products; (b) design and manufacture special
machinery that is used to manufacture, automatically inspect and/or
package such products; (c) develop and design sonic bonding
equipment used in such machines; (d) design and develop
specifications and manufacturing processes for materials used in
Company-Type Products including, without limitation, films, and
non-woven fabrics; and/or (e) design and manufacture machines used
to manufacture such materials in the performance of Optionee's
duties. The Company's success and innovation in developing new,
and in enhancing existing, Company-Type Products and in developing
and improving the materials and machinery used in, and to
manufacture, its Company-Type Products confers on the Company a
significant competitive advantage against its competitors. The
continued confidentiality of these aspects of the Company's
business are vital to its business.
(3) If Optionee, at any time during the course of Optionee's
employment with the Company, is engaged in the financial, legal,
administrative, management, marketing, sales, or communication
activities of the Company ("Sales and Administrative Activities")
then the Optionee will become familiar with or have access to
extensive confidential information pertaining to the business of
the Company, which may include, without limiting the forgoing, and
depending upon Optionee's specific employment duties, names of
customers of the Company and the prices it obtains or has obtained
from customers or for which it sells or has sold its products,
sources for materials used in the Company's products, contract
relationships between the Company and its customers and suppliers,
confidential business and financial data of the Company,
information pertaining to the Company's employees (including,
without limitation, information concerning compensation and benefit
programs), information regarding the Company's costs, information
about the Company's products and anticipated new products,
forecasts,
-8-
<PAGE> 9
plans, objectives, investment opportunities, and long term business
strategies and plans of the Company. This confidential information
is of strategic importance to the Company in its ability to
successfully compete. The continued confidentiality of this
information is vital to the Company's business.
(4) The Company has established a valuable and extensive
trade in its Company-Type Products as well as business connections
and customers which are of significant value to it.
(5) By virtue of Optionee's employment, Optionee
acknowledges that Optionee holds a position of trust with respect
to the confidential information of the Company made accessible to
Optionee, and that the Company will suffer irreparable injury if
during Optionee's employment or at any time subsequent to the
termination of such employment, Optionee should, directly or
indirectly, enter into competition with the Company or divulge such
secret and confidential information to competitors or potential
competitors of the Company.
(6) It is expected that Optionee, during Optionee's
employment by the Company, may conceive or generate (alone or
together with others) inventions, discoveries or ideas, and it is
recognized that the ownership thereof should be and will be in the
Company.
(7) The covenants and conditions contained herein are
reasonable and necessary for the protection of the Company's
business. In this regard, Optionee recognizes that the descriptive
scope of the confidential information described in Section 16 and
the territory covered by the non-competition covenants in Section
16 hereof are reasonable in light of the fact that the work that
Optionee will perform for the Company as its employee will
contribute to the manufacture or sale of products that will be sold
to end users (directly or in many cases through intermediary
distributors) located throughout the Geographic Region described in
Section 16(f).
(b) Optionee covenants and agrees that Optionee will not at any
time during Optionee's employment or thereafter, in any fashion, form or
manner, either directly or indirectly, except to the extent necessary to
carry out Optionee's employee responsibilities for the benefit of the
Company, divulge, disclose or communicate to any person, firm,
partnership, corporation or enterprise in any manner whatsoever any
information of any kind, nature or description concerning any matters
affecting or relating to the business of the Company, including without
limitation, (i) research conducted by the Company in connection with
product development, manufacturing processes, machinery construction,
-9-
<PAGE> 10
product materials or otherwise, (ii) the manufacturing methods or
processes used or under development by the Company for its products,
machines and materials, (iii) the nature or properties of the materials
used by the Company in its products or under development, and supply
sources of such materials, (iv) the names of any of the Company's
customers and the prices it obtains or has obtained or for which it sells
or has sold its products, (v) contract relationships between the Company
and its customers and suppliers, (vi) confidential business and financial
data of the Company, (vii) information pertaining to the Company's
employees (including, without limitation, information concerning
compensation and benefit programs), (viii) information regarding the
Company's costs, (ix) information about the Company's products and
anticipated new products, (x) forecasts, plans, objectives, investment
opportunities, and long term business strategies and plans of the
Company, and (xi) any other information of, about or concerning the
business of the Company, its manner of operations, its plans, processes
or other data of any kind, nature or description. The Optionee and
Company agree that the foregoing information is important, material and
confidential and substantially effects the successful conduct of the
business of the Company, and its good will, regardless whether any or all
of the foregoing matters would be deemed to be "trade secrets" as defined
by law. Optionee may have occasion to learn other information as a
consequence of or through Optionee's employment with the Company, such as
information from or about suppliers, customers, competitors and others.
