-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AkWdna0+R5oF8r6ifN7ILbWq+KtTfv7c0G3J8xQL4M3jyn0klJmtAK8fmgdiwWx3 097HKA5X+OmlZO/vYUevfg== 0001024739-97-000670.txt : 19971030 0001024739-97-000670.hdr.sgml : 19971030 ACCESSION NUMBER: 0001024739-97-000670 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19971029 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERIDIAN MEDICAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000095676 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 520898764 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-05958 FILM NUMBER: 97703191 BUSINESS ADDRESS: STREET 1: 10240 OLD COLUMBIA RD STREET 2: STE 100 CITY: COLUMBIA STATE: MD ZIP: 21046 BUSINESS PHONE: 4103096830 MAIL ADDRESS: STREET 1: 10240 OLD COLUMBIA ROAD CITY: COLUMBIA STATE: DE ZIP: 21046- FORMER COMPANY: FORMER CONFORMED NAME: SURVIVAL TECHNOLOGY INC DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended July 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____________ to ___________. Commission File Number 0-5958 MERIDIAN MEDICAL TECHNOLOGIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 52-0898764 -------- ---------- (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 10240 Old Columbia Road, Columbia, Maryland 21046 - ------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 410-309-6830 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section (12g) of the act: Common Stock, $.10 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 any amendment to this Form 10-K. [ ] As of (October 27, 1997), the aggregate market value of voting stock held by non-affiliates of the Registrant, based on the average of the high and low sales prices of such stock reported by the National Association of Securities Dealers, Inc. on such date, was approximately $18.6 million. There were 2,912,502 shares of Registrant's common stock outstanding as of September 30, 1997 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Meridian Medical Technologies, Inc. definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended July 31, 1997 are incorporated by reference into Part III of this Form 10-K. ================================================================================ (End of cover page) 2 TABLE OF CONTENTS PART I Item 1. BUSINESS Page ---- General ....................................................... 4 Products and Services ......................................... 5 Injectable Drug Delivery System ...................... 5 STI Military Systems ................................. 6 Cardiopulmonary Systems .............................. 7 Competition ................................................... 9 Backlog and Renegotiation ..................................... 9 Research and Development ...................................... 10 Patents, Trademarks, and Licenses ............................. 10 Product Liability Insurance ................................... 10 Cost Reduction Program ........................................ 11 Government Regulation ......................................... 11 Employees ..................................................... 12 Item 2. PROPERTIES .................................................... 13 Item 3. LEGAL PROCEEDINGS ............................................. 13 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 14 EXECUTIVE OFFICERS OF THE REGISTRANT (Unnumbered Item) ............................................ 14 3 TABLE OF CONTENTS PART II Page ---- Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS ............................. 15 Item 6. SELECTED FINANCIAL DATA...................................... 16 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 17 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 20 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .................................... PART III Items 10 Through 13. (Incorporated by reference from the definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended July 31, 1997, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of that fiscal year)........................... PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K ......................................... Signatures ........................................................... 4 Certain statements in this Annual Report on Form 10-K are forward-looking and are identified by the use of forward-looking words or phrases such as "will be positioned", "expects", is or are "expected", "anticipates", and "anticipated". These forward-looking statements are based on the Company's current expectations. Because forward-looking statements involve risks and uncertainties, the Company's actual results could differ materially. In addition to the factors discussed under "Business--Competition", "Business--Product Liability Insurance" and "Business--Government Regulation", among the factors that could cause results to differ materially from current expectations are: (i) the general economic and competitive conditions in markets and countries where the Company and