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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended November 30, 1996.
-or-
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition period from _______ to _______.
Commission file number: 0-19524
TECNOL MEDICAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1516861
- --------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
7201 INDUSTRIAL PARK BLVD.
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FORT WORTH, TEXAS 76180
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(Address of principal executive offices)
Registrant's telephone number, including area code: (817) 581-6424
---------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-----------------------------
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The approximate aggregate market value of voting stock held by non-affiliates
of the registrant as of February 18, 1997, was $235,634,000. The number of
shares of common stock outstanding as of February 18, 1997, was 19,975,657
shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement relating to the
registrant's 1997 annual stockholders' meeting are incorporated by reference in
Part III of this Form 10-K.
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TECNOL MEDICAL PRODUCTS, INC.
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C>
Item 1. Business .......................................................... 3
Item 2. Properties ........................................................ 10
Item 3. Legal Proceedings ................................................. 12
Item 4. Submission of Matters to a Vote of Security Holders ............... 12
Executive Officers of Registrant .................................. 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters ........................................................... 14
Item 6. Selected Financial Data ........................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 16
Item 8. Financial Statements and Supplementary Data ....................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .............................................. 22
PART III
Item 10. Directors and Executive Officers of the Registrant ................ 23
Item 11. Executive Compensation ............................................ 23
Item 12. Security Ownership of Certain Beneficial Owners and Management .... 23
Item 13. Certain Relationships and Related Transactions .................... 23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .. 24
SIGNATURES .................................................................. 25
</TABLE>
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
Tecnol Medical Products, Inc. ("Tecnol") is a Delaware corporation
organized in 1991 as the successor to a Texas corporation formed in 1976.
Tecnol is a holding company that has transacted business through its
subsidiaries under the names "Tecnol," "Anago," and other trade names. Unless
otherwise indicated, all references to Tecnol refer to all of the Delaware
corporation, its Texas predecessor corporation, and its subsidiaries.
Tecnol's executive offices are located at 7201 Industrial Park Blvd., Fort
Worth, Texas 76180, and its telephone number is (817) 581-6424.
Tecnol is engaged primarily in one industry segment: the design,
development, manufacture, and sale of disposable medical products. More than
300 different products are sold in over 60 countries, primarily under Tecnol's
brand names. In 1996, Tecnol held the leading market share of sales of face
masks, cold therapy products, and patient safety restraints to hospitals in the
United States.
Tecnol's products are classified into five groups: face masks; patient
care products, such as cold therapy products and patient safety restraints;
headwear and shoe covers; wound care; and orthopedic products. Most of
Tecnol's products are made of nonwoven fabrics, such as polyester and
polypropylene, and many are manufactured on proprietary, high-speed, ultrasonic
bonding machines designed and built by Tecnol. Tecnol's leading products are
distinguished by innovative applications of fabrics and other materials, as
exemplified by the filtration features of its specialty face masks and the
stay-dry features of many of its cold therapy products.
Tecnol's strategy is to be the low cost producer of high quality
disposable medical products that management believes can achieve a significant
market share. Tecnol capitalizes on its proprietary engineering and
manufacturing capabilities by designing and utilizing highly automated machines
in its manufacturing facilities in Fort Worth. Tecnol also makes use of its
maquiladora manufacturing facility in Mexico to reduce labor costs on
labor-intensive products. Tecnol has increased sales by identifying the needs
of health care providers and patients and meeting those needs with quality
products that provide protection, convenience, and comfort. In response to the
need to protect health care professionals from infectious diseases borne by
body fluids, for example, Tecnol introduced the first fluid-resistant surgical
mask that is constructed with a breathable, protective film. Tecnol's sales
growth has also been enhanced by acquiring businesses and product lines which
complement existing products and can be sold through existing distribution
channels and into new markets such as alternate health care facilities and
industrial sites.
Tecnol's products are used primarily in hospitals and alternate health
care sites and are marketed through more than 1,350 distributors supported by
more than 150 Tecnol sales and marketing professionals. The products are sold
to more than 5,000 hospitals and alternate care sites in the United States and
more than 3,000 hospitals outside the United States.
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PRODUCTS
The following table sets forth net sales and percentage of total net sales
of Tecnol's five product groups for the past three fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
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DECEMBER 2, DECEMBER 2, NOVEMBER 30,
1994 1995 1996
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PRODUCT GROUP NET SALES PERCENTAGE NET SALES PERCENTAGE NET SALES PERCENTAGE
------------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Face Masks $ 64,171 53% $ 62,267 51% $ 78,751 55%
Patient Care 31,711 26 31,562 26 33,018 23
Headwear and Shoe
Covers 8,946 7 8,640 7 9,347 6
Wound Care 524 1 780 1 5,149 3
Orthopedic 15,398 13 17,673 15 18,128 13
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Total $120,750 100% $120,922 100% $144,393 100%
========= ========= ========= ========= ========= =========
</TABLE>
Tecnol's principal products and the markets in which its products are sold
are described below.
Face Masks
Tecnol entered the face mask business in 1983. Face masks are Tecnol's
largest product family, with more than 75 different types and styles of face
masks manufactured and sold for use principally in hospitals and alternate
health care facilities. These masks are used primarily to protect health care
professionals and patients from infectious diseases and bacteria. Tecnol's mask
products include pleated surgical masks with ties or earloops, molded
cone-style masks, and masks which have a unique shape and are designed for a
more secure facial seal, which Tecnol refers to as PCM-style masks. Tecnol's
masks provide features such as fog free, skin sensitivity, fluid resistance,
and specialized filtration. Since 1989, Tecnol has held the leading market
share of face mask sales to hospitals in the United States.
Specialty masks offer some feature or benefit to the user beyond that of
an ordinary mask. The Occupational Safety and Health Administration's ("OSHA")
1991 mandate for increased protection for U.S. health care and public safety
workers and the Center for Disease Control's ("CDC") recommended guidelines for
prevention of tuberculosis in health care facilities increased the demand for
specialty masks. Based on industry data, the Company estimates specialty masks
to represent about 28% of face mask units sold in the U.S. hospital market in
1996. Tecnol expects the conversion from standard masks to specialty masks to
continue for the foreseeable future due to general concern about protection
from infectious diseases.
Most of Tecnol's FLUIDSHIELD(R) mask family of products offers a patented
fluid barrier featuring LONCET(R) breathable film that provides health care
customers with masks that are splash resistant to body fluids. The
FLUIDSHIELD(R) construction is available in several patented mask styles, many
that feature integrated face shields for greater protection against body fluid
splashes. Its unique combination of performance, comfort, and cost
effectiveness has made it one of Tecnol's top-selling specialty masks.
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In late 1995, Tecnol introduced the PFR95(TM) mask, an N95 respirator
which meets the OSHA guidelines for protection against tuberculosis in health
care facilities. Prior to the issuance by the National Institute for
Occupational Safety and Health ("NIOSH") of specifications for N95 respirators,
uncomfortable, reusable high-efficiency particulate apparatus (HEPA) masks
designed for industrial use were required by OSHA. Tecnol's PFR95(TM) provides
a comfortable, light-weight, disposable mask to the market. The PFR95(TM) is a
PCM-style mask which provides excellent filtration and a secure facial fit. In
addition, Tecnol developed a SAFETY SEAL(TM) version of the PFR95(TM)
respirator-style mask. The SAFETY SEAL(TM) mask is NIOSH-approved and provides
a tight seal created by a film that adheres to the face. In 1997, Tecnol
expects to introduce a respirator-style mask into the European market. This
mask will meet the standards for the European market for respirator protection.
During 1996, Tecnol introduced the CUSTOMFIT(TM) style surgical mask.
This style of mask features a patented side-gathering design which creates a
tight facial seal and a comfortable fit. Tecnol views this product line as the
next generation of protection of the health care worker through face masks.
Tecnol also manufactures a variety of masks and face veils for use in
dental procedures and industrial applications, including cleanrooms in the
aerospace, pharmaceutical, and computer manufacturing industries. Some of
these masks feature a filter medium from the makers of Gore-Tex(R).
Patient Care
Tecnol offers four categories of patient care products: cold therapy
products, patient safety restraints, operating room specialty products, and
other specialty products.
Cold Therapy Products. Tecnol offers a variety of sizes and styles of cold
therapy products specially designed to treat various parts of the body,
including ice packs specifically designed for use after cosmetic surgery, knee
surgery, and obstetrical, gynecological, and other procedures. These ice packs
are marketed primarily to hospitals and consumers principally under Tecnol's
STAY-DRY(TM), SECURE-ALL(TM), JUMBO-PLUS(TM), and SLIP-ON(TM) trademarks.
Tecnol's patented STAY-DRY(TM) line of ice packs has a special three layer
construction designed to keep the patient and surrounding areas dry. The
ANSLEY(R) ice pack product line offers a unique closure system along with dual
temperatures. Tecnol cold therapy products are used in many areas of the
hospital, physicians' offices, medical clinics, and in homes. In 1997, Tecnol
expects to introduce a new line of instant cold packs under the name of COLD
RUSH(TM). With the introduction of this new line of instant cold packs, Tecnol
will offer the complete line of cold therapy products commonly used in the
health care industry. Since 1990, Tecnol has held the leading market share of
cold therapy product sales to hospitals in the United States.
Patient Safety Restraints. Tecnol manufactures and sells patient safety
restraints, also called limb and body holders, in a variety of styles and
sizes. Patient safety restraints are used to secure the limbs and upper bodies
of patients who might injure themselves by movement during or after medical
treatment. Patient safety restraints are also used for the security of elderly
patients. Tecnol's patient safety restraints are constructed of lightweight
ultrasonically bonded fabrics. The
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products are adjustable and more comfortable than canvas restraints. Since
1990, Tecnol has held the leading market share of patient safety restraint sales
to hospitals in the United States.
Operating Room Specialty Products. Tecnol manufactures several specialty
products designed for use in the operating room, including operating table
armboard covers, stretcher and general purpose straps, tourniquet covers, and
orthopedic surgical extremity drapes. During 1997, Tecnol expects to introduce
a FLUIDCONTROL(TM) floor suction mat which reduces the exposure of health care
workers to potentially contaminating fluids.
Other Specialty Products. Tecnol also manufactures various specialty
products, including wrist supports marketed under the HAND-AID(R) trademark;
pouches to protect heart monitoring devices and secure them to the patient;
adhesive tube holders, which secure a variety of tubes for medical use; and
heel and elbow protectors to prevent pressure sores. During 1997, Tecnol
expects to begin marketing a disposable blood pressure cuff under its own brand
name.
Headwear and Shoe Covers
Tecnol has manufactured surgeon's caps and shoe covers for several years.
With the acquisition of Anago in late fiscal 1993, Tecnol acquired a variety of
nurse and physician headwear and personnel protection gowns. These products
have been designed with a view toward wearer comfort and compliance with
hospital sanitary standards. During 1996, Tecnol introduced a latex-free
nurse's cap designed for health care workers sensitive to latex.
Wound Care
Tecnol manufactures a line of products for patient wound care consisting
primarily of wound closure strips and wound dressings. Wound dressings include
thin film adhesive dressings and impregnated gauze dressings which provide a
medicated wet environment to aid healing. In December 1995, Tecnol purchased
the wound care division of Sparta Surgical Corporation ("Sparta"). Through
this acquisition, Tecnol acquired additional wound care products, along with a
private label customer who is a major supplier to the wound care market.
During 1996, the operations of this acquisition were integrated with operations
at the recently expanded wound care manufacturing facility in Fort Worth. This
integration, along with additional automation of equipment, is expected to
reduce the manufacturing cost of the wound care product line. This lower cost
structure will position Tecnol to increase contract manufacturing sales in
upcoming years. Additionally, during 1997, Tecnol expects to introduce the
PADDLE STRIP(TM), a unique patented two-in-one dressing which combines a wound
closure strip with a thin film adhesive dressing. This product is used for
closure of incisions created during laparoscopic procedures.
Orthopedic
Tecnol manufactures and sells many different types of orthopedic braces
and supports which include cervical collars, wrist braces, back supports, knee
immobilizers, ankle braces, and neoprene joint supports. Tecnol's orthopedic
products are made from a variety of materials to enhance patient comfort,
support, and function. All of Tecnol's products are designed to support,
immobilize, or protect an injured area during rehabilitation to promote healing
and prevent reinjury.
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During 1996, Tecnol introduced its B.A.T.H.(TM) (Built Around The Hand)
wrist brace line and a line of wrist braces constructed with Dupont's unique
CoolMax(R) foam. Both product lines are designed to provide lightweight
immobilization of the wrist. These products, along with the Thumb Spica Splint,
are a part of Tecnol's strategy to offer a comprehensive line of hand and wrist
supports. Hand and wrist injuries, including carpal tunnel syndrome, are one of
the largest categories of orthopedic injuries affecting a broad population. A
similar comprehensive product line focused on the foot and ankle is planned to
reach the market in 1997. Tecnol intends to continue to focus on developing
comprehensive product lines targeted at specific areas of the body that are
susceptible to injury.
SALES, MARKETING, AND DISTRIBUTION
Tecnol has a sales and marketing staff of over 150 professionals who work
with more than 1,350 distributors and their sales personnel. Tecnol's sales
efforts are directed at hospitals, dental and physicians' offices, emergency
care facilities, medical clinics, surgical centers, and industrial sites.
Distributors purchase products directly from Tecnol and then resell them
domestically and internationally through their own sales forces, supported by
Tecnol's sales and marketing professionals. These distributors warehouse the
products at multiple distribution centers until sold and delivered to end
users. Management believes its reliance on distributors to market Tecnol's
products provides Tecnol with the ability to make products available for prompt
delivery when needed.
Tecnol has historically sold its products principally through Baxter
International Inc. ("Baxter"). Tecnol sales to Baxter represented
approximately 49% and 39% of Tecnol's net sales in fiscal 1994 and 1995,
respectively. In late fiscal 1996, Baxter transferred the majority of its U.S.
hospital distribution business to a new entity named Allegiance Healthcare
Corporation ("Allegiance"). During fiscal 1996, Tecnol sales to Baxter and
Allegiance were approximately 27% and 5%, respectively, of total net sales. Had
Allegiance been a separate entity the entire 1996 fiscal year, they would have
represented approximately 29% of Tecnol's total net sales. Allegiance is one
of the leading distributors of hospital supplies in the United States and has a
nationwide sales force and extensive distribution capabilities. Management
believes that Allegiance views Tecnol as a source of innovative, high quality,
profitable products and as a provider of significant technical and marketing
support. The decrease in the percentage of sales to Baxter is mainly
attributable to an increase in sales to other distributors. Net sales to Owens
& Minor, Inc. in fiscal years 1995 and 1996 were approximately 12% and 13%,
respectively, of total net sales. Other major distributors include General
Medical, Bergen Brunswick, and Professional Hospital Supply.
Tecnol's sales and marketing efforts are managed through five separate
divisions: U.S. Hospital, International, Orthopedic Products, Specialty
Markets, and Industrial Products. In addition, Tecnol manufactures private
label health care products.
U.S. Hospital. The U.S. Hospital Division is represented by sales and
marketing professionals who concentrate on sales of specialty masks, cold
therapy products, patient restraints, and blood pressure cuffs. Sales efforts
are focused primarily on operating rooms, nursing departments, and emergency
rooms, with a special emphasis towards risk managers and hospital
administrators. Many hospitals are purchasing products under contracts with
group purchasing organizations
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("GPOs") in order to reduce costs. Tecnol understands the increasing importance
of GPOs to the hospital and alternate care markets and has contracts covering
many important products with eight of the largest GPOs, including VHA, Premier,
and Tenet Healthcare.
International. Tecnol's products are sold to more than 3,000 hospitals in
over 60 countries outside the United States through many distributors.
Tecnol's international sales representatives are primarily foreign nationals
with health care and alternate care sales experience. Sales representatives are
actively developing relationships with new distributors. Japan, Southeast
Asia, Latin America, and other emerging markets are expected to provide future
growth. An additional strategy for international sales growth is to continue
the development of dental and industrial cleanroom markets.
Orthopedic Products. The Orthopedic Products Division is represented by
sales and marketing professionals who specialize in orthopedic soft goods and
bracing products. This group sells principally through distributors and their
sales personnel targeting hospitals, physicians' offices, and the consumer
retail market. The total market for orthopedic products is estimated at
approximately $415 million and is expected to grow as the general population
ages.
Managed care trends and reduced insurance reimbursements have recently
been shifting demand for certain products to consumer markets. In order to
take advantage of this trend, Tecnol markets its REBOUND(R) product line, which
includes certain orthopedic products, cold therapy products, and masks into the
consumer retail market. Tecnol has a well-rounded consumer products line and
plans to continue to introduce new products through this distribution channel.
During 1997, Tecnol expects to introduce a line of replacement insoles to the
consumer market.
Specialty Markets. Many Tecnol products originally developed for use in
hospitals are now being sold by the Specialty Markets Division to alternate
health care markets such as medical clinics, surgical centers, the dental
market, the home health market, and nursing homes. Tecnol sells to the
alternate health care markets through a network of more than 650 alternate site
distributors. Sales programs, training, and other marketing support are
provided to distributors. The Specialty Markets Division provides products to
the fastest growing segment of the health care industry and is well positioned
for growth.
Industrial Products. The Industrial Products Division markets Tecnol's
products primarily for use in preventing contamination in cleanroom
manufacturing processes and for protecting industrial workers from airborne
contaminants. Tecnol's ergonomic products, garments, and NIOSH-approved
respirators have been well received by distributors and industrial end users.
Tecnol's PCM2000(R) face mask offers a large breathing chamber, off-the-face
design, and a complete facial seal. The cleanroom market continues to offer
good growth potential, both in the U.S. and internationally. The Industrial
Products Division, with a distribution base of over 100 distributors, is well
positioned for continued growth.
Contract Manufacturing. Tecnol has been able to use its low cost
manufacturing position to secure contracts with other companies to manufacture
private label products. Tecnol has a contract with a major health care company
to provide certain private label health care products which extends to fiscal
year 2005. Tecnol also has contracts to manufacture orthopedic private label
products. These contracts, along with agreements for wound care private label
business, are
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expected to provide approximately $14 to $15 million in sales to
the Company during 1997. Sales under contract manufacturing agreements
typically provide a lower gross profit than other Tecnol products; however,
operating margins will generally approximate the corporate average due to
minimum selling and administrative costs.
SEASONALITY
Tecnol's overall business is not materially affected by seasonality
because of the nature and diversity of Tecnol's products and markets. Tecnol
has historically experienced some irregular quarterly sales fluctuations due to
variations in distributors' buying patterns.
Tecnol has closed most of its U.S. manufacturing operations for a week
around Christmas and during the first week of August for vacation and
maintenance. The Acuna, Mexico manufacturing operation has closed for two weeks
around the Christmas season. These shut-downs generally have had a slightly
negative effect on the gross profit margin during the first and third quarters.
Beginning with the summer of 1997, Tecnol plans to no longer have a summer
shut-down.
ENGINEERING AND MANUFACTURING
Tecnol manufactures its products primarily through the use of high speed
automated manufacturing, heat and pressure molding and assembly, sewing and
ultrasonic bonding. Tecnol has vertically integrated its manufacturing
processes by designing and constructing high speed machines used to manufacture
materials and components used in many of its products. This vertical
integration enables Tecnol to maintain consistent product quality and protect
the proprietary nature of its products. Additionally, Tecnol has refined and
applied ultrasonic bonding to many of the films and fabrics used in products
manufactured. Ultrasonic bonding is generally superior to sewing as it
provides a strong bond without perforating the materials. Tecnol's highly
automated manufacturing facilities are located in Fort Worth. Products which
are more labor-intensive are produced in a Mexican maquiladora operation in
Acuna, Mexico. These manufacturing options provide Tecnol with the strategic
advantage of achieving high quality while maintaining its position as low cost
producer.
The materials that Tecnol uses, such as polyester fiber, polypropylene,
thread, plastic, and metal are generally available from multiple sources.
Tecnol has not experienced difficulty in obtaining raw materials. Tecnol
purchases LONCET(R), the breathable, protective film currently used in its
FLUIDSHIELD(R) mask, from the sole source of that film pursuant to an exclusive
arrangement. Management believes that satisfactory alternatives are available
for its FLUIDSHIELD(R) products should the film cease to be available.
PRODUCT DEVELOPMENT
Tecnol's product development organizations work with Tecnol's engineering,
manufacturing, and marketing departments to design and develop new products and
to enhance existing products. These departments are charged with monitoring
the emerging needs of the health care industry, identifying new product
opportunities, designing and testing product prototypes, and coordinating
manufacturing equipment construction with the engineering department. Tecnol's
marketing professionals attend industry trade shows and visit health care
providers to elicit ideas from health
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care professionals in support of Tecnol's product development efforts to meet
market demands. Management believes that Tecnol's commitment to innovation has
enabled it to be a leader in the market in developing and introducing many new
products throughout its history.
COMPETITION
Tecnol faces substantial competition from numerous other companies,
including some companies with greater marketing and financial resources. Tecnol
believes that the principal competitive factors in the markets in which it
competes include product quality, health care professional convenience,
customer support services, product suitability for specialized purposes,
innovative product design, established customer relationships, name
recognition, distribution, and price.
Tecnol competes with a number of large, diversified companies, including
Minnesota Mining & Manufacturing Corporation (3M), Johnson & Johnson,
Bristol-Myers Squibb Company, and Boehringer Mannheim GmbH. Many smaller
companies, both in and outside of the United States, also manufacture and sell
competing products.
PATENTS AND TRADEMARKS
Patents. Tecnol believes that patentable inventions and designs are
embodied in certain aspects of its manufacturing equipment and its products. In
certain instances, Tecnol has applied for patents, but in other instances,
Tecnol has refrained from doing so because it believes the technology can be
better protected by maintaining its confidentiality. In the United States,
Tecnol has obtained patents relating to certain of its products, including face
masks and cold therapy products, and has applications for patents pending.
Tecnol also has patents and applications for patents pending in foreign
countries.
Trademarks. Many of Tecnol's products are sold under various trademarks
and trade names. Tecnol believes that many of its trademarks and trade names
have significant recognition in its principal markets and takes customary steps
to register or otherwise protect its rights in its trademarks and trade names.
EMPLOYEES
As of January 31, 1997, Tecnol had approximately 1,100 U.S. employees and
approximately 1,050 Mexican national employees. None of Tecnol's employees are
represented by a union or covered by a collective bargaining agreement. Tecnol
believes that its relations with its employees are good.
ITEM 2. PROPERTIES.
Tecnol's corporate headquarters are located in an approximately 219,000
square foot building on slightly more than 11 acres owned by Tecnol near Fort
Worth, Texas. Approximately 11,000 square feet of the headquarters building
are used for product development and engineering; 60,000 square feet are used
for manufacturing; 105,000 square feet are used for warehousing; and 43,000
square feet are used for offices and miscellaneous purposes. Tecnol owns
approximately 66 acres of
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unimproved land adjacent to this facility. During 1997, Tecnol plans to add
approximately 54,000 square feet to the headquarters building which will result
in net increases of 19,000 square feet of manufacturing space, 30,000 square
feet used for product development and general offices, 9,000 square feet used
for engineering, and a decrease of 4,000 square feet of warehouse space.
The headquarters facility secures Tecnol's obligations in connection with
industrial revenue bonds issued to finance Tecnol's acquisition of the property
on which its headquarters are located and construction of its headquarters
building.
Tecnol owns a 129,000 square foot building and parking located on nine
acres of an 18-acre tract of land. This facility is located less than one mile
from Tecnol's corporate headquarters. Approximately 36,000 square feet of this
building are used for manufacturing, 65,000 square feet are used for
warehousing, and 28,000 square feet are used for offices. During 1997, Tecnol
plans to add 75,000 square feet to this facility, resulting in a net increase
of 30,000 square feet used for manufacturing and 45,000 square feet of
warehouse space.
Tecnol owns another facility which consists of approximately three acres
of land with a 54,000 square foot building located approximately ten miles from
its corporate headquarters. This building is used for manufacturing some
product components and composite materials and includes approximately 25,000
square feet of warehouse space.
Tecnol owns 25 acres of land approximately five miles from its corporate
headquarters, on which the Company plans to build a central distribution
facility for finished goods, with completion expected in fiscal 1998.
Tecnol operates a maquiladora manufacturing facility located in Del Rio,
Texas and Acuna, Mexico. Tecnol owns the facility in Del Rio, Texas, which is
located on eight acres of land and contains approximately 75,000 square feet of
manufacturing and warehouse space. The Acuna, Mexico manufacturing and
warehouse facility is a leased facility containing approximately 84,000 square
feet of space. In early 1997, the Company purchased approximately 10 acres of
land in Acuna, Mexico, on which the Company has entered into a contract to
build a 91,000 square foot facility to be used for manufacturing, warehousing,
and office space. The cost of the land and this facility is approximately $3.5
million. Construction of this facility began in early 1997 and is expected to
be completed by the end of fiscal 1997.
Tecnol leases a facility of approximately 45,000 square feet for
manufacturing, warehouse, and office space. This facility is used primarily
for the manufacturing of sterile wound care products. Tecnol also leases
warehouse space in two other locations with a total of approximately 74,000
square feet. These two sites, located near Fort Worth, Texas, are used for raw
material and finished goods storage. Additionally, Tecnol leases a facility of
approximately 146,000 square feet near Fort Worth. This facility is currently
used as a distribution center for finished goods.
With the acquisition of the wound care division from Sparta in early
fiscal 1996, Tecnol subleased a manufacturing facility in Hammonton, New
Jersey. This facility consists of approximately 33,000 square feet, primarily
manufacturing and warehouse space. During fiscal 1996, the Company
transitioned all activity previously taking place in New Jersey to Fort Worth.
The sublease was terminated near the end of fiscal 1996.
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ITEM 3. LEGAL PROCEEDINGS.
On August 21, 1995, a lawsuit styled Brian Freeman v. Vance M. Hubbard,
Kirk Brunson, Valerie A. Hubbard, David Radunsky, Paul N. 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. By an order dated November 30, 1995,
Paul N. Brost, Douglas J. Inman, and James H. Weaver were dismissed as
defendants from the suit. All remaining individual defendants are executive
officers and directors of the Company. The suit is a class action brought by a
stockholder on his own behalf and on behalf of all other persons who purchased
the stock of the Company during the period beginning on January 10, 1995, and
ending on July 17, 1995. The suit seeks 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 August 29, 1996, the Company and
the individual defendants agreed to settle the lawsuit for a total payment of
$2.2 million, subject to documentation and court approval. On November 22,
1996, the court signed an order preliminarily approving a Stipulation of
Settlement executed by the parties, certifying a class for settlement purposes
only consisting generally of persons who acquired the Company's common stock
from January 10, 1995, through July 17, 1995, and directing that notice of the
settlement be mailed to class members on December 23, 1996. Pursuant to the
Stipulation of Settlement, on December 9, 1996, the Company paid $550,000 (and
its Director and Officer ("D&O") liability insurance carrier paid $1,650,000)
into an interest-bearing settlement fund. Upon court approval, the settlement
fund will be distributed (after payment of settlement administration expenses
and attorneys' fees) to participating class members, who must timely execute a
Proof of Claim and release the Company, the defendant directors and officers,
and other Company representatives (including the dismissed defendants) from
liability before receiving a distribution. The federal district court has
scheduled a hearing on March 7, 1997, to determine whether to approve the
settlement. If the court approves the settlement, the Stipulation of
Settlement provides for the court to sign a final judgment dismissing this
action with prejudice and enjoining participating class members from
prosecuting separate actions to recover on the claims released by them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
12
<PAGE> 13
EXECUTIVE OFFICERS OF REGISTRANT
Tecnol's executive officers, who are elected annually by the Board of
Directors and serve at the discretion of the Board, are as follows:
<TABLE>
<CAPTION>
Name Age Position
--------------- --- -------------------------------------------------
<S> <C> <C>
Van Hubbard 57 Chairman of the Board, Chief Executive Officer,
and President
Kirk Brunson 58 Vice Chairman and Executive Vice President
Valerie Hubbard 41 President of International Division, Tecnol, Inc.
David Radunsky 50 Chief Operating Officer and General Counsel
Jeff Nick 41 Vice President of Finance and Accounting
</TABLE>
For a description of the business experience during the past five years of
Van Hubbard, Kirk Brunson, Valerie Hubbard, and David Radunsky, see the
information set forth under the heading "Election of Directors" contained in
the definitive proxy statement regarding Tecnol's 1997 Annual Meeting of
Stockholders. Such information is incorporated in this report by reference.
Jeff Nick has been Vice President of Finance and Accounting of Tecnol
since May 1994, except for the period from October 13, 1995 to November 17,
1995, when he briefly served as Chief Financial Officer for PC Service Source,
Inc. He joined Tecnol as Controller in 1991 and served in that capacity until
May 1994.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Tecnol's common stock is quoted on the National Market System of the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") under the symbol "TCNL."
For the periods indicated below, the following table sets forth high and
low bid information for Tecnol's common stock as reported on NASDAQ. The
information in the table reflects inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not necessarily represent actual
transactions. The following prices have been rounded to the nearest eighth of
a dollar.