This information generally is obtained by the Company by studying
competitive products, by requesting information from such other
companies, by doing various studies and the like. Such information in
some cases may not be proprietary to the Company but nevertheless the
Company learns such information in the course of its business, keeps such
information secret (because it is costly and useful information), and
legitimately uses such information in connection with its business.
Optionee agrees Optionee will not use or disclose, or permit such
information to be disclosed or used except in furtherance of Optionee's
duties for the Company and agrees not to use or disclose such information
in violation of any obligations or duties which Optionee or the Company
has to any third party. The parties agree that any breach of the terms
of this Section 16(b) is a material breach of this Agreement. The
Company considers, and the Optionee agrees, that all such information is
the Company's sole and exclusive property, and Optionee agrees to
promptly deliver all such information in tangible form as well as all
other correspondence, memoranda, notes, records, reports, plans, customer
lists and all other papers (and copies thereof) and all electronically
stored or computerized data to the Company either upon the Company's
request or upon any termination of this Agreement. The Company agrees to
provide Optionee with access to and the right to use in the performance
of Optionee's duties to the Company the confidential, proprietary and
other business information and trade secrets described above in this
Section 16 in consideration of the covenants of Optionee of
non-disclosure and non-competition set forth in this Section 16.
-10-
<PAGE> 11
(c) All "Inventions" made or conceived by the Optionee, solely or
with others, while employed by the Company, either during or after
working hours, or within a period of one (1) year after termination of
Optionee's employment, which are useful in or related to the business of
the Company or which have been made or conceived, wholly or partially,
with the use of the Company's time, material or facilities, shall belong
exclusively to the Company. The Optionee agrees that Optionee shall have
no claim for additional compensation for such Inventions. The Optionee
agrees promptly to disclose in accordance with Company procedures any
such Invention promptly and fully by a written report, setting forth in
detail the structures, procedures and methodology employed and the
results achieved. In addition, full reports and records shall be kept in
accordance with Company practices during and on completion of any study
or research project undertaken on the Company's behalf, whether or not in
Optionee's opinion a given study or project has resulted in an Invention.
For purposes hereof the term "Invention" means any discovery, concept,
idea, whether patentable or not, relating to any present or prospective
activities of the Company, including, but not limited to, devices,
processes, methods, formulae, techniques, and any improvements to any of
the foregoing. The Optionee hereby assigns and agrees to assign to the
Company all of Optionee's rights to such Inventions and to all
proprietary rights therein, based thereon or related thereto, including,
but not limited to, applications for United States and foreign letters
patent and resulting letters patent. At the request of the Company,
either before or after termination of Optionee's employment, Optionee
shall assist the Company in acquiring and maintaining patent protection
upon and confirming its title to such Inventions. Optionee's assistance
shall include the signing of applications for patent assignments and
other papers, and taking any other steps considered desirable by the
Company.