its subsidiaries offer products and services; (ii) changes in capital availability or costs; (iii) fluctuations in demand for certain of the Company's products, including changes in government procurement policy; (iv) technological challenges associated with the development and manufacture of current and anticipated products; (v) commercial acceptance of auto-injectors and competitive pressure from traditional and new drug delivery methods; and (vi) delays, costs and uncertainties associated with government approvals required to market new drugs and medical devices. PART I ITEM 1. BUSINESS GENERAL Meridian Medical Technologies, Inc. (hereinafter referred to as the "Company" or "MMT" or "Meridian") was formed in November 1996 through the merger of Survival Technology, Inc. ("STI") and Brunswick Biomedical Corporation ("Brunswick"). At the time of the merger, Brunswick held approximately 61% of STI's outstanding common stock, which Brunswick purchased from the estate of STI's late founder on April 15, 1996. As a result, STI had been treated for financial accounting purposes as a consolidated, majority-owed subsidiary of Brunswick from that date. Upon completion of the merger, STI was the surviving corporation as a legal matter but the merger was recorded as a purchase of STI by Brunswick for financial accounting purposes. This merger of STI and Brunswick brought together two companies with a long standing historical relationship that had complimentary business synergies and marketing strategies. Both companies were focused on the rapidly growing home healthcare and emergency healthcare markets. STI was a publicly traded company that primarily sold auto-injectors to commercial and military markets. Brunswick was a privately held Company with core technologies focused on enhancing the diagnosis of cardiac ischemia and arrhythmias. Brunswick was primarily a research and development Company focused on the development of the PRIME ECG(TM) cardiac analysis system. MMT, through its predecessor company, STI, pioneered the development of auto-injectors for the self-administration of injectable drugs. An auto-injector is a spring-loaded, prefilled, pen-like device that allows a patient to automatically inject a precise drug dosage quickly, safely, reliably and, with the new TRUJECT(TM) platform, without seeing the needle. The auto-injector is a convenient, disposable, one-time use device designed to improve the medical and economic value of many drug therapies. The product is well-suited for the administration of certain drugs, including epinephrine for the treatment of allergic reactions, lidocaine for the treatment of cardiac arrhythmias, morphine for the treatment of pain and antidotes and diazepam for the treatment of nerve gas poisoning and other chemical and biological exposures in battlefield conditions. MMT also supplies customized drug delivery system design, pharmaceutical research and development and GMP-approved sterile product manufacturing to pharmaceutical and biotechnology companies. 5 The Company has three primary areas of business: Injectable Drug Delivery Systems, STI Military Systems and Cardiopulmonary Systems. The Injectable Drug Delivery and STI Military business both utilize the Company's auto-injector technology, while the Cardiopulmonary business utilizes the Company's electrocardiology and telemedicine technologies. The Company expects to realize significant revenue growth from commercial applications of its auto-injector products as a result of product development, expansion into new therapeutic areas such as migrane, growth hormones and fertility, and the recently announced alliances with Mylan Laboratories and Genpharm. Management also anticipates growth in its telemedicine products and believes that the PRIME ECG(TM) cardiac analysis system has the potential to become a significant source of revenue and profitability for the Company. Military auto-injector revenues are expected to increase at a more moderate pace through international market expansion, new product development and expanding civil defense applications for the Company's products. PRODUCTS AND SERVICES Injectable Drug Delivery Systems Currently, the substantial majority of the Company's commercial (i.e., non-military) sales come from its epinephrine auto-injectors, the EpiPen(R) and EpiE-Zpen(TM). The EpiPen(R) and EpiE-Zpen(TM) are prescribed to patients at risk of anaphylaxis resulting from severe allergic reactions to bee stings, insect bites, foods, drugs and exercise-induced anaphylaxis. These auto-injectors permit the immediate self-injection of epinephrine, the drug of choice for emergency treatment of such conditions. Each of these auto-injectors has a junior version for children. The EpiPen(R), was the Company's first commercial auto-injector. In fiscal 1996, the Company launched the EpiE-Zpen(TM), which has a more streamlined design to better serve the consumer market and additional safety features and product quality enhancements, including push button activation. Demand