<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 May 31, 1997
-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.
20,008,553 shares common stock, par value $.001, as of July 8, 1997
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TECNOL MEDICAL PRODUCTS, INC.
FORM 10-Q INDEX
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION ............................................. 3
Item 1 Financial Statements .............................................. 3
Condensed Consolidated Balance Sheets as of
November 30, 1996, and May 31, 1997 ............................... 3
Condensed Consolidated Statements of Income for the Quarters and
Year-to-Date Periods Ended June 1, 1996, and May 31, 1997 ......... 5
Condensed Consolidated Statements of Cash Flows for the
Year-to-Date Periods Ended June 1, 1996, and May 31, 1997 ......... 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 1 Legal Proceedings ................................................. 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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECNOL MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Nov. 30, May 31,
1996 1997
------------ ------------
ASSETS (unaudited)
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,355,033 $ 10,162,990
Accounts receivable, net of allowance
for doubtful accounts of $1,497,000 in 1996
and $1,305,000 in 1997 24,858,157 24,557,559
Inventories 32,036,334 32,420,927
Prepaid expenses 620,807 621,692
Other current assets 3,497,720 3,661,267
------------ ------------
Total current assets 65,368,051 71,424,435
NET PROPERTY, PLANT, AND EQUIPMENT 48,671,113 51,373,813
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $3,609,000 in 1996 and $4,292,000 in 1997 39,618,824 39,243,577
Other purchased intangible assets, net of
accumulated amortization of $3,140,000 in
1996 and $3,388,000 in 1997 772,257 524,402
Patents and trademarks, net of accumulated
amortization of $728,000 in 1996 and $894,000
in 1997 3,358,266 3,590,284
Other 1,711,193 1,726,242
------------ ------------
Total other assets 45,460,540 45,084,505
------------ ------------
Total assets $159,499,704 $167,882,753
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
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TECNOL MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
Nov. 30, May 31,
1996 1997
------------ ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 7,800,378 $ 9,670,295
Accrued expenses 4,662,419 3,482,027
Income taxes payable 719,042 777,764
Current maturities of long-term debt 3,641,287 3,609,610
------------ ------------
Total current liabilities 16,823,126 17,539,696
LONG-TERM DEBT, net of current maturities 9,264,736 6,608,973
DEFERRED INCOME TAXES 6,179,599 5,969,599
------------ ------------
Total liabilities 32,267,461 30,118,268
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, 21,116,980 shares issued
in 1996 and 21,157,173 shares issued in 1997 21,117 21,157
Additional paid-in capital 27,886,864 28,353,460
Retained earnings 103,755,583 113,844,819
------------ ------------
131,663,564 142,219,436
Less-treasury stock, at cost:
1,159,489 shares in 1996 and 1,161,091 shares in 1997 3,529,197 3,552,827
Less-unearned employee stock ownership shares,
60,000 shares in 1996 and 1997 902,124 902,124
------------ ------------
Total stockholders' equity 127,232,243 137,764,485
------------ ------------
Total liabilities and stockholders' equity $159,499,704 $167,882,753
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
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TECNOL MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
QUARTERS AND YEAR-TO-DATE PERIODS ENDED JUNE 1, 1996, AND MAY 31, 1997
<TABLE>
<CAPTION>
Quarter Ended Year-To-Date
---------------------------- ----------------------------
June 1, May 31, June 1, May 31,
1996 1997 1996 1997
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 36,338,381 $ 39,884,982 $ 71,582,002 $ 77,195,489
COST OF GOODS SOLD 20,317,158 21,848,269 39,895,887 42,576,979
------------ ------------ ------------ ------------
Gross profit 16,021,223 18,036,713 31,686,115 34,618,510
SELLING EXPENSES 6,242,520 6,372,661 11,931,216 12,273,371
GENERAL AND ADMINISTRATIVE EXPENSES 1,948,599 2,584,604 4,016,858 4,924,079
RESEARCH AND DEVELOPMENT EXPENSES 403,429 489,339 861,420 899,602
------------ ------------ ------------ ------------
Income from operations 7,426,675 8,590,109 14,876,621 16,521,458
OTHER INCOME (EXPENSE):
Interest income 88,006 65,555 93,475 150,714
Interest expense (214,695) (79,495) (600,490) (188,441)