(d) Ancillary to, and in order to further assure that the Optionee
will not violate Optionee's covenants of non-disclosure of confidential,
proprietary and other business information of the Company set forth in
Section 16(b) hereof or Optionee's obligations respecting Inventions
under Section 16(c), and ancillary to the rest of this Agreement and in
consideration of each of the foregoing, Optionee covenants and agrees
that for the Applicable Period (as defined below) after termination of
Optionee's employment for any reason, Optionee will not, for any reason,
anywhere in the Geographic Region (as defined below), directly or
indirectly, as an employee, employer, consultant, agent, principal,
partner, stockholder, officer, director, or in any other individual or
representative capacity:
(1) engage or participate in any business that:
(A) is engaged, directly or indirectly, in the sale or
marketing of any product that is the same as or similar to or
competitive with any
-11-
<PAGE> 12
Company-Type Product which was sold or marketed by the Company
during Optionee's employment with the Company; or
(B) is engaged, directly or indirectly in research for
or the development or manufacture of any product that is the
same as or similar to or competitive with any Company-Type
Product which was the subject of research or development or
which was manufactured, by the Company during Optionee's
employment with the Company; or
(C) is engaged, directly or indirectly, in the
research, development, manufacture, sale or marketing of any
item made from film or non-woven fabric bonded through a sonic
bonding manufacturing process; or
(D) is engaged, directly or indirectly, in the
research, development, manufacture, use, sale or marketing of
any manufacturing equipment that (i) uses computers in
automated manufacturing; or (ii) is used to produce products
made of film or non-woven fabric; or (iii) uses an automated
or computerized product inspection system, because equipment
similar in function or design to any of the foregoing
equipment would be similar to equipment developed or
manufactured by the Company during the course of Employee's
employment; or
(E) is engaged, directly or indirectly, in the
business described in clause (D) above, if such machines are
designed to be used to manufacture Company-Type Products; or
(2) recruit, or hire, or attempt to recruit or hire,
directly or by assisting others, any other employee or consultant
of the Company or give any advice or counsel with respect to the
hiring of any person who shall have been an employee of the Company
at any time within the two-year period immediately preceding such
hiring, advice or counsel.
(e) Ancillary to, and in order to further assure that Optionee
will not violate Optionee's covenants of non-disclosure of confidential,
proprietary and other business information of the Company set forth in
Section 16(b) herein, or Optionee's obligations respecting Inventions
under Section 16(c), and ancillary to the rest of this Agreement and in
consideration of each of the foregoing, Optionee covenants and agrees
that for the Applicable Period after termination of Optionee's employment
for any reason Optionee will not, for any reason, anywhere outside the
Geographic Region (as defined below),
-12-
<PAGE> 13
directly or indirectly, as an employee, employer, consultant, agent,
principal, partner, stockholder, officer, director, or in any other
individual or representative capacity engage or participate in any
business described in paragraph (d)(1) of this Section 16 if in fact such
business is shipping the products or equipment described therein to any
country included in the Geographic Region. Optionee recognizes that the
foregoing covenant is necessary to prevent Optionee from indirectly
competing with the Company in a prohibited manner inside the Geographic
Region.
(f) Geographic Region means United States, Canada, Japan, Puerto
Rico, Mexico, Australia and the countries included in the European
Economic Community; and, if Optionee was directly engaged in selling
Company-Type Products in any other country while employed by the Company,
then in such other country.
(g) If Optionee engages in Technical Activities at any time during
Optionee's employment with the Company, then, for purposes of sections
16(d)(1) and (2) and 16(e), Applicable Period means:
<TABLE>
<CAPTION>
Period For Conduct Described in Clause
------ -------------------------------
<S> <C>
6 months (d)(1)(A)
2 years (d)(1)(B)
2 years (d)(1)(C)
2 years (d)(1)(D)
3 years (d)(1)(E)
2 years (d)(2)
</TABLE>
and, if Optionee engages in Sales and Administrative Activities at any
time during Optionee's employment with the Company, then, for purposes of
sections 16(d)(1) and (2) and 16(e), "Applicable Period" means:
<TABLE>
<CAPTION>
Period For Conduct Described in Clause
------ -------------------------------
<S> <C>
2 years (d)(1)(A)
2 years (d)(1)(B)
6 months (d)(1)(C)
6 months (d)(1)(D)
1 year (d)(1)(E)
2 years (d)(2)
</TABLE>
If Optionee engages in Technical Activities and in Sales and
Administrative Activities during Optionee's employment with Company then
the Applicable Period shall be the longer period designated for specific
conduct.