for the EpiPen(R) and EpiE-Zpen(TM) has grown at double-digit rates over the last several years. The Company markets the EpiPen(R) and EpiE-Zpen(TM) through Dey Laboratories, Inc. (formerly Center Laboratories), a subsidiary of E. Merck, a major pharmaceutical Company based in Germany. Dey Laboratories has a co-marketing agreement with ALK, Inc., a Danish Company, for international markets in 13 foreign countries. The Company also produces the LidoPen(R) auto-injector which is the same delivery system as the EpiPen(R), except that it is prefilled with lidocaine hydrochloride for self-injection by persons experiencing a serious cardiac event. The LidoPen(R) is sold primarily in connection with the sale of the CardioBeeper(R) ECG transmitter sold by the Cardiopulmonary Systems business. On October 8, 1997, the Company announced a product exchange program for all of its EpiEZPen(R) product sold since March 1996 (approximately 500,000 units). This exchange program was initiated after a minimal amount of units (less than 10 units) were returned for premature activation in the package. Management has performed an analysis of potential costs of the exchange program and made their best estimate regarding these costs. The estimated cost of the exchange program is $1.5 million and is included in fiscal 1997 results of operations. Actual costs could differ materially from management's estimates. The Company has not included any anticipated cost sharing of this exchange with potentially responsible parties as the benefit and probability of such an arrangement are not determinable at this time. The Company believes the exchange will be substantially complete by the end of fiscal 1998 and that the impact on future business is anticipated to be minimal. 6 Meridian is aggressively pursuing new products to further capitalize on its auto-injector technologies. The Company launched its new TRUJECT(TM) auto-injector in June 1997. TRUJECT(TM) is an innovative and low cost single use disposable auto-injector utilizing a technology platform that could replace existing auto-injector applications. TRUJECT(TM) incorporates the latest safety features plus a needle cover which prevents contamination and shields the needle from view during self-injection. TRUJECT(TM) utilizes dental cartridge technology, which is the container of choice for many commercial drug delivery systems due to its low cost and ease of manufacturing. The Company believes that the new TRUJECT(TM) technology coupled with the Company's drug development and manufacturing capabilities will fuel significant growth in the its Injectable Drug Delivery business. In April 1997, Meridian announced a long term strategic alliance with Mylan Laboratories ("Mylan") in which Meridian will license, develop and manufacture a line of generic injectable drugs to be marketed by Mylan. This alliance could result in significant sales growth for its Injectable Drug Delivery business over the next three to five years. In fiscal 1997, the Company filed abbreviated new drug applications ("ANDA's") for its first generic products under the Mylan alliance. Regulatory approval of these ANDA's is expected in late fiscal 1998 or early fiscal 1999. In June 1997, Meridian announced an alliance with Genpharm, Inc., a subsidiary of E. Merck, for the marketing of a major generic injectable pharmaceutical drug in Canada and Europe. The Company is also working with other pharmaceutical companies under development contracts to identify other drugs suitable for administration using Meridian's auto-injector technologies and injectable drug manufacturing capabilities. The Injectable Drug Delivery business also has complete sterile parenteral Contract Filling and Packaging services for a broad range of sterile injectable dosage forms which includes vials, dental cartridges and pre-filled ready-to-use syringes. Further, the Injectable Drug Delivery business provides fully validated formulation and aseptic filling services and regulatory assistance for those pharmaceutical and biotechnology companies not currently possessing such capabilities. The Company also supplies customized drug delivery system design, GMP-approved sterile product manufacturing and pharmaceutical research and development to a number of different companies. Development programs include feasibility and stability studies as well as the manufacturing of clinical trial materials in the Company's St. Louis pilot plant. If feasibility and stability are successful and all regulatory approvals are received, the Company anticipates contracts in the coming years to manufacture these products in vials, prefilled syringes and proprietary auto-injector systems. Revenue from customer-funded research and development activities, including amounts earned by STI prior to being acquired by the Company, was $1.5 million and $2.3 million during fiscal years 1997 and 1996, respectively. The Company expects fiscal 1998 revenue from funded R&D activities to be comparable with average historical levels. STI