Other, net (246,467) (450,207) (703,987) (933,974)
------------ ------------ ------------ ------------
Total other income (expense) (373,156) (464,147) (1,211,002) (971,701)
------------ ------------ ------------ ------------
Income before provision
for income taxes 7,053,519 8,125,962 13,665,619 15,549,757
PROVISION FOR INCOME TAXES 2,288,170 2,960,732 4,566,144 5,460,521
------------ ------------ ------------ ------------
NET INCOME $ 4,765,349 $ 5,165,230 $ 9,099,475 $ 10,089,236
============ ============ ============ ============
Net income per common and common
equivalent share $ 0.24 $ 0.26 $ 0.45 $ 0.50
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 20,172,505 20,206,691 20,152,694 20,143,940
============ ============ ============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
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TECNOL MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
YEAR-TO-DATE PERIODS ENDED JUNE 1, 1996, AND MAY 31, 1997
<TABLE>
<CAPTION>
Year-to-Date
----------------------------
June 1, May 31,
1996 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,099,475 $ 10,089,236
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,222,710 2,314,969
Amortization 1,172,787 1,104,002
Decrease in deferred income taxes (400,000) (210,000)
Net change in assets and liabilities, excluding acquisitions-
Accounts receivable (2,611,264) 276,505
Inventories 5,396,025 (569,007)
Other current assets (444,183) (164,431)
Accounts payable (823,077) 1,906,916
Accrued expenses 75,674 (1,180,392)
Income taxes payable 146,583 58,722
------------ ------------
Total adjustments 4,735,255 3,537,284
------------ ------------
Net cash provided by operating activities 13,834,730 13,626,520
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment (4,282,438) (5,256,568)
Cash paid for acquisitions, net of cash acquired (5,169,463) --
Expenditures for patents and trademarks (178,696) (398,038)
Increase in other assets (68,308) (66,502)
------------ ------------
Net cash used in investing activities (9,698,905) (5,721,108)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in bank line of credit (3,530,000) --
Proceeds from bank loan 5,500,000 --
Principal payments on long-term debt (4,070,872) (2,540,461)
Net proceeds from exercise of stock options 91,100 443,006
------------ ------------
Net cash used in financing activities (2,009,772) (2,097,455)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,126,053 5,807,957
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 230,401 4,355,033
------------ ------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 2,356,454 $ 10,162,990
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 630,324 $ 455,201
Income taxes $ 5,041,927 $ 5,611,800
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 May 31, 1997,
are not necessarily indicative of the results that may be expected for the
fiscal year ending November 29, 1997.
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 1, 1996, and May 31, 1997, each include thirteen and twenty-six
weeks, respectively. The fiscal year ending November 29, 1997, 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 1, May 31, June 1, May 31,
1996 1997 1996 1997
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Common shares outstanding 19,956,436 19,996,082 19,956,436 19,996,082
Effect of using weighted average common
and common equivalent shares
outstanding during the period (15,935) (16,030) (16,229) (17,538)
Effect of using weighted average
unearned ESOP shares (78,750) (48,750) (82,500) (52,500)
Effect of assuming exercise of
outstanding stock options based on the
treasury stock method 310,754 275,389 294,987 217,896
----------- ----------- ----------- -----------
Shares used in computing primary net
income per share 20,172,505 20,206,691 20,152,694 20,143,940
=========== =========== =========== ===========
</TABLE>
Primary and fully diluted net income per share are not materially different.
7
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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.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards No. 128 (SFAS 128), "Earnings per Share." This
Statement establishes and simplifies standards for computing and presenting
earnings per share. The Company will be required to adopt SFAS No. 128 the
first quarter of fiscal year 1998. SFAS 128 replaces primary and fully diluted
earnings per share with basic and diluted earnings per share. The Company does
not expect the adoption of SFAS No. 128 to have a material impact on earnings
per share.