-13-
<PAGE> 14
(h) Optionee agrees to provide to any future employer a copy of
the covenants contained in this Section 16 and agrees that the Company
may do so as well.
(i) During the term of Optionee's employment, Optionee shall not
do any act that is prohibited immediately following termination of
Optionee's employment under Section 16.
(j) The ownership of less than 2% of a publicly traded company
will not, in and of itself, violate Section 16.
(k) Both the Company's rights and the Optionee's duties under this
Section 16 shall survive any termination of this Agreement. If Optionee
violates any covenant contained in Section 16 of this Agreement, the
Company shall not, as a result of the time involved in obtaining relief,
be deprived of the benefit of the full period of any such covenant.
Accordingly, the covenants of Optionee contained in Section 16 shall be
deemed to have the durations specified therein, which periods shall
commence upon the later of (i) the termination of Optionee's employment
with the Company and (ii) the later to occur of: (A) the date of entry of
a final judgment enforcing the covenants of Optionee under Section 16, as
the case may be or (B) the date on which Optionee permanently ceases such
violation.
(l) The Optionee recognizes that the remedy of damages for breach
or threatened breach of the provisions of this Section 16 would be
inadequate and that the harm occasioned by such breach would be
irreparable, and accordingly, Optionee expressly agrees that in the event
of a breach or threatened breach by Optionee of any of the provisions of
this Section 16, the Company will be entitled to an injunction, without
the requirement of posting bond, restraining Optionee from violating the
terms hereof, or from rendering services to any person, firm,
corporation, association, or other entity to whom any confidential
information concerning or relating to the business of the Company has
been disclosed or may be threatened to be disclosed, or for whom Optionee
is working or rendering services, or threatens to work or render services
in violation of the terms hereof. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available to it
for such breach or threatened breach of this Section 16, including
recovery of damages from Optionee. Optionee's allegation of or the
existence of any claim against the Company, under this Agreement or
otherwise, will not constitute a defense to the Company's enforcement of
this Section.
(m)
-14-
<PAGE> 15
(1) The parties recognize and agree that it may be difficult
if not impossible for the Company to prove the existence of a
breach of the Optionee's covenants of confidentiality and
non-disclosure under Section 16(b) of this Agreement. The parties
further recognize and agree that the non-competition covenants
contained in Section 16(d) are necessary to support the legitimate
business interests of the Company in preserving the confidentiality
and secrecy of and control over such confidential information and
its business goodwill and are ancillary to, supportive of, and a
part of this Agreement, are ancillary to the Company's undertaking
to facilitate Optionee's stock ownership in the Company, and are
necessary as a means of ensuring compliance by Optionee with such
confidentiality covenants.
(2) The existence of any claim or cause of action of
Optionee against the Company or any officer, director, or
shareholder of the Company, that is predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the
Company of the covenants of the Optionee contained in this Section
16. In addition, the provisions of this Section 16 shall continue
to be binding upon Optionee in accordance with their terms,
notwithstanding the termination of Optionee's employment with the
Company for any reason.
(3) The parties acknowledge and agree that the time, scope,
territory and other provisions of this Section 16 are reasonable
under the circumstances. The parties further agree that if at any
time despite the express agreement of the parties hereto, it is
held through enforcement proceedings that any portion of Section 16
is unenforceable by reason of its being too extensive in any
respect, then it shall be interpreted and reformed to extend only
over the maximum period of time for which it may be enforceable and
over the maximum geographical area as to which it may be
enforceable and to the maximum extent in all other respects as to
which it may be enforceable.