Military System The Company's military auto-injectors are designed to be used by military personnel under combat conditions for the self-administration of antidotes against the effects of chemical warfare. Meridian is the sole supplier of auto-injectors to the U.S. Department of Defense ("DoD") and is the only Federal Food and Drug Administration "FDA" approved supplier to U.S. and NATO forces. The business plans to build upon its strong relationship with the DoD and is positioned as the source of first choice for military auto-injector products by introducing new products into this market. These products include a multi-chamber device specifically for military use and the development of auto-injectors for additional drugs. The Company will also attempt to develop new civilian markets for its injectors such as to the Federal Emergency Management Authority ("FEMA") and other state agencies and to serve international populations in high risk areas in response to potential terrorist attacks and/or in conjunction with DE-MIL programs (disarming and destroying chemical weapon stockpiles). The Company will also continue its strategy of expanding its international military sales into new markets in Europe, the Middle East and Central/South America. In fiscal 1997, the STI Military Systems business was awarded two contracts with total value of $6 million to supply two allied governments in Europe with military auto-injectors containing nerve gas antidote. 7 DoD procurements of auto-injectors are restricted to qualified producers and all products must be approved by the FDA. The Company is currently the only FDA-approved and the only qualified producer for all DoD military auto-injectors. The Company's auto-injectors are considered so important by the DoD that they are classified as critical "war stopper" items and are the subject of an industrial base maintenance contract between the Company and the DoD. This contract is part of a program by the DoD to ensure adequate supplies of critical items in the event of war. The industrial base maintenance contract between the Company and the DoD is a three year contract, subject to annual renewal. The contract calls for the retention by the Company of key personnel and facilities to assure expertise for manufacturing auto-injectors containing nerve gas antidotes, the storage of serviceable material from expired auto-injectors, the management of the U.S. Army's Shelf Life Extension Program, and new product orders. A surge capability provision allows for the coverage of defense mobilization requirements in the event of rapid military deployment. The contract was expanded in fiscal 1996 to include the pre-stocking of critical components to enhance readiness and mobilization capability. Revenues under this contract have been approximately $14 to $16 million over the last two years and are projected to remain relatively stable over the next two to three years. All U.S. government contracts provide that they may be terminated for the convenience of the Government as well as for default but no such contract terminations are anticipated by the Company. The Company has been a supplier to the DoD since 1970. The U.S. Government, in conjunction with the Company, continues to investigate new automatic injection delivery systems, as well as new drugs (including Diazepam and morphine) and antidotes to be placed in new or existing automatic injectors. In fiscal 1996, the Company began selling a Diazepam auto-injector to the DoD. The Company currently markets a morphine injector to international military customers and plans to introduce a similar product to the DoD in fiscal 1998. The Company has a program in conjunction with the DoD to develop a multi-chamber auto-injector to accommodate the administration of two drugs sequentially through a single injection. The Company has introduced auto-injector systems that can store compounds in dry form and mix them in solution prior to administration. Limited quantities of this product (BinaJect) have been manufactured and sold to a foreign allied government. Many of the new nerve agent antidotes require this technology because of their limited shelf-life or instability in solution. Cardiopulmonary Systems The Cardiopulmonary Systems business is developing the PRIME ECG(TM) cardiac analysis system, a non-invasive cardiac diagnostic system, and manufactures and sells non-invasive monitoring devices for home telemedicine applications. The Company's strategy with respect to the Cardiopulmonary business is to develop and commercialize the PRIME ECG(TM) cardiac analysis system and to leverage the Company's ten years of experience in transtelephonic physiologic monitoring to penetrate the rapidly growing home telemedicine market. Because of the significant size of the market and the potential demand for the PRIME ECG(TM) product, the Company expects to market the product in conjunction with a larger, more established marketing partner that can provide an existing sales and distribution system. The Company is currently seeking such a marketing partner. 