NOTE 3 -- LONG-TERM DEBT
Long-term debt at November 30, 1996, and May 31, 1997, consists of the
following:
<TABLE>
<CAPTION>
Nov. 30, May 31,
1996 1997
------------ ------------
<S> <C> <C>
Industrial Revenue Bonds $ 3,600,000 $ 3,400,000
Bank term loans 8,187,500 6,512,500
Other installment obligations 1,118,523 306,083
------------ ------------
12,906,023 10,218,583
Less-current maturities (3,641,287) (3,609,610)
------------ ------------
$ 9,264,736 $ 6,608,973
============ ============
</TABLE>
NOTE 4 -- INVENTORIES
Inventories at November 30, 1996, and May 31, 1997, consist of the
following:
<TABLE>
<CAPTION>
Nov. 30, May 31,
1996 1997
----------- -----------
<S> <C> <C>
Raw materials $15,212,956 $14,472,382
Work-in-process 1,983,973 2,356,212
Finished goods 14,839,405 15,592,333
----------- -----------
$32,036,334 $32,420,927
=========== ===========
</TABLE>
8
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NOTE 5 -- PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at November 30, 1996, and May 31, 1997,
consists of the following:
<TABLE>
<CAPTION>
Nov. 30, May 31,
1996 1997
------------ ------------
<S> <C> <C>
Land $ 6,247,752 $ 6,591,555
Buildings and improvements 14,563,836 14,884,073
Automotive equipment 2,913,496 2,971,097
Manufacturing equipment 36,510,853 38,503,824
Office furniture and equipment 9,267,496 9,986,596
Construction-in-progress 4,446,416 5,542,802
------------ ------------
73,949,849 78,479,947
Less accumulated depreciation (25,278,736) (27,106,134)
------------ ------------
$ 48,671,113 $ 51,373,813
============ ============
</TABLE>
9
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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 1, 1996, and May 31, 1997, should be considered in
conjunction with the condensed consolidated balance sheets, statements of
income and statements of cash flows.
Results of Operations
Net sales increased 9.8% from $36.3 million in the second quarter of fiscal
1996 to $39.9 million in the second quarter of fiscal 1997. For the six month
period, net sales increased 7.8% from $71.6 million in fiscal 1996 to $77.2
million in fiscal 1997. 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 International division
experienced a sales increase of approximately 9.4% for the second quarter of
fiscal 1997 compared to the second quarter of fiscal 1996 and an increase of
14.0% for the six month period of 1996 compared to the six month period of
1997. Sales of the U.S. Hospital division increased 11.5% for the second
quarter of fiscal 1997 as compared to the second quarter of fiscal 1996 and
increased 5.5% for the six month period in fiscal 1997 as compared to fiscal
1996. Sales of the Specialty Markets division increased 13.1% for the second
quarter of fiscal 1997 as compared to the second quarter of fiscal 1996 and
increased 5.3% for the six month period in fiscal 1997 as compared to fiscal
1996. The Orthopedic division experienced a sales increase of 7.5% for the
second quarter of fiscal 1997 as compared to the second quarter of fiscal 1996
and a sales increase of 2.2% for the six month period in fiscal 1997 as
compared to fiscal 1996. Sales of the Industrial Products division decreased
5.5% for the second quarter of fiscal 1997 as compared to the second quarter of
fiscal 1996 and decreased 3.2% for the six month period in fiscal 1997 as
compared to fiscal 1996, due primarily to strong price competition in lower
margin product lines. Contract manufacturing generated sales of approximately
$3.3 million in the second quarter of fiscal 1997 compared to approximately
$2.9 million for the second quarter of fiscal 1996. For the six month period,
contract manufacturing sales increased 39.7% from $4.2 million in fiscal 1996
to $5.9 million in fiscal 1997.
The gross profit margin increased from 44.1% in the second quarter of fiscal
1996 to 45.2% in the second quarter of fiscal 1997. For the six month period,
the gross profit margin increased from 44.3% in fiscal 1996 to 44.8% in fiscal
1997. Gross profit margin was positively impacted by a decrease in
manufacturing employee turnover, reduction of overtime hours worked, and an
improvement in manufacturing quality leading to a lower rate of rejections due
to quality. This positive impact was partially offset by an increase in
contract manufacturing, which provides a lower gross profit margin than sales
to distributors. Operating margin from contract manufacturing is consistent
with the corporate average, as minimal selling expenses are incurred.
Selling expenses increased 2.1% from $6.2 million in the second quarter of
fiscal 1996 to $6.4 million in the second quarter of fiscal 1997. For the six
month period, selling expenses increased 2.9% from $11.9 million in fiscal 1996
to $12.3 million in fiscal 1997. As a percentage of net sales, selling expenses
decreased from 17.2% of net sales in the second quarter of fiscal 1996 to 16.0%
of net sales in the second quarter of fiscal 1997 and decreased from 16.7% in
the first six months of fiscal 1996 to 15.9% in the first six months of 1997.
The Company did not increase the number of
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sales territories or sales professionals as total sales increased.
Additionally, the increase in contract manufacturing has been accomplished with
minimal sales support.