<TABLE>
<CAPTION>
FISCAL 1995 HIGH LOW
---------------------------- ------- -------
<S> <C> <C>
Quarter Ending Mar. 3, 1995 $17 1/2 $14 1/4
Quarter Ending Jun. 3, 1995 21 1/2 16
Quarter Ending Sep. 2, 1995 23 15
Quarter Ending Dec. 2, 1995 20 3/4 16 1/2
FISCAL 1996
----------------------------
Quarter Ending Mar. 2, 1996 $19 3/4 $14 3/4
Quarter Ending Jun. 1, 1996 21 1/4 16 3/4
Quarter Ending Aug. 31, 1996 21 1/4 16
Quarter Ending Nov. 30, 1996 17 11 3/4
</TABLE>
As of February 18, 1997, there were 442 record holders of Tecnol's common
stock.
Tecnol has never paid cash dividends on its common stock. Tecnol intends
to retain all earnings for use in its business and currently has no plans to
pay cash dividends in the future. Tecnol's Board of Directors will determine
whether dividends will be paid in the future in light of conditions then
existing, including Tecnol's earnings, financial condition and requirements,
restrictions in financing agreements, business conditions, and other factors
that the Board of Directors deems relevant.
Tecnol's ability to declare and pay cash dividends is restricted by
covenants in loan agreements governing its bank credit facility and its
obligations with respect to industrial revenue bonds that were issued to
finance the acquisition and construction of its headquarters facility. In
general, these agreements prohibit Tecnol from declaring and paying cash
dividends in any 12-month period in excess of Tecnol's net cash flow (as that
term is used in the loan agreements) without the bank's prior consent. See
Note 5 of Notes to Consolidated Financial Statements.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements, related notes, and other
financial information included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------------------------
NOVEMBER 27, DECEMBER 3, DECEMBER 2, DECEMBER 2, NOVEMBER 30,
1992 1993(1) 1994 1995 1996
------------ ----------- ------------------ ------------------ ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Net sales $71,263 $ 86,702 $120,750 $120,922 $144,393
Cost of goods sold 34,666 42,601 62,181 66,103 82,591
------- -------- -------- -------- --------
Gross profit 36,597 44,101 58,569 54,819 61,802
Selling expenses 13,131 16,052 20,355 21,915 23,640
General and
administrative
expenses 4,184 5,326 7,467 7,659 9,416
Research and
development
expenses 1,045 1,180 1,471 1,564 1,710
------- -------- -------- -------- --------
Income from
operations 18,237 21,543 29,276 23,681 27,036
Other income
(expense), net 169 (493) (2,305) (2,688) (3,048)
------- -------- ------- ------- ------
Income before
provision for
income taxes 18,406 21,050 26,971 20,993 23,988
Provision for
income taxes 6,403 7,474 10,100 7,205 7,987
------- -------- -------- -------- --------
Net income $12,003 $ 13,576 $16,871 $13,788 $16,001
======= ======== ======== ======== ========
Net income per
common and common
equivalent share
(2) (4) $ 0.61 $ 0.68 $0.85 $0.69 $0.80
Weighted average
number of common
and common
equivalent shares
outstanding (4) 19,641 20,089 19,942 20,123 20,092
BALANCE SHEET DATA
(AT PERIOD END):
Working capital $29,590 $ 34,219 $39,822 $45,102 $48,545
Total assets 77,071 114,233 128,888 143,440 159,500
Long term debt (3) 4,632 22,402 19,117 15,772 12,906
Stockholders' equity 64,097 80,404 95,758 110,542 127,232
</TABLE>
- ---------------
(1) 53-week year.
(2) Tecnol has not declared or paid any cash dividends.
(3) Includes current maturities.
(4) Restated for three-for-two stock split in the form of a stock dividend
paid on February 24, 1993.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Tecnol's fiscal year is the 52- or 53-week period ending on the Saturday
nearest to November 30. The fiscal years ended November 30, 1996, December 2,
1995, and December 2, 1994, included 52 weeks. On June 2, 1995, the Company
changed its fiscal year end from the Friday closest to November 30 in each year
to the Saturday closest to November 30 in each year.
Tecnol's net sales have grown substantially over the past five fiscal
years. Net sales grew from $71.3 million in fiscal 1992 to $144.4 million in
fiscal 1996, a compounded annual growth rate of 19.3%. During the same period,
net income grew from $12.0 million to $16.0 million, a compounded annual growth
rate of 7.5%. Tecnol attributes the growth in net sales during this period
principally to the introduction of new and higher-priced products, new markets
for its products, such as alternate health care and industrial, continued
growth in international markets, and the acquisition of product lines and
businesses. Although Tecnol has continued to develop and acquire new products
and expects to do so in the future, no assurance can be given that new products
will be introduced successfully to the marketplace or that past growth rates
can be sustained.
The gross profit margin for the five-year period ended November 30, 1996,
is 47.0%. During this period, the gross profit margin declined as the Company
acquired product lines and businesses and entered into contract manufacturing
agreements with gross profit margins below the corporate average. Management's
efforts to positively impact gross profit margins have been focused on the
introduction of new higher margin specialty products, production efficiencies
derived from automation, the transition of labor-intensive products to its
Mexican border manufacturing facility, control of material costs, and pricing
policies.
Selling expenses increased from $13.1 million in fiscal 1992 to $23.6
million in fiscal 1996, as new product lines and sales territories were added.
As a percentage of net sales, selling expenses decreased from 18.4% in fiscal
1992 to 16.4% in fiscal 1996. General and administrative expenses increased
from $4.2 million, or 5.9% of net sales, in fiscal 1992 to $9.4 million, or
6.5% of net sales, in fiscal 1996. Operating margins (income from operations
as a percentage of net sales) decreased from 25.6% in fiscal 1992 to 18.7% in
fiscal 1996, and net income margins declined from 16.8% in fiscal 1992 to 11.1%
in fiscal 1996. The operating margin and net income margin for the five-year
period ended November 30, 1996, were 22.0% and 13.3%, respectively. The
decline in operating margin and net income margin for fiscal 1996 to below the
five-year average is due in large part to a decrease in gross profit margin and
additional reserves in fiscal 1996 for doubtful accounts receivable. Cash
provided by operating activities has increased from $12.6 million in fiscal
1992 to $28.1 million in fiscal 1996.
The following tables set forth for the periods indicated selected
financial information expressed as a percentage of net sales and the
period-to-period percentage changes in such information.
16
<PAGE> 17
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------------------
FISCAL YEAR ENDED
---------------------------------------------
<S> <C> <C> <C> <C> <C>
NOV. 27, DEC. 3, DEC. 2, DEC. 2, NOV. 30,
1992 1993(1) 1994 1995 1996
-------- ------- ------- ------- --------
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 51.4 50.9 48.5 45.3 42.8
Selling expenses 18.4 18.5 16.9 18.1 16.4
General and administrative expenses 5.9 6.1 6.2 6.3 6.5
Research and development expenses 1.5 1.4 1.2 1.3 1.2
Income from operations 25.6 24.9 24.2 19.6 18.7
Net income 16.8 15.7 14.0 11.4 11.1
</TABLE>
- ----------
(1) 53-week year.
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM PRIOR PERIOD
-------------------------------------------------------------
FISCAL YEAR ENDED
-------------------------------------------------------------
NOV. 27, 1992 DEC. 3, 1993(1) DEC. 2, 1994 DEC. 2, 1995
VS. VS. VS. VS.
DEC. 3, 1993(1) DEC. 2, 1994 DEC. 2, 1995 NOV. 30, 1996
--------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales 21.7% 39.3% 0.1% 19.4%
Gross profit 20.5 32.8 (6.4) 12.7
Selling expenses 22.3 26.8 7.7 7.9
General and administrative
expenses 27.3 40.2 2.6 22.9
Research and development
expenses 12.9 24.7 6.3 9.3
Income from operations 18.1 35.9 (19.1) 14.2
Net income 13.1 24.3 (18.3) 16.1
</TABLE>
- ----------
(1) 53-week year.
RESULTS OF OPERATIONS
Fiscal 1996 Compared with Fiscal 1995
Net sales increased 19.4% from $120.9 million in fiscal 1995 to $144.4
million in fiscal 1996. The growth in net sales was principally the result of
increases in unit sales of existing products, new product introductions, and
increased sales from contract manufacturing. The increase in sales for the
U.S. Hospital Division of 11.0% for fiscal 1996, as compared to fiscal 1995,
should be considered in light of the fact that sales were lower than normal for
fiscal 1995 as the Company's largest distributor decreased its inventory of the
Company's products, resulting in a reduction of sales for the U.S. Hospital
Division by approximately $8 to $9 million in fiscal 1995. Based on information
received from distributors, management estimates that purchases by U.S.
hospitals of the Company's U.S. Hospital Division products from distributors
increased approximately 3% in fiscal 1996 as compared to fiscal 1995. Net
sales for the Industrial Products Division and the Specialty Markets Division
increased more than 20% for fiscal 1996 compared to fiscal 1995. Sales for the
International Division increased 12.1% for fiscal 1996 as compared to fiscal
1995. The Orthopedic Products Division lost sales during fiscal 1996 in certain
low margin SPORTS SUPPORTS(R) products as prices were raised to increase
overall profitability. Orthopedic sales for fiscal 1996 were flat compared to
fiscal 1995 primarily due to this change in pricing strategy.
17
<PAGE> 18
Gross profit margin decreased from 45.3% in fiscal 1995 to 42.8% in fiscal
1996. The decrease in the gross profit margin during fiscal 1996 compared to
fiscal 1995 is primarily due to inefficiencies of transitioning labor-intensive
products to the Mexican manufacturing facility, transition costs from the
acquisition of the wound care division of Sparta Surgical Corporation
("Sparta"), and the expected lower margins associated with contract
manufacturing (which represented 6.8% of total Company net sales for fiscal
1996 and 0.4% for fiscal 1995). During fiscal 1996, the Company increased its
reserve for excess and obsolete inventory by approximately $600,000 as part of
an ongoing review of slow-moving inventory. Gross profit margin was positively
impacted as the Company increased the useful life of certain manufacturing
equipment from 10 years to 20 years, reducing annual depreciation expense on
these machines by approximately $800,000 for fiscal 1996. The Company expects
gross profit margin to improve in fiscal 1997 as compared to fiscal 1996 as
higher anticipated production levels would provide more efficient coverage of
overhead expenses, the transition of labor-intensive products to the Mexican
manufacturing facility has been substantially completed, the Sparta wound care
operations transitioned to Texas in the fourth quarter of fiscal 1996, and
blood pressure cuff production is expected to be automated. The
FORWARD-LOOKING STATEMENT made in the previous sentence, along with the others
made in this report, should be considered in light of the cautionary
information discussed on page 22. The expected improvement in gross profit
margin will be offset somewhat by an expected increase in contract
manufacturing sales which provide a lower gross profit margin than sales to
distributors; however, contract manufacturing sales require minimal selling
expense.
Selling expenses increased 7.9% from $21.9 million in fiscal 1995 to $23.6
million in fiscal 1996. As a percentage of net sales, selling expenses have
decreased from 18.1% in fiscal 1995 to 16.4% in fiscal 1996. The decrease in
selling expenses as a percentage of net sales is primarily due to the fixed
nature of most of these expenses, as the Company did not increase the number of
sales territories, and contract manufacturing sales required minimal selling
expenses.
General and administrative expenses increased 22.9% from $7.7 million in
fiscal 1995 to $9.4 million in fiscal 1996. During fiscal 1996, the Company
incurred additional bad debt expense of approximately $1.5 million primarily
attributable to rebate disputes which are anticipated to result in
uncollectible accounts receivable and to the insolvency of an Italian
distributor. As a percentage of net sales, general and administrative expenses
were 6.5% in fiscal 1996 compared to 6.3% in fiscal 1995. Research and
development expenses increased from $1.6 million in fiscal 1995 to $1.7 million
in fiscal 1996.
Income from operations increased 14.2% from $23.7 million in fiscal 1995
to $27.0 million in fiscal 1996. Operating margin decreased from 19.6% in
fiscal 1995 to 18.7% in fiscal 1996, primarily due to the decrease in the gross
profit margin and increased general and administrative expenses.
Other income (expense) represented expense of approximately $3.0 million
in fiscal 1996, compared to expense of approximately $2.7 million in fiscal
1995. During fiscal 1996, the Company agreed, subject to court approval, to
settle a class action lawsuit brought against the Company and certain of its
senior executives (see Part II, Item 3. Legal Proceedings). In connection with
the settlement agreement, the Company charged $550,000 to fiscal 1996
operations. The Company incurred lower interest expense, as borrowings under
the line of credit have been repaid.
18
<PAGE> 19
Additionally, the Company incurred an increase in amortization expense for
purchased assets related to the Sparta acquisition during fiscal 1996.
Tecnol's effective income tax rate decreased from 34.3% in fiscal 1995 to
33.3% in fiscal 1996 primarily due to a revision in estimated reserves required
for federal income taxes.
Net income increased 16.1% from $13.8 million in fiscal 1995 to $16.0
million in fiscal 1996, and the net income margin decreased from 11.4% in
fiscal 1995 to 11.1% in fiscal 1996 due to the foregoing factors. Net income
per share increased 15.9% from $0.69 in fiscal 1995 to $0.80 in fiscal 1996.
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 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.
Fiscal 1995 Compared with Fiscal 1994
Net sales increased 0.1% from $120.7 million in fiscal 1994 to $120.9
million in fiscal 1995. All divisions, with the exception of the U.S. Hospital
Division, experienced sales increases of more than 10% for fiscal 1995 compared
to fiscal 1994. Net sales for the Industrial Products Division increased
approximately 30% for fiscal 1995 compared to fiscal 1994. Management
estimates that the largest customer of the U.S. Hospital Division decreased its
inventory of the Company's products by approximately $8 to $9 million during
fiscal 1995. Primarily due to this inventory reduction, sales for the U.S.
Hospital Division were approximately 11.3% lower for fiscal 1995 compared to
fiscal 1994. Based on information received from distributors, management
estimates that purchases by U.S. hospitals of the Company's U.S. Hospital
Division products from distributors increased approximately 8% in fiscal 1995
as compared to fiscal 1994. The Company did not make any significant
acquisitions in 1995, which contributed to a lower increase in net sales for
fiscal 1995 than in recent comparative years.
Gross profit margin decreased from 48.5% in fiscal 1994 to 45.3% in fiscal
1995. The reduction in sales of the U.S. Hospital Division negatively impacted
gross profit as this division's products carry the Company's highest gross
profit margin. U.S. Hospital Division sales accounted for 52.5% of total net
sales in fiscal 1995 as compared to 59.2% of total net sales in fiscal 1994.
During 1995, Tecnol moved certain products with high labor content to its
Mexican border manufacturing facilities. The devaluation of the Mexican peso
in late 1994 created an estimated manufacturing cost savings of $1.5 to $2.0
million in fiscal 1995. Management believes the benefit of the peso
devaluation was substantially offset by moving and training costs and lost
efficiencies associated with transitioning products to Mexico and by expenses
related to storage and handling of higher inventory levels.
19
<PAGE> 20
Selling expenses increased 7.7% from $20.4 million in fiscal 1994 to $21.9
million in fiscal 1995. As a percentage of net sales, selling expenses
increased from 16.9% in fiscal 1994 to 18.1% in fiscal 1995. The increase in
selling expenses as a percentage of net sales was primarily due to the decrease
in sales of the U.S. Hospital Division without a reduction in selling expenses
due to the fixed nature of most of these expenses.
General and administrative expenses increased 2.6% from $7.5 million in
fiscal 1994 to $7.7 million in fiscal 1995. Research and development expenses
increased from $1.5 million in fiscal 1994 to $1.6 million in fiscal 1995.
Income from operations decreased 19.1% from $29.3 million in fiscal 1994
to $23.7 million in fiscal 1995, and the operating margin decreased from 24.2%
in fiscal 1994 to 19.6% in fiscal 1995, primarily due to the decrease in the
gross profit margin and increased selling expenses.
Other income (expense) consists primarily of interest expense and
amortization of purchased intangible assets. Other income (expense) did not
change significantly from 1994 to 1995.
Tecnol's effective income tax rate decreased from 37.4% in fiscal 1994 to
34.3% in fiscal 1995, primarily due to a revision in estimated reserves
required for state taxes.
Net income decreased 18.3% from $16.9 million in fiscal 1994 to $13.8
million in fiscal 1995, and the net income margin decreased from 14.0% in
fiscal 1994 to 11.4% in fiscal 1995, due to the foregoing factors. Net income
per share decreased 18.8% from $0.85 in fiscal 1994 to $0.69 in fiscal 1995.
Export Sales
Tecnol's export sales are denominated in United States dollars. As a
result, Tecnol does not generally incur direct currency fluctuation risk with
respect to its sales or accounts receivable. Tecnol pays its international
sales representatives an adjustment to compensation based on exchange rates
between the dollar and their respective home currencies. These exchange rate
adjustments have been immaterial to Tecnol. Tecnol's export sales are subject
to all of the influences associated with international trade, such as tariffs
and other trade restrictions, the effect of changes in the value of the dollar
on the price for Tecnol's products expressed in local currencies, and various
international political and economic events.
Tecnol's net export sales have grown as shown in the following chart
(dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------------
DECEMBER 2, DECEMBER 2, NOVEMBER 30,
1994 1995 1996
--------------------- --------------------- ---------------------
NET SALES PERCENTAGE NET SALES PERCENTAGE NET SALES PERCENTAGE
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States Sales $103,173 85% $100,959 83% $122,014 85%
Export Sales 17,577 15 19,963 17 22,379 15
--------- --------- --------- --------- --------- ---------
Total $120,750 100% $120,922 100% $144,393 100%
========= ========= ========= ========= ========= =========
</TABLE>
20
<PAGE> 21
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 near Fort Worth, Texas on which the
Company plans to build a central distribution facility for finished goods, with
completion expected in fiscal 1998. In early 1997, the Company purchased
approximately 10 acres of land in Acuna, Mexico, on which the Company has
entered into a contract to build 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. Construction of this
facility began in early 1997 and is expected to be completed by the end of
fiscal 1997. During fiscal 1997, the Company is planning to add approximately
54,000 square feet to its headquarters building in order to add engineering,
product development, manufacturing, and office space. Additionally during 1997,
the Company is planning to remodel existing space and add approximately 75,000
square feet to the facility located less than one mile from Tecnol's corporate
headquarters. The Company may use long-term financing for these facilities
projects and any acquisition opportunities that may arise.
Tecnol's working capital increased from $45.1 million on December 2, 1995,
to $48.5 million on November 30, 1996. In fiscal 1996, the Company generated
cash from operating activities of $28.1 million and $5.5 million from bank term
loans. Cash generated has been used primarily to finance $6.3 million of
acquisitions, to repay $12.6 million of debt, and to purchase $9.4 million of
property, plant, and equipment. Accounts receivable increased from $22.7
million at the end of fiscal 1995 to $24.9 million at the end of fiscal 1996,
primarily due to an increase in net sales of 16.8% for the fourth quarter of
fiscal 1996 as compared to the fourth quarter of fiscal 1995. The decrease in
inventory from $34.0 million at the end of fiscal 1995 to $32.0 million at the
end of fiscal 1996 is due to increased efforts to reduce inventory on hand.
Tecnol incurred approximately $9.4 million in capital expenditures during
fiscal 1996, consisting of approximately $6.2 million for manufacturing
equipment, $0.7 million for buildings and improvements, and $2.5 million for
automotive equipment, computer equipment, office furniture, and other
miscellaneous items.
On November 30, 1996, the Company had no amounts outstanding and
$10,000,000 available under its bank line of credit which expires March 12,
1997. The Company anticipates the line of credit will be extended by its bank
prior to the expiration date. The Company also had $4,675,000 available under
a reducing revolving bank line of credit. The reducing revolving bank line of
credit is reduced by $275,000 quarterly and expires December 5, 2000.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS No. 121
requires that long-lived assets and certain identifiable intangible assets be
reviewed for impairment whenever events indicate that the carrying amount of an
asset may not be recoverable. The Company will be required to adopt SFAS No.
121
21
<PAGE> 22
in fiscal year 1997. The Company does not expect the adoption of SFAS No. 121
to have a material impact on its financial position or results of operations.
In November of 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation". As a result of SFAS No.
123, the Company will be required to make additional disclosures related to its
stock option plans. The Company will be required to adopt SFAS No. 123 in
fiscal year 1997. The Company does not expect the adoption of SFAS No. 123 to
have a material impact on its financial position or results of operations.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this Item 8
are set forth in Part IV, Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
22
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the heading "Election of Directors" and
"Security Ownership of Principal Stockholders and Management" in the definitive
proxy statement for Tecnol's 1997 Annual Meeting of Stockholders is
incorporated in this report by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the heading "Compensation of Directors and
Executive Officers" in the definitive proxy statement regarding Tecnol's 1997
Annual Meeting of Stockholders is incorporated in this report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the heading "Security Ownership of
Principal Stockholders and Management" in the definitive proxy statement
regarding the 1997 Annual Meeting of Stockholders of Tecnol is incorporated in
this report by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Jack G. Johnson was engaged by Tecnol beginning September 1, 1996, to
assist management in overseeing various legal matters handled by the Company's
outside counsel. Mr. Johnson, who is also a director of Tecnol and a former
practicing attorney, serves as a consultant in this capacity on a temporary,
as-needed basis, at a rate of $10,000 per month.
23
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
(1) Financial Statements; and
(2) Financial Statement Schedule.
See Index to Financial Statements on page F-1 for financial
statements, financial statement schedule, and auditors' report
filed as part of this Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the fiscal
year ended November 30, 1996.
(c) Exhibits
For a list of the exhibits filed as a part of this report, including
management contracts or compensatory plans or arrangements required to
be filed as exhibits to this report, see the Index to Exhibits on page
E-1.
(d) Financial Statement Schedule
See (a) above.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Tecnol has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TECNOL MEDICAL PRODUCTS, INC.
By: /s/ Vance M. Hubbard
-----------------------------
Vance M. Hubbard, Chairman of the
Board and Chief Executive Officer
Date: February 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Vance M. Hubbard Director and Chief Executive Officer February 28, 1997
- ---------------------- (Principal Executive Officer)
Vance M. Hubbard
/s/ David Radunsky Chief Operating Officer, General February 28, 1997
- ---------------------- Counsel, and Director (Principal
David Radunsky Financial Officer)
/s/ Jeffrey A. Nick Vice President Finance and Accounting February 28, 1997
- ---------------------- (Principal Accounting Officer)
Jeffrey A. Nick
/s/ Kirk Brunson Director February 28, 1997
- ----------------------
Kirk Brunson
/s/ Valerie A. Hubbard Director February 28, 1997
- ----------------------
Valerie A. Hubbard
/s/ Jack G. Johnson Director February 28, 1997
- ----------------------
Jack G. Johnson
/s/ James W. Kenney Director February 28, 1997
- ----------------------
James W. Kenney
</TABLE>
25
<PAGE> 26
TECNOL MEDICAL PRODUCTS, INC.
-----------------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Form 10-K -- Item 14(a)(1) and (2)
The following consolidated financial statements for Tecnol Medical Products,
Inc. are included in Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Index to Financial Statements F-1
Report of Independent Public Accountants F-2
Consolidated Balance Sheets -- December 2, 1995, and November 30, 1996 F-3
Consolidated Statements of Income for the Years Ended December 2, 1994, December 2, F-5
1995, and November 30, 1996
Consolidated Statements of Stockholders' Equity for the Years Ended December 2, 1994, F-6
December 2, 1995, and November 30, 1996
Consolidated Statements of Cash Flows for the Years Ended December 2, 1994, December F-7
2, 1995, and November 30, 1996
Notes to Consolidated Financial Statements F-8
The following consolidated financial statements schedule for Tecnol Medical Products, Inc.
is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts F-20
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore, have been omitted.
F-1
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Tecnol Medical Products, Inc.:
We have audited the accompanying consolidated balance sheets of Tecnol Medical
Products, Inc. (a Delaware corporation) and subsidiaries as of December 2, 1995
and November 30, 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended November 30, 1996. These financial statements and schedule referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tecnol Medical Products, Inc.
and subsidiaries as of December 2, 1995, and November 30, 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended November 30, 1996, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
January 14, 1997
F-2
<PAGE> 28
TECNOL MEDICAL PRODUCTS, INC.
-----------------------------
CONSOLIDATED BALANCE SHEETS -- DECEMBER 2, 1995, AND NOVEMBER 30, 1996
----------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1996
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 230,401 $ 4,355,033
Accounts receivable, net of allowance for doubtful accounts
of $857,000 in 1995 and $1,497,000 in 1996 22,712,480 24,858,157
Inventories 34,007,789 32,036,334
Prepaid expenses 220,323 620,807
Other current assets 2,347,257 3,497,720
------------ ------------
Total current assets 59,518,250 65,368,051
NET PROPERTY, PLANT, AND EQUIPMENT 43,505,530 48,671,113
OTHER ASSETS:
Goodwill, net of accumulated amortization of $2,290,000
in 1995 and $3,609,000 in 1996 35,194,066 39,618,824
Other purchased intangible assets, net of accumulated
amortization of $2,432,000 in 1995 and $3,140,000 in 1996 1,061,102 772,257
Patents and trademarks, net of accumulated amortization
of $476,000 in 1995 and $728,000 in 1996 2,278,506 3,358,266
Other 1,882,196 1,711,193
------------ ------------
Total other assets 40,415,870 45,460,540
------------ ------------
Total assets $143,439,650 $159,499,704
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-3
<PAGE> 29
TECNOL MEDICAL PRODUCTS, INC.
-----------------------------
CONSOLIDATED BALANCE SHEETS -- DECEMBER 2, 1995, AND NOVEMBER 30, 1996
----------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade $ 4,830,532 $ 7,800,378
Bank line of credit borrowings 3,530,000 --
Accrued compensation expense 1,315,917 1,893,716
Property taxes payable 812,252 719,169
Other accrued expenses 783,329 2,049,534
Income taxes payable 372,343 719,042
Current maturities of long-term debt 2,771,610 3,641,287
------------ ------------
Total current liabilities 14,415,983 16,823,126
LONG-TERM DEBT, net of current maturities 13,000,581 9,264,736
DEFERRED INCOME TAXES 5,480,589 6,179,599
------------ ------------
Total liabilities 32,897,153 32,267,461
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 1,000,000 shares authorized and
no shares issued in 1995 and 1996 -- --
Common stock, $.001 par value, 50,000,000 shares authorized,
21,091,021 shares issued in 1995 and 21,116,980 shares issued in 1996 21,091 21,117
Additional paid-in capital 27,601,899 27,886,864
Retained earnings 87,754,688 103,755,583
------------ ------------
115,377,678 131,663,564
Less-treasury stock, at cost-
1,157,052 shares in 1995 and 1,159,489 shares in 1996 3,481,994 3,529,197
Less-unearned employee stock ownership plan shares, 90,000 shares
in 1995, 60,000 shares in 1996 1,353,187 902,124
------------ ------------
Total stockholders' equity 110,542,497 127,232,243
------------ ------------
Total liabilities and stockholders' equity $143,439,650 $159,499,704
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-4
<PAGE> 30
TECNOL MEDICAL PRODUCTS, INC.
-----------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED
DECEMBER 2, 1994, DECEMBER 2, 1995, AND NOVEMBER 30, 1996
---------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $ 120,749,955 $ 120,922,509 $ 144,393,430
COST OF GOODS SOLD 62,180,825 66,103,088 82,591,654
------------- ------------- -------------
Gross profit 58,569,130 54,819,421 61,801,776
SELLING EXPENSES 20,354,984 21,914,768 23,640,422
GENERAL AND ADMINISTRATIVE EXPENSES 7,466,979 7,659,414 9,415,580
RESEARCH AND DEVELOPMENT EXPENSES 1,471,478 1,564,207 1,710,044
------------- ------------- -------------
Income from operations 29,275,689 23,681,032 27,035,730
OTHER INCOME (EXPENSE):
Interest income 246,088 56,242 174,301
Interest expense (1,224,071) (1,251,338) (829,884)
Litigation settlement expense -- -- (550,000)
Amortization expense and other, net (1,327,413) (1,492,804) (1,842,651)
------------- ------------- -------------
Total other income (expense) (2,305,396) (2,687,900) (3,048,234)
------------- ------------- -------------
Income before provision for income taxes 26,970,293 20,993,132 23,987,496
PROVISION FOR INCOME TAXES 10,099,779 7,205,205 7,986,601
------------- ------------- -------------
NET INCOME $ 16,870,514 $ 13,787,927 $ 16,000,895
============= ============= =============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ .85 $ .69 $ .80
============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 19,942,017 20,123,074 20,091,834
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-5
<PAGE> 31
TECNOL MEDICAL PRODUCTS, INC.