8 PRIME ECG(TM) Cardiac Analysis System. The PRIME ECG(TM) system is a unique, 80-lead body surface mapping system being developed in collaboration with the University of Ulster in Northern Ireland. The goal of this system is to dramatically improve the diagnosis and treatment of coronary artery disease, which affects over 13 million people in the U.S. alone, resulting in over 1.5 million heart attacks and almost 500,000 deaths each year. The PRIME ECG(TM) system consists of an 80-lead patented, disposable electrode harness, sophisticated ECG input amplifiers, a computer system and ECG analysis algorithms. Initially, the system will be positioned for the rapid and accurate detection of acute myocardial infarction ("AMI") or heart attack. The Company believes the PRIME ECG(TM) system will provide superior diagnosis of AMI as compared to a 12-lead electrocardiogram. Due to the low sensitivity and specificity of the 12-lead electrocardiogram, subsequent tests for elevated cardiac enzyme levels in the blood must be conducted. The results of these tests, however, are often not available until after the window of opportunity for optimum effectiveness of thrombolytic therapy or angioplasty has passed. Rapid diagnosis and intervention in AMI is essential to reduce or minimize the damage to a patient's heart. The Company expects the PRIME ECG(TM) system will be used by the emergency room physician who needs a faster and more accurate diagnostic tool to treat chest pain patients. The Company believes that the sale of disposable vests will provide a recurring source of revenue and anticipates that it will be the sole supplier of such vests. The Company is currently pursuing a development/marketing partner with the objective of launching the system in Europe in late 1998 and in the U.S. upon completion of clinical trials and receipt of FDA regulatory clearance. The Company anticipates launching the product in the U.S. by 1999. The Company believes that the product qualifies for review under 510(k) notification, but there can be no assurance that the FDA will not require a premarket application ("PMA"), which could delay the U.S. launch. Telemedicine Products The Company is a leader in the development of devices that measure and transmit medical physiological measurements by telephone. These telemedicine products allow a patient's condition to be monitored while they remain at home, which reduces expensive physician office visits, allows for earlier diagnosis and minimizes emergency room and hospital visits during perceived emergencies. Meridian's electronic heart monitoring device takes and transmits a patient's electrocardiogram ("ECG") by telephone. Currently the CardioBeeper(R) product line is sold by Shahal Medical Services, Ltd. ("Shahal"), which has exclusive international marketing rights. Shahal, based in Israel, is a large home healthcare monitoring company. In March 1997, the Company announced FDA approval of the first patient-administered device capable of transmitting a complete 12-lead electrocardiogram over a standard telephone line. Other products currently marketed measure and transmit blood pressure and peak respiratory flow. Several new products are in development. The trend toward managed and home healthcare in the U.S. will offer new marketing opportunities for transtelephonic devices. The Company has also developed a CD-ROM product focusing on teaching children CPR in a fun and entertaining way. This product is due for release during fiscal 1998. Sources and Availability of Raw Materials The Company purchases, in the ordinary course of business, necessary raw materials and supplies essential to the Company's operations from numerous suppliers in the U.S. and overseas. During fiscal 1997, the Company experienced no significant component supply availability problems and does not anticipate availability problems or significant supply shortages in the future. The Company procures inventory principally when supported by customer purchase orders. 9 COMPETITION In the commercial auto-injector market, the Company competes directly with companies that manufacture drug injection devices, whether such devices are automatic like the Company's products or non-automatic, variable dose pen-like injection devices, reloadable injection devices and disposable needle-free injection systems. The Company is the leading manufacturer of automatic injectors in the world. Other companies that sell commercial auto-injectors include Glaxo Wellcome who has a reloadable auto-injector kit (designed and manufactured by Owen Mumford and several other contract manufacturers) for use only with its Imitrex migraine drug. MediJect, BioJect and VitaJect are all developers and manufacturers of reloadable needle free injection systems. These systems are bulky, very expensive devices and currently are used to administer insulin by a small percentage of diabetics. Smaller, more convenient needle-free injection systems are currently under