General and administrative expenses increased 32.6% from $1.9 million in the
second quarter of fiscal 1996 to $2.6 million in the second quarter of fiscal
1997. For the six month period, general and administrative expenses have
increased 22.6% from $4.0 million in fiscal 1996 to $4.9 million in fiscal
1997. As a percentage of net sales, general and administrative expenses were
5.4% in the second quarter of fiscal 1996 (5.6% in the first six months of
1996) compared to 6.5% in the second quarter of fiscal 1997 (6.4% in the first
six months of 1997). This increase is due primarily to an increase in salary
expense. Research and development expenses increased by 21.3% from
approximately $403,000 in the second quarter of fiscal 1996 to approximately
$489,000 in the second quarter of fiscal 1997. For the six month period,
research and development expenses increased 4.4% from approximately $861,000 in
fiscal 1996 to approximately $900,000 in fiscal 1997.
Income from operations increased 15.7% from $7.4 million in the second
quarter of fiscal 1996 to $8.6 million in the second quarter of fiscal 1997.
For the six month period, income from operations increased 11.1% from $14.9
million in fiscal 1996 to $16.5 million in fiscal 1997. Operating margin
increased from 20.4% in the second quarter of fiscal 1996 to 21.5% in the
second quarter of fiscal 1997. For the six month period, operating margin
increased from 20.8% in fiscal 1996 to 21.4% in fiscal 1997.
Other income (expense) represented expense of approximately $464,000 in the
second quarter of fiscal 1997, compared to expense of approximately $373,000 in
the second quarter of fiscal 1996. For the six month period, other expense
totaled approximately $1.2 million in fiscal 1996, compared to approximately
$972,000 in fiscal 1997. The Company has incurred lower interest expense, as
certain long-term debt has been repaid. Interest income has increased as the
Company's cash balance has increased. Amortization expense included in other
income (expense) was approximately $504,000 in the second quarter of fiscal
1996, compared to approximately $449,000 in the second quarter of fiscal 1997.
For the six month period, this amortization expense was approximately $993,000
in 1996, compared to approximately $931,000 in 1997.
Tecnol's effective income tax rate increased from 32.4% in the second
quarter of fiscal 1996 to 36.4% in the second quarter of fiscal 1997. The
effective tax rate for the second quarter of fiscal 1996 is lower than the
statutory rate due to revisions in estimated reserves required for federal
income taxes. The Company expects the effective tax rate to be approximately
36.5% for the remainder of 1997.
Net income increased 8.4% from $4.8 million in the second quarter of 1996 to
$5.2 million in the second quarter of 1997 as a result of the foregoing
factors. For the six month period, net income increased 10.9% from $9.1
million in fiscal 1996 to $10.1 million in fiscal 1997. Net income per share
increased 8.3% from $0.24 in the second quarter of fiscal 1996 to $0.26 in the
second quarter of fiscal 1997. For the six month period, net income per share
increased 11.1% from $0.45 in fiscal 1996 to $0.50 in fiscal 1997.
Over the past few years, legislation designed to significantly reform the
way health care services are provided in the United States has been proposed.
The Company cannot predict whether any significant legislation will be enacted
into law or, if enacted, what effect the legislation will have on
11
<PAGE> 12
its business. There are also changes in the structure and business methods
within the health care industry initiated by the private sector through
hospital group purchasing organizations, managed care, and other strategies.
The objective of some of these changes is to reduce costs of health care,
including the hospital cost of medical devices. 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, existing cash, 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.
Tecnol owns 25 acres of land in Fort Worth, Texas on which the Company has
begun construction of a central distribution facility for finished goods, with
completion expected in fiscal 1998 at an estimated cost of $10 million. The
Company owns approximately 10 acres of land in Acuna, Mexico, on which the
Company has begun construction of a 91,000 square foot facility to be used for
office space, manufacturing, and warehousing. The cost of the land and this
facility is expected to be approximately $3.5 million. Completion is expected
by the end of fiscal 1997. The Company is also planning to begin construction
soon to add approximately 56,000 square feet to its headquarters building in
order to add engineering, product development, manufacturing, and office space
at an estimated cost of $5 million, with completion expected in early 1998.
Additionally during 1997, the Company will begin to remodel existing space and
add approximately 75,000 square feet to the facility located less than one mile
from Tecnol's corporate headquarters at an estimated cost of $2 million. This
project is expected to be completed in early fiscal 1998. 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 $48.5 million at the end of
fiscal 1996 to $53.9 million at May 31, 1997. Net cash generated by operating
activities for the six months ended May 31, 1997, totaled $13.6 million. For
the six month period of fiscal 1997, cash generated by operating activities was
used to repay approximately $2.5 million of long-term debt and to purchase
approximately $5.3 million of property, plant, and equipment. Net cash and
cash equivalents at May 31, 1997, totaled approximately $10.2 million.