-----------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED
DECEMBER 2, 1994, DECEMBER 2, 1995, AND NOVEMBER 30, 1996
----------------------------------------------------------
<TABLE>
<CAPTION>
Unearned
Common Stock Treasury Stock Employee Stock
---------------------- --------------------- Additional Ownership Plan Retained
Shares Amount Shares Amount Paid-in Capital Shares Earnings
---------- ---------- --------- ---------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 3, 1993 20,946,859 $20,947 1,143,539 $3,247,707 $26,534,266 $ - $57,096,247
Exercise of stock options 62,932 63 2,915 42,799 356,551 - -
Purchase of shares restricted for
employee stock ownership plan - - - - - 2,255,313 -
Release of unearned employee
stock ownership plan shares - - - - (25,714) (451,063) -
Net income - - - - - - 16,870,514
---------- ------- --------- ---------- ----------- ---------- ------------
BALANCE, December 2, 1994 21,009,791 21,010 1,146,454 3,290,506 26,865,103 1,804,250 73,966,761
Exercise of stock options 90,965 91 9,788 177,516 813,203 - -
Adjustment to shares issued in
acquisition (9,735) (10) 810 13,972 (164,792) - -
Release of unearned employee
stock ownership plan shares - - - - 88,385 (451,063) -
Net income - - - - - - 13,787,927
---------- ------- --------- ---------- ----------- ---------- ------------
BALANCE, December 2, 1995 21,091,021 21,091 1,157,052 3,481,994 27,601,899 1,353,187 87,754,688
Exercise of stock options 25,959 26 2,437 47,203 230,483 - -
Release of unearned employee
stock ownership plan shares - - - - 54,482 (451,063) -
Net income - - - - - - 16,000,895
---------- ------- --------- ---------- ----------- ---------- ------------
BALANCE, November 30, 1996 21,116,980 $21,117 1,159,489 $3,529,197 $27,886,864 $ 902,124 $103,755,583
========== ======= ========= ========== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
F-6
<PAGE> 32
TECNOL MEDICAL PRODUCTS, INC.
-----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED
DECEMBER 2, 1994, DECEMBER 2, 1995, AND NOVEMBER 30, 1996
---------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 16,870,514 $ 13,787,927 $ 16,000,895
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,099,721 4,856,277 4,711,258
Amortization 1,725,760 2,067,139 2,318,441
Gain on sale of property, plant, and equipment (30,744) (13,579) (47,226)
Provision (benefit) for deferred income taxes 1,833,130 752,000 (400,990)
Compensation related to employee stock ownership plan 425,349 539,448 505,545
Net change in assets and liabilities, excluding acquisitions-
Accounts receivable (7,844,583) 2,006,480 (2,145,677)
Inventories (3,731,912) (10,938,333) 2,815,908
Prepaid expenses 252,544 221,684 (400,484)
Other current assets (13,867) (165,159) (50,463)
Accounts payable - trade 1,075,877 (488,313) 2,719,846
Accrued expenses (246,209) 200,116 1,748,597
Income taxes payable 166,836 (858,237) 346,699
------------ ------------ ------------
Total adjustments (2,288,098) (1,820,477) 12,121,454
------------ ------------ ------------
Net cash provided by operating activities 14,582,416 11,967,450 28,122,349
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant, and equipment 142,946 124,180 97,997
Purchase of property, plant, and equipment (7,015,402) (11,244,749) (9,427,612)
Expenditures for patents and trademarks (600,850) (490,293) (1,332,018)
(Increase) decrease in other assets 5,568 (1,858,367) (156,070)
Sale of short-term investments 2,483,853 200,000 --
Cash paid for acquisitions, net of cash acquired (6,499,228) (1,360,089) (6,302,152)
------------ ------------ ------------
Net cash used in investing activities (11,483,113) (14,629,318) (17,119,855)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank term loans -- -- 5,500,000
Bank line of credit borrowings (repayments), net -- 3,530,000 (3,530,000)
Principal payments on long-term debt (3,569,616) (3,833,506) (9,031,168)
Net proceeds from exercise of stock options 313,815 635,778 183,306
Purchase of shares restricted for employee stock ownership plan (2,255,313) -- --
------------ ------------ ------------
Net cash provided by (used in) financing activities (5,511,114) 332,272 (6,877,862)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,411,811) (2,329,596) 4,124,632
CASH AND CASH EQUIVALENTS, beginning of the year 4,971,808 2,559,997 230,401
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of the year $ 2,559,997 $ 230,401 $ 4,355,033
============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for-
Interest $ 1,407,745 $ 1,512,635 $ 1,215,838
Income taxes $ 7,978,292 $ 7,627,234 $ 8,337,134
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of note for acquisition of assets $ -- $ -- $ 665,000
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
F-7
<PAGE> 33
TECNOL MEDICAL PRODUCTS, INC.
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 2, 1994, DECEMBER 2, 1995, AND NOVEMBER 30, 1996
---------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
Background and Organization
- ---------------------------
Tecnol Medical Products, Inc. (the "Company") is engaged primarily in one
industry segment: the design, manufacture, and sale of disposable medical
products, including face masks, patient care products, (such as cold therapy
products and patient safety restraints), wound dressings, headwear and shoe
covers, and orthopedic products.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
Fiscal Year
- -----------
The Company's fiscal year is the 52- or 53-week period ending on the Saturday
nearest to November 30. The fiscal years ended December 2, 1994, December 2,
1995, and November 30, 1996, included 52 weeks. On June 2, 1995, the Company
changed its fiscal year end from the Friday closest to November 30 in each year
to the Saturday closest to November 30 in each year.
Cash and Cash Equivalents
- -------------------------
Highly liquid investments purchased with original maturities of three months or
less are reported as cash equivalents.
Inventories
- -----------
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or fair market value. Work-in-process and finished goods
inventories include material, labor, and factory overhead.
Other Current Assets
- --------------------
Other current assets consists primarily of deferred income tax assets. The
Company's deferred income tax assets were $2,128,000 at December 2, 1995, and
$3,228,000 at November 30, 1996.
F-8
<PAGE> 34
Property, Plant, and Equipment
- ------------------------------
Property, plant, and equipment are stated at cost, and depreciation is computed
using the straight-line method. The useful lives by classification are:
<TABLE>
<S> <C>
Buildings and improvements 25-40 years
Automotive equipment 2-4 years
Manufacturing equipment 5-20 years
Office furniture and equipment 5-10 years
</TABLE>
In 1996, the Company increased the useful life on certain manufacturing
equipment from 10 years to 20 years. This increase reduced annual
depreciation expense on these machines by approximately $800,000.
Maintenance, repairs, and minor replacements are charged to operations as
incurred; major replacements and betterments are capitalized. The cost of
assets sold, retired, or otherwise disposed of and the related accumulated
depreciation are removed from the accounts at the time of disposition, and
any resulting gain or loss is reflected in operations for the period.
Other Assets
- ------------
Other purchased intangible assets consist of noncompete agreements and customer
lists. Other purchased intangible assets are amortized using the straight-line
method over the life of the respective intangible assets ranging from three to
seven years. Goodwill is amortized using the straight-line method over 20 to
40 years. The costs of obtaining patents and registering trademarks are
capitalized as incurred and amortized over 17 years and five years,
respectively, using the straight-line method. Amortization expense of goodwill
and noncompete agreements of approximately $1,396,000 in 1994, $1,658,000 in
1995, and $1,993,000 in 1996 is included in other income (expense) in the
consolidated statements of income. Amortization expense for the remaining
other assets is included in general and administrative expenses.
The Company periodically evaluates the recoverability of its investment in
intangible assets in relation to current and anticipated net income and cash
flows. Based on this assessment, the Company expects its investment in
intangible assets to be fully recovered.
Income Taxes
- ------------
The Company accounts for income taxes under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," which requires the
use of an asset and liability approach for financial accounting and reporting
for income taxes. The difference between the financial statement and tax bases
of assets and liabilities is determined annually. Deferred income tax assets
and liabilities are computed for those differences that have future tax
consequences.
Revenue Recognition
- -------------------
Sales are recorded when products are shipped. Provisions for returns,
allowances, discounts, and rebates are made at the time of sale.
F-9
<PAGE> 35
Net Income Per Share
- --------------------
The computation of net income per share is based on the weighted average number
of common shares outstanding. When dilutive, stock options are included as
share equivalents using the treasury stock method. For net income per share
purposes, unearned employee stock ownership plan shares are excluded from
common shares outstanding. Primary and fully diluted net income per share are
not materially different.
Accounting Estimates
- --------------------
The consolidated financial statements include estimates and assumptions made by
management which affect the reported amounts of assets and liabilities, the
reported amounts of revenues and expenses, and the disclosure of contingent
assets and liabilities. Significant estimates include the reserves for
rebates, doubtful accounts, and excess and obsolete inventory. Actual results
could differ from those estimates.
Recently Issued Accounting Pronouncements
- -----------------------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS No. 121
requires that long-lived assets and certain identifiable intangible assets be
reviewed for impairment whenever events indicate that the carrying amount of an
asset may not be recoverable. The Company will be required to adopt SFAS No.
121 in fiscal year 1997. The Company does not expect the adoption
of SFAS No. 121 to have a material impact on its financial position or results
of operations.
In November of 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". As a result of SFAS No. 123,
the Company will be required to make additional disclosures related to its
stock option plans. The Company will be required to adopt SFAS No. 123 in
fiscal year 1997. The Company does not expect the adoption of SFAS No. 123 to
have a material impact on its financial position or results of operations.
2. INVENTORIES:
------------
Inventories at December 2, 1995, and November 30, 1996, consist of the
following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Raw materials $16,162,047 $15,212,956
Work-in-process 1,008,336 1,983,973
Finished goods 16,837,406 14,839,405
----------- -----------
$34,007,789 $32,036,334
=========== ===========
</TABLE>
F-10
<PAGE> 36
3. PROPERTY, PLANT, AND EQUIPMENT:
-------------------------------
Property, plant, and equipment at December 2, 1995, and November 30, 1996,
consists of the following:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Land $ 6,108,588 $ 6,247,752
Buildings and improvements 13,787,825 14,563,836
Automotive equipment 2,825,575 2,913,496
Manufacturing equipment 30,771,624 36,510,853
Office furniture and equipment 7,829,785 9,267,496
Construction-in-progress 3,138,329 4,446,416
------------ ------------
64,461,726 73,949,849
Less accumulated depreciation (20,956,196) (25,278,736)
------------ ------------
$43,505,530 $48,671,113
============ ============
</TABLE>
4. ACQUISITIONS:
-------------
On July 1, 1994, the Company closed the purchase of two product lines. The
product lines purchased include SPORTS SUPPORTS(R), a full line of neoprene
orthopedic and sports medicine joint supports that are marketed to orthopedic
surgeons, clinics, and athletic trainers; and INDUSTRY'S CHOICE(R), a line of
personal ergonomic products, principally back braces and lumbar supports, that
are sold to the industrial market. The acquisition of these product lines
involved the purchase of inventories, manufacturing equipment, and certain
intangible assets. The purchase price of these product lines (approximately
$5.5 million) was paid in cash.
On December 7, 1995, the Company closed the purchase of the wound care product
line from Sparta Surgical Corporation ("Sparta"). The wound care product line
consists primarily of non-adhering dressings and wet dressings. The purchase
of this product line included manufacturing equipment, inventory, product
formulations, and certain intangible assets. The purchase price of
approximately $5,675,000 was paid in cash and a note in the amount of $665,000.
These acquisitions were accounted for using the purchase method of accounting.
Operations of the acquired businesses are included in the accompanying
financial statements for the period subsequent to the acquisition. Had these
acquisitions occurred at the beginning of the fiscal year, the Company's
results of operations as presented in the accompanying consolidated statements
of income would not have been materially different.
F-11
<PAGE> 37
5. LONG-TERM DEBT:
---------------
Long-term debt at December 2, 1995, and November 30, 1996, consists of the
following:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Term loans payable to a bank, interest at a variable rate
(approximately 7.25% and 6.875% at December 2, 1995, and
November 30, 1996, respectively), payable in quarterly
installments of $750,000, plus interest through November 15,
1998, unsecured $ 9,000,000 $ 6,000,000
Term loan payable to a bank, interest at 7.72%, payable in
quarterly installments of $87,500, plus interest through
January 7, 2000, unsecured 2,537,500 2,187,500
Industrial Revenue Bonds, interest payable monthly according to
short-term rates established by remarketing company
(approximately 4.10% and 3.80% at December 2, 1995, and
November 30, 1996, respectively), principal payments are due
in annual installments of $100,000 to $200,000 on December 1
with a seven-day call feature and final maturity date of
December 1, 2015, secured by land, manufacturing facility, and 3,600,000 3,600,000
certain equipment
Other installment obligations 634,691 1,118,523
------------ ------------
15,772,191 12,906,023
Less- Current maturities 2,771,610 3,641,287
------------ ------------
$13,000,581 $ 9,264,736
============ ============
Debt maturities are as follows:
<CAPTION>
Fiscal Year Amount
----------- ------------
<S> <C>
1997 $ 3,641,287
1998 3,613,063
1999 1,469,438
2000 626,458
2001 587,287
Thereafter 2,968,490
-----------
$12,906,023
===========
</TABLE>
The term loans relate to a credit facility with the Company's principal bank.
Under this credit facility, the Company has a $10,000,000 line of credit which
expires March 12, 1997, and a $4,675,000 reducing revolving line of credit
which expires December 5, 2000. The amount available under the reducing
revolving line of credit is reduced by $275,000 each quarter, and the Company
pays an annual commitment fee of 1/4% of the unadvanced portion. As of
November 30, 1996, the Company had no amounts outstanding under the line of
credit or the reducing revolving line of credit. The weighted average rate of
interest on borrowings under the line of credit during fiscal years 1995 and
1996 was 8.83% and 8.42%, respectively. The weighted average rate of interest
on borrowings under the reducing revolving line of credit was 7.25% during
fiscal year 1996.
F-12
<PAGE> 38
Every seven days the interest rate on the Industrial Revenue Bonds is reset to
the current market rate. The Bonds are backed by a bank letter of credit
covering the outstanding principal and interest. Should a situation arise in
which the bonds could not be marketed at the current market rate, then the
letter of credit will pay the outstanding principal and interest. The
principal would be payable on a three-year note at the prime interest rate with
monthly installments of $15,000 with the remaining principal due at maturity.
The letter of credit expires March 1999.
The Company's existing credit agreements contain various restrictive covenants
which, among other things, include minimum working capital requirements,
certain financial ratios and restrictions on payment of dividends, stock
redemptions, and capital expenditures. Under the dividend restrictions, the
Company would be permitted to pay dividends up to approximately $9,100,000 as
of November 30, 1996. As of December 2, 1995, and November 30, 1996, and for
the years then ended, the Company was in compliance with respect to these
covenants.
The estimated fair value of the Company's long-term debt is $11.9 million.
This fair value was estimated by discounting the future cash flows using rates
currently available for debt of similar terms and maturity.
6. COMMITMENTS AND CONTINGENCIES:
------------------------------
Employment Contracts
- --------------------
The Company has an employment agreement with its chief executive officer which
expires in 1998. The employment agreement provides for a minimum level of
annual compensation, an annual bonus based on defined criteria, and certain
other benefits.
Litigation
- ----------
On August 21, 1995, a class action lawsuit was filed in the United States
District Court for the Northern District of Texas against the Company and
several executive officers of the Company. The suit was brought by a
stockholder on his own behalf and on behalf of other persons who purchased the
Company's stock from January 10, 1995, to July 17, 1995. On August 29, 1996,
the Company and the individual defendants tentatively agreed, subject to court
approval, to settle the lawsuit for a total payment of $2.2 million.
Approximately $550,000 of the settlement amount was charged to fiscal 1996
operations and paid by the Company subsequent to year end. The balance was
paid by the Company's insurance carrier.
The Company is subject to certain other litigation and claims arising out of
the conduct of its business. While the final outcome of any litigation or
claim cannot be determined with certainty, management believes that the final
outcome of any current litigation or claim will not have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
Operating Leases
- ----------------
The Company has the following minimum annual payments under various long-term
operating leases for manufacturing and warehouse space and equipment:
<TABLE>
<S> <C>
1997 $1,333,000
1998 617,000
1999 367,000
2000 331,000
2001 311,000
----------
Total minimum lease payments $2,959,000
==========
</TABLE>
F-13
<PAGE> 39
Rent expense was approximately $768,000, $1,358,000, and $1,686,000 in 1994,
1995, and 1996, respectively.
7. FEDERAL INCOME TAXES:
---------------------
The income tax provision for the years ended December 2, 1994, December 2,
1995, and November 30, 1996, consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
Current $8,266,779 $6,453,205 $8,387,601
Deferred 1,833,000 752,000 (401,000)
----------- ---------- ----------
Provision for income taxes $10,099,779 $7,205,205 $7,986,601
=========== ========= ==========
</TABLE>
The provision for income taxes differs from the amount computed by applying the
U.S. federal income tax rate because of the effect of the following items:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ----------- ----------
<S> <C> <C> <C>
Tax at U.S. federal income tax rate $ 9,439,603 $7,347,596 $8,395,624
State income taxes, net of U.S. federal
income tax benefit 467,806 74,100 72,326
Goodwill amortization not deductible 281,392 316,388 310,590
Benefit of a foreign sales corporation (193,332) (280,000) (148,100)
Revision of estimated reserves - (623,929) (701,000)
Other 104,310 371,050 57,161
------------ ----------- ----------
Provision for income taxes $10,099,779 $7,205,205 $7,986,601
============ =========== ===========
</TABLE>
Significant components of deferred income taxes recorded on the consolidated
balance sheet as of December 2, 1995, and November 30, 1996, are as follows:
<TABLE>
<CAPTION>
Deferred Tax Assets: Dec. 2, 1995 Nov. 30, 1996
------------ -------------
<S> <C> <C> <C>
Current:
Inventory allowances $ 950,466 $1,143,728
Allowance for doubtful accounts 317,174 553,894
Rebate accrual 769,603 1,304,254
Other accrued liabilities 90,346 225,723
Noncurrent:
Other 262,411 366,401
------------ -------------
Total deferred tax assets $2,390,000 $3,594,000
============ =============
Deferred Tax Liabilities:
Noncurrent:
Property, plant, and equipment $3,489,447 $4,331,551
Patent expenditures 391,531 764,551
Other 1,862,022 1,449,898
------------ -------------
Total deferred tax liabilities $5,743,000 $6,546,000
============ =============
</TABLE>
F-14
<PAGE> 40
No valuation allowance has been established for the deferred tax assets as the
Company believes it will generate sufficient taxable income in the future to
realize all of the recorded assets. Current deferred tax assets are included
in other current assets on the consolidated balance sheet.
8. INTEREST COSTS:
---------------
Total interest costs incurred were $1,363,000 in 1994, $1,486,000 in 1995, and
$1,278,000 in 1996. The Company capitalizes interest costs related to the
construction of equipment and buildings for its own use. Interest costs
capitalized as part of equipment and buildings were $139,000 in 1994, $235,000
in 1995, and $448,000 in 1996.
9. EMPLOYEE BENEFIT PLANS:
-----------------------
The Company has several plans for the benefit of its employees as described
below.
Employee Stock Ownership Plan
- -----------------------------
The Company has adopted an Employee Stock Ownership Plan ("ESOP") in which its
employees are eligible to participate after completing one year of service.
The Company makes annual contributions in the form of cash, the Company's
common stock, or in such property as is acceptable to the trustees of the ESOP.
Company contributions are determined by the Board of Directors. However, the
contribution shall never be less than the amount required to enable the plan to
discharge its trust obligations payable in cash within one year from the date
the Company's contribution is due. Participants' interests in the ESOP are
distributed in the form of cash and Company common stock upon normal
retirement, permanent and total disability, death, or at a specific time after
any other termination of employment.
During 1994, the Company purchased 150,000 shares of Company stock for the ESOP
for $2,255,313 on the open market. This purchase was recorded as unearned ESOP
shares. The unearned ESOP share amount will be reduced by the cost of the
shares released to participants' accounts, at the rate of 30,000 shares per
year over five years. Compensation expense is measured using the average fair
market value when shares are committed to be released to the employee. The
Company recognized compensation expense of $425,349 in 1994, $539,448 in 1995,
and $505,545 in 1996 related to the ESOP.
The following summarizes the number of shares held by the ESOP as of November
30, 1996:
<TABLE>
<CAPTION>
Shares
------
<S> <C>
Allocated 693,740
Committed-to-be-released 30,000
Unearned 60,000
-------
Total 783,740
=======
</TABLE>
The fair market value of the 60,000 unearned shares held by the ESOP as of
November 30, 1996, was $802,500.
F-15
<PAGE> 41
Employee Stock Options
- ----------------------
During 1991, the Company adopted the 1991 Tecnol Stock Option Plan (the "Option
Plan") for key employees to purchase shares of the Company's common stock. The
stock option committee of the Board of Directors administers the Option Plan
and determines who receives options, the terms of any options granted,
including the exercise price, the number of shares, and the manner of
exercising the option. The option price is at least equal to the fair market
value of the Company's common stock at the date of grant. Outstanding options
granted typically become exercisable at the rate of one ninth of the number
granted per year, on a cumulative basis, beginning with the first anniversary
date of the grant. No option may be exercised more than 10 years after the
date of grant and options will be forfeited upon termination of employment.
The Company has reserved 2,000,000 shares of common stock for issuance upon the
exercise of options under the Option Plan.
In 1982, the Company adopted the Tecnol, Inc. 1982 Incentive Stock Option Plan
(the "Prior Plan") under which options were granted to key employees.
Outstanding options granted become exercisable at the rate of 20% per year, on
a cumulative basis, beginning with the first anniversary date of the grant. As
of the end of fiscal year 1996, all options under the Prior Plan have been
exercised and the Company will not grant any additional options.
Transactions for both plans during the years ended December 2, 1994, December
2, 1995, and November 30, 1996, were as follows:
<TABLE>
<CAPTION>
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding at December 3, 1993 1,302,031 $ 2.31 - $18.00
Granted 294,875 $18.00
Forfeited (56,086)
Exercised (62,932) $ 2.31 - $13.33
--------
Outstanding at December 2, 1994 1,477,888 $ 2.93 - $18.00
Granted 151,917 $ 17.00 - $18.00
Forfeited (150,961)
Exercised (90,965) $ 2.93 - $18.00
--------
Outstanding at December 2, 1995 1,387,879 $ 2.93 - $18.00
Granted 200,200 $ 15.00 - $18.00
Forfeited (138,724)
Exercised (25,959) $ 3.47 - $18.00
--------
Outstanding at November 30, 1996 1,423,396 $ 11.33 - $18.00
=========
Options exercisable at November 30, 1996 492,238
=======
</TABLE>
Defined Contribution Profit Sharing Plan
In 1986, a defined contribution profit sharing plan ("401(k) Plan") was
established for the benefit of eligible employees. The Company may make
nonelective and discretionary employer contributions for
F-16
<PAGE> 42
each plan year. The Company made matching employer contributions to the 401(k)
Plan of approximately $78,000 in 1994, $85,000 in 1995, and $90,000 in 1996, in
addition to paying certain administrative expenses.
Other Postretirement and Postemployment Benefits
- ------------------------------------------------
The Company does not offer postemployment or postretirement benefits to its
employees.
10. OTHER BUSINESS INFORMATION:
---------------------------
Export Sales
- ------------
Net sales include $17,577,000, $19,963,000, and $22,379,000 in 1994, 1995, and
1996, respectively, for goods exported outside the U.S.
Major Customers
- ---------------
The Company has two customers, Baxter International Inc. ("Baxter") and Owens
& Minor, Inc., who each account for more than 10% of net sales. Net sales
to Baxter were approximately $58,658,000 in 1994, $46,610,000 in 1995, and
$38,876,000 in 1996. Receivables due from Baxter were approximately $6,547,000
on December 2, 1995, and $842,000 on November 30, 1996. In late 1996, Baxter
transferred the majority of its U.S. hospital distribution business to a new
entity named Allegiance Healthcare Corporation ("Allegiance"). Receivables due
from Allegiance were approximately $6,672,000 on November 30, 1996. Net sales
to Owens & Minor, Inc. were approximately $14,518,000 in 1995 and $18,820,000
in 1996. Receivables due from Owens & Minor, Inc. were approximately
$4,250,000 on December 2, 1995, and $4,033,000 on November 30, 1996. Net sales
to Owens and Minor, Inc. were less than 10% of total net sales in 1994.
Business Concentration and Risk
- -------------------------------
Sales are primarily to companies in the health care industry and substantially
all receivables are from those companies. Credit is extended based on an
evaluation of the customer's financial condition, and generally collateral is
not required. Credit losses are provided for in the financial statements based
upon management's estimates. Historically, credit losses have not differed
materially from such estimates.
F-17
<PAGE> 43
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
--------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended December 2, 1995
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $28,703 $34,395 $26,283 $31,541
Cost of goods sold 14,897 17,630 15,835 17,741
-------- ------- ------- -------
Gross profit 13,806 16,765 10,448 13,800
Selling expenses 5,014 5,889 5,761 5,251
General and administrative expenses 1,920 1,904 2,073 1,762
Research and development expenses 367 469 326 402
-------- ------- ------- -------
Income from operations 6,505 8,503 2,288 6,385
Interest and other income (expense), net (654) (692) (714) (628)
-------- ------- ------- -------
Income before provision for income taxes 5,851 7,811 1,574 5,757
Provision for income taxes 2,143 2,874 579 1,609
-------- ------- ------- -------
Net income $3,708 $4,937 $995 $4,148
======== ======= ======= =======
Net income per common and common equivalent share
$0.19 $0.25 $0.05 $0.21
======== ======= ======= =======
Weighted average number of common and common
equivalent shares outstanding 20,030 20,118 20,155 20,153
</TABLE>
F-18
<PAGE> 44
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (continued):
--------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended November 30, 1996
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $35,244 $36,338 $35,971 $36,841
Cost of goods sold 19,579 20,317 22,373 20,323
------- ------- ------- -------
Gross profit 15,665 16,021 13,598 16,518
Selling expenses 5,689 6,242 5,540 6,169
General and administrative expenses 2,068 1,949 3,211 2,188
Research and development expenses 458 403 412 437
------- ------- ------- -------
Income from operations 7,450 7,427 4,435 7,724
Interest and other income (expense), net (838) (373) (1,240) (597)
------- ------- ------- -------
Income before provision for income taxes 6,612 7,054 3,195 7,127
Provision for income taxes 2,278 2,288 1,064 2,357
------- ------- ------- -------
Net income $4,334 $4,766 $2,131 $4,770
======= ======= ======= =======
Net income per common and common equivalent share
$0.22 $0.24 $0.11 $0.24
======= ======= ======= =======
Weighted average number of common and common
equivalent shares outstanding 20,128 20,173 20,164 20,003
</TABLE>
NOTE: During the third quarter of fiscal year 1996, the Company recorded
significant increases in reserves for doubtful accounts receivable and excess
and obsolete inventory.
F-19
<PAGE> 45
TECNOL MEDICAL PRODUCTS, INC.
-----------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
DECEMBER 2, 1994, DECEMBER 2, 1995, AND NOVEMBER 30, 1996
---------------------------------------------------------
<TABLE>
<CAPTION>
Balance at Additions Additions Balance at
Dec. 3, 1993 Charged to Expense Charged to Goodwill Deductions Dec. 2, 1994
-------------- -------------------- --------------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
DESCRIPTION:
Allowance for $554,000 $214,000 $ - $ 41,000 $727,000
doubtful accounts
</TABLE>
<TABLE>
<CAPTION>
Balance at Additions Additions Balance at
Dec. 2, 1994 Charged to Expense Charged to Goodwill Deductions Dec. 2, 1995
-------------- -------------------- --------------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
DESCRIPTION:
Allowance for $727,000 $169,000 $ - $ 39,000 $857,000
doubtful accounts
Reserve for inventory $177,000 $575,000 $100,000 $140,000 $712,000
obsolescence (1)
</TABLE>
<TABLE>
<CAPTION>
Balance at Additions Additions Balance at
Dec. 2, 1995 Charged to Expense Charged to Goodwill Deductions Nov. 30, 1996
-------------- -------------------- --------------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
DESCRIPTION:
Allowance for $857,000 $1,710,000 $ - $1,070,000 $1,497,000
doubtful accounts
Reserve for inventory $712,000 $885,000 $13,000 $140,000 $1,470,000
obsolescence
</TABLE>
(1) The reserve for inventory obsolescence was insignificant in prior years.
F-20
<PAGE> 46
INDEX TO EXHIBITS
The following exhibits are incorporated by reference to the exhibit with the
same exhibit number designation in Tecnol's Registration Statement on Form S-1,
No. 33-41583, filed with the Securities and Exchange Commission, unless
indicated otherwise.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C> <C>
*** 2 Agreement and Plan of Merger ("Merger Agreement") by
and among Tecnol, Tecnol Acquisition, Inc., and Anago
dated October 20, 1993 (without schedules), including
the following exhibits:
- Employment, Consulting and Non-Competition Agreement
among Tecnol, Anago, Timothy J. McKibben, Gary
Pedersen, Sidney Echols, and J. Randall Keene, as
amended by instrument dated November 15, 1993;
- McKibben Termination, Release, and Payment Agreement
between Anago and Timothy J. McKibben;
- Mays Group Termination and Release among Anago and
Mays Acquisition Company, Inc., Conrad/Collins Merchant
Banking Group, Ltd., Conrad/Collins Merchant Banking
Fund Ltd., and Brian Harpster;
- Rauscher Pierce Termination and Release between
among Anago and Rauscher Pierce Refsnes, Inc.;
- Tecnol/Tecnol Acquisition Release; Tecnol Group
Release; Tecnol; Original Preferred Shareholders
Release; Anago Release;
- Indemnity Agreement among Tecnol, Anago, Timothy J.