17. This Agreement constitutes the entire agreement between the parties
and may not be amended except by an instrument in writing executed by both
parties.
18. This Agreement has been executed and will be performed in the State
of Texas and will be governed by and construed in accordance with the laws of
the State of Texas subject to the extent limited in Section 20 hereof.
19. If any one or more provisions of this Agreement shall be held to be
invalid, illegal or unenforceable in any respect in any jurisdiction, the
validity, legality or enforceability of the
-15-
<PAGE> 16
remaining provisions of this Agreement in such jurisdiction shall not in any
way be affected or impaired thereby. Further, in lieu of such invalid,
illegal, or unenforceable provision, there shall be deemed inserted a provision
as close in scope and content to such provision as possible while remaining
valid, legal and enforceable in such jurisdiction.
20.
(a) Any dispute arising out of or relating to the interpretation,
validity, or enforcement of Section 16 of this Agreement shall be settled
by binding arbitration in accordance with the then current Commercial
Arbitration Rules of the American Arbitration Association. Either party
may initiate an arbitration proceeding in accordance with such Rules. The
arbitration shall be conducted by a panel of three independent
arbitrators appointed in accordance with such Rules. The arbitration
shall be governed solely by the United States Arbitration Act
notwithstanding any other provision of this Agreement to the contrary. If
the arbitrators determine that a breach of any of the provisions of
Section 16 has occurred or is threatened then, at the request of the
Company, the arbitrators shall award temporary or permanent injunctive
relief in favor of the Company, as it may request, restraining and
enjoining any further such breach. Such award shall be in addition to and
not in lieu of any other relief to which the Company may be entitled,
including, without limitation, damages arising out of any such breach.
The arbitrators shall enter any award in form sufficient to permit
judgment upon the award to be entered by, and to permit an order for
contempt enforcing compliance with such judgment to be entered by, a
court of competent jurisdiction.
(b) Prior to the hearing on the merits in an arbitration
proceeding to enforce the provisions of Section 16 hereof, in order to
maintain the status quo pending such hearing, the Company shall have the
right to seek and obtain temporary or preliminary injunctive relief from
a court of competent jurisdiction restraining Optionee from violating the
provisions of Section 16.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TECNOL MEDICAL PRODUCTS, INC.
---------------------------------------
Optionee
---------------------------------------
Street address
By:
---------------------------------- ---------------------------------------
President City State/County Zip Code
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TECNOL
MEDICAL PRODUCTS, INC. 10Q FILING FOR THE 2ND QUARTER OF FISCAL YEAR 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THIS DOCUMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-02-1996
<PERIOD-END> JUN-01-1996
<CASH> 2,356,454
<SECURITIES> 0
<RECEIVABLES> 25,323,744
<ALLOWANCES> 881,000
<INVENTORY> 29,164,285
<CURRENT-ASSETS> 59,856,246
<PP&E> 69,144,164
<DEPRECIATION> 23,178,906
<TOTAL-ASSETS> 150,445,858
<CURRENT-LIABILITIES> 14,399,933
<BONDS> 11,232,264
<COMMON> 21,116
0
0
<OTHER-SE> 119,711,956
<TOTAL-LIABILITY-AND-EQUITY> 150,445,858
<SALES> 71,582,002
<TOTAL-REVENUES> 71,582,002
<CGS> 39,895,887
<TOTAL-COSTS> 39,895,887
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 600,490
<INCOME-PRETAX> 13,665,619
<INCOME-TAX> 4,566,144
<INCOME-CONTINUING> 9,099,475
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,099,475
<EPS-PRIMARY> .45
<EPS-DILUTED> 0<F1>
<FN>
<F1> PRIMARY AND FULLY DILUTED NET INCOME PER SHARE ARE NOT MATERIALLY
DIFFERENT.
</FN>
</TABLE>