On May 31, 1997, the Company had no amount outstanding and $12,500,000
available under its bank line of credit. The line of credit expires March 14,
1998. On May 31, 1997, the Company also had $4,125,000 available under a
reducing revolving bank line of credit.
New Accounting Standard
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards No. 128 (SFAS 128), "Earnings per Share." This
Statement establishes and simplifies standards for computing and presenting
earnings per share. The Company will be required to adopt SFAS No. 128 the
first quarter of fiscal year 1998. SFAS 128 replaces primary and fully diluted
earnings per share with basic and diluted earnings per share. The Company does
not expect the adoption of SFAS No. 128 to have a material impact on earnings
per share.
12
<PAGE> 13
Cautionary Information Regarding 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 the context in which
they are made, including assumptions which are explicitly or implicitly
included in the statements, and in light of the following factors and
assumptions: current and contemplated cost-containment measures will be
successfully implemented; 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 or pricing in its 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. The Company may or may not update
information contained in previously released forward-looking statements and
does not assume the duty to do so.
13
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On August 21, 1995, a class action lawsuit styled Bryan Freeman vs.
Vance M. Hubbard, Kirk Brunson, Valerie A. Hubbard, David Radunsky, Paul M.
Brost, Douglas J. Inman, James H. Weaver, and Tecnol Medical Products, Inc.,
Case No. 4-95 CV-617-Y, was filed in the United States District Court for the
Northern District of Texas, Fort Worth Division. Paul M. Brost, Douglas J.
Inman, and James H. Weaver were subsequently dismissed as defendants from the
suit. The remaining individual defendants are executive officers and directors
of the Company. The suit was brought on behalf of purchasers of Company stock
between January 10, 1995, and July 17, 1995, and sought an unspecified amount
of damages, claiming 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. On March 7, 1997, the lawsuit
was dismissed with prejudice in accordance with a settlement agreement approved
by the court. Pursuant to the settlement agreement, the Company and the
individual defendants paid the plaintiff class $2.2 million, approximately
$550,000 of which was charged to fiscal 1996 operations and paid by the Company
subsequent to year end and the balance of which was paid by the Company's
insurance carrier.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
The Company held its annual stockholders meeting on April 17, 1997. At
the annual meeting, Van Hubbard and Kirk Brunson were re-elected as Class III
directors. The number of votes cast for, withheld from, cast against and the
number of broker nonvotes with respect to Mr. Hubbard was 14,694,553; 206,784;
0 and 0, respectively. The number of votes cast for, withheld from, cast
against and the number of broker nonvotes with respect to Mr. Brunson was
14,697,738; 203,599; 0 and 0, respectively. The terms of office of the Class I
directors, James Kenney and David Radunsky, continue until 1998. The terms of
office of the Class II directors, Valerie Hubbard and Jack Johnson, continue
until 1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - The following exhibits are filed as part of this report:
10(b)(15) $12,500,000 Promissory Note (Revolving Line of Credit) of
Tecnol Medical Products, Inc. dated March 12, 1997,
payable to NationsBank of Texas, N.A.
10(b)(22) First 1997 Modification Agreement dated effective March
12, 1997, by and among Tecnol Medical Products, Inc.,
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, Tecnol New Jersey Wound Care, Inc., and La
Compania Que Innova, S.A. de C.V., modifying, extending,
and increasing the Third Amended and Restated Loan
Agreement
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended May 31, 1997.
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 14, 1997 /s/David Radunsky
---------------- ----------------------------------
DAVID RADUNSKY, Chief Operating
Officer
Date: July 14, 1997 /s/Jeffrey A. Nick
---------------- ----------------------------------
JEFFREY A. NICK, Vice President
Finance and Accounting
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10(b)(22) First 1997 Modification Agreement
10(b)(15) Promissory Note
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10(b)(22)
68003/90066
(TMPI Working Capital Loan)
FIRST 1997 MODIFICATION AGREEMENT
This First 1997 Modification Agreement ("Agreement") is executed to be
effective (though not necessarily on) as of the 12th day of March, 1997 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") LA COMPANIA QUE INNOVA, S.A. de C.V. ("Innova") (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 and Innova, 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, a Guaranty Agreement dated as of December
5, 1995 executed by Wound Care, and a Guaranty Agreement dated as of March 12,
1997 executed by Innova.