development by several of these companies. There are only three known competitors that sell auto-injectors in military markets served by the Company: Shalon, an Israeli-based Company that sells auto-injectors to the Israeli military; Sam Yang Chemical Co., a Korean company that sells auto-injectors to the Korean military; and Duphar, a Holland-based Company and unit of Solvay BV of Belgium that sells auto-injectors in international military markets also served by the Company. The Company's contract filling and packaging services operate in an intensely competitive field which is presently dominated by larger pharmaceutical companies. There are numerous other disposable, prefilled syringe systems presently available which can be less expensive than those offered by the Company. A very small group of independent companies and a few pharmaceutical companies offer contract syringe filling services similar to those that the Company offers. The Cardiopulmonary business operates in a highly competitive sector of the healthcare industry. Meridian's telemedicine products compete against the products of numerous other companies and joint ventures. The PRIME ECG(TM) product will compete with existing diagnostic equipment and testing procedures and potentially with products and technologies currently under development that may be brought to market, including blood markers for detection of acute MI (heart attack), enhanced 12-lead ECG algorithms, invasive cardiac mapping and improved cardiac stress testing. BACKLOG AND RENOGOTIATION As of July 31, 1997, the backlog of orders was approximately $13.2 million, of which $5.4 million related to production and delivery of commercial products and services and $7.8 million related to military products. This compares with commercial product sales backlog of $4.9 million and military auto-injector sales backlog of $3.1 million at July 31, 1996. The Company's supply contracts with the DoD are subject to post-award audit and potential price redetermination. From time to time, the DoD makes claims for pricing adjustments with respect to completed contracts. At present, no claims are pending. All U.S. Government contracts provide that they may be terminated for the convenience of the Government as well as for default. Upon termination for convenience of cost reimbursement type contracts, the Company would be entitled to reimbursement of allowable costs plus a portion of the fixed or target fee related to work accomplished. Upon termination for convenience of fixed-price contracts, the Company normally would be entitled to receive the contract price for items which have been delivered under the contract, as well as reimbursement for allowable costs for undelivered items, plus an allowance for profit thereon or adjustment for loss if completion of performance would have resulted in a loss. No such contract terminations are anticipated by the Company. 10 RESEARCH AND DEVELOPMENT The Company expensed $2.8 million, $1.7 million and $.7 million on research and development activities in fiscal 1997, proforma 1996 and 1995, respectively. The Company expects research and development expenditures in fiscal 1998 to be higher than the fiscal 1997 level. MMT is currently developing a new family of auto-injectors to accommodate the expanding variety of injectable drugs that demand safe and convenient patient self-administration. These new auto-injectors are designed for use in emergency situations and for any episodic treatment where an intramuscular or subcutaneous injection is the preferred drug delivery method. The Company is currently exploring certain applications of these new auto-injectors which will be subject to regulations prior to the product reaching the marketplace. See "Government Regulation" following: The Company has patented auto-injector systems that can store compounds in dry form and reconstitute them in solution prior to administration. An increasing array of biotechnology products and many traditional therapies require this technology because of their limited shelf-life or instability in solution. MMT also has a single-chambered auto-injector for intramuscular and subcutaneous injection which utilize a very thin (27 gauge) needle for potential new applications. In addition, MMT will continue to develop its Cardiac Analysis System and Telemedicine Products with the key focus being on the PRIME ECG(TM). PATENTS, TRADEMARKS, AND LICENSES The Company considers its proprietary technology to be important in the development, marketing and manufacture of its products and seeks to protect its technology through a combination of patents and confidentiality agreements with its employees and others. Patents covering important features of the Company's current principal auto-injector products have expired. This loss of patent protection could have an adverse effect on the Company's revenues and results of operations. MMT is currently developing a new generation of auto-injector products (see "Research and Development") for which a number of patents