McKibben, Gary Pedersen, Sidney Echols, and J. Randall
Keene, as amended by instrument dated November 15, 1993
*** 2(a)(1) Letter Agreement, dated November 15, 1993, amending
Employment, Consulting and Non- Competition Agreement
attached as an exhibit to the Merger Agreement
*** 2(a)(2) Amendment to Indemnity Agreement, dated as of October
21, 1993, amending Indemnity Agreement attached as an
exhibit to the Merger Agreement
+++ 3(a) Certificate of Incorporation of Tecnol
+++ 3(a)(1) Amendment to Certificate of Incorporation of Tecnol
* 3(b) Bylaws of Tecnol, as amended
4 Specimen Certificate evidencing Common Stock
10(a) 1991 Tecnol Stock Option Plan
## 10(a)(1) Amendment to 1991 Tecnol Stock Option Plan adopted
February 25, 1993
## 10(a)(2) Amendment to 1991 Tecnol Stock Option Plan effective
October 12, 1995
## 10(a)(3) Amendment to 1991 Tecnol Stock Option Plan adopted June
20, 1996
++ 10(b)(1) Modification Agreement dated July 1, 1994, by Tecnol
Inc., TCNL Technologies Inc., Tecnol International
(V.I.), Inc., La Ada de Acuna, S.A., and Tecnol in
favor of NationsBank of Texas, N.A., including the
following exhibit:
</TABLE>
E-1
<PAGE> 47
<TABLE>
<S> <C> <C>
- $9,000,000 Amended and Restated Promissory Note of
Tecnol payable to NationsBank of Texas, N.A.;
* 10(b)(2) $3,500,000 Promissory Note dated January 11, 1993, by
Tecnol in favor of NationsBank of Texas, N.A.
* 10(b)(3) Guaranty Agreement dated January 11, 1993, by Tecnol
Orthopedic Products, Inc., Tecnol International (V.I.),
Inc., Tecnol, Inc., TCNL Technologies, Inc., Polymed
Holdings, Inc., and Poly-Med Industries, Inc.
(collectively, the "Previous Subsidiaries"), in favor
of NationsBank of Texas, N.A.
*** 10(b)(6) Third Amended and Restated Loan Agreement between
NationsBank of Texas, N.A. and Tecnol, joined in by its
direct and indirect subsidiaries, effective November
15, 1993, including the following exhibit:
- Form of Guaranty Agreement of subsidiaries of
Tecnol respecting notes of Tecnol payable to
NationsBank of Texas, N.A.
++ 10(b)(7) $4,500,000 Amended and Restated Promissory Note of
Tecnol, Inc. payable to NationsBank of Texas, N.A.,
dated July 1, 1994
*** 10(b)(8) Guaranty Agreement dated November 15, 1993, of Tecnol,
the Previous Subsidiaries and Inman Medical
Corporation respecting the note of Anago payable to
NationsBank of Texas, N.A. which has been assumed,
renewed, and extended by Tecnol, Inc.
++ 10(b)(8)(a) Consent by Guarantors dated July 1, 1994, by and among
Tecnol, TCNL Technologies, Inc., Tecnol International
(V.I.), Inc., and La Ada de Acuna, S.A., in favor of
NationsBank of Texas, N.A.
++ 10(b)(9) Consent Agreement dated June 30, 1994, by and among
Tecnol, Tecnol, Inc., TCNL Technologies, Inc., Tecnol
International (V.I.), Inc., La Ada de Acuna, S.A., and
NationsBank Texas, N.A. relating to the Third Amended
and Restated Loan Agreement dated November 15, 1993
++ 10(b)(10) Consent and Assumption Agreement dated June 30, 1994,
by and among Tecnol, Tecnol, Inc., TCNL Technologies,
Inc., Tecnol International (V.I.), Inc., La Ada de
Acuna, S.A., and NationsBank Texas, N.A. relating to a
$5,000,000 promissory note originally executed by
Anago, Inc.
+++ 10(b)(11) 1995 Modification Agreement dated effective March 15,
1995, by and among Tecnol, NationsBank Texas, N.A.,
Tecnol, Inc., TCNL Technologies, Inc. Tecnol
International (V.I.), Inc., and La Ada de Acuna, S.A.,
modifying the Third Amended and Restated Loan Agreement
and increasing the working capital loan to $5,000,000
+++ 10(b)(12) Guaranty Agreement made as of March 15, 1995, by Tecnol
Consumer Products, Inc. and Tecnadyne Scientific
Incorporated, in favor of NationsBank of Texas, N.A.,
guaranteeing certain indebtedness of Tecnol
+++ 10(b)(13) Guaranty Agreement made as of March 15, 1995, by
Tecnol Consumer Products, Inc., and Tecnadyne
Scientific Incorporated, in favor of NationsBank of
Texas N.A., guaranteeing certain indebtedness of
Tecnol, Inc.
</TABLE>
E-2
<PAGE> 48
<TABLE>
<S> <C> <C>
+++ 10(b)(14) Second 1995 Modification Agreement executed as of May
8, 1995, by and among Tecnol, NationsBank Texas, N.A.,
Tecnol, Inc., TCNL Technologies, Inc., Tecnol
International (V.I.), Inc., La Ada de Acuna, S.A.,
Tecnol Consumer Products, Inc., and Tecnadyne
Scientific Incorporated, modifying the Third Amended
and Restated Loan Agreement and increasing the working
capital loan to $10,000,000
## 10(b)(15) $10,000,000 Promissory Note (Revolving Line of Credit)
of Tecnol dated March 13, 1996, payable to NationsBank
of Texas, N.A.
+++ 10(b)(16) Consent by Guarantors executed as of May 8, 1995, by
Tecnol, Inc., TCNL Technologies, Inc., Tecnol
International (V.I.), Inc., La Ada de Acuna, S.A.,
Tecnol Consumer Products, Inc., and Tecnadyne
Scientific Incorporated
# 10(b)(17) 1995 Modification Agreement dated effective December 5,
1995, by and among Tecnol, NationsBank Texas, N.A.,
Tecnol, Inc., TCNL Technologies, Inc., Tecnol
International (V.I.), Inc., La Ada de Acuna, S.A.,
Tecnol Consumer Products, Inc., Tecnadyne Scientific
Incorporated and Tecnol New Jersey Wound Care, Inc.,
modifying and amending the Third Amended and Restated
Loan Agreement and extending a new Reducing Revolver
Loan in the maximum amount of $5,500,000
# 10(b)(18) $5,500,000 Promissory Note (Revolving Line of Credit)
of Tecnol dated December 5, 1995, payable to the order
of NationsBank of Texas, N.A.
# 10(b)(19) Guaranty Agreement dated effective December 5, 1995, by
Tecnol New Jersey Wound Care, Inc. in favor of
NationsBank of Texas, N.A., guaranteeing certain
indebtedness of Tecnol
# 10(b)(20) Guaranty Agreement effective December 5, 1995, by
Tecnol New Jersey Wound Care, Inc. in favor of
NationsBank of Texas, N.A., guaranteeing certain
indebtedness of Tecnol, Inc.
# 10(b)(21) Guaranty Agreement effective December 5, 1995, by
Tecnol New Jersey Wound Care, Inc., Tecnol Consumer
Products, Inc. and Tecnadyne Scientific Incorporated in
favor of NationsBank of North Carolina, N.A.,
guaranteeing certain indebtedness of Tecnol and Tecnol,
Inc.
## 10(b)(22) First 1996 Modification Agreement dated effective March
13, 1996, by and among Tecnol, NationsBank Texas, N.A.,
Tecnol, Inc., TCNL Technologies, Inc., Tecnol
International (V.I.), Inc., La Ada de Acuna, S.A.,
Tecnol Consumer Products, Inc., Tecnadyne Scientific
Incorporated, and Tecnol New Jersey Wound Care, Inc.,
modifying and extending the Third Amended and Restated
Loan Agreement
10(c) North Richland Hills Industrial Development
Corporation Loan Agreement, Promissory Note,
Reimbursement Agreement, Pledge Agreement, Deed of
Trust, Remarketing Agreement, and Assumption Agreement
* 10(c)(1) Amendment to Loan Agreement dated November 24, 1992,
between North Richland Hills Industrial Development
Corporation and Tecnol
* 10(c)(2) Guaranty Agreement dated December 1, 1992, by the
Previous Subsidiaries in favor of NationsBank of North
Carolina, N.A.
* 10(c)(3) Consent, Waiver, and Assumption Agreement dated
December 1, 1992, among Tecnol, the Previous
Subsidiaries, and NationsBank of North Carolina, N.A.
</TABLE>
E-3
<PAGE> 49
<TABLE>
<S> <C> <C>
* 10(c)(4) Consent and Assumption Agreement dated December 2,
1992, among Tecnol, the Previous Subsidiaries, and
Security Pacific National Trust Company (New York)
+ 10(c)(5) Guaranty Agreements dated February 11, 1994, of Anago,
IMC, and La Ada de Acuna, S.A., in favor of NationsBank
of North Carolina, N.A.
++ 10(c)(6) Consent Agreement dated June 30, 1994, by and among
Tecnol, Tecnol Inc., TCNL Technologies, Inc., Tecnol
International (V.I.), Inc., La Ada de Acuna, S.A., and
NationsBank of North Carolina, N.A.
10(d) Tecnol, Inc. 1982 Incentive Stock Option Plan, as
amended
10(e) Form of Incentive Stock Option Agreement
** 10(f) Management Bonus Program
+++ 10(g) Amended and Restated Employee Stock Ownership Plan
("ESOP")
## 10(g)(1) Amendment to ESOP dated November 25, 1996
** 10(i) Vance M. Hubbard Employment Contract dated December 1,
1989
**++ 10(i)(1) Amendment and Extension of Employment Agreement of
Vance M. Hubbard
**## 10(j) Agreement dated September 1, 1996, between Jack G.
Johnson and Tecnol
**## 10(k) Jeffrey A. Nick Incentive Stock Option, Trade Secret,
Invention and Non-Competition Agreement dated November
20, 1995
** 10(n) Kirk Brunson nonstatutory Stock Option Agreement dated
September 18, 1991, and schedule of substantially
similar agreements
**+++ 10(o) David Radunsky Incentive Stock Option, Trade Secret,
Invention and Non-competition Agreement dated September
21, 1991, and schedule of substantially similar
agreements
## 10(o)(1) Form of Incentive Stock Option, Trade Secret, Invention
and Non-Competition Agreement
** 10(p) Jack G. Johnson Director's Stock Option Agreement dated
September 21, 1991, and schedule of substantially
similar agreements
## 11 Computation of Earnings Per Share
## 21 Subsidiaries
## 23 Consent of Arthur Andersen LLP
## 27 Financial Data Schedule
</TABLE>
* Incorporated by reference to the exhibit with the same exhibit number
designation in Tecnol's Annual Report on Form 10-K for the fiscal year
ended November 27, 1992, filed with the Securities and Exchange
Commission.
** Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K. Unless
otherwise additionally noted, incorporated by reference to the exhibit
with the same exhibit number designation in Tecnol's Registration
Statement on Form S-1, No. 33-41583, filed with the Securities and
Exchange Commission.
*** Incorporated by reference to the exhibit with the same exhibit number
designation in Tecnol's Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 30, 1993.
E-4
<PAGE> 50
+ Incorporated by reference to the exhibit with the same exhibit number
designation in Tecnol's Annual Report on Form 10-K for the fiscal year
ended December 3, 1993, filed with the Securities and Exchange
Commission.
++ Incorporated by reference to the exhibit with the same exhibit number
designation in Tecnol's Annual Report on Form 10-K for the fiscal year
ended December 2, 1994, filed with the Securities and Exchange
Commission.
+++ Incorporated by reference to the exhibit with the same exhibit number
designation in Tecnol's Annual Report on Form 10-K for the fiscal year
ended December 2, 1995, filed with the Securities and Exchange
Commission.
# Incorporated by reference to the exhibit with the same exhibit number
designation in Tecnol's Quarterly Report on Form 10-Q for the quarterly
period ended March 2, 1996, filed with the Securities and Exchange
Commission.
## Filed herewith.
E-5
<PAGE> 1
EXHIBIT 10(A)(1)
Resolutions passed at the Meeting of the Board of Directors of Tecnol Medical
Products, Inc.
February 25, 1993
RESOLVED, that paragraph 17 of the 1991 Tecnol Stock Option Plan (the
"Plan") be and it hereby is amended to read as follows:
17. Written Agreement. Each Option granted under this
Plan will be embodied in a written agreement that will be subject to
the terms and conditions prescribed above, and will be signed by the
Optionee and by the President or any Vice President of the Company
for, in the name of, and on behalf of the Company. If the agreement
is entered into before February 25, 1993, or if the agreement is
between the Company and an officer, director or holder of 10% or more
of any class of equity securities of the Company within the meaning of
Section 16 of the Securities Exchange Act of 1934, as amended, then
the Agreement will prohibit the transfer of Common Stock issued upon
exercise of an Option for two (2) years after the date on which the
Option is exercised (excluding transfers to the Company, members of
the Optionee's immediate family, or trusts for the benefit of the
Optionee or members of the Optionee's immediate family, provided that
the Common Stock transferred in either of the latter two cases will
remain subject to the remainder of the two year prohibition on
transfer) and such other provisions as the Committee in its discretion
deems advisable.
<PAGE> 1
EXHIBIT 10(A)(2)
AMENDMENT TO 1991 TECNOL STOCK OPTION PLAN
This Amendment to the 1991 Tecnol Stock Option Plan (the "Plan") is
hereby entered into by Tecnol Medical Products, Inc. (the "Company"), and by
adoption of this amendment, it is hereby ratified and confirmed that the
following facts are true and correct.
W I T N E S S E T H:
A. Tecnol, Inc., a Texas corporation, entered into the Plan
effective as of June 27, 1991. The Plan authorized the granting of options for
up to two hundred thousand (200,000) shares of the common stock of Tecnol,
Inc., provided that the aggregate number of shares would be subject to
adjustment in the event of changes in the capital structure of Tecnol, Inc.
B. On July 1, 1991, Tecnol, Inc. was merged into the Company.
The terms of the merger provided that each share of common stock of Tecnol,
Inc. would be converted into five shares of common stock of the Company. The
terms of the merger, along with the provisions of Paragraph 14 of the Plan
regarding the effect of a merger on the number of shares for which options
could be granted under the Plan, resulted in an increase in the number of
shares for which options could be granted under the Plan to one million
(1,000,000). As of July 2, 1991, the stockholders of the Company adopted the
Plan, and the Board of Directors of the Company succeeded to the rights of the
Board of Directors of Tecnol, Inc. under the Plan.
C. On February 3, 1993, the Board of Directors of the Company
announced a three-for-two stock dividend on the shares of the common stock of
the Company. One effect of the stock dividend was to increase the number of
shares for which options could be granted under the Plan to one million five
hundred thousand (1,500,000).
D. Pursuant to Paragraph 16 of the Plan, the Board of Directors
of the Company retained the right, subject to the approval of the Company
stockholders, to modify or revise the Plan.
E. The Board of Directors of the Company desires to amend the
Plan as set forth herein.
NOW THEREFORE, the 1991 Tecnol Stock Option Plan is hereby amended as
follows:
1. The second sentence of Paragraph 3 of the Plan shall
be amended to read in its entirety as follows:
"The total amount of Common Stock for which Options may be granted
under this Plan may not exceed in the aggregate two million (2,000,000)
shares."
2. Paragraph 18 of the Plan shall be amended to read in its
entirety as follows:
"Paragraph 18. Effective Date of Plan. The Plan was originally
adopted on June 27, 1991, and is amended effective October 12, 1995, the date
of the adoption of this amendment by the Company's Board of Directors, subject
to the approval of the stockholders of the Company of this
<PAGE> 2
amendment on or before October 11, 1996. Such approval is a condition
subsequent to the approval of this amendment by the Board of Directors which,
if not satisfied, will result in this amendment being of no force or effect.
No Option will be granted pursuant to the Plan after October 11, 2005."
Except as modified herein, the Plan shall continue as adopted.
TECNOL MEDICAL PRODUCTS, INC.
By: /s/David Radunsky
---------------------------------
Its: Chief Operating Officer
---------------------------------
<PAGE> 1
EXHIBIT 10(a)(3)
AMENDMENT TO THE 1991
TECNOL STOCK OPTION PLAN
ADOPTED JUNE 20, 1996
The Company's Board of Directors approved an amendment to the 1991
Tecnol Stock Option Plan (the "Plan") at its meeting held on June 20, 1996.
The effect of the Amendment was to amend and restate Section 14 of the Plan to
read as follows:
14. Changes in the Company's Capital Structure.
A. The existence of outstanding Options will not affect in any way the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations, or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights of the Common Stock,
or the dissolution or liquidation of the Company, or any sale or transfer of
all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
If the Company effects a subdivision or consolidation of shares or other
capital readjustment, pays a stock dividend, or otherwise increases or reduces
the number of shares of Common Stock outstanding, without receiving
compensation therefor in money, services, or property, then (a) if the number
of such shares outstanding is increased, then the number of shares of Common
Stock then subject to Options under this Plan will be proportionately
increased, and the Option price per share will be proportionately reduced; (b)
if the number of such shares outstanding is reduced, then the number of shares
of Common Stock then subject to Options under this Plan will be proportionately
reduced, and the option price per share will be proportionately increased; and
(c) the number of shares then available for Options under this Plan will be
proportionately increased or decreased.
Except as herein expressly provided, the Company's issuance of shares of
stock of any class, or securities convertible into shares of stock of any
class, for cash, property, labor, or services, either upon direct sale, upon
the exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, will not affect, and no adjustment by reason thereof will be made
with respect to, the number or price of shares of Common Stock then subject to
outstanding Options.
B. If, while unexercised Options remain outstanding under the Plan, the
Company is merged or consolidated with another corporation or entity (whether
or not the Company is the surviving corporation or entity) or if the Company
sells or otherwise disposes of substantially all of its assets to another
business entity or if the Company liquidates or dissolves, then subject to the
provisions of clauses (i) and (ii) below and subject to any required action by
stockholders, after the effective date of such merger, consolidation,
liquidation, dissolution, or sale, as the case may be, each holder of an
outstanding Option will be entitled, upon exercise of such Option, at no
additional cost, to receive, in lieu of the number of shares for which such
Option would otherwise then be exercisable, the number and class of shares of
stock or other
<PAGE> 2
securities (or cash or other property) to which such holder would have been
entitled pursuant to the terms of such merger, liquidation, dissolution,
consolidation or sale if, immediately prior to such merger, liquidation,
dissolution, consolidation or sale, the holder had been the record holder of a
number of shares of Common Stock equal to the number of shares for which such
Option is exercised.
Under the conditions set forth herein, the board of directors may, but
is not obligated to, cancel Options outstanding as of the effective date of any
such merger, consolidation, dissolution, liquidation, or sale. If the Company
is the surviving corporation or entity as of the effective date of such a
merger or consolidation, the board of directors may, but is not obligated to,
cancel all Options granted after June 20, 1996, and outstanding as of the
effective date of such merger or consolidation; if the Company is not the
surviving corporation or entity, or in the event of a liquidation, dissolution
or sale, the board of directors may, but is not obligated to, cancel all
Options outstanding as of the effective date of such merger, consolidation,
liquidation, dissolution, or sale, provided that
(x) notice of such cancellation is given to each holder of such an
Option; and
(y) each holder of such an Option has the right to exercise such Option
to the "Applicable Extent", during a 30- day period preceding the effective
date of such merger, liquidation, dissolution, consolidation, or sale, or, if
notice has been given pursuant to clause (ii) below, during the 30-day period
beginning on the date such notice is given. If the Option in question was
granted on or before June 20, 1996, then the "Applicable Extent" is the full
extent to which such Option is exercisable, without regard to any limitations
set forth in or imposed pursuant to Paragraph 7 of this Plan. In all other
cases, the "Applicable Extent" is the extent to which an Option is otherwise
exercisable and vested by its terms as of the date notice of cancellation of
such Option is given to the holder thereof, after giving effect to any action
of the board of directors pursuant to clauses (i) or (ii) below.
In the event of such a merger or consolidation (whether or not the
Company is the surviving corporation or entity), or a liquidation, dissolution,
or sale, and regardless of whether options outstanding under this Plan are
subject to cancellation pursuant to the terms of the preceding paragraph, the
board of directors may, but is not obligated to:
(i) waive any limitations set forth in or imposed pursuant to Paragraph
7 of this Plan so that all Options, from and after a date prior to the
effective date of the merger, consolidation, liquidation, dissolution, or sale,
as the case may be, specified by the board of directors, will be exercisable in
full; or
(ii) restrict the number of shares of Common Stock (or, if applicable,
other shares of stock, securities, cash or property) issuable upon exercise of
each Option granted after June 20, 1996, and outstanding immediately prior to
the effective time of such merger, consolidation, liquidation, dissolution, or
sale, to the number of shares of Common Stock (or, if applicable, other shares
of stock, securities, cash or property) for which each such Option is
exercisable immediately prior to such effective time, giving full effect to the
limitations set forth in or imposed pursuant to Paragraph 7 of this Plan,
provided that the board of directors acts to impose such restriction prior to
the effective time of such merger, liquidation, dissolution, consolidation or
sale and gives notice of such restriction to each holder of such an Option not
later than ten (10) days after the effective date of such merger,
consolidation, liquidation, dissolution, or sale.
<PAGE> 1
EXHIBIT 10(B)(15)
68003/90066
PROMISSORY NOTE
(REVOLVING LINE OF CREDIT)
$10,000,000.00 Dallas, Texas March 13, 1996
FOR VALUE RECEIVED, TECNOL MEDICAL PRODUCTS, INC., a Delaware
corporation (herein called "Borrower") hereby promises to pay to the order of
NATIONSBANK OF TEXAS, N.A., a national banking association ("Bank") at its
banking house in the City of Dallas, Dallas County, Texas, the principal sum of
TEN MILLION DOLLARS ($10,000,000.00), or for much thereof as may be advanced,
together with interest on the unpaid principal balance of this Note from day to
day outstanding, as hereinafter provided.
1. Definitions. When used in this Note, the following terms
shall have the following meanings:
"Business Days" means any day other than a Saturday, Sunday or other
day on which commercial banks are open for business in Dallas, Texas.
"CD Interest Period" means, with respect to any CD Rate Election:
(a) initially, the period commencing on the date
such CD Rate Election is made and ending thirty, ninety, one
hundred eighty or three hundred sixty days thereafter as
selected by Borrower, and
(b) thereafter, each period commencing on the day
following the last day of the next preceding CD Interest
Period applicable to such CD Rate Election and in each case
ending thirty, ninety, one hundred eighty, or three hundred
sixty days thereafter, as selected by Borrower;
provided, however, that (i) if any CD Interest Period would end on a
day that is not a Business Day, such CD Interest Period shall be
extended to the next succeeding Business Day, and (ii) if any CD
Interest Period would otherwise end after the Maturity Date, such CD
Interest Period shall end on the Maturity Date.
"CD Margin" means one and one-half percent (1 1/2%) per annum.
"CD Quoted Rate" means, with respect to any CD Interest Period, the
rate of interest per annum determined by Bank (in accordance with its
customary practices) to be the rate per annum offered to Bank at
approximately 9:00 a.m. (Dallas, Texas time) on the first day of such
CD Interest Period for the purchase at face value of a domestic
certificate of
<PAGE> 2
deposit from Bank in an amount equal or comparable to the principal
amount of the corresponding CD Rate Election as of such first day and
for a period of time equal or comparable to the length of such CD
Interest Period.
"CD Rate" means, for each CD Rate Election, the rate per annum
(rounded upward if necessary, to the nearest 1/10 of 1%) determined by
Bank to be equal to the sum of (i) the quotient of (a) the CD Quoted
Rate for such CD Rate Election for such CD Interest Period divided by
(b) 1 minus the CD Reserve Requirement; plus (2) the FDIC Percentage;
plus (3) the CD Margin, all as per the following formula:
CD Quoted Rate + FDIC + CD
------------------------------
1 - CD Reserve Requirement Percentage Margin
"CD Reserve Requirement" means, for any CD Rate Election, for any CD
Interest Period therefor, the daily average of the stated maximum rate
(expressed as a decimal) at which reserves (including any marginal,
supplemental, or emergency reserves) are required to be maintained
during such CD Interest Period under Regulation D by member banks of
the Federal Reserve System in Dallas with deposits exceeding
$1,000,000,000 against new non-personal dollar time deposits in the
amount of $100,000 or more and with a maturity comparable to the CD
Interest Period for such CD Rate Election. Without limiting the
effect of the foregoing, the CD Reserve Requirement shall reflect any
other reserves required to be maintained by Bank against (a) any
category of liabilities that includes deposits by reference to which
the CD Rate for CD Rate Elections is to be determined, or (b) any
category of extension of credit or other assets that include CD Rate
Elections.
"CD Rate Election" means an election by Borrower, as hereinafter
provided, to cause a portion of the Loan to be segregated into a
separate account and to bear interest at the CD Rate rather than the
Stated Rate for the term of the Election.
"Default Rate" means, on any day, a rate per annum equal to the Stated
Rate plus five percent (5%) per annum computed using the 365/360
method described below.
"Election" means a CD Rate Election or a Libor Rate Election.
"Event of Default" means (a) any principal, interest or other amount
of money due under this Note is not paid in full when due, regardless
of how much amount may have become due and such failure continues
beyond any notice and grace period set forth in Section 7.1 of the
Loan Agreement; or (b) the occurrence of any Event of Default under
the Loan Agreement; or (c) the occurrence of any default or event of
default under Bank's $5,000,000.00 loan to Anago Incorporated and
assumed by Tecnol, Inc. pursuant to a Consent and Assumption Agreement
dated June 30, 1994 as amended and restated by an Amended and Restated
Promissory Note dated July 1, 1994 in the stated principal amount
-2-
<PAGE> 3
of $4,500,000 or any documents evidencing, governing, securing,
guaranteeing or otherwise pertaining to such loan.
"FDIC Percentage" means the net assessment rate (expressed as a
percentage rounded to the next highest .01 of 1%) that is in effect on
any day (under the regulations of the Federal Deposit Insurance
Corporation or any successor agency) for determining assessments paid
by Bank to the Federal Deposit Insurance Corporation (or any successor
agency) for insuring time deposits made in dollars at Bank's principal
offices in Dallas, Texas.
"Libor Lending Office" means the office designated by Bank as its
"Libor Lending Office" or such other office of Bank or any of its
affiliates hereafter designated by notice to Borrower.
"Libor Margin" means one and one-half percent (1 1/2%) per annum.
"Libor Rate" means a simple per annum interest rate equal to the sum
of the Libor Rate Basis plus the Libor Margin. The Libor Rate shall,
with respect to Libor Advances subject to reserve or deposit
requirements imposed by any governmental or regulatory authority, be
subject to premiums assessed therefor by Bank, which are payable
directly to Bank. Once determined, the Libor Rate shall remain
unchanged during the applicable Libor Rate Interest Period.
"Libor Rate Basis" means, for any Libor Rate Interest Period, the
interest rate per annum (rounded upward to the nearest 1/16th of one
percent) determined by Bank at approximately 9:00 a.m., on the date
which is three Business Days before the first day of such Libor Rate
Interest Period to be the offered quotations that appear on the
Reuter's Screen LIBO page for dollar deposits in the London interbank
market for a length of time approximately equal to the Libor Rate
Interest Period for the Libor Rate Election sought by Borrower. If at
least two such offered quotations appear on the Reuter's Screen LIBO
page, the Libor Rate shall be the arithmetic mean (rounded upward to
the nearest 1/16th of one percent) of such offered quotations, as
determined by Bank. If the Reuter's Screen LIBO page is not available
or has been discontinued, the Libor Rate Basis shall be the rate per
annum that Bank determines to be the arithmetic mean (rounded as
aforesaid) of the per annum rates of interest at which deposits in
dollars in an amount approximately equal to the principal amount of,
and for a length of time approximately equal to the Libor Rate
Interest Period for, the Libor Rate Election sought by Borrower are
offered to Bank in immediately available funds in the London interbank
market at 11:00 a.m., London time, on the date which is three Business
Days prior to the first day of a Libor Rate Interest Period.
-3-
<PAGE> 4
"Libor Rate Election" means an election by Borrower, as hereinafter
provided, to cause a portion of the previously advanced proceeds of
the Loan to be segregated into a separate account and bear interest at
the Libor Rate, rather than the Stated Rate for the term of the
Election.
"Libor Rate Interest Period" means, with respect to any Libor Rate
Election, the period commencing on the date such Libor Rate Election
is effective and ending not less than one month, three months, six
months, or twelve months thereafter, as selected by Borrower;
provided, however, that (i) if any Libor Rate Interest Period would
end on a day that is not a Business Day, such Libor Interest Rate
Period shall be extended to the next succeeding Business Day, and (ii)
if any Libor Rate Interest Period would otherwise end after the
Maturity Date, such Libor Interest Rate Period shall end on the
Maturity Date.
"Loan" means the loan evidenced by this Note.
"Loan Agreement" means that certain Third Amended and Restated Loan
Agreement dated as of November 15, 1993 among Bank and Borrower
governing, among other things, disbursements of proceeds of the Loan
and certain other loans from Bank to Borrower, as it may have been or
may be amended, restated, modified or supplemented from time to time,
including, but not limited to, the Modification Agreement dated as of
July 1, 1994, the Modification Agreement dated March 15, 1995, the
Second 1995 Modification Agreement dated May 8, 1995, the Third 1995
Modification Agreement dated as of December 5, 1996, and the First
1996 Modification Agreement dated of even date herewith.
"Loan Documents" has the same meaning in this Note as is given to such
term in the Loan Agreement.