3/20/97
<PAGE> 2
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 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, Bank, the Company and the Subsidiaries executed and delivered a
First 1996 Modification Agreement dated as of March 13, 1996 in connection with
an extension of the Working Capital Loan.
WHEREAS, the Company has requested the Bank to extend the term of the
Working Capital Loan and increase the Working Capital Loan to increase the
Exchange Reserve Allocation set forth in the Loan Agreement, and the Company
and Bank desire to amend the Loan Agreement to reflect such extension and
increase.
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:
- 2 -
<PAGE> 3
1. Bank, the Company and the Subsidiaries hereby agree the Loan
Agreement is amended as follows:
a. From and after the date hereof, "Working Capital Note"
shall mean the Promissory Note (Revolving Line of Credit) dated of even
date herewith executed by the Borrower payable to the order of the Bank,
and in the stated principal amount of $12,500,000.00. Exhibit A(1) to
the Loan Agreement is deleted, and Exhibit A(1) attached hereto is
inserted in place thereof.
b. All references to $10,000,000.00 in Section 2.1 are
deleted and $12,500,000.00 is inserted in place thereof. All references
to dollar limitations set forth in Section 2.1(a)(iii) shall refer to
$12,500,000.
c. The commitment to lend for the Working Capital Loan set
forth in Section 2.7 of the Loan Agreement is hereby extended to March
14, 1998.
d. The Exchange Reserve Allocation (set forth in Section 2.1
of the Loan Agreement) created pursuant to the Second 1995 Modification
Agreement is hereby increased from $100,000.00 to $2,500,000.00. The
last grammatical sentence of Section 2.1 of the Loan Agreement (added by
the Second 1995 Modification Agreement) is deleted and the following
inserted in place thereof:
The aggregate of the outstanding balance of the Working Capital
Note and the outstanding commitments under Letters of Credit
shall never exceed $12,500,000.00, minus the unfunded balance of
the Exchange Reserve Allocation, at any one time. The aggregate
outstanding balance of the Working Capital Note (for purposes
other than advances under the Exchange Reserve Allocation) and
outstanding commitments under Letters of Credit shall not exceed
$10,000,000 at any one time.
e. Section 7.1(i) of the Loan Agreement is deleted.
f. The definition of Permitted Investments in Section 1.1 of
the Loan Agreement is hereby modified by deleting subsections (p) and (q) and
substituting the following in place thereof:
(p) deposits of not more than $1,000,000 at any one time in
any bank established under the laws of Mexico by La Ada de Acuna,
S.A., La Compania Que Innova, S.A. de C.V., or Borrower.
(q) investments in Mexican currency not to exceed
$1,000,000.00 in lawful money of the United States of America,
- 3 -
<PAGE> 4
determined at the time of acquisition, and forward contracts to
purchase Mexican currency, which when aggregated to the Company's
investment in Mexican currency, does not exceed $10,000,000.00 at
any one time.
g. The prohibition against Liens (as defined in the Loan
Agreement) set forth in Section 5.2(b) of the Loan Agreement is hereby modified
to permit any inchoate mechanics liens for amounts not yet due and payable.
The following are added as a new Subsections 5.2(m) and (n) to the Loan
Agreement:
5.2(m) Investment in Certain Subsidiaries. Neither the Borrower
nor any Related Person shall make, directly or indirectly, any
investment (whether in the form of debt or equity) in TAC II,
Inc., Tecnol International Europe, a French corporation, or
Anago, Ltd., an English limited liability company (collectively,
the "Restricted Subsidiaries") in excess of the Company's
investment in the Restrictive Subsidiaries on March 12, 1997
without the prior written consent of the Bank, which will not be
unreasonably withheld. In addition, neither the Borrower nor any
Related Party shall become liable for, directly or indirectly,
any liabilities or obligations of any of the Restricted
Subsidiaries without the prior written consent of the Bank.
5.2(n) Investments in Foreign Countries. Neither the Borrower
nor any Related Person shall make, directly or indirectly, any
investment (whether in the form of debt or equity) in land,
buildings, fixtures, improvements or equipment to be located
outside of the United States in excess of $5,000,000.00 at any
one time in the aggregate without the prior written consent of
the Bank.
h. Schedule 1 of the Loan Agreement is deleted and Schedule 1
attached hereto is substituted in place thereof.
i. Schedule 3 of the Loan Agreement is deleted and Schedule 3
attached hereto is substituted in place thereof.
j. Sections 3.1(g) and 5.1(m) of the Loan Agreement are
hereby amended to provide that the Restricted Subsidiaries shall not be
required to deliver guaranties of the obligations of the Borrower and Tecnol,
Inc. so long as the covenants and agreements set forth in Section 5.2(m) are
true and correct.
- 4 -
<PAGE> 5
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, 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. Bank agrees that the Working Capital Note dated March 13, 1996 in
the stated principal amount of $10,000,000.00 shall be marked "Amended and
Restated by a Promissory Note dated March 12, 1997," and a copy thereof
furnished to the Company.
6. 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.
7. 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.
8. 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.
- 5 -
<PAGE> 6
9. The Subsidiaries, as guarantors, each hereby consent, acknowledge
and agree to the increase of the maximum amount of the obligations under the
Guaranty as a result of the increase in the Working Capital Loan to $12,500,000
from $10,000,000.00 and further acknowledge and agree that each Guaranty is
hereby modified to guaranty the entire Working Capital Loan and all obligations
of the Company thereunder, including the increase in the Working Capital Loan.
The Subsidiaries, as guarantors of the obligations of the Company to Bank
arising under the Loans and the Loan Agreement hereby reaffirm each of their
obligations under the Guaranty and 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.
10. THIS WRITTEN AGREEMENT, THE LOAN AGREEMENT, THE NOTES AND THE
OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION THEREWITH 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.
11. This Agreement may be executed by facsimile transmission and in
several counterparts, all of such executed counterparts shall constitute the
same agreement.
- 6 -
<PAGE> 7
EXECUTED as of the date first written above.
NATIONSBANK OF TEXAS,
N.A., a national banking association
By: /s/ ROBERT J. KITZMAN
--------------------------------------
Name: Robert J. Kitzman
------------------------------------
Title: Assistant 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
TCNL TECHNOLOGIES, INC., a Delaware
corporation
By: /s/ KENNETH J. KUBACHI
--------------------------------------
Name: Kenneth J. Kubachi
Title: Vice President
- 7 -
<PAGE> 8
TECNOL INTERNATIONAL (V.I.) INC.,
a U.S. Virgin Islands corporation
By: /s/ 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
-----------------------------------
LA COMPANIA QUE INNOVA, S.A. de C.V.,
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
- 8 -
<PAGE> 9
TECNOL NEW JERSEY WOUND CARE, INC., a New
Jersey corporation
By: /s/ DAVID RADUNSKY
--------------------------------------
Name: David Radunsky
Title: Chief Operating Officer
- 9 -
<PAGE> 10
SCHEDULE I
LIST OF SUBSIDIARIES
TECNOL, INC., a Delaware corporation [the successor by merger to TECNOL
ORTHOPEDIC PRODUCTS, INC., a Delaware corporation, POLYMED HOLDING INC., a
Maryland corporation, POLY-MED INDUSTRIES, INC., a Maryland corporation, and
INMAN MEDICAL CORPORATION, a Delaware corporation, and the successor to
substantially all of the assets and liabilities of ANAGO INCORPORATED, a Texas
corporation in liquidation]
TCNL TECHNOLOGIES, INC., a Delaware corporation
TECNOL INTERNATIONAL (V.I.), INC., a U.S. Virgin Islands corporation
LA ADA DE ACUNA S.A., a Mexican corporation
TECNOL CONSUMER PRODUCTS, INC., a Delaware corporation
TECNADYNE SCIENTIFIC INCORPORATED, a Florida corporation
TECNOL NEW JERSEY WOUND CARE, INC., a New Jersey corporation
TAC II, INC.