have been granted to the Company. Over the last few years, the Company was granted U.S. patent protection for several of its new auto-injector drug delivery systems, designed for fast and reliable patient self-administration of the expanding range of new pharmaceutical and biotechnology products that require injection. Some of these patents cover the new TRUJECT(TM) technology which was launched in June 1997. In addition, the Company holds patents and licenses on the PRIME ECG(TM) 80-lead mapping system harness. The Company intends to file for additional protection for all its new auto-injector and cardiopulmonary products currently under development. The auto-injector products are expected to replace or supplement the Company's existing line of auto-injectors over time. PRODUCT LIABILITY INSURANCE The Company maintains product liability coverage for its products. The Company will continue to maintain liability insurance as it relates to divested operations to cover any potential claims incurred but not reported prior to their disposition. Although, the Company's management is of the opinion that, with respect to amounts, types and risks insured, the insurance coverage is adequate for the business conducted by the Company, there can be no assurance that such insurance will provide sufficient coverage against any or all potential product liability claims. 11 COST REDUCTION PROGRAM Meridian implemented a cost reduction program in fiscal 1997, following the completion of the merger of STI and Brunswick, to reduce both manufacturing and overhead costs. Meridian's gross margin improved from 30% in fiscal 1996 (on a pro forma basis) to 37% in fiscal 1997, even though the benefit of the cost reductions was not realized for the full fiscal year. The Company's cost reduction program is on-going, with additional initiatives expected to be implemented in fiscal 1998 and beyond. The Company's new generation products incorporate both enhanced features and lower manufacturing costs. The Company expects to achieve significant future cost savings from the consolidation of facilities in St. Louis. Currently the St. Louis manufacturing operations utilize a total of nine buildings. The Company intends to consolidate these operations into fewer buildings which should result in enhanced product flow, increased product yield and reduced inventory and overhead costs. GOVERNMENT REGULATION The business of the Company is highly regulated by governmental entities, including the FDA and corresponding agencies of states and foreign countries. The summary below does not purport to be complete and is qualified in its entirety by reference to the complete text of the statues and regulations cited herein. As a manufacturer of auto-injectors, cardiopulmonary products and pre-filled syringes, the Company's products are subject to regulation by the FDA under the Federal Food, Drug and Cosmetic Act ("Act"). All of the Company's auto-injectors are "new drugs" and may be marketed only with the FDA's approval of a New Drug Application "NDA" or a supplement to an existing NDA. The Company currently holds approved NDAs for each of its existing auto-injector products. The use of the Company's existing auto-injectors to administer FDA approved drugs generally would require the filling of a NDA or supplement to an existing NDA. In addition, the introduction of the Company's new generation auto-injectors will require FDA approvals based on data demonstrating the safety and effectiveness of the drug delivered by these auto-injectors. There is no assurance that the NDAs will be processed in a timely manner or that FDA ultimately will approve such NDAs. The Company's Cartrix(TM) and other prefilled syringe systems are also regulated as drugs; however, the requisite FDA approval is held by the supplier of the drug that the Company fills into the syringe. To the extent the Company's auto-injectors or Cartrix(TM) syringe system are expected to be used to administer new drugs under development, FDA approval to market such drugs first must be received by the pharmaceutical manufacturer. Obtaining the requisite FDA approval is a time consuming and costly process through which the manufacturer must demonstrate the safety and effectiveness of a new drug product. 12 The Company's Cardiopulmonary Systems Products must have Underwriters Laboratories "UL" and/or CE Marking. CE Marking is required for international sales. In connection with its manufacturing operations, the Company must comply with a variety of regulations, including the FDA's Good Manufacturing Practice ("GMP") regulations, and its manufacturing facilities are subject to periodic inspections. The Company's St. Louis facility underwent an inspection by the FDA during fiscal 1996 in which there were no material issues brought to management's attention. Suppliers of bulk drugs for filling into the Company's syringe systems, as well as some subcontractors who manufacture components for the Company's medical devices, also are subject to FDA regulation