"Matching Funds Election" means a CD Rate Election or a Libor Rate
Election.
"Matching Funds Principal" means the portion of the proceeds of the
Loan previously advanced to Borrower which is segregated into a
separate account pursuant to an effective Matching Funds Election.
"Maximum Rate" means the maximum nonusurious rate of interest per
annum permitted by whichever of applicable United States federal law
or Texas law permits the higher interest rate, including to the extent
permitted by applicable law, any amendments thereof hereafter or any
new law hereafter coming into effect to the extent a higher Maximum
Rate is permitted thereby. To the extent, if any, that Chapter One
("Chapter One") of Title 79, Texas Revised Civil Statutes, 1925, as
amended (the "Texas Credit Code") establishes the Maximum Rate, the
Maximum Rate shall be the "indicated rate ceiling" (as defined in
Chapter One) in effect from time to time. The Maximum Rate shall be
applied by taking
-4-
<PAGE> 5
into account all amounts characterized by applicable law as interest
on the debt evidenced by this Note, so that the aggregate of all
interest does not exceed the maximum nonusurious amount permitted by
applicable law.
"Prime Rate" means, on any day, the rate of interest per annum then
most recently established by Bank as its "prime rate." Such rate is
set by Bank as a general reference rate of interest, taking into
account such factors as Bank may deem appropriate, it being understood
that it is not necessarily the lowest or best rate actually charged to
any customer or a favored rate, that it may not correspond with future
increases or decreases in interest rates charged by other lenders or
market rates in general and that Bank may make various business or
other loans at rates of interest having no relationship to such rate.
"Prior Note" means the Promissory Note (Revolving Line of Credit)
dated May 8, 1995 executed by Borrower, payable to the order of Bank
and in the stated principal amount of $10,000,000.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as amended or supplemented from time to time.
"Stated Rate" means, on any day, a variable rate per annum equal to
the Prime Rate for that day computed using the 365/360 method
described below provided, that if on any day the Stated Rate shall
exceed the maximum permitted by application of the Maximum Rate in
effect on that day, the Stated Rate shall be fixed at the maximum
permitted by application of the Maximum Rate on that day and on each
day thereafter until the total amount of interest accrued at the
Stated Rate on the unpaid balance of this Note equals the total amount
of interest which would have accrued if there were no limitation by
the Maximum Rate and the Stated Rate had not been so fixed, or until
the earlier payment in full of this Note.
"Stated Rate Loans" means, that portion of the principal balance this
Note bearing interest at the Stated Rate prior to an Event of Default
or maturity.
2. Maturity Date. The entire principal balance of this Note then
unpaid together with all accrued and unpaid interest hereon shall be due and
payable on March 12, 1997 (the "Maturity Date").
3. Advances. This Note is a revolving promissory note evidencing
a revolving line of credit, not to exceed $10,000,000.00 at any one time
outstanding. While the aggregate of all advances under this Note may exceed
$10,000,000.00, the outstanding balance of this Note at any one time shall not
exceed $10,000,000.00. Before the Maturity Date, Borrower may borrow, repay
and borrow principal amounts again up to $10,000,00.00, subject to the terms of
this Note
-5-
<PAGE> 6
and Loan Agreement. Advances shall be made in accordance with the terms of the
Loan Agreement.
4. Interest Rate(s). As hereinafter provided, prior to default
or maturity, the principal balance of this Note may be segregated into separate
accounts and shall bear interest as follows:
(a) So much of the principal balance of this Note as is
not from time to time subject to an effective Election shall
constitute one account (the "Stated Rate Account") and shall bear
interest prior to the occurrence of an Event of Default or maturity at
the lesser of: (a) the Maximum Rate, or (b) the Stated Rate.
(b) Each portion of the principal balance hereof which
may from time to time be subject to an effective CD Rate Election
shall constitute a separate account (the "CD Funds Account") and shall
bear interest prior to the occurrence of an Event of Default or
maturity at the lesser of: (a) the Maximum Rate, or (b) the CD Rate
applicable to such Election.
(c) Each portion of the principal balance hereof, which
may from time to time be subject to an effective Libor Rate Election
shall constitute a separate account (the "Libor Rate Account") and
shall bear interest prior to an Event of Default or maturity at the
lesser of: (a) the Maximum Rate, or (b) the Libor Rate applicable to
such Election.
5. Past Due Interest. After the earlier of an Event of Default
on the Maturity Date, the entire unpaid principal balance of and to the extent
permitted by applicable law any interest on, this Note shall bear interest at a
varying rate per annum equal to the lesser of (a) the Maximum Rate, or (b) the
Default Rate.
6. 365/360 Method; Rate Fluctuations. Subject always to
limitation by the Maximum Rate, interest on this Note at the Stated Rate and
the Default Rate shall be calculated on the basis of the 365/360 method, which
computes a daily amount of interest for a hypothetical year of 360 days, then
multiplies such amount by the actual number of days elapsed in an interest
calculation period. Without notice to Borrower or anyone else, the Prime Rate
and the Maximum Rate shall each automatically fluctuate upward and downward as
and in the amount by which Bank's prime rate and such maximum nonusurious rate
of interest permitted by applicable law, respectively, fluctuate, subject
always to limitation of the Stated Rate and the Default Rate by the Maximum
Rate.
7. Interest Periods. The term "Interest Period" as used in this
Note means the time from and including the first (1st) day of each calendar
month (each such date being called a "Payment Date") through the end of the day
before the next occurring Payment Date, except that (a) the first Interest
Period is the period from and including the day the first proceeds of this Note
-6-
<PAGE> 7
are disbursed through the end of the day before the first occurring Payment
Date and (b) the last Interest Period is the period from and including the day
after the end of the next-to-last Interest Period through the end of the day
before the maturity of this Note (whether resulting from demand for payment,
the passage of time, acceleration for default, or any permitted prepayment).
The interest accruing prior to the occurrence of an Event of Default or
maturity on the Stated Rate Account shall be calculated by first determining
the amount of interest on the unpaid principal balance of the Stated Rate
Account from time to time outstanding at the Stated Rate in effect from time to
time from the date hereof through the end of each Interest Period (or, if the
Note has matured, through the end of the day before maturity), then deducting
any interest previously paid on the Stated Rate Account to determine the amount
of interest then payable; provided, however, that the total interest payable on
the Stated Rate Account through the end of each Interest Period and at maturity
shall not exceed the maximum amount of interest that may be lawfully charged on
the Stated Rate Account from the date hereof through such date. The interest
accruing prior to the occurrence of an Event of Default or maturity on the
principal balance of each Matching Funds Account shall be calculated by
determining the amount of interest on the unpaid principal balance of such
Matching Funds Account from time to time outstanding at the Matching Funds Rate
applicable to such Matching Funds Account in effect from time to time (which
Matching Funds Rate shall never exceed the maximum lawful rate applicable
thereto), and such interest shall be payable at the times and in the manner as
herein provided for the Stated Rate Account.
8. Interest Payments. Interest for each Interest Period during
the term of this Note shall be calculated as of the end of such Interest Period
and, except as hereinafter expressly provided to the contrary, shall be payable
on or before the first day of the following Interest Period and, in the case of
the last Interest Period, at maturity. Whenever any payment shall be due under
this Note on a day which is not a Business Day, the date on which such payment
is due shall be extended to the next succeeding Business Day, and such
extension of time shall be included in the computation of the amount of
interest then payable. All principal, interest and other sums payable under
this Note shall be paid, not later than 2:00 o'clock p.m. (Dallas, Texas time)
on the day when due, in immediately available funds in lawful money of the
United States of America. Any payment under this Note or under any other Loan
Document other than in the required amount in good, unrestricted U.S. funds
immediately available to the holder hereof shall not, regardless of any receipt
or credit issued therefor, constitute payment until the required amount is
actually received by the holder hereof in such funds and shall be made and
accepted subject to the condition that any check or draft may be handled for
collection in accordance with the practice of the collecting bank or banks.
9. Application of Payments. All payments made as scheduled on
this Note shall be applied, to the extent thereof, first to accrued but unpaid
interest and the balance to unpaid principal. All prepayments on this Note
made prior to an Event of Default shall be applied, to the extent thereof,
first to accrued but unpaid interest and the balance to the remaining principal
installments in inverse order of their maturity. Nothing herein shall limit or
impair any rights of the holder hereof to apply any past due payments, any
proceeds from the disposition of any
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<PAGE> 8
collateral by foreclosure or other collections after an Event of Default to the
amounts owing hereunder in such manner as Bank shall elect. Except to the
extent specific provisions are set forth in this Note or another Loan Document
with respect to application of payments, all payments received by the holder
hereof shall be applied in such order and manner as the holder hereof shall
deem appropriate, any instructions from Borrower or anyone else to the contrary
notwithstanding.
10. Matching Funds Election. From time to time during the term of
the Loan, so long as no Event of Default has occurred and is continuing,
Borrower may elect to cause a portion or portions of the Loan proceeds
previously disbursed to Borrower, which portions must be at least $500,000.00
each, to bear interest at the CD Rate or the Libor Rate, as applicable, rather
than the Stated Rate; provided, however, that Borrower may not exercise a
Matching Funds Election at any time when the applicable Matching Funds Rate
would exceed the maximum lawful rate of interest applicable to the Loan. Upon
the effective date of each Election, the portion of the Loan proceeds as to
which the Election is exercised shall be segregated into a separate account
(the CD Funds Account or the Libor Rate, as the case may be) and shall bear
interest prior to the occurrence of an Event of Default or maturity from the
effective date of the Election to the end of the term CD Interest Period or
Libor Rate Interest Period, as applicable, at the CD Rate or the Libor Rate, as
applicable, in effect on the effective date of the Election; provided that CD
Rates shall be adjusted from time to time during the term of any CD Rate
Election to account for any fluctuations in the CD Reserve Requirement,
insurance, fees, assessments and surcharges, and the Libor Rate, as applicable,
shall be adjusted from time to time during the term of any Libor Rate Election,
as applicable, to account for fluctuations in reserve percentages, insurance,
fees, assessments and surcharges.
11. Exercise of Elections. Borrower shall inform Bank when
Borrower wishes to exercise a Matching Funds Election, specifying a CD Rate
Election or a Libor Rate Election is requested, and Bank shall advise Borrower
of the Matching Funds Rate applicable to such Election and the periods for
which Borrower may exercise such Election. To exercise a CD Rate Election,
Borrower shall advise Bank of (a) the amount of the Matching Funds Principal as
to which Borrower wishes to exercise such CD Rate Election, and (b) the desired
term of such CD Rate Interest Period. A CD Rate Election shall become effective
three (3) Business Days following the date of Borrower's advising Bank of the
particular terms of the CD Rate Election. To exercise a Libor Rate Election,
Borrower shall advise Bank of (a) the amount of the Matching Funds Principal as
to which Borrower wishes to exercise such a Libor Rate Election, and (b) the
desired term of such Libor Rate Interest Period. A Libor Rate Election shall
be effective three (3) Business Days following the date of Borrower's advising
Bank of the particular terms of the Libor Rate Election. On or before the
effective date of each Election, Borrower shall execute and deliver to Bank a
written confirmation of (a) the amount of the Matching Funds Principal subject
to the Election, (b) the term of the Election, and (c) the initial Matching
Funds Rate applicable to such Election.
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<PAGE> 9
12. Extension of Elections. Borrower may not extend a Matching
Funds Election beyond the original term thereof at the Matching Funds Rate
applicable during the original term. However, at the end of the term of a
Matching Funds Election, Borrower may make an additional Matching Funds
Election to cause the Matching Funds Principal subject to the expired Election
to bear interest at the Matching Funds Rate applicable on the day after the
expiration of the prior Election for the term of the new Election by so
advising Bank three (3) Business Days before the expiration of a CD Rate
Election or Libor Rate Election, as applicable, and Bank shall advise Borrower
of the Matching Funds Rate available to Borrower for such new Election, and
Borrower shall give to Bank a written confirmation by the effective date of the
new Election in the manner specified in the preceding paragraph, accompanied by
the payment of any additional fee required by this Note. Otherwise, upon the
expiration of the prior Election, the Matching Funds Principal subject to the
expired Election shall be returned to the same account as the Loan proceeds
which bear interest at the Stated Rate and shall again bear interest prior to
the occurrence of an Event of Default or maturity at the Stated Rate.
13. Change of Law; Impracticability of Election. Notwithstanding
any other provision of this Note, if: (a) any change in applicable law, rule or
regulation or in the interpretation or administration thereof shall make it
unlawful for Bank to issue certificates of deposit or impair or restrict Bank's
ability to do so for terms and at rates which would permit Bank to respond to a
Matching Funds Election by obtaining funds at the CD Rate, or the Libor Rate,
as applicable, or (b) deposits in funds in the applicable amounts against which
Bank is to match Matching Funds Principal in connection with an Election are
not being offered generally to Bank in the relevant market for the applicable
period, or (c) the CD Rate or the Libor Rate, as applicable, will not
accurately and fairly reflect the cost to Bank of funding a CD Rate Election or
Libor Rate Election, as applicable, then, in the case of (a),(b) or (c) above,
any of the foregoing instances, Borrower's right to make any further Matching
Funds Elections or to continue any Matching Funds Election then in force shall
be suspended for the duration of such illegality or impairment or restriction.
If Bank makes such determination, it shall promptly notify Borrower in writing,
and Borrower shall either repay the outstanding Matching Funds Election owed to
Bank, without penalty, within thirty (30) days or convert the same to Stated
Rate Loans within thirty (30) days. So long as Bank has given Borrower the
notice required by the preceding sentence, Borrower shall indemnify and hold
harmless Bank against all costs, claims, penalties, liabilities and damages
which may result from any such change in law, rule, regulation, interpretation
or administration.
14. Limitation on Matching Funds Interest. It is expressly
understood that all provisions of this Note, including but not limited to the
provisions regarding the charging of interest at a Matching Funds Rate for the
term of a Matching Funds Election, are subject to the provisions hereof
limiting the amount of interest contracted for, charged, or collected hereunder
to the maximum amount permitted under applicable law.
15. Prepayment. Except as otherwise specifically provided in
this Note, Borrower shall have the right to prepay the outstanding principal
balance of this Note, in full at any time
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<PAGE> 10
or in part from time to time without premium or penalty, provided, that as
conditions precedent to Borrower's right to make, and Bank's obligations to
accept, any such prepayment for any portion of the principal balance of this
Note subject to a Matching Funds Election: (i) Bank shall have actually
received from Borrower at least five (5) business days' prior written notice of
Borrower's intent to prepay, of the amount of principal which will be prepaid
(the "Prepaid Principal") and of the date (the "Prepayment Date") on which the
prepayment will be made; (ii) each prepayment of principal shall be in the
amount of $50,000 or a larger multiple of $1,000.00 (unless the prepayment
retires the outstanding balance of this Note in full); (iii) each such
prepayment shall be in the amount of 100% of the principal amount to be
prepaid, plus accrued unpaid interest thereon to the Prepayment Date, plus any
other sums which have become due to Bank under the Loan Documents on or before
the Prepayment Date but have not been paid; and (iv) plus if any portion of
this Note subject to a Matching Funds Election is prepaid, the Make-Whole
Amount (hereinafter defined) if the Treasury Rate (hereinafter defined) plus
the Closing Spread (hereinafter defined) is less than per annum interest rate
of the Matching Fund Principal being prepaid (the "Loan Interest Rate"), except
as provided in Section 2.4 of the Loan Agreements.
The "Make-Whole Amount" shall equal (i) the sum of the amounts
calculated by discounting the Remaining Scheduled Payments (hereinafter
defined) from their respective scheduled due dates to the Prepayment Date, in
accordance with accepted financial practice at a discount factor equal to the
Treasury Rate plus the Closing Spread, less (ii) the Prepaid Principal; but the
Make-Whole Amount shall in no event be less than zero and nothing herein shall
be construed or operate to require Borrower to pay a Make-Whole Amount except
in connection with Borrower's exercise of the right to prepay granted above or
to pay any amount greater than is permitted by applicable law.
If a Make-Whole Amount will be due, Bank shall notify Borrower of the
amount and basis of determination of the Make-Whole Amount.
For the purposes of determining the Make-Whole Amount, the following
terms shall have the following meanings:
The "Treasury Rate" is the yield on the Treasury Constant
Maturity Series with maturity equal to the remaining weighted
average life to maturity of the Remaining Scheduled Payments
which are principal payments (calculated as of the Prepayment
Date in accordance with accepted financial practice and
rounded to the nearest quarter-year), as reported in Federal
Reserve Statistical Release H.15 (519) - Selected Interest
Rates, in the "This Week" column of the issue which, as of the
fifth business day before the Prepayment Date, has been most
recently published. If no maturity exactly corresponding to
such remaining weighted average life to maturity appears in
Release H.15, the Treasury Rate will be determined by liner
interpolation between the yields reported in Release H.15. If
for any reason
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<PAGE> 11
Release H.15 is not longer published, Bank shall select a
comparable publication to determine the Treasury Rate.
The "Remaining Scheduled Payments" are (i) each scheduled
payment of principal of this Note which is, or to the extent
that it is, paid before its scheduled due date by application
of the Prepaid Principal [in inverse order of maturity of
installments of principal] in accordance with this Note; and
(ii) each scheduled payment of interest on the Prepaid
Principal that would be due in accordance with this Note after
the Prepayment Date if no payment of the Prepaid Principal
were made prior to its scheduled due date(s).
The "Closing Spread" is the difference between the Loan
Interest Rate and the Treasury Rate with such Treasury Rate
being calculated as of the date of this Note, as if the
principal face amount of this Note were the Prepaid Principal
and the date of this Note were the Prepayment Date.
Borrower agrees that Bank shall not be obligated actually to reinvest
the amount prepaid in any Treasury obligations as a condition to receiving the
Make-Whole Amount or otherwise. All prepayments of principal shall be applied
to principal in inverse order of maturity.
16. Reimbursement of Losses Arising from Deviations in Payment of
Matching Funds Elections. If Borrower makes any payment of principal with
respect to any CD Rate Election or Libor Rate Election on any day other than
the last day of an Election or if Borrower fails to convert any portion of the
Loan bearing interest at the Stated Rate to a CD Rate Election or Libor Rate
Election after notice has been given to Bank in accordance with the terms
hereof, Borrower shall reimburse Bank on demand for any resulting loss or
expense incurred by Bank (or by any existing or prospective participant in the
related CD Rate Election or Libor Rate Election), including, without
limitation, any loss incurred in obtaining, liquidating, or redeploying
deposits from third parties, but excluding loss of margin for the period after
any such payment or failure to borrow, provided that Bank shall have delivered
to Borrower a certificate as to the amount of such loss or expense and the
basis for determining such amount. Determinations by Bank of amounts due under
this Section 16 shall be conclusive, absent manifest error.
17. Reserve Requirements. In the event of any change in any
applicable law, treaty, or regulation or in the interpretation or
administration thereof or in the event any central bank or other fiscal
monetary or other authority having jurisdiction over Bank or the Loan
contemplated by this Note imposes, modifies, or deems applicable to any CD Rate
Elections or Libor Rate Elections any reserve requirement of the Board of
Governors of the Federal Reserve System or any other reserve, special deposit,
or similar requirements against assets of, deposits with or for the account of,
or credit extended by, Bank, or imposes on Bank any other condition affecting
this Note or the CD Rate Elections or Libor Rate Elections and the result of
any of the foregoing is to increase the cost to Bank in making or maintaining
its CD Rate Elections or Libor Rate
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<PAGE> 12
Elections or to reduce any amount (or the effective return on any amount)
received by Bank hereunder, then Borrower shall pay to Bank upon demand of Bank
as additional interest on this Promissory Note such additional amount or
amounts as Bank may determine as will reimburse Bank for such additional cost
or such reduction. Upon becoming aware of any such change or imposition that
may result in any such increase or reduction, Bank shall give written notice to
Borrower thereof together with certificate of Bank setting forth the amount
necessary to compensate Bank as aforesaid and the basis for the determination
of such amount and Borrower shall, within thirty (30) days, either (i) promptly
pay such amount, (ii) convert such Matching Funding Election to a Stated Rate
Loan, or (iii) prepay the Matching Funds Election without penalty.
Determinations made by Bank for purposes of this Section 17 of the effect of
any such change in its costs of making or maintaining its Matching Funds
Elections or on amounts receivable by it in respect or such Matching Funds
Elections and of the additional amounts required to compensate Bank in respect
thereof shall be conclusive, absent manifest error.
18. Taxes. If any taxes are levied or imposed on or with respect
to the CD Funds Account and/or the Libor Rate Account or on any payment on the
CD Funds Account and/ or the Libor Rate Account made to Bank, then, and in any
such event, Borrower shall pay to Bank upon demand of Bank such additional
amounts as Bank may determine to be necessary so that every net payment of
principal and interest on the CD Funds Account and/or the Libor Rate Account,
after withholding or deduction for or on account of any such taxes, will not be
less than any amount provided herein. In addition, if at any time when the
Matching Funds Elections are outstanding any laws are enacted or promulgated,
or any court of law or governmental agency interprets or administers any law,
which, in any such case, changes the basis of taxation of payments to Bank of
principal of or interest on the CD Funds Account and the Libor Rate Account by
subjecting such payments to double taxation or otherwise (except through an
increase in the rate of tax on the overall net income of Bank) then Borrower,
within thirty (30) days will either (i) pay Bank such amounts as Bank may
determine to be necessary to compensate Bank for any such increased costs
and/or losses resulting therefrom, (ii) convert the balance of any Matching
Funds Elections to Stated Rate Loans, or (iii) prepay any Matching Funds
Elections without penalty. Bank shall give notice to Borrower upon becoming
aware of the amount of any loss incurred by it through enactment or
promulgation of any such law that changes the basis of taxation of payments to
Bank or of any such enactment or promulgation that may result in such payments
becoming subject to double taxation or otherwise. Bank shall also deliver to
Borrower a certificate of Bank setting forth the basis for the determination of
such loss and the computation of such amounts. Determinations made by Bank for
purposes of this Section 18 of the effect of such taxes on its costs of making
or maintaining Matching Funds Elections or on amounts receivable by it in
respect of such Matching Funds Elections and of the additional amounts required
to compensate Bank in respect thereof shall be conclusive, absent manifest
error.
19. Illegality, Change in Laws, Etc. If at any time the adoption
of any new law, change in existing laws, or interpretation of any new or
existing laws shall make it unlawful or impossible for Bank
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<PAGE> 13
to (1) maintain its commitment to make it unlawful or impossible for Bank to
maintain its commitment to make Matching Funds Elections, then upon such notice
to Borrower of such fact Bank's commitment, to make Matching Funds Elections
shall terminate; or (2) maintain or fund its Matching Funds Elections
hereunder, then Bank shall promptly notify Borrower in writing and Borrower
shall, within thirty (30) days, either (i) repay the outstanding Matching Funds
Elections owed to Bank, without penalty (or immediately if Bank may not
lawfully continue to maintain and fund such Matching Funds Elections) or (ii)
convert such Matching Funds Elections time to bear interest at the Stated Rate.
20. Risk-Primed Capital Requirements. In the event that Bank
determines that (a) compliance with any judicial, administrative, or other
governmental interpretation of any law or regulation or (b) compliance by Bank
or any corporation controlling Bank with any guideline or request from any
central bank or other governmental authority (whether or not having the force
of law) has the effect of requiring an increase in the amount of capital
required or expected to be maintained by Bank or any corporation controlling
Bank, and Bank determines that such increase is based upon its obligations
hereunder, and other similar obligations, Borrower shall, within thirty (30)
days, (x) pay Bank such additional amount as shall be certified by Bank to be
the amount allocable to Bank's obligation to Borrower hereunder, or (y) prepay
this Note in full without penalty. Bank will notify Borrower of any event
occurring that will entitle Bank to compensation pursuant to this Section 20
after Bank obtains knowledge thereof and determines to request such
compensation. Determinations by Bank for purposes of this Section of the
effect of any increase in the amount of capital required to be maintained by
Bank and of the amounts allocable to Bank's obligations to Borrower hereunder
shall be conclusive, absent manifest error.
21. Loan Agreement. This Note has been issued pursuant to the
terms of the Loan Agreement, to which reference is made for all purposes.
Advances against this Note by Bank or other holder hereof shall be governed by
the Loan Agreement. Bank is entitled to the benefits of and security provided
for in the Loan Agreement. Terms used herein with initial capital letters and
not defined herein, if any, have the meanings given them in the Loan Agreement.
Any notice required or which any party desires to give under this Note shall be
given and effective as provided in the Loan Agreement. Chapter 15 of the Texas
Credit Code, as amended from time to time, does not apply to this Note.
22. Defaults. Any Event of Default under this Note shall
constitute an Event of Default under each of the Loan Documents, and any
default under any of the Loan Documents shall constitute an Event of Default
under this Note and under each of the Loan Documents. Upon the occurrence of
an Event of Default, the holder hereof shall have the right to declare the
unpaid principal balance and accrued but unpaid interest on this Note at once
due and payable (and upon such declaration, the same shall be at once due and
payable), and to exercise any of its other rights, powers and remedies under
this Note, under any other Loan Document, or at law or in equity.
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<PAGE> 14
23. No Waiver. Neither the failure by the holder hereof to
exercise, nor delay by the holder hereof in exercising, the right to accelerate
the maturity of this Note or any other right, power or remedy upon any default
shall be construed as a waiver of such default or as a waiver of the right to
exercise any such right, power or remedy at any time. No single or partial
exercise by the holder hereof of any right, power or remedy shall exhaust the
same or shall preclude any other or further exercise thereof, and every such
right, power or remedy may be exercised at any time and from time to time. All
rights and remedies provided for in this Note and in any other Loan Document
are cumulative of each other and of any and all other rights and remedies
existing at law or in equity, and the holder hereof shall, in addition to the
rights and remedies provided herein or in any other Loan Document, be entitled
to avail itself of all such other rights and remedies as may now or hereafter
exist at law or in equity for the collection of the indebtedness owing
hereunder, and the resort to any right or remedy provided for hereunder or
under any such other Loan Document or provided for by law or in equity shall
not prevent the concurrent or subsequent employment of any other appropriate
rights or remedies. Without limiting the generality of the foregoing
provisions, the acceptance by the holder hereof from time to time of any
payment under this Note which is past due or which is less than the payment in
full of all amounts due and payable at the time of such payment, shall not (a)
constitute a waiver of or impair or extinguish the rights of the holder hereof
to accelerate the maturity of this Note or to exercise any other right, power
or remedy at the time or at any subsequent time, or (b) constitute a waiver of
the requirement of punctual payment and performance, or a novation in any
respect.
24. Collection Costs; Attorneys' Fees. If any holder of this Note
retains an attorney in connection with any default or at maturity or to
collect, enforce or defend this Note or any other Loan Document in any lawsuit
or in any probate, reorganization, bankruptcy or other proceeding, or if
Borrower sues any holder in connection with this Note or any other Loan
Document and does not prevail, then Borrower agrees to pay to each such holder,
in addition to principal and interest, all reasonable costs and expenses
incurred by such holder in trying to collect this Note or in any such suit or
proceeding, including reasonable attorneys' fees.
25. Limitation on Interest. It is the intent of Bank and Borrower
and all other parties to the Loan Documents to conform to and contract in
strict compliance with applicable usury law from time to time in effect. All
agreements between Bank or any other holder hereof and Borrower (or any other
party liable with respect to any indebtedness under the Loan Documents) are
hereby limited by the provisions of this paragraph which shall override and
control all such agreements, whether now existing or hereafter arising and
whether written or oral. In no way, nor in any event or contingency (including
but not limited to prepayment, default, demand for payment, or acceleration of
the maturity of any obligation), shall the interest taken, reserved, contracted
for, charged or received under this Note or otherwise, exceed the maximum
nonusurious amount permissible under applicable law. If, from any possible
construction of any document, interest would otherwise be payable in excess of
the maximum nonusurious amount, any such construction shall be subject to the
provisions of this paragraph and such document shall be automatically reformed
and the interest payable shall be automatically reduced to the maximum
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<PAGE> 15
nonusurious amount permitted under applicable law, without the necessity of
execution of any amendment or new document. If the holder hereof shall ever
receive anything of value which is characterized as interest under applicable
law and which would apart from this provision be in excess of the maximum
nonusurious amount, an amount equal to the amount which would have been
excessive interest shall, without penalty, be applied to the reduction of the
principal amount owing on the indebtedness evidenced hereby in the inverse
order of its maturity and not to the payment of interest, or refunded to
Borrower or the other payor thereof if and to the extent such amount which
would have been excessive exceeds such unpaid principal. The right to
accelerate maturity of this Note or any other indebtedness does not include the
right to accelerate any interest which has not otherwise accrued on the date of
such acceleration, and the holder hereof does not intend to charge or receive
any unearned interest in the event of acceleration. All interest paid or
agreed to be paid to the holder hereof shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the
full stated term (including any renewal or extension and including the term of
the Prior Note of such indebtedness so that the amount of interest on account
of such indebtedness does not exceed the maximum nonusurious amount permitted
by applicable law. As used in this paragraph, the term "applicable law" shall
mean the laws of the State of Texas or the federal laws of the United States,
whichever laws allow the greater interest, as such laws now exist or may be
changed or amended or come into effect in the future.
26. Jointly and Severally Liable. If more than one person or
entity executes this Note as Borrower, all of said parties shall be jointly and
severally liable for payment of the indebtedness evidenced hereby. Borrower
and all sureties, endorsers, guarantors and any other party now or hereafter
liable for the payment of this Note in whole or in part, hereby severally (a)
waive demand, presentment for payment, notice of dishonor and of nonpayment,
protest, notice of protest, notice of intent to accelerate, notice of
acceleration and all other notice, filing of suit and diligence in collecting
this Note or enforcing any of the security herefor; (b) agree to any
substitution, subordination, exchange or release of any such security or the
release of any party primarily or secondarily liable hereon; (c) agree that the
holder hereof shall not be required first to institute suit or exhaust its
remedies hereon against Borrower or others liable or to become liable hereon or
to enforce its rights against them or any security herefor; (d) consent to any
extension or postponement of time of payment of this Note for any period or
periods of time and to any partial payments, before or after maturity, and to
any other indulgence with respect hereto, without notice thereof to any of
them; and (e) submit (and waive all rights to object) to personal jurisdiction
in the State of Texas, and venue in Dallas County, Texas, for the enforcement
of any and all obligations under the Loan Documents.
27. Modifications. This Note may not be changed, amended or
modified except in a writing expressly intended for such purpose and executed
by the party against whom enforcement of the change, amendment or modification
is sought.
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<PAGE> 16
28. Business Purposes. The loan evidenced by this Note is made
solely for business proposes and is not for personal, family, household or
agricultural purposes.
29. CHOICE OF LAW. THIS NOTE, AND ITS VALIDITY, ENFORCEMENT AND
INTERPRETATION, SHALL BE GOVERNED BY TEXAS LAW (WITHOUT REGARD TO ANY CONFLICT
OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW.
30. Time of the Essence. Time shall be of the essence in this
Note with respect to all of Borrower's obligations hereunder.
31. Renewal, Extension and Increase. This Amended and Restated
Promissory Note is executed in renewal, extension, modification, amendment,
restatement and in increase of, but not in extinguishment of, the Prior Note.
Borrower acknowledges and agrees that certain advances made by Bank to Borrower
under the Prior Note are now evidenced by this Note.
32. No Other Agreements. THE LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Borrower has duly executed this Note as of the
date first above written.
BORROWER:
TECNOL MEDICAL PRODUCTS, INC.,
a Delaware corporation
By: /s/David Radunsky
---------------------------------
David Radunsky,
Chief Operating Officer
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<PAGE> 1
EXHIBIT 10(B)(22)
68003/90066
(TMPI Working Capital Loan)
FIRST 1996 MODIFICATION AGREEMENT
This First 1996 Modification Agreement ("Agreement") is executed to be
effective (though not necessarily on) as of the 13th day of March, 1996 by and
among TECNOL MEDICAL PRODUCTS, INC., a Delaware corporation ("Company"),
NATIONSBANK TEXAS, N.A. ("Bank"), TECNOL, INC., a Delaware corporation
("Operating Company") [the successor by merger to TECNOL ORTHOPEDIC PRODUCTS,
INC., a Delaware corporation ("Orthopedic"), POLYMED HOLDING INC., a Maryland
corporation ("PHI"), POLY-MED INDUSTRIES, INC., a Maryland corporation
("Poly-Med"), and INMAN MEDICAL CORPORATION, a Delaware corporation ("Inman"),
and the successor to substantially all of the assets and liabilities of ANAGO
INCORPORATED, a Texas corporation in liquidation ("Anago")], TCNL TECHNOLOGIES,
INC., a Delaware corporation ("Technology Company"), TECNOL INTERNATIONAL
(V.I.), INC., a U.S. Virgin Islands corporation ("International"), LA ADA DE
ACUNA S.A. ("La Ada"), TECNOL CONSUMER PRODUCTS, INC., a Delaware corporation
("Consumer"), TECNADYNE SCIENTIFIC INCORPORATED, a Florida corporation
("Tecnadyne"), and TECNOL NEW JERSEY WOUND CARE, INC., a New Jersey corporation
("Wound Care") (Operating Company, Technology Company, International, La Ada,
Consumer, Tecnadyne, and Wound Care are together called the "Subsidiaries").
R E C I T A L S:
WHEREAS, as of November 15, 1993 Bank and the Company executed and
delivered that certain Third Amended and Restated Loan Agreement (as amended
and modified from time to time, the "Loan Agreement"). All capitalized terms
used herein shall have the same meaning assigned to those terms in the Loan
Agreement, unless otherwise defined herein to the contrary.
WHEREAS, the Loans are guaranteed pursuant to the Guaranty Agreement
(together with the Guaranty Agreements executed by La Ada, Consumer, Tecnadyne,
and Wound Care, the "Guaranty") dated as of November 15, 1993 executed by
Orthopedic, International, Anago, Technology Company, Operating Company, PHI,
Poly-Med, Inman, a Guaranty Agreement dated as of March 15, 1995 executed by
Consumer and Tecnadyne, and a Guaranty Agreement dated as of December 5, 1995
executed by Wound Care.
WHEREAS, the Company previously requested that Bank consent to the
merger of Orthopedic, Inman, PHI and Poly- Med into Operating Company and the
liquidation of
<PAGE> 2
substantially all of the assets and liabilities of Anago and Bank has agreed to
such request subject to the terms and conditions of the Consent Agreement dated
as of June 30, 1994 among the parties to this Agreement, other than Consumer,
Tecnadyne and Wound Care.
WHEREAS, Bank, the Company, Operating Company, Technology Company,
International and La Ada executed and delivered a Modification Agreement dated
as of July 1, 1994 to reflect additional interest rate options and margins to
the Company, and the Company has executed three amended and restated promissory
notes to reflect such options.
WHEREAS, Bank, the Company, Operating Company, Technology Company,
International, and La Ada executed and delivered a 1995 Modification Agreement
dated as of March 15, 1995 to increase the Working Capital Loan and make
certain other modifications to the Loan Agreement, and the Company executed an
amended and restated Working Capital Note to reflect such increase.
WHEREAS, Bank, the Company, the Operating Company, Technology Company,
International, La Ada, Consumer and Tecnadyne executed and delivered a Second
1995 Modification Agreement dated as of May 8, 1995 to further increase the
Working Capital Loan and to further amend and modify certain covenants
contained in the Loan Agreement, and the Company executed an amended restated
Working Capital Note to reflect such increase.
WHEREAS, Bank, the Company and the Subsidiaries executed and delivered
a Third 1995 Modification Agreement dated as of December 5, 1995 in connection
with a new $5,500,000 Reducing Revolver Loan to the Company.
WHEREAS, the Company has requested the Bank to extend the term of
Working Capital Loan, and the Company and Bank desire to amend the Loan
Agreement to reflect such extension.
A G R E E M E N T:
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants and agreements contained herein, and other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged and
confessed, the undersigned hereby agrees as follows:
1. Bank and the Company hereby agree the commitment to lend for
the Working Capital Loan set forth in Section 2.7 of the Loan Agreement is
hereby extended to March 12, 1997.
2. The Company and the Subsidiaries (together, the "Tecnol
Parties") jointly and severally represent and warrant to Bank that the
execution and delivery of this Agreement and the consummation of the
transactions described herein (a) has been duly authorized by all necessary
action by the Tecnol Parties, as the case may be, and (b) does not violate or
create any default under the articles of incorporation, bylaws, promissory
notes, deeds of trusts, mortgages, security agreements, lien instruments, lease
covenants, conditions, easements, rights-of-way, franchises,
-2-
<PAGE> 3
permits, licenses or other contracts of any of the Tecnol Parties (after giving
effect to the consents herein and other consents being obtained contemporaneous
herewith) that would have a material adverse effect on the business or
operations of the Tecnol Parties or which would affect the enforceability of
any of the Loan Documents. The Subsidiaries each further represent and warrant
to Bank that the Guaranty Agreements executed by them shall remain valid and
binding upon them.
3. The Company further covenants and warrants that there are no
defenses, claims, counterclaims or offsets to the Loans or the Loan Agreement
or the performance of the obligations of Company thereunder, and the Notes and
sums due and owing in connection therewith and the other documents are in full
force and effect.
4. Bank acknowledges, that the best of its knowledge, there are
no defaults by the Tecnol Parties under the Loan Agreement, the Guaranty, or
the other Loan Documents after giving effect to the terms of this Agreement.
5. Company agrees to pay all costs incurred in connection with
the execution and consummation of this Agreement, including, without
limitation, the fees and expenses of Bank's counsel.
6. THIS AGREEMENT, THE LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS EXECUTED IN CONNECTION THEREWITH, AFTER GIVING EFFECT HERETO, SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF
THE UNITED STATES APPLICABLE TO TRANSACTIONS IN TEXAS.
7. The Loan Agreement, Notes, the Guaranty and the other Loan
Documents executed in connection therewith shall remain in full force and
effect, after giving effect to the terms of this Agreement and the transactions
described herein. Except as specifically set forth herein, nothing herein
contained shall constitute a waiver or consent by the Bank to any event,
transaction, or circumstances, which, with notice or lapse of time or both,
would constitute a default under the Loans and/or the Loan Agreement.
8. The Subsidiaries, as guarantors of the obligations of the
Company to Bank arising under the Loans and the Loan Agreement, acknowledge and
consent (a) to the terms of this Agreement, and agree that the extension of the
Working Capital Loan by the Bank to the Company has not and will in no way
change, modify or affect their obligations under the Guaranty, or any other
Guaranty Agreement of the Loans and the Loan Agreement executed by them; (b)
that the Guaranty is in full force and effect; and (c) there are no claims,
counterclaims, offsets or defenses to the Guaranty or to the performance of
their obligations thereunder.
9. THIS WRITTEN AGREEMENT, THE LOAN AGREEMENT, THE NOTES AND THE
OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION THEREWITH
-3-
<PAGE> 4
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
10. This Agreement may be executed by facsimile transmission and
in several counterparts, all of such executed counterparts shall constitute the
same agreement.
EXECUTED as of the date first written above.
NATIONSBANK OF TEXAS,
N.A., a national banking association
By: /s/ Rachel R. Johnston
---------------------------------------------
Name: Rachel R. Johnston
-------------------------------------------
Title: Vice President
------------------------------------------
TECNOL MEDICAL PRODUCTS, INC., a
Delaware corporation
By: /s/ David Radunsky
---------------------------------------------
Name: David Radunsky
Title: Chief Operating Officer
TECNOL, INC., a Delaware corporation (the
successor by merger to Orthopedic, Poly-Med, PHI
and Inman and the successor by liquidation to
Anago)
By: /s/ David Radunsky
---------------------------------------------
Name: David Radunsky
Title: Chief Operating Officer
-4-
<PAGE> 5
TCNL TECHNOLOGIES, INC., a Delaware
corporation
By: /s/ Kenneth J. Kubachi
---------------------------------------------
Name: Kenneth J. Kubachi
Title: Vice President
TECNOL INTERNATIONAL (V.I.) INC.,
a U.S. Virgin Islands corporation
By: Van Hubbard
---------------------------------------------
Name: Van Hubbard
-------------------------------------------
Title: Secretary
------------------------------------------
LA ADA DE ACUNA S.A., a Mexican
corporation
By: /s/ David Radunsky
---------------------------------------------
Name: David Radunsky
-------------------------------------------
Title: Secretary
------------------------------------------
TECNOL CONSUMER PRODUCTS, INC.,
a Delaware corporation
By: /s/ David Radunsky
--------------------------------------------
Name: David Radunsky
Title: Chief Operating Officer
TECNADYNE SCIENTIFIC INCORPORATED,
a Florida corporation
By: /s/ David Radunsky
---------------------------------------------
Name: David Radunsky
Title: Chief Operating Officer
-5-
<PAGE> 6
TECNOL NEW JERSEY WOUND CARE, INC., a
New Jersey corporation
By: David Radunsky
---------------------------------------------
Name: David Radunsky
Title: Chief Operating Officer
-6-
<PAGE> 1
Exhibit 10(g)(1)
AMENDMENT TO TECNOL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
This Amendment, is made and entered into this 25th day of November,
1996, by and between TECNOL MEDICAL PRODUCTS, INC., a Delaware corporation
which was formerly known as Tecnol, Inc., a Texas corporation, TECNOL, INC., a
Delaware corporation, for itself and as successor through merger of TECNOL
ORTHOPEDIC PRODUCTS, INC., a Delaware corporation (herein Tecnol Medical
Products, Inc. and Tecnol, Inc. are jointly referred to as the "Employer") and
the Trustees of such plan set forth below (herein referred to as the
"Trustee").
W I T N E S S E T H:
WHEREAS, the Employer's predecessor in interest has heretofore adopted
an Employee Stock Ownership Plan dated October 11, 1988 which it has amended
from time to time; and
WHEREAS, the Employer and Trustee, pursuant to the authority granted
in Section 9.1 of the Plan, desire to amend the above plan to provide for a
vesting year using participant anniversary dates and to remove certain
diversification provisions from the Plan;
NOW, THEREFORE, effective December 1, 1995, the Employer and the
Trustee in accordance with the provisions of the Plan hereby modify and amend
such Plan as follows:
(1) Section 1.58 of the Tecnol Medical Products, Inc. Employee
Stock Ownership Plan shall be amended to read in its entirety as follows:
"1.58 'Year of Service' means twelve (12) consecutive
Months of Service.
For vesting purposes, the computation shall be measured from
the date on which an Employee first performs an Hour of Service and
anniversaries thereof.
For all other purposes, the computation period shall be the
Plan Year.
Years of service with Anago, Inc., Poly Med Industrial, Inc.,
Tecnol Orthopedic Products, Inc., Tecnol International, Inc., Tecnol
Medical Products, Inc., Tecnol, Inc. and any Affiliated Employer shall
be recognized."
(2) Section 1.33 of the Tecnol Medical Products, Inc. Employee
Stock Ownership Plan shall be amended to read in its entirety as follows:
"1.33 'Month of Service' means a calendar month during any
part of which an Employee completed an Hour of Service."
-1-
<PAGE> 2
(3) Section 4.6 of the Tecnol Medical Products, Inc. Employee
Stock Ownership Plan shall be amended by deleting paragraphs (a) through (c)
thereof and renumbering (d) through (f) as (a) through (c) with any reference
in the Plan to Section 4.6, paragraphs (d), (e) or (f) being instead (a), (b)
or (c) respectively.
IN WITNESS WHEREOF, this Amendment has been executed the day and year
first above written.
ATTEST: TECNOL MEDICAL PRODUCTS,
INC.
s/s David Radunsky
- ----------------------------
Secretary By: s/s Van Hubbard
------------------------------------
Van Hubbard, President
ATTEST: TECNOL, INC.
s/s David Radunsky By: s/s Van Hubbard
- ---------------------------- ------------------------------------
Secretary Van Hubbard, President
s/s David Radunsky
---------------------------------------
David Radunsky, Trustee
s/s Van Hubbard
---------------------------------------
Van Hubbard, Trustee
s/s Kirk Brunson
---------------------------------------
Kirk Brunson, Trustee
-2-
<PAGE> 1
EXHIBIT 10(j)
AGREEMENT
This instrument dated September 1, 1996 reduces to writing the
agreement made effective that date by and between Tecnol Medical Products, Inc.
(hereinafter, in combination with its subsidiary corporations, called
"Tecnol"), and Jack G. Johnson (hereinafter called "Agent"), and is based in
part on the following facts:
A. Tecnol is and will be engaged in various legal matters,
including litigation, which are handled by various law firms;
B. Because of the broad range of duties of Tecnol's General
Counsel, who is also its Chief Operating Officer, such officer is unable for
the time being to devote to all such Tecnol legal matters involving such law
firms the amount of time which he and Tecnol's Chief Executive believe is the
optimum for Tecnol's best interests; but because these circumstances may be
temporary, it is not considered desirable at this time to expand Tecnol's legal
staff by hiring on a permanent basis a person experienced in litigation
supervision.
C. Agent is a retired former practicing lawyer who was for a
number of years Tecnol's primary legal counsel, as well as having been for
several years the primary legal counsel for a previous company for which
Tecnol's chief executive was then chief executive; and Agent also served for
several years as General Counsel for a large public corporation, and in such
capacity dealt extensively on behalf of such corporation with outside law
firms, including dealing extensively with litigation matters; and
D. Tecnol has determined that it is in its best interest that
Agent be engaged on the terms and conditions hereinafter stated as its agent
and representative to act on Tecnol's behalf in
<PAGE> 2
dealing with law firms handling various of its legal matters, including
litigation, and Agent has agreed to so act.
NOW THEREFORE, Tecnol and Agent covenant and agree as follows;
1. Effective with the date of this Agreement Tecnol has engaged
and engages Agent as an independent contractor, and not as an employee, to be
Tecnol's agent and representative to act on Tecnol's behalf in dealing with one
or more law firms with respect to various litigation and other legal matters of
Tecnol, as selected and agreed upon from time to time between Tecnol's General
Counsel or its Chief Executive and Agent; and in that capacity Agent shall have
the authority on behalf of Tecnol to obtain professional legal services and to
act for Tecnol on the advice rendered pursuant thereto, and he shall act with
and consult with Tecnol's General Counsel and Chief Executive in making major
decisions for Tecnol with respect to such litigation and other legal matters.
It is understood that since his retirement Agent has not maintained in active
status his license to practice law, and he will not be functioning for Tecnol
as a lawyer, but as an agent and representative for Tecnol in dealing with its
lawyers and making decisions based on their advice. It is also understood that
although Jack G. Johnson is a member of the board of directors of the Tecnol
parent company, his work for Tecnol under this Agreement is unrelated to his
service as such a director, and none of the compensation earned by him under
this Agreement is in any way related to or dependent upon his status as, or
continued service as, such a director.
2. It is uncertain at this time how long Tecnol's best interests
will be served by Agent's service under this Agreement. Such service may
continue for more than two years, but either Tecnol or Agent shall have the
right to terminate Agent's services hereunder by giving written notice to the
other. Similarly, the appropriate amount of Agent's compensation under this
Agreement is uncertain at this time, and the parties have agreed that no such
compensation shall
<PAGE> 3
actually be due and payable to Agent until the month of February, 1999,
regardless of any prior termination. All such compensation theretofore earned
hereunder by Agent shall be paid to him during such month of February, 1999,
and not before or after. At the outset it is agreed that such compensation
earned by Agent shall be at the rate of Ten Thousand Dollars ($10,000) per
month, based on the assumption that Agent will be devoting, on average, an
amount of time consistent with that amount, taking into consideration Agent's
experience and abilities. Tecnol shall have the right, however, unilaterally
to reduce the amount of such compensation at any time, upon written
notification to Agent if it considers such stated amount to be inappropriate in
relation to the services performed; but any retroactive reduction shall only be
effective if such written notice is given to Agent within sixty (60) days after
the expiration of Tecnol's fiscal quarter in which the services affected shall
have been rendered.
3. Agent expects to work primarily from his home and to
communicate with Tecnol's lawyers and executives primarily by telephone except
when circumstances make his presence at Tecnol or a law firm or elsewhere
desirable. In the event that Agent's long distance telephone calls and travel
expenses pursuant to this Agreement shall at some point exceed a nominal amount
he shall have the right to submit to Tecnol from time to time a statement of
such expenses and have them reimbursed by Tecnol, but Tecnol shall have no
obligation to reimburse any expense item unless a statement listing that item
is submitted to Tecnol in writing within ninety (90) days after the date such
expense was incurred by Agent.
4. All Tecnol information received by Agent from any source
pursuant to his services under this Agreement shall be strictly confidential
and shall not be disclosed by him to any party or entity except Tecnol's
authorized officers and its legal counsel.
<PAGE> 4
5. This Agreement shall be binding upon Tecnol, its successors
and assigns and upon Agent, his heirs and personal representatives.
Executed by the parties hereto effective the date indicated.
TECNOL MEDICAL PRODUCTS, INC.
By s/s David Radunsky
-----------------------------------------
s/s Jack G. Johnson
-----------------------------------------
JACK G. JOHNSON
<PAGE> 1
EXHIBIT 10(k)
INCENTIVE STOCK OPTION,
TRADE SECRET, INVENTION, AND
NON-COMPETITION AGREEMENT
THIS AGREEMENT, made this 20th day of November, 1995, by and between
TECNOL MEDICAL PRODUCTS, INC., a Delaware corporation (hereinafter called
"TMPI"), and Jeffrey A. Nick (hereinafter called the "Optionee"), but effective
as of the date set forth in paragraph 2 below.
W I T N E S E T H:
WHEREAS, Optionee is a key employee of the Company who, during the
course of Optionee's employment with the Company has been, and in the future is
expected to be, engaged in one or more of the manufacturing, marketing,
selling, administrative, management, financial communications, legal,
engineering, product development, product quality, or other important
activities of the Company and is expected to obtain valuable and proprietary
confidential information of the Company in the course of carrying out
Optionee's duties of employment; and
WHEREAS, the Company wants to encourage Optionee's continued interest in
and loyalty and commitment to the Company and toward that end, the Company
desires to increase Optionee's proprietary interest in the success of the
Company by making it possible for Optionee to acquire an initial or increased
stock ownership interest in the Company on a basis anticipated to be
economically beneficial and favorable to Optionee; and
WHEREAS, as a condition to the Company's willingness to facilitate
Optionee's stock ownership interest in the Company and ancillary to its
undertaking to do so and to impart confidential information to Optionee, the
Company desires to obtain Optionee's commitment to the Company to not disclose
confidential information of the Company and not compete with the Company should
Optionee's employment terminate; and
WHEREAS, Optionee and the Company both recognize and agree that such
commitment by Optionee is necessary to protect the value of the Company for all
of its security holders, including Optionee:
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, TMPI and the Optionee hereby agree with each other
as follows:
1. The granting of this Option shall not impose upon the Company any
obligation to employ or continue to employ the Optionee; and the right of the
Company to terminate the employment of the Optionee shall not be diminished or
affected by reason of the fact that an option has been granted to him.
-1-
<PAGE> 2
2. Subject to the terms and conditions set forth herein, TMPI hereby
grants to the Optionee under the Option Plan the right to purchase up to, but
not exceeding in the aggregate, 11,667 shares of the common stock, $.001 par
value, of TMPI (the "Common Stock") during the period commencing March 1, 1996
and ending March 1, 2003, at a price per share of $17.00 (the "Option Exercise
Price"). The "Effective Date" of this agreement is November 20, 1995.
The right and option granted hereunder may be exercised from time to
time as follows: beginning March 1, 1996, as to not more than 1,667 shares
covered hereby; beginning March 1, 1997, as to any number of shares which, when
added to the number of shares previously purchased under the option, shall not
exceed 3,334 shares covered hereby; beginning March 1, 1998, as to any number
of shares which, when added to the number of shares previously purchased under
the option, shall not exceed 5,001 covered hereby; beginning March 1, 1999, as
to any number of shares which, when added to the number of shares previously
purchased under the option, shall not exceed 6667 shares covered hereby;
beginning March 1, 2000, as to any number of shares which, when added to the
number of shares previously purchased under the option shall not exceed 8334 of
the total shares covered hereby; beginning March 1, 2001, as to any number of
shares which, when added to the number of shares previously purchased under the
option, shall not exceed 10,001 shares covered hereby; beginning March 1, 2002,
as to any number of shares which, when added to the number of shares previously
purchased under the option, shall not exceed the total number of shares covered
hereby.
Shares cannot be sold, transferred, or encumbered for a period of two
(2) years after the date on which the Option is exercised, excluding transfers
to the Company, members of the Optionee's immediate family, or trusts for the
benefit of the Optionee or members of the Optionee's immediate family, provided
that any Shares so transferred (other than to the Company) will remain subject
to the remainder of the two-year prohibition on transfer. In the event of the
death of the Optionee, any Shares held by the Optionee's estate may be
transferred free of the remainder of the two-year prohibition on transfer. Any
Shares as to which the two-year prohibition on transfer has been lifted shall
be subject to the requirement that the Optionee notify the Company of any
disposition as provided in paragraph 5 hereof. Each certificate representing
shares shall bear a legend reflecting the appropriate restriction.
The option granted hereunder is intended to qualify as an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). However, to the extent that the aggregate fair market value of
the Common Stock (determined at the date of grant of the option) with respect
to which incentive stock options are exercisable for the first time by the
Optionee during any calendar year (under all incentive stock option plans of
TMPI and any parent or subsidiary corporation of TMPI) exceeds $100,000, such
options will not be incentive stock options. For this purpose, options shall
be taken into account in the order in which they were granted.
-2-
<PAGE> 3
The option granted hereunder is granted pursuant to and is governed by
the terms of the 1991 Tecnol Stock Option Plan (the "Option Plan").
3. The right and option granted hereunder shall be exercised by
delivering to Tecnol Medical Products, Inc. a written notification specifying
the number of shares which the Optionee desires to purchase, together with
cash, certified check, bank cashier's check or postal or express money order to
the order of Tecnol Medical Products, Inc. for an amount equal to the option
price of such shares, and specifying the address to which the certificates for
such shares are to be mailed. In lieu of payment in cash or cash equivalents,
Optionee may make payment by tendering to Tecnol Medical Products, Inc. shares
of Common Stock, or by tendering shares of Common Stock plus cash or cash
equivalents, in amounts such that the fair market value of the Common Stock
tendered, plus the amount of cash or cash equivalents paid, if any, equals the
option price for the shares to be purchased.
4. As promptly as practical after receipt of such written
notification and payment and receipt of such evidence of intent to acquire for
investment as may be required by the Company, the Company will deliver to the
Optionee certificates for the number of shares with respect to which such
option has been so exercised, issued in the Optionee's name; provided that such
delivery shall be deemed effected for all purposes when a stock transfer agent
of the Company shall have deposited such certificates in the United States
mail, postage prepaid, addressed to the Optionee, at the address specified
pursuant to paragraph 3 hereof.
5. If the Optionee shall dispose of any of the shares purchased
hereunder within the later of one year after the transfer of such shares to him
or two years from the effective date of the granting of this option, then in
order to provide the Company with the opportunity to claim the benefit of any
income tax deduction which may be available to it under the circumstances, the
Optionee shall promptly notify the Company of the dates of acquisition and
disposition of such shares, the number of shares so disposed of, and the
consideration, if any, received for such shares. In addition, in order to help
assure that the Company receives notice of any such transfer, any stock
certificate evidencing any shares of Common Stock issued under this Agreement
shall bear a legend substantially as follows for the first year after issuance
of such Common Stock to the Optionee or, if sooner, until such time as the
Optionee certifies in writing to the Company that such Common Stock has been
sold in a bona fide transaction and advises the Company of the amount of the
consideration received for such shares:
"The Company has asked its stock transfer agent to notify the Secretary
of the Company if the securities represented by this certificate are
held of record at any time prior to [applicable date] in any name other
than [applicable name]."
-3-
<PAGE> 4
Further, upon request of the Company, from time to time, the Optionee shall
certify in writing the dates of acquisition and any dispositions of such Common
Stock on or before the first anniversary of the issuance of such Common Stock
to the Optionee, the number of shares so disposed of, and the consideration, if
any, received for such shares.
6. Except as is otherwise expressly provided in this Agreement, the
option herein granted shall terminate immediately upon the severance of the
employment relationship between the Company and the Optionee by the Company for
good cause, and two weeks after the severance of the employment relationship
between the Company and the Optionee for any reason, other than for good cause
or on account of death or retirement in good standing from the employ of the
Company for reasons of age or total and permanent disability under the then
established rules of the Company. For purposes of this Agreement, "Company"
shall mean Tecnol Medical Products, Inc. and any corporation in which Tecnol
Medical Products Inc. owns, directly or indirectly, stock possessing eighty
percent or more of the total combined voting power of all classes of stock;
and, any corporation in which Tecnol Medical Products, Inc. owns, directly or
indirectly, stock possessing fifty percent or more of the total combined voting
power of all classes of stock, if the Board of Tecnol Medical Products, Inc.
resolves that such other corporation shall be so defined. Whether authorized
leave of absence or absence on military or government service shall constitute
severance of the employment relationship between the Company and the Optionee
shall be determined by the Committee appointed by the Board of Directors of
TMPI to administer the Option Plan (the "Committee). In the event of the death
of the Optionee while in the employ of the Company and before the date of
expiration of this option, this option shall terminate one year following the
date of death of the Optionee. After the death of the Optionee, Optionee's
executors, administrators, or any person or persons to whom this option may be
transferred by will or by the laws of descent and distribution, shall have the
right, at any time prior to such termination, to exercise the option granted
hereunder, in whole or in part. If, before the date of expiration of this
option, the Optionee shall be retired in good standing from the employ of the
Company for reasons of age or total and permanent disability under the then
established rules of the Company, this option shall terminate three months
(twelve months in the case of retirement for disability) after the date of such
retirement. However, in the event of such retirement, the Optionee shall have
the right prior to the termination of such option to exercise the option to the
extent to which Optionee was entitled to exercise the option immediately prior
to such retirement. Provided, however, nothing in this Section shall operate
to extend this option beyond 10 years after the Effective Date hereof.
7. Whenever the word "Optionee" is used in any provision of this
Agreement under circumstances where the provisions should logically be
construed to apply to the executors, administrators or the person or persons to
whom the option may be transferred by will or by the laws of descent and
distribution, the word "Optionee" shall be deemed to include such person or
persons.
-4-
<PAGE> 5
8. This option is not transferable by the Optionee otherwise than by
will or under the laws of descent and distribution, and is exercisable, during
Optionee's lifetime, only by Optionee. No assignment or transfer of this
option, or of the rights represented thereby, whether voluntary or involuntary,
by operation of law or otherwise (except by will or by the laws of descent and
distribution) shall vest in the assignee or transferee any interest or right
herein whatsoever, but immediately upon any such assignment or transfer this
option shall terminate and become of no further effect.
9. The Optionee shall not be deemed for any purpose to be a
stockholder of TMPI in respect of any shares as to which this option shall not
have been exercised, as herein provided, and until such shares shall have been
issued to the Optionee by TMPI hereunder.
10. The existence of this option shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
11. The shares with respect to which this option is granted are
shares of the Common Stock of TMPI as presently constituted, but if, and
whenever, prior to the delivery by TMPI of all the shares of the Common Stock
with respect to which this option is granted, TMPI shall effect a subdivision
or consolidation of shares or other capital readjustment, the payment of a
stock dividend, or other increase or reduction of the number of shares of the
Common Stock outstanding, without receiving compensation therefor in money,
services or property, then (a) in the event of an increase in the number of
such shares outstanding, the number of shares of Common Stock then remaining
subject to option hereunder shall be proportionately increased, and the option
price per share shall be proportionately reduced; and (b) in the event of a
reduction in the number of such shares outstanding, the number of shares of
Common Stock then remaining subject to option hereunder shall be
proportionately reduced, and the option price per share shall be
proportionately increased.
12. After a merger of one or more corporations into TMPI, or after a
consolidation of TMPI and one or more corporations in which TMPI shall be the
surviving corporation, the Optionee shall, at no additional cost, be entitled
upon any exercise of this option, to receive (subject to any required action by
stockholders) in lieu of the number of shares as to which this option shall
then be so exercisable, the number and class of shares of stock or other
securities or cash or other property to which the Optionee would have been
entitled pursuant to the terms of the agreement of merger or consolidation, as
if immediately prior to such merger or consolidation the Optionee had been the
holder of record of a number of shares of Common
-5-
<PAGE> 6
Stock of TMPI equal to the number of shares as to which such option shall be so
exercised; provided that, anything herein contained to the contrary
notwithstanding, upon the dissolution or liquidation of TMPI, or upon any
merger or consolidation if TMPI is not the surviving corporation, the Board of
Directors of TMPI shall determine the disposition of this option in accordance
with the alternatives set forth in paragraph 14 of the Option Plan.
13. Except as hereinbefore expressly provided, the issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property or for labor or services, either
upon direct sale, upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to this option.
14. Notwithstanding any of the provisions hereof, the Optionee hereby
agrees that he will not exercise the option granted hereby, and that the
Company will not be obligated to issue any shares to the Optionee hereunder, if
the exercise hereof or the issuance of such shares shall constitute a violation
by the Optionee or the Company of any provisions of any law or regulations of
any governmental authority. If, at any time specified herein for the issuance
of shares to the Optionee, any law or regulation shall require either the
Company or the Optionee to take any action in connection with the shares then
to be issued, the issuance of such shares shall be deferred until such action
shall have been taken. Any determination in this connection by the Committee
shall be final, binding and conclusive. The Company shall in no event be
obligated to register any securities pursuant to the Securities Act of 1933 (as
now in effect or as hereafter amended) or to take any other affirmative action
in order to cause the exercise of the option or the issuance of shares pursuant
thereto to comply with any law or regulation of any governmental authority.
15. Every notice or other communication relating to this Agreement
shall be in writing, and shall be mailed to or delivered to the party for whom
it is intended at such address as may from time to time be designated by it in
a notice mailed or delivered to the other party as herein provided; provided
that, unless and until some other address be so designated, all notices or
communications by the Optionee to the Company shall be addressed to the
President of TMPI and mailed or delivered to TMPI at its office at 7201
Industrial Park Blvd., Fort Worth, Texas 76180, and all notices or
communications by the Company to the Optionee may be given to the Optionee
personally or may be mailed to him at Optionee's address as shown in the
records of the Company.
16. (a) The Optionee recognized and acknowledges that:
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<PAGE> 7
(1) "Company-Type Products" means the types of products
that the Company is and will be engaged in developing,
manufacturing, marketing and selling, such as, but not
limited to, the following: reusable orthopedic soft goods;
face masks and respirators; all disposable restraints,
holders, binders, supports, pads, protectors, straps, ice
packs, telemetry unit pouches, wash mitts, caps, shoe
covers, wound dressings, and other health care and
industrial disposable items developed, manufactured,
marketed or sold by the Company during Optionee's
employment with the Company; and, if Optionee engages in
Technical Activities of the Company (as defined below) at
any time during Optionee's employment with the Company,
any components or raw materials for use in any of the
above which were the subject of research and/or
development during Optionee's employment with the Company.
(2) If Optionee, at any time during the course of
Optionee's employment with the Company, is engaged in the
manufacturing, engineering and/or product development
activities of the Company ("Technical Activities") such as
manufacturing existing Company-Type Products, improving
and enhancing Company-Type Products, and developing new
Company-Type Products, then, during the course of
Optionee's employment, Optionee will likely (a) engage in
research and experimentation to create and improve the
design of such products; (b) design and manufacture
special machinery that is used to manufacture,
automatically inspect and/or package such products; (c)
develop and design sonic bonding equipment used in such
machines; (d) design and develop specifications and
manufacturing processes for materials used in Company-Type
Products including, without limitation, films, and
non-woven fabrics; and/or (e) design and manufacture
machines used to manufacture such materials in the
performance if Optionee's duties. The Company's success
and innovation in developing new, and in enhancing
existing, Company-Type Products and in developing and
improving the materials and machinery used in, and to
manufacture, its Company-Type Products confers on the
Company a significant competitive advantage against its
competitors. The continued confidentiality of these
aspects of the Company's business are vital to its
business.
(3) If Optionee, at any time during the course of
Optionee's employment with the Company, is engaged in the
financial, legal, administrative, management, marketing,
sales, or communication activities of the Company ("Sales
and Administrative Activities") then the Optionee will
become familiar with or have access to extensive
confidential information
-7-
<PAGE> 8
pertaining to the business of the Company, which may
include, without limiting the forgoing, and depending upon
Optionee's specific employment duties, names of customers
of the Company and the prices it obtains or has obtained
from customers or for which it sells or has sold its
products, sources for materials used in the Company's
products, contract relationships between the Company and
its customers and suppliers, confidential business and
financial data of the Company, information pertaining to
the Company's employees (including, without limitation
information concerning compensation and benefit programs),
information regarding the Company's costs, information
about the Company's products and anticipated new products,
forecasts, plans, objectives, investment opportunities,
and long term business strategies and plans of the
Company. This confidential information is of strategic
importance to the Company in its ability to successfully
compete. The continued confidentiality of this
information is vital to the Company's business.
(4) The Company has established a valuable and extensive
trade in its Company-Type Products as well as business
connections and customers which are of significant value
to it.
(5) By virtue of Optionee's employment, Optionee
acknowledges that Optionee holds a position of trust with
respect to the confidential information of the company
made accessible to the Optionee, and that the Company will
suffer irreparable injury if during Optionee's employment
or at any time subsequent to the termination of such
employment, Optionee should, directly or indirectly, enter
into competition with the Company or divulge such secret
and confidential information to competitors or potential
competitors of the Company.
(6) It is expected that Optionee, during Optionee's
employment by the Company, may conceive or generate (alone
or together with others) inventions, discoveries or ideas,
and it is recognized that the ownership thereof should be
and will be in the Company.
(7) The covenants and conditions contained herein are
reasonable and necessary for the protection of the
Company's business. In this regard, Optionee recognizes
that the descriptive scope of the confidential information
described in Section 16 and the territory covered by the
non-competition covenants in Section 16 hereof are
reasonable in light of the fact that the work that
Optionee will perform for the Company as its employee will
contribute to the manufacture or sale of products
-8-
<PAGE> 9
that will be sold to end users (directly or in many cases
through intermediary distributors) located throughout the
Geographic Region described in Section 16(f).
(b) Optionee covenants and agrees that Optionee will not
at any time during Optionee's employment or thereafter, in any
fashion, form or manner, either directly or indirectly, except to
the extent necessary to carry out Optionee's employee
responsibilities for the benefit of the Company, divulge,
disclose or communicate to any person, firm, partnership,
corporation, or enterprise in any manner whatsoever any
information of any kind, nature or description concerning any
matters affecting or relating to the business of the Company,
including without limitation, (i) research conducted by the
Company in connection with product development, manufacturing
processes, machinery construction, product materials or
otherwise, (ii) the manufacturing methods or processes used or
under development by the Company for its products, machines and
materials, (iii) the nature or properties of the materials used
by the Company in its products or under development, and supply
sources of such materials, (iv) the names of any of the Company's
customers and the prices it obtains or has obtained or for which
it sells or has sold its products, (v) contract relationships
between the Company and its customers and suppliers, (vi)
confidential business and financial data of the Company, (vii)
information pertaining to the Company's employees (including,
without limitation, information concerning compensation and
benefit programs), (viii) information regarding the Company's
cost, (ix) information about the Company's products and
anticipated new products, (x) forecasts, plans, objectives,
investment opportunities, and long term business strategies and
plans of the Company, and (xi) any other information of, about
or concerning the business of the Company, its manner of
operations, its plans, processes or other data of any kind,
nature or description. The Optionee and Company agree that the
foregoing information is important, material and confidential and
substantially effects the successful conduct of the business of
the Company, and its good will, regardless of whether any or all
of the foregoing matters would be deemed to be "trade secrets" as
defined by law. Optionee may have occasion to learn other
information as a consequence of or through Optionee's employment
with the Company, such as information from or about suppliers,
customers, competitors and others. This information generally is
obtained by the Company by studying competitive products, by
requesting information from such other companies, by doing
various studies and the like. Such information is some cases may
not be proprietary to the Company but nevertheless the Company
learns such information in the course of its business, keeps such
information secret (because it is costly and useful information),
and
-9-
<PAGE> 10
legitimately uses such information in connection with its
business. Optionee agrees Optionee will not use or disclose, or
permit such information to be disclosed or used except in
furtherance of Optionee's duties for the Company and agrees not
to use or disclose such information in violation of any
obligations or duties which Optionee or the Company has to any
third party. The parties agree that any breach of the terms of
this Section 16(b) is a material breach of this Agreement. The
Company considers, and the Optionee agrees, that all such
information is the Company's sole and exclusive property, and
Optionee agrees to promptly deliver all such information in
tangible form as well as all other correspondence, memoranda,
notes, records, reports, plans, customer lists and all other
papers (and copies thereof) and all electronically stored or
computerized data to the Company either upon the Company's
request or upon any termination of this Agreement. The Company
agrees to provide Optionee with access to and the right to use in
the performance of Optionee's duties to the Company the
confidential, proprietary and other business information and
trade secrets described above in this Section 16 in consideration
of the covenants of Optionee of non-disclosure and
non-competition set forth in this Section 16.
(c) All "Inventions" made or conceived by the Optionee, solely
or with others, while employed by the Company, either during or
after working hours, or within a period of one (1) year after
termination of Optionee's employment, which are useful in or
related to the business of the Company or which have been made or
conceived wholly or partially, with the use of the Company's
time, material, or facilities, shall belong exclusively to the
Company. The Optionee agrees that Optionee shall have no claim
for additional compensation for such Inventions. The Optionee
agrees promptly to disclose in accordance with Company procedures
any such Invention promptly and fully by a written report,
setting forth in detail the structures, procedures and
methodology employed and the results achieved. In addition, full
reports and records shall be kept in accordance with Company
practices during and on completion of any study or research
project undertaken on the Company's behalf, whether or not in
Optionee's opinion a given study or project has resulted in an
Invention. For purposes hereof the term "Invention" means any
discovery, concept, idea, whether patentable or not, relating to
any present or prospective activities of the Company, including,
but not limited to, devices, processes, methods, formulae,
techniques, and any improvements to any of the foregoing. The
Optionee hereby assigns and agrees to assign to the Company all
of Optionee's rights to such Inventions and to all proprietary
rights therein, based thereon or related thereto, including, but
not limited to, applications for United States and foreign
letters patent and resulting letters patent. At the request of
the Company, either before or
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<PAGE> 11
after termination of Optionee's employment, Optionee shall assist
the Company in acquiring and maintaining patent protection upon
and confirming its title to such Inventions. Optionee's
assistance shall include the signing of applications for patent
assignments and other papers, and taking any other steps
considered desirable by the Company.
(d) Ancillary to, an in order to further assure that the
Optionee will not violate Optionee's covenants of non-disclosure
of confidential, proprietary and other business information of
the Company set forth in Section 16(b) hereof or Optionee's
obligations respecting Inventions under Section 16(c), and
ancillary to the rest of this Agreement and in consideration of
each of the foregoing, Optionee covenants and agrees that for the
Applicable Period (as defined below) after termination of
Optionee's employment for any reason, Optionee will not, for any
reason, anywhere in the Geographic Region (as defined below),
directly or indirectly, as an employee, employer, consultant,
agent, principal, partner, stockholder, officer, director, or in
any other individual or representative capacity:
(1) engage or participate in any business that:
(A) is engaged, directly or indirectly, in
the sale or marketing of any product that is the
same as or similar to or competitive with any
Company-Type Product which was sold or marketed by
the Company during Optionee's employment with the
Company; or
(B) is engaged, directly or indirectly in
research for or the development or manufacture of
any product that is the same as or similar to or
competitive with any Company-Type Product which was
the subject of research or development or which was
manufactured, by the Company during Optionee's
employment with the Company; or
(C) is engaged, directly or indirectly, in
the research, development, manufacture, sale or
marketing of any item made from film or non-woven
fabric bonded through a sonic bonding manufacturing
process; or
(D) is engaged, directly or indirectly, in
the research development, manufacture, use, sale or
marketing of any manufacturing equipment that (i)
uses computers in automated
-11-
<PAGE> 12
manufacturing; or (ii) is used to produce products
made of film or non-woven fabric; or (iii) uses an
automated or computerized product inspection
system, because equipment similar in function or
design to any of the foregoing equipment would be
similar to equipment developed or manufactured by
the Company during the course of Employee's
employment; or
(E) is engaged, directly or indirectly, in
the business described in clause (D) above, if such
machines or designed to be used to manufacture
Company-Type Products; or
(2) recruit, or hire, or attempt to recruit or
hire, directly or or by assisting others, any other
employee or consultant of the Company or give advice or
counsel with respect to the hiring of any person who
shall have been an employee of the Company at any time
within the two- year period immediately preceding such
hiring, advice or counsel.
(e) Ancillary to, and in order to further assure that
Optionee will not violate Optionee's covenants of non-disclosure
of confidential, proprietary and other business information of
the Company set forth in Section 16(b) herein, or Optionee's
obligations respecting Inventions under Section 16(c), and
ancillary to the rest of this Agreement and in consideration of
each of the foregoing, Optionee covenants and agrees that for the
Applicable Period after termination of Optionee's employment for
any reason Optionee will not, for any reason, anywhere outside
the Geographic Region (as defined below), directly or indirectly
as an employee, employer, consultant, agent, principal, partner,
stockholder, officer director, or in any other individual or
representative capacity engage or participate in any business
described in paragraph (d)(1) of this Section 16 if in fact such
business is shipping the products or equipment described therein
to any country included in the Geographic Region. Optionee
recognizes that the foregoing covenant is necessary to prevent
Optionee from indirectly competing with the Company in a
prohibited manner inside the Geographic Region.
(f) Geographic Region means United States, Canada, Japan,
Puerto Rico, Mexico, Australia and the countries included in the
European Economic Community; and, if Optionee was directly
engaged in selling Company-Type Products in any other country
while employed by the Company, then in such other country.
(g) If Optionee engages in Technical Activities at any
time during Optionee's employment with the Company, then, for
purposes of sections 16(d)(1)
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<PAGE> 13
and (2) and 16(e), Applicable Period means:
<TABLE>
Period For Conduct Described in Clause
------ -------------------------------
<S> <C>
6 months (d)(1)(A)
2 years (d)(1)(B)
2 years (d)(1)(C)
2 years (d)(1)(D)
3 years (d)(1)(E)
2 years (d)(2)
</TABLE>
and, if Optionee engages in Sales and Administrative Activities
at any time during Optionee's employment with the Company, then,
for purposes of sections 16(d)(1) and (2) and 16(e), "Applicable
Period" means:
<TABLE>
Period For Conduct Described in Clause
------ -------------------------------
<S> <C>
2 years (d)(1)(A)
2 years (d)(1)(B)
6 months (d)(1)(C)
6 months (d)(1)(D)
1 year (d)(1)(E)
2 years (d)(2)
</TABLE>
If Optionee engages in Technical Activities and in Sales
and Administrative Activities during Optionee's employment with
Company then the Applicable Period shall be the longer period
designated for specific conduct.
(h) Optionee agrees to provide to any future employer a
copy of the covenants contained in this Section 16 and agrees
that the Company may do so as well.
(i) During the term of Optionee's employment, Optionee
shall not do any act that is prohibited immediately following
termination of Optionee's employment under Section 16.
(j) The ownership of less than 2% of a publicly traded
company will not, in and of itself, violate Section 16.
(k) Both the Company's rights and the Optionee's duties
under this Section 16 shall survive any termination of this
Agreement. If Optionee violates any covenant contained in
Section 16 of this Agreement, the Company shall not, as a result
of the time involved in obtaining relief, be deprived of the
benefit of the
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<PAGE> 14
full period of any such covenant. Accordingly, the covenants of
Optionee contained in Section 16 shall be deemed to have the
durations specified therein, which periods shall commence upon
the later of (i) the termination of Optionee's employment with
the Company and (ii) the later to occur of: (A) the date of entry
of a final judgment enforcing the covenants of Optionee under
Section 16, as the case may be or (B) the date on which Optionee
permanently ceases such violation.
(l) The Optionee recognizes that the remedy of damages
for breach or threatened breach of the provisions of this Section
16 would be inadequate and that the harm occasioned by such
breach would be irreparable, and accordingly, Optionee expressly
agrees that in the event of a breach or threatened breach by
Optionee of any of the provisions of this Section 16, the Company
will be entitled to an injunction, without the requirement of
posting bond, restraining Optionee from violating the terms
hereof, or from rendering services to any person, firm,
corporation, association, or other entity to whom any
confidential information concerning or relating to the business
of the Company has been disclosed or may be threatened to be
disclosed, or for whom Optionee is working or rendering services,
or threatens to work or render services in violation of the terms
hereof. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available to it for
breach or threatened breach of this Section 16, including
recovery of damages from Optionee. Optionee's allegation of or
the existence of any claim against the Company, under this
Agreement or otherwise, will not constitute a defense to the
Company's enforcement of this Section.
(m)
(1) The parties recognize and agree that it may be
difficult if not impossible for the Company to prove the
existence of a breach of the Optionee's covenants of
confidentiality and non- disclosure under Section 16(b)
of this Agreement. The parties further recognize and
agree that the non-competition covenants contained in
Section 16(d) are necessary to support the legitimate
business interests of the Company in preserving the
confidentiality and secrecy of and control over such
confidential information and its business goodwill and are
ancillary to, supportive of, and a part of this Agreement,
are ancillary to the Company's undertaking to facilitate
Optionee's stock ownership in the Company, and are
necessary as a means of ensuring compliance by Optionee
with such confidentiality covenants.
(2) The existence of any claim or cause of action
of Optionee against the Company or any officer, director,
or shareholder of the
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<PAGE> 15
Company, that is predicated on this Agreement or
otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants of the
Optionee contained in this Section 16. In addition, the
provisions of this Section 16 shall continue to be binding
upon Optionee in accordance with their terms,
notwithstanding the termination of Optionee's employment
with the Company for any reason.
(3) The parties acknowledge and agree that the
time, scope, territory and other provisions of this
Section 16 are reasonable under the circumstances. The
parties further agree that if at any time despite the
express agreement of the parties hereto, it is held
through enforcement proceedings that any portion of
Section 16 is unenforceable by reason of its being too
extensive in any respect, then it shall be interpreted and
reformed to extend only over the maximum period of time
for which it may be enforceable and over the maximum
geographical area as to which it may be enforceable and to
the maximum extent in all other respects as to which it
may be enforceable.
17. This Agreement constitutes the entire agreement between the parties
and may not be amended except by an instrument in writing executed by both
parties.
18. This Agreement has been executed and will be performed in the State
of Texas and will be governed by and construed in accordance with the laws of
the State of Texas subject to the extent limited in Section 20 hereof.
19. If any one or more provisions of this Agreement shall be held to be
invalid, illegal or unenforceable in any respect in any jurisdiction, the
validity, legality or enforceability of the remaining provisions of this
Agreement in such jurisdiction shall not in any way be affected or impaired
thereby. Further, in lieu of such invalid, illegal, or unenforceable
provision, there shall be deemed inserted a provision as close in scope and
content to such provision as possible while remaining valid, legal and
enforceable in such jurisdiction.
20.
(a) Any dispute arising out of or relating to the
interpretation, validity, or enforcement of Section 16 of this Agreement
shall be settled by binding arbitration in accordance with the then
current commercial Arbitration Rules of the American Arbitration
Association. Either party may initiate an arbitration proceeding in
accordance with such Rules. The arbitration shall be conducted by a
panel of three independent arbitrators appointed in accordance with such
Rules. The arbitration shall be governed solely by the United States
Arbitration Act notwithstanding any other provision of this
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<PAGE> 16
Agreement to the contrary. If the arbitrators determine that a breach
of any of the provisions of Section 16 has occurred or is threatened
then, at the request of the Company, the arbitrators shall award
temporary or permanent injunctive relief in favor of the Company, as it
may request, restraining and enjoining any further such breach. Such
award shall be in addition to and not in lieu of any other relief to
which the Company may be entitled, including, without limitation,
damages arising out of any such breach. The arbitrators shall enter any
award in form sufficient to permit judgment upon the award to be entered
by, and to permit an order for contempt enforcing compliance ith such
judgment to be entered by, a court of competent jurisdiction.
(b) Prior to the hearing on the merits in an arbitration
proceeding to enforce the provisions of Section 16 hereof, in order to
maintain the status quo pending such hearing,the Company shall have the
right to seek and obtain temporary or preliminary injunctive relief from
a court of competent jurisdiction restraining Optionee from violating
the provisions of Section 16.
21. This amended and restated Agreement is amended on July 26, 1996,
with the effective date of the amendment being November 20, 1995, in order to
give effect to the intention of the parties and correct the mutual mistake of
the parties regarding certain provisions governing the transferability of the
shares subject hereto as required by the Option Plan, and supercedes the
previously executed Agreement dated November 20, 1995.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TECNOL MEDICAL PRODUCTS, INC.
By: /s/ VAN HUBBARD
-----------------------------------------
President
/s/ JEFFREY A. NICK
--------------------------------------------
Optionee
704 Giltin Court
--------------------------------------------
Street address
Arlington TX 76006
--------------------------------------------
City State/County Zip Code
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<PAGE> 1
EXHIBIT 10(o)(1)
INCENTIVE STOCK OPTION, TRADE SECRET,
INVENTION, AND NON-COMPETITION AGREEMENT
THIS AGREEMENT, made this _____ day of _____________, 19__, by and
between TECNOL MEDICAL PRODUCTS, INC., a Delaware corporation (hereinafter
called "TMPI"), and _________________________________________________
(hereinafter called the "Optionee"), but effective as of the date set forth in
Section 2 below.
W I T N E S S E T H:
WHEREAS, Optionee is a key employee of the Company who, during the
course of Optionee's employment with the Company has been, and in the future is
expected to be, engaged in one or more of the manufacturing, marketing,
selling, administrative, management, financial, communications, legal,
engineering, product development, product quality, or other important
activities of the Company and is expected to obtain valuable and proprietary
confidential information of the Company in the course of carrying out
Optionee's duties of employment; and
WHEREAS, the Company wants to encourage Optionee's continued interest
in and loyalty and commitment to the Company and toward that end, the Company
desires to increase Optionee's proprietary interest in the success of the
Company by making it possible for Optionee to acquire an initial or increased
stock ownership interest in the Company on a basis anticipated to be
economically beneficial and favorable to Optionee; and
WHEREAS, as a condition to the Company's willingness to facilitate
Optionee's stock ownership interest in the Company and ancillary to its
undertaking to do so and to impart confidential information to Optionee, the
Company desires to obtain Optionee's commitment to the Company to not disclose
confidential information of the Company and not compete with the Company should
Optionee's employment terminate; and
WHEREAS, Optionee and the Company both recognize and agree that such
commitment by Optionee is necessary to protect the value of the Company for all
of its security holders, including Optionee;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, TMPI and the Optionee hereby agree with each other
as follows:
1. The granting of this Option shall not impose upon the Company
any obligation to employ or continue to employ the Optionee; and the right of
the Company to terminate the
-1-
<PAGE> 2
employment of the Optionee shall not be diminished or affected by reason of the
fact that an option has been granted to Optionee.
2. Subject to the terms and conditions set forth herein, TMPI
hereby grants to the Optionee under the Option Plan the right to purchase up
to, but not exceeding in the aggregate, the number of shares of the common
stock, $.001 par value, of TMPI (the "Common Stock") stated below, during the
period commencing one year after the Effective Date hereof (as stated below)
and ending ten (10) years after the Effective Date hereof, at a price per share
(the "Option Exercise Price") as stated below.
Number of Shares ( )
-------------------------
Option Exercise Price Dollars ($ . )
-------------------------
Effective Date -------------------------
The right and option granted hereunder may be exercised from time to
time as follows: beginning one year after the Effective Date, as to not more
than 1/9 of the total number of shares covered hereby; beginning two years
after the Effective Date, as to any number of shares which, when added to the
number of shares previously purchased under the option, shall not exceed 2/9 of
the total number of shares covered hereby; beginning three years after the
Effective Date, as to any number of shares which, when added to the number of
shares previously purchased under the option, shall not exceed 3/9 of the total
number of shares covered hereby; beginning four years after the Effective Date,
as to any number of shares which, when added to the number of shares previously
purchased under the option, shall not exceed 4/9 of the total number of shares
covered hereby; beginning five years after the Effective Date, as to any number
of shares which, when added to the number of shares previously purchased under
the option, shall not exceed 5/9 of the total shares covered hereby; beginning
six years after the Effective Date, as to any number of shares which, when
added to the number of shares previously purchased under the option, shall not
exceed 6/9 of the total number of shares covered hereby; beginning seven years
after the Effective Date, as to any number of shares which, when added to the
number of shares previously purchased under the option, shall not exceed 7/9 of
the total number of shares covered hereby; beginning eight years after the
Effective Date, as to any number of shares which, when added to the number of
shares previously purchased under the option, shall not exceed 8/9 of the total
number of shares covered hereby; beginning nine years after the Effective Date,
as to any number of shares which, when added to the number of shares previously
purchased under the option shall not exceed the total number of shares covered
hereby.
On each occasion that any shares are purchased hereunder, the shares
so purchased shall be divided into two classes: the "Exercise Cost Shares",
and the "Residual Shares". The Exercise Cost Shares shall consist of the
smallest number of whole shares which, when multiplied by the
-2-
<PAGE> 3
market value of one share of TMPI stock on the exercise date, equals (or
exceeds) the Option Exercise Price multiplied by the total number of shares
being purchased on that occasion. The Company shall use the average of the
high and low prices of TMPI stock on the day of exercise to compute the market
value of one share. All Exercise Cost Shares purchased hereunder shall be
subject to the requirement that the Optionee notify the Company of any
disposition as provided in Section 5 hereof.
The number of shares representing the difference between the total
number of shares the Optionee is purchasing on that occasion and the Exercise
Cost Shares shall be the "Residual Shares". Residual Shares cannot be sold,
transferred, or encumbered for a period of two (2) years after issued under
this option, excluding transfers to the Company, members of the Optionee's
immediate family, or trusts for the benefit of the Optionee or members of the
Optionee's immediate family, provided that any Residual Shares so transferred
(other than to the Company) will remain subject to the remainder of the
two-year prohibition on transfer. In the event of the death of the Optionee,
any Residual Shares held by the Optionee's estate may be transferred free of
the remainder of the two-year prohibition on transfer. Any Residual Shares as
to which the two-year prohibition on transfer has been lifted shall be subject
to the requirement that the Optionee notify the Company of any disposition as
provided in Section 5 hereof. Each certificate representing shares shall bear
a legend reflecting the appropriate restriction.
The option granted hereunder is intended to qualify as an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). However, to the extent that the aggregate fair market value of
the Common Stock (determined at the date of grant of the option) with respect
to which incentive stock options are exercisable for the first time by the
Optionee during any calendar year (under all incentive stock option plans of
TMPI and any parent or subsidiary corporation of TMPI) exceeds $100,000, such
options will not be incentive stock options. For this purpose, options shall
be taken into account in the order in which they were granted.
The option granted hereunder is granted pursuant to and is governed by
the terms of the 1991 Tecnol Stock Option Plan (the "Option Plan").
3. The right and option granted hereunder shall be exercised by
delivering to Tecnol Medical Products, Inc. a written notification specifying
the number of shares which the Optionee desires to purchase, together with
cash, certified check, bank cashier's check or postal or express money order to
the order of Tecnol Medical Products, Inc. for an amount equal to the option
price of such shares, and specifying the address to which the certificates for
such shares are to be mailed. In lieu of payment in cash or the cash
equivalents as described above, Optionee may make payment by tendering to
Tecnol Medical Products, Inc. shares of Common Stock, or by tendering shares of
Common Stock plus cash or such cash equivalents, in amounts such that the
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<PAGE> 4
fair market value of the Common Stock tendered, plus the amount of cash or cash
equivalents paid, if any, equals the option price for the shares to be
purchased.
4. As promptly as practical after receipt of such written
notification and payment and receipt of such evidence of intent to acquire for
investment as may be required by the Company, the Company will deliver to the
Optionee certificates for the number of shares with respect to which such
option has been so exercised, issued in the Optionee's name; provided that such
delivery shall be deemed effected for all purposes when a stock transfer agent
of the Company shall have deposited such certificates in the United States
mail, postage prepaid, addressed to the Optionee, at the address specified
pursuant to Section 3 hereof.
5. If the Optionee shall dispose of any of the shares purchased
hereunder within the later of one year after the transfer of such shares to
Optionee or two years from the effective date of the granting of this option,
then in order to provide the Company with the opportunity to claim the benefit
of any income tax deduction which may be available to it under the
circumstances, the Optionee shall promptly notify the Company of the dates of
acquisition and disposition of such shares, the number of shares so disposed
of, and the consideration, if any, received for such shares. In addition, in
order to help assure that the Company receives notice of any such transfer, any
stock certificate evidencing any shares of Common Stock issued under this
Agreement shall bear a legend substantially as follows for the first year after
issuance of such Common Stock to the Optionee or, if sooner, until such time as
the Optionee certifies in writing to the Company that such Common Stock has
been sold in a bona fide transaction and advises the Company of the amount of
the consideration received for such shares:
"The Company has asked its stock transfer agent to notify the
Secretary of the Company if the securities represented by this
certificate are held of record at any time prior to [applicable date]
in any name other than [applicable name]."
Further, upon request of the Company, from time to time, the Optionee shall
certify in writing the dates of acquisition and any dispositions of such Common
Stock on or before the first anniversary of the issuance of such Common Stock
to the Optionee, the number of shares so disposed of, and the consideration, if
any, received for such shares.
6. Except as is otherwise expressly provided in this Agreement,
the option herein granted shall terminate immediately upon the severance of the
employment relationship between the Company and the Optionee by the Company for
serious violation of Company policy or intentional misconduct, and two weeks
after the severance of the employment relationship between the Company and the
Optionee for any reason, other than for serious violation of Company policy or
intentional misconduct or on account of death or retirement in good standing
from the employ
-4-
<PAGE> 5
of the Company for reasons of age or total and permanent disability under the
then established rules of the Company. For purposes of this Agreement,
"Company" shall mean Tecnol Medical Products, Inc. and any corporation in which
Tecnol Medical Products, Inc. owns, directly or indirectly, stock possessing
eighty percent or more of the total combined voting power of all classes of
stock; and, any corporation in which Tecnol Medical Products, Inc. owns,
directly or indirectly, stock possessing fifty percent or more of the total
combined voting power of all classes of stock, if the Board of Tecnol Medical
Products, Inc. resolves that such other corporation shall be so defined.
Whether authorized leave of absence or absence on military or government
service shall constitute severance of the employment relationship between the
Company and the Optionee shall be determined by the Committee appointed by the
Board of Directors of TMPI to administer the Option Plan (the "Committee"). In
the event of the death of the Optionee while in the employ of the Company and
before the date of expiration of this option, this option shall terminate one
year following the date of death of the Optionee. After the death of the
Optionee, Optionee's executors, administrators, or any person or persons to
whom this option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to such termination, to
exercise the option granted hereunder, in whole or in part. If, before the
date of expiration of this option, the Optionee shall be retired in good
standing from the employ of the Company for reasons of age or total and
permanent disability under the then established rules of the Company, this
option shall terminate three months (twelve months in the case of retirement
for disability) after the date of such retirement. However, in the event of
such retirement, the Optionee shall have the right prior to the termination of
such option to exercise the option to the extent to which Optionee was entitled
to exercise the option immediately prior to such retirement. Provided,
however, nothing in this Section shall operate to extend this option beyond 10
years after the Effective Date hereof.
7. Whenever the word "Optionee" is used in any provision of this
Agreement under circumstances where the provisions should logically be
construed to apply to the executors, administrators or the person or persons to
whom the option may be transferred by will or by the laws of descent and
distribution, the word "Optionee" shall be deemed to include such person or
persons.
8. This option is not transferable by the Optionee otherwise than
by will or under the laws of descent and distribution, and is exercisable,
during Optionee's lifetime, only by Optionee. No assignment or transfer of
this option, or of the rights represented thereby, whether voluntary or
involuntary, by operation of law or otherwise (except by will or by the laws of
descent and distribution) shall vest in the assignee or transferee any interest
or right herein whatsoever, but immediately upon any such assignment or
transfer this option shall terminate and become of no further effect.
-5-
<PAGE> 6
9. The Optionee shall not be deemed for any purpose to be a
stockholder of TMPI in respect of any shares as to which this option shall not
have been exercised, as herein provided, and until such shares shall have been
issued to the Optionee by TMPI hereunder.
10. The existence of this option shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
11. The shares with respect to which this option is granted are
shares of the Common Stock of TMPI as presently constituted, but if, and
whenever, prior to the delivery by TMPI of all the shares of the Common Stock
with respect to which this option is granted, TMPI shall effect a subdivision
or consolidation of shares or other capital readjustment, the payment of a
stock dividend, or other increase or reduction of the number of shares of the
Common Stock outstanding, without receiving compensation therefor in money,
services or property, then (a) in the event of an increase in the number of
such shares outstanding, the number of shares of Common Stock then remaining
subject to option hereunder shall be proportionately increased, and the option
price per share shall be proportionately reduced; and (b) in the event of a
reduction in the number of such shares outstanding, the number of shares of
Common Stock then remaining subject to option hereunder shall be
proportionately reduced, and the option price per share shall be
proportionately increased.
12. After a merger of one or more business entities into TMPI,
after a consolidation of TMPI and one or more business entities, or upon the
sale, dissolution or liquidation of TMPI, the Board of Directors of TMPI shall
determine the disposition of this option in accordance with the alternatives
set forth in Section 14 of the Option Plan.
13. Except as hereinbefore expressly provided, the issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property or for labor or services, either
upon direct sale, upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to this option.
14. Notwithstanding any of the provisions hereof, the Optionee
hereby agrees that Optionee will not exercise the option granted hereby, and
that the Company will not be obligated to issue any shares to the Optionee
hereunder, if the exercise hereof or the issuance of such shares
-6-
<PAGE> 7
shall constitute a violation by the Optionee or the Company of any provisions
of any law or regulations of any governmental authority. If, at any time
specified herein for the issuance of shares to the Optionee, any law or
regulation shall require either the Company or the Optionee to take any action
in connection with the shares then to be issued, the issuance of such shares
shall be deferred until such action shall have been taken. Any determination in
this connection by the Committee shall be final, binding and conclusive. The
Company shall in no event be obligated to register any securities pursuant to
the Securities Act of 1933 (as now in effect or as hereafter amended) or to
take any other affirmative action in order to cause the exercise of the option
or the issuance of shares pursuant thereto to comply with any law or regulation
of any governmental authority.
15. Every notice or other communication relating to this Agreement
shall be in writing, and shall be mailed to or delivered to the party for whom
it is intended at such address as may from time to time be designated by it in
a notice mailed or delivered to the other party as herein provided; provided
that, unless and until some other address be so designated, all notices or
communications by the Optionee to the Company shall be addressed to the
President of TMPI and mailed or delivered to TMPI at its office at 7201
Industrial Park Blvd., Fort Worth, Texas 76180, and all notices or
communications by the Company to the Optionee may be given to the Optionee
personally or may be mailed to Optionee at Optionee's address as shown in the
records of the Company.
16. (a) The Optionee recognizes and acknowledges that:
(1) "Company-Type Products" means the types of
products that the Company is and will be engaged in
developing, manufacturing, marketing and selling, such as, but
not limited to, the following: reusable orthopedic soft
goods; face masks and respirators; all disposable restraints,
holders, binders, supports, pads, protectors, straps, ice
packs, telemetry unit pouches, wash mitts, caps, shoe covers,
wound dressings, and other health care and industrial
disposable items developed, manufactured, marketed or sold by
the Company during Optionee's employment with the Company;
and, if Optionee engages in Technical Activities of the
Company (as defined below) at any time during Optionee's
employment with the Company, any components or raw materials
for use in any of the above which were the subject of research
and/or development during Optionee's employment with the
Company.
(2) If Optionee, at any time during the course of
Optionee's employment with the Company, is engaged in the
manufacturing, engineering and/or product development
activities of the Company ("Technical Activities") such as
manufacturing existing Company-Type Products, improving and
enhancing
-7-
<PAGE> 8
Company-Type Products, and developing new Company-Type
Products, then, during the course of Optionee's employment,
Optionee will likely (a) engage in research and
experimentation to create and improve the design of such
products; (b) design and manufacture special machinery that is
used to manufacture, automatically inspect and/or package such
products; (c) develop and design sonic bonding equipment used
in such machines; (d) design and develop specifications and
manufacturing processes for materials used in Company-Type
Products including, without limitation, films, and non-woven
fabrics; and/or (e) design and manufacture machines used to
manufacture such materials in the performance of Optionee's
duties. The Company's success and innovation in developing
new, and in enhancing existing, Company-Type Products and in
developing and improving the materials and machinery used in,
and to manufacture, its Company-Type Products confers on the
Company a significant competitive advantage against its
competitors. The continued confidentiality of these aspects of
the Company's business are vital to its business.
(3) If Optionee, at any time during the course of
Optionee's employment with the Company, is engaged in the
financial, legal, administrative, management, marketing,
sales, or communication activities of the Company ("Sales and
Administrative Activities") then the Optionee will become
familiar with or have access to extensive confidential
information pertaining to the business of the Company, which
may include, without limiting the forgoing, and depending upon
Optionee's specific employment duties, names of customers of
the Company and the prices it obtains or has obtained from
customers or for which it sells or has sold its products,
sources for materials used in the Company's products, contract
relationships between the Company and its customers and
suppliers, confidential business and financial data of the
Company, information pertaining to the Company's employees
(including, without limitation, information concerning
compensation and benefit programs), information regarding the
Company's costs, information about the Company's products and
anticipated new products, forecasts, plans, objectives,
investment opportunities, and long term business strategies
and plans of the Company. This confidential information is of
strategic importance to the Company in its ability to
successfully compete. The continued confidentiality of this
information is vital to the Company's business.
(4) The Company has established a valuable and
extensive trade in its Company-Type Products as well as
business connections and customers which are of significant
value to it.
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<PAGE> 9
(5) By virtue of Optionee's employment, Optionee
acknowledges that Optionee holds a position of trust with
respect to the confidential information of the Company made
accessible to Optionee, and that the Company will suffer
irreparable injury if during Optionee's employment or at any
time subsequent to the termination of such employment,
Optionee should, directly or indirectly, enter into
competition with the Company or divulge such secret and
confidential information to competitors or potential
competitors of the Company.
(6) It is expected that Optionee, during
Optionee's employment by the Company, may conceive or generate
(alone or together with others) inventions, discoveries or
ideas, and it is recognized that the ownership thereof should
be and will be in the Company.
(7) The covenants and conditions contained herein
are reasonable and necessary for the protection of the
Company's business. In this regard, Optionee recognizes that
the descriptive scope of the confidential information
described in Section 16 and the territory covered by the non-
competition covenants in Section 16 hereof are reasonable in
light of the fact that the work that Optionee will perform for
the Company as its employee will contribute to the manufacture
or sale of products that will be sold to end users (directly
or in many cases through intermediary distributors) located
throughout the Geographic Region described in Section 16(f).
(b) Optionee covenants and agrees that Optionee will not at
any time during Optionee's employment or thereafter, in any fashion,
form or manner, either directly or indirectly, except to the extent
necessary to carry out Optionee's employee responsibilities for the
benefit of the Company, divulge, disclose or communicate to any
person, firm, partnership, corporation or enterprise in any manner
whatsoever any information of any kind, nature or description
concerning any matters affecting or relating to the business of the
Company, including without limitation, (i) research conducted by the
Company in connection with product development, manufacturing
processes, machinery construction, product materials or otherwise,
(ii) the manufacturing methods or processes used or under development
by the Company for its products, machines and materials, (iii) the
nature or properties of the materials used by the Company in its
products or under development, and supply sources of such materials,
(iv) the names of any of the Company's customers and the prices it
obtains or has obtained or for which it sells or has sold its
products, (v) contract relationships between the Company and its
customers and suppliers, (vi) confidential business and financial data
of the Company, (vii) information pertaining to the Company's
employees (including, without limitation, information concerning
compensation and benefit programs), (viii) information regarding the
Company's costs,
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<PAGE> 10
(ix) information about the Company's products and anticipated new
products, (x) forecasts, plans, objectives, investment opportunities,
and long term business strategies and plans of the Company, and (xi)
any other information of, about or concerning the business of the
Company, its manner of operations, its plans, processes or other data
of any kind, nature or description. The Optionee and Company agree
that the foregoing information is important, material and confidential
and substantially affects the successful conduct of the business of
the Company, and its good will, regardless whether any or all of the
foregoing matters would be deemed to be "trade secrets" as defined by
law. Optionee may have occasion to learn other information as a
consequence of or through Optionee's employment with the Company, such
as information from or about suppliers, customers, competitors and
others. This information generally is obtained by the Company by
studying competitive products, by requesting information from such
other companies, by doing various studies and the like. Such
information in some cases may not be proprietary to the Company but
nevertheless the Company learns such information in the course of its
business, keeps such information secret (because it is costly and
useful information), and legitimately uses such information in
connection with its business. Optionee agrees Optionee will not use
or disclose, or permit such information to be disclosed or used except
in furtherance of Optionee's duties for the Company and agrees not to
use or disclose such information in violation of any obligations or
duties which Optionee or the Company has to any third party. The
parties agree that any breach of the terms of this Section 16(b) is a
material breach of this Agreement. The Company considers, and the
Optionee agrees, that all such information is the Company's sole and
exclusive property, and Optionee agrees to promptly deliver all such
information in tangible form as well as all other correspondence,
memoranda, notes, records, reports, plans, customer lists and all
other papers (and copies thereof) and all electronically stored or
computerized data to the Company either upon the Company's request or
upon any termination of this Agreement. The Company agrees to provide
Optionee with access to and the right to use in the performance of
Optionee's duties to the Company the confidential, proprietary and
other business information and trade secrets described above in this
Section 16 in consideration of the covenants of Optionee of
non-disclosure and non- competition set forth in this Section 16.
(c) All "Inventions" made or conceived by the Optionee,
solely or with others, while employed by the Company, either during or
after working hours, or within a period of one (1) year after
termination of Optionee's employment, which are useful in or related
to the business of the Company or which have been made or conceived,
wholly or partially, with the use of the Company's time, material or
facilities, shall belong exclusively to the Company. The Optionee
agrees that Optionee shall have no claim for additional compensation
for such Inventions. The Optionee agrees promptly to disclose in
accordance with Company procedures any such Invention promptly and
fully by a
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<PAGE> 11
written report, setting forth in detail the structures, procedures and
methodology employed and the results achieved. In addition, full
reports and records shall be kept in accordance with Company practices
during and on completion of any study or research project undertaken
on the Company's behalf, whether or not in Optionee's opinion a given
study or project has resulted in an Invention. For purposes hereof
the term "Invention" means any discovery, concept, idea, whether
patentable or not, relating to any present or prospective activities
of the Company, including, but not limited to, devices, processes,
methods, formulae, techniques, and any improvements to any of the
foregoing. The Optionee hereby assigns and agrees to assign to the
Company all of Optionee's rights to such Inventions and to all
proprietary rights therein, based thereon or related thereto,
including, but not limited to, applications for United States and
foreign letters patent and resulting letters patent. At the request
of the Company, either before or after termination of Optionee's
employment, Optionee shall assist the Company in acquiring and
maintaining patent protection upon and confirming its title to such
Inventions. Optionee's assistance shall include the signing of
applications for patent assignments and other papers, and taking any
other steps considered desirable by the Company.
(d) Ancillary to, and in order to further assure that the
Optionee will not violate Optionee's covenants of non-disclosure of
confidential, proprietary and other business information of the
Company set forth in Section 16(b) hereof or Optionee's obligations
respecting Inventions under Section 16(c), and ancillary to the rest
of this Agreement and in consideration of each of the foregoing,
Optionee covenants and agrees that for the Applicable Period (as
defined below) after termination of Optionee's employment for any
reason, Optionee will not, for any reason, anywhere in the Geographic
Region (as defined below), directly or indirectly, as an employee,
employer, consultant, agent, principal, partner, stockholder, officer,
director, or in any other individual or representative capacity:
(1) engage or participate in any business that:
(A) is engaged, directly or indirectly, in the
sale or marketing of any product that is the same as or
similar to or competitive with any Company-Type Product which
was sold or marketed by the Company during Optionee's
employment with the Company; or
(B) is engaged, directly or indirectly in
research for or the development or manufacture of any product
that is the same as or similar to or competitive with any
Company-Type Product which was the subject of research or
development or which was manufactured, by the Company during
Optionee's employment with the Company; or
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<PAGE> 12
(C) is engaged, directly or indirectly, in the
research, development, manufacture, sale or marketing of any
item made from film or non-woven fabric bonded through a sonic
bonding manufacturing process; or
(D) is engaged, directly or indirectly, in the
research, development, manufacture, use, sale or marketing of
any manufacturing equipment that (i) uses computers in
automated manufacturing; or (ii) is used to produce products
made of film or non-woven fabric; or (iii) uses an automated
or computerized product inspection system, because equipment
similar in function or design to any of the foregoing
equipment would be similar to equipment developed or
manufactured by the Company during the course of Employee's
employment; or
(E) is engaged, directly or indirectly, in the
business described in clause (D) above, if such machines are
designed to be used to manufacture Company-Type Products; or
(2) recruit, or hire, or attempt to recruit or hire,
directly or by assisting others, any other employee or consultant of
the Company or give any advice or counsel with respect to the hiring
of any person who shall have been an employee of the Company at any
time within the two-year period immediately preceding such hiring,
advice or counsel.
(e) Ancillary to, and in order to further assure that Optionee
will not violate Optionee's covenants of non-disclosure of confidential,
proprietary and other business information of the Company set forth in Section
16(b) herein, or Optionee's obligations respecting Inventions under Section
16(c), and ancillary to the rest of this Agreement and in consideration of
each of the foregoing, Optionee covenants and agrees that for the Applicable
Period after termination of Optionee's employment for any reason Optionee will
not, for any reason, anywhere outside the Geographic Region (as defined below),
directly or indirectly, as an employee, employer, consultant, agent, principal,
partner, stockholder, officer, director, or in any other individual or
representative capacity engage or participate in any business described in
paragraph (d)(1) of this Section 16 if in fact such business is shipping the
products or equipment described therein to any country included in the
Geographic Region. Optionee recognizes that the foregoing covenant is
necessary to prevent Optionee from indirectly competing with the Company in a
prohibited manner inside the Geographic Region.
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<PAGE> 13
(f) Geographic Region means United States, Canada, Japan, Puerto
Rico, Mexico, Australia and the countries included in the European Economic
Community; and, if Optionee was directly engaged in selling Company-Type
Products in any other country while employed by the Company, then in such other
country.
(g) If Optionee engages in Technical Activities at any time during
Optionee's employment with the Company, then, for purposes of Sections 16(d)(1)
and (2) and 16(e), Applicable Period means:
<TABLE>
Period For Conduct Described in Clause
------ -------------------------------
<S> <C>
6 months (d)(1)(A)
2 years (d)(1)(B)
2 years (d)(1)(C)
2 years (d)(1)(D)
3 years (d)(1)(E)
2 years (d)(2)
</TABLE>
and, if Optionee engages in Sales and Administrative Activities at any time
during Optionee's employment with the Company, then, for purposes of Sections
16(d)(1) and (2) and 16(e), "Applicable Period" means:
<TABLE>
Period For Conduct Described in Clause
------ -------------------------------
<S> <C>
2 years (d)(1)(A)
2 years (d)(1)(B)
6 months (d)(1)(C)
6 months (d)(1)(D)
1 year (d)(1)(E)
2 years (d)(2)
</TABLE>
If Optionee engages in Technical Activities and in Sales and
Administrative Activities during Optionee's employment with Company then the
Applicable Period shall be the longer period designated for specific conduct.
(h) Optionee agrees to provide to any future employer a copy of
the covenants contained in this Section 16 and agrees that the Company may do
so as well.
(i) During the term of Optionee's employment, Optionee shall not
do any act that is prohibited following termination of Optionee's employment
under Section 16.
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<PAGE> 14
(j) The ownership of less than 2% of a publicly traded company
will not, in and of itself, violate Section 16.
(k) Both the Company's rights and the Optionee's duties under this
Section 16 shall survive any termination of this Agreement. If Optionee
violates any covenant contained in Section 16 of this Agreement, the Company
shall not, as a result of the time involved in obtaining relief, be deprived of
the benefit of the full period of any such covenant. Accordingly, the
covenants of Optionee contained in Section 16 shall be deemed to have the
durations specified therein, which periods shall commence upon the later of (i)
the termination of Optionee's employment with the Company and (ii) the later to
occur of: (A) the date of entry of a final judgment enforcing the covenants of
Optionee under Section 16, as the case may be or (B) the date on which Optionee
permanently ceases such violation.
(l) The Optionee recognizes that the remedy of damages for breach or
threatened breach of the provisions of this Section 16 would be inadequate and
that the harm occasioned by such breach would be irreparable, and accordingly,
Optionee expressly agrees that in the event of a breach or threatened breach by
Optionee of any of the provisions of this Section 16, the Company will be
entitled to an injunction, without the requirement of posting bond, restraining
Optionee from violating the terms hereof, or from rendering services to any
person, firm, corporation, association, or other entity to whom any
confidential information concerning or relating to the business of the Company
has been disclosed or may be threatened to be disclosed, or for whom Optionee
is working or rendering services, or threatens to work or render services in
violation of the terms hereof. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach of this Section 16, including recovery of
damages from Optionee. Optionee's allegation of or the existence of any claim
against the Company, under this Agreement or otherwise, will not constitute a
defense to the Company's enforcement of this Section.
(m)
(1) The parties recognize and agree that it may be
difficult if not impossible for the Company to prove the existence of
a breach of the Optionee's covenants of confidentiality and non-
disclosure under Section 16(b) of this Agreement. The parties further
recognize and agree that the non-competition covenants contained in
Section 16(d) and (e) are necessary to support the legitimate business
interests of the Company in preserving the confidentiality and secrecy
of and control over such confidential information and its business
goodwill and are ancillary to, supportive of, and a part of this
Agreement, are ancillary to the
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<PAGE> 15
Company's undertaking to facilitate Optionee's stock ownership
in the Company, and are necessary as a means of ensuring
compliance by Optionee with such confidentiality covenants.
(2) The existence of any claim or cause of action
of Optionee against the Company or any officer, director, or
shareholder of the Company, that is predicated on this
Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants of the Optionee
contained in this Section 16. In addition, the provisions of
this Section 16 shall continue to be binding upon Optionee in
accordance with their terms, notwithstanding the termination
of Optionee's employment with the Company for any reason.
(3) The parties acknowledge and agree that the
time, scope, territory and other provisions of this Section 16
are reasonable under the circumstances. The parties further
agree that if at any time despite the express agreement of the
parties hereto, it is held through enforcement proceedings
that any portion of Section 16 is unenforceable by reason of
its being too extensive in any respect, then it shall be
interpreted and reformed to extend only over the maximum
period of time for which it may be enforceable and over the
maximum geographical area as to which it may be enforceable
and to the maximum extent in all other respects as to which it
may be enforceable.
17. This Agreement constitutes the entire agreement between the
parties and may not be amended except by an instrument in writing executed by
both parties.
18. This Agreement has been executed and will be performed in the
State of Texas and will be governed by and construed in accordance with the
laws of the State of Texas except to the extent limited in Section 20 hereof.
19. If any one or more provisions of this Agreement shall be held
to be invalid, illegal or unenforceable in any respect in any jurisdiction, the
validity, legality or enforceability of the remaining provisions of this
Agreement in such jurisdiction shall not in any way be affected or impaired
thereby. Further, in lieu of such invalid, illegal, or unenforceable
provision, there shall be deemed inserted a provision as close in scope and
content to such provision as possible while remaining valid, legal and
enforceable in such jurisdiction.
20.
(a) Any dispute arising out of or relating to the
interpretation, validity, or enforcement of Section 16 of this
Agreement shall be settled by binding arbitration in
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<PAGE> 16
accordance with the then current Commercial Arbitration Rules of the
American Arbitration Association. Either party may initiate an
arbitration proceeding in accordance with such Rules. The arbitration
shall be conducted by a panel of three independent arbitrators
appointed in accordance with such Rules. The arbitration shall be
governed solely by the United States Arbitration Act notwithstanding
any other provision of this Agreement to the contrary. If the
arbitrators determine that a breach of any of the provisions of
Section 16 has occurred or is threatened then, at the request of the
Company, the arbitrators shall award temporary or permanent injunctive
relief in favor of the Company, as it may request, restraining and
enjoining any further such breach. Such award shall be in addition to
and not in lieu of any other relief to which the Company may be
entitled, including, without limitation, damages arising out of any
such breach. The arbitrators shall enter any award in form sufficient
to permit judgment upon the award to be entered by, and to permit an
order for contempt enforcing compliance with such judgment to be
entered by, a court of competent jurisdiction.
(b) Prior to the hearing on the merits in an arbitration
proceeding to enforce the provisions of Section 16 hereof, in order to
maintain the status quo pending such hearing, the Company shall have
the right to seek and obtain temporary or preliminary injunctive
relief from a court of competent jurisdiction restraining Optionee
from violating the provisions of Section 16.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TECNOL MEDICAL PRODUCTS, INC.
-----------------------------------
Optionee
-----------------------------------
Street address
By:
---------------------------- -----------------------------------
President City State/County Zip Code
-16-
<PAGE> 1
Exhibit 11
TECNOL MEDICAL PRODUCTS, INC.
COMPUTATION OF EARNINGS PER SHARE
The following table reconciles the number of common shares outstanding with the
number of common and common equivalent shares used in computing earnings per
share:
<TABLE>
<CAPTION>
December 2, December 2, November 30,
PRIMARY EARNINGS PER SHARE 1994 1995 1996
- -------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Common shares outstanding at year-end 19,863,337 19,933,969 19,957,491
Effect of using weighted average common and
common equivalent shares outstanding
during the period (37,854) (28,792) (8,737)
Effect of unearned employee stock ownership
plan shares (135,000) (105,000) (75,000)
Effect of assuming exercise of outstanding
stock options based on the treasury stock
method 251,534 322,897 218,080
---------- ---------- ----------
Shares used in computing primary earnings
per share 19,942,017 20,123,074 20,091,834
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 2, December 2, November 30,
FULLY DILUTED EARNINGS PER SHARE 1994 1995 1996
- -------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Common shares outstanding at year-end 19,863,337 19,933,969 19,957,491
Effect of using weighted average common and
common equivalent shares outstanding
during the period - - -
Effect of unearned employee stock ownership
plan shares (135,000) (105,000) (75,000)
Effect of assuming exercise of outstanding
stock options based on the treasury stock
method 328,740 327,458 219,634
---------- ---------- ----------
Shares used in computing primary earnings
per share 20,057,077 20,156,427 20,102,125
========== ========== ==========
</TABLE>
<PAGE> 1
Exhibit 21
Subsidiaries of
Tecnol Medical Products, Inc.
Date: February 21, 1997
Tecnol, Inc. (Delaware)
TCNL Technologies, Inc. (Delaware)
La Ada de Acuna, S.A. (Mexico)
La Compania Que Innova, S.A. de C.V. (Mexico)
Tecnol International (V.I.) Inc. (Virgin Islands)
Tecnol New Jersey Wound Care, Inc. (New Jersey)
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed S-8
Registration Statements File No. 33-42995, No. 33-46712, File No. 333-03916,
and File No. 333-03918.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
February 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TECNOL
MEDICAL PRODUCTS, INC. 10K FILING FOR FISCAL YEAR 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THIS DOCUMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-03-1995
<PERIOD-END> NOV-30-1996
<CASH> 4,355,033
<SECURITIES> 0
<RECEIVABLES> 24,858,157
<ALLOWANCES> 1,497,000
<INVENTORY> 32,036,334
<CURRENT-ASSETS> 65,368,051
<PP&E> 73,949,849
<DEPRECIATION> 25,278,736
<TOTAL-ASSETS> 159,499,704
<CURRENT-LIABILITIES> 16,823,126
<BONDS> 9,264,736
0
0
<COMMON> 21,117
<OTHER-SE> 127,211,126
<TOTAL-LIABILITY-AND-EQUITY> 159,499,704
<SALES> 144,393,430
<TOTAL-REVENUES> 144,393,430
<CGS> 82,591,654
<TOTAL-COSTS> 82,591,654
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,710,000
<INTEREST-EXPENSE> 829,884
<INCOME-PRETAX> 23,987,496
<INCOME-TAX> 7,986,601
<INCOME-CONTINUING> 16,000,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,000,895
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0<F1>
<FN>
<F1> Primary and fully diluted net income per share are not materially
different.
</FN>
</TABLE>