TECNOL INTERNATIONAL EUROPE, a French corporation
ANAGO, LTD., an English limited liability company
LA COMPANIA QUE INNOVA, S.A. de C.V., a Mexican corporation
- 10 -
<PAGE> 11
SCHEDULE 3
LIST OF GUARANTORS
The following is a list of the guarantors of the obligations of the Company:
TECNOL, INC., a Delaware corporation [the successor by merger to TECNOL
ORTHOPEDIC PRODUCTS, INC., a Delaware corporation, POLYMED HOLDING INC., a
Maryland corporation, POLY-MED INDUSTRIES, INC., a Maryland corporation, and
INMAN MEDICAL CORPORATION, a Delaware corporation, and the successor to
substantially all of the assets and liabilities of ANAGO INCORPORATED, a Texas
corporation in liquidation]
TCNL TECHNOLOGIES, INC., a Delaware corporation
TECNOL INTERNATIONAL (V.I.), INC., a U.S. Virgin Islands corporation
LA ADA DE ACUNA S.A., a Mexican corporation
TECNOL CONSUMER PRODUCTS, INC., a Delaware corporation
TECNADYNE SCIENTIFIC INCORPORATED, a Florida corporation
TECNOL NEW JERSEY WOUND CARE, INC., a New Jersey corporation
LA COMPANIA QUE INNOVA, S.A. de C.V., a Mexican corporation
The following is a list of guarantors of the obligations of Tecnol, Inc.:
TECNOL MEDICAL PRODUCTS, INC., a Delaware corporation
TCNL TECHNOLOGIES, INC., a Delaware corporation
TECNOL INTERNATIONAL (V.I.), INC., a U.S. Virgin Islands corporation
LA ADA DE ACUNA S.A., a Mexican corporation
TECNOL CONSUMER PRODUCTS, INC., a Delaware corporation
TECNADYNE SCIENTIFIC INCORPORATED, a Florida corporation
TECNOL NEW JERSEY WOUND CARE, INC., a New Jersey corporation
LA COMPANIA QUE INNOVA, S.A. de C.V., a Mexican corporation
- 11 -
<PAGE> 1
EXHIBIT 10(b)(15)
68003/90066
PROMISSORY NOTE
(REVOLVING LINE OF CREDIT)
$12,500,000.00 Dallas, Texas March 12, 1997
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
TWELVE MILLION FIVE HUNDRED THOUSAND DOLLARS ($12,500,000.00), 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 percent (1%) 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
3/12/97
<PAGE> 2
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 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:
<TABLE>
<S> <C> <C>
CD Quoted Rate + FDIC + CD
--------------------------- Percentage Margin
1 - CD Reserve Requirement
</TABLE>
"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
-2-
<PAGE> 3
as amended and restated by an Amended and Restated Promissory Note dated
July 1, 1994 in the stated principal amount 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 percent (1%) 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 1995
Modification Agreement dated as of March 13, 1996, and the First 1997
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
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time to time. The Maximum Rate shall be applied by taking 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
March 13, 1996 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 13, 1998 (the "Maturity Date").
3. Advances. This Note is a revolving promissory note evidencing a
revolving line of credit, not to exceed $12,500,000.00 at any one time
outstanding. While the aggregate of all advances under this Note may exceed
$12,500,000.00, the outstanding balance of this Note at any one time shall not
exceed $12,500,000.00. Before the Maturity Date, Borrower may borrow, repay
and borrow principal amounts again up to $12,500,00.00, subject to the
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terms of this Note 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
are disbursed through the end of the day before the first
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<PAGE> 7
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
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<PAGE> 8
the disposition of any 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
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<PAGE> 10
time 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 Release H.15 is not
longer
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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
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<PAGE> 12
maintaining its CD Rate Elections or Libor Rate 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
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<PAGE> 13
or impossible for Bank 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
-14-
<PAGE> 15
provisions of this paragraph and such document shall be automatically reformed
and the interest payable shall be automatically reduced to the maximum
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.
-15-
<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
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TECNOL
MEDICAL PRODUCTS, INC. 10-Q FILING FOR 2ND QTR OF FISCAL YEAR 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-29-1997
<PERIOD-START> MAR-02-1997
<PERIOD-END> MAY-31-1997
<CASH> 10,162,990
<SECURITIES> 0
<RECEIVABLES> 24,557,559
<ALLOWANCES> 1,305,000
<INVENTORY> 32,420,927
<CURRENT-ASSETS> 71,424,435
<PP&E> 78,479,947
<DEPRECIATION> 27,106,134
<TOTAL-ASSETS> 167,882,753
<CURRENT-LIABILITIES> 17,539,696
<BONDS> 6,608,973
0
0
<COMMON> 21,157
<OTHER-SE> 137,743,328
<TOTAL-LIABILITY-AND-EQUITY> 167,882,753
<SALES> 39,884,982
<TOTAL-REVENUES> 39,884,982
<CGS> 21,848,269
<TOTAL-COSTS> 21,848,269
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,495
<INCOME-PRETAX> 8,125,962
<INCOME-TAX> 2,960,732
<INCOME-CONTINUING> 5,165,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,165,230
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