and inspection. The Company has only limited control over these other companies' compliance with FDA regulations. Failure of these companies to comply with FDA requirements could adversely affect the Company's ability to procure component parts, market finished products and may cause the Company's products made with non-compliant components to be adulterated or misbranded in violation of the Act, subjecting the products to a variety of FDA administrative and judicial actions. The FDA is empowered with broad enforcement powers. The FDA may initiate proceedings to withdraw its approval for marketing of the Company's product should it find that the drugs are not manufactured in compliance with GMP regulations, that they are no longer proven to be safe and effective or that they are not truthfully labeled. Noncompliance with GMP regulations also can justify nonpayment of an existing government procurement contract and, until the deficiencies are corrected to FDA's satisfaction, can result in a nonsuitability determination, precluding the award of future procurement contracts. For any of the Company's auto-injectors and syringe systems, noncompliance with FDA regulations could result in civil seizure of the drugs, an injunction against the continued distribution of the drugs or criminal sanctions against the Company. The Company's medical devices also are subject to seizure by the FDA through administrative or judicial proceedings. In addition, the FDA may impose civil money penalties for most violations of law and may order that defective devices be recalled, repaired or replaced or that purchasers be refunded the cost of the device. The Company also is subject to regulation by other federal and state agencies under various statues, regulations and ordinances, including environmental laws, occupational health and safety laws, labor laws and laws regulating the manufacturer and sale of narcotics. EMPLOYEES As of September 30, 1997, the Company employed a total of 275 employees; 218 employees work at the Company's plant and warehouse facilities in St. Louis, Missouri; 7 employees work at the Company's facility in the United Kingdom; 24 employees work in facilities in N. Ireland and 26 employees work at the Company's corporate headquarters in Columbia, Maryland (see "Properties"). Effective March 1, 1994, STI, now the Company, entered into a five-year agreement with the Teamsters Local Union No. 688 ("Teamsters") which is affiliated with the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America. Teamsters are the exclusive agent for all production and maintenance employees of the Company at its St. Louis facility. Approximately 118 employees are covered by this collective bargaining agreement. The new labor union contract did not significantly change the mix of benefits previously provided to such employees. 13 ITEM 2. PROPERTIES The Company's corporate headquarters are located in an 11,000 square foot facility in Columbia, Maryland. The facility is leased through 2002. The corporate headquarters facility houses the corporate administration, human resources, finance, commercial business development and the product, design and development functions. Meridian had entered into a ten year lease expiring in 2002 on a 17,000 square foot facility in Rockville, Maryland which previously served as the Company's headquarters. The Rockville, Maryland facility has been sub-leased to a third party through 2002. The Company's primary pharmaceutical operations are located in St. Louis, Missouri. These facilities are used primarily for formulation, aseptic filling, assembly and final packaging of the Company's auto-injectors, vials and pre-filled syringes. The St. Louis manufacturing facilities consist of nine separate buildings occupying over 100,000 square feet. The Company has a 4,200 square foot facility in Rochester, Kent in the United Kingdom used primarily for aseptic assembly packaging of a morphine auto-injector product under contracts with the United Kingdom and Canadian defense departments. This facility is also used a as sales and marketing office to promote the Company's commercial and military products in Europe and the Middle East. The facility is leased pursuant to a lease which expires in 2010. The Rochester facility may be consolidated into the Antrim, N. Ireland facility in fiscal 1998. The Company leases a 4,200 square foot facility in Antrim, N. Ireland for assembly and engineering development of telemedicine products. The lease is month to month and the facility may be vacated if the N. Ireland and Rochester, England operations are consolidated during fiscal 1998. ITEM 3. LEGAL PROCEEDINGS Information required by this Item 3 is included in Note 10 "Commitments and Contingencies -- Litigation," of the Notes to Consolidated Financial Statements included herein pursuant to Part II of this Form 10-K. 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted by the Company during the fourth quarter of fiscal 1997 to a vote of security holders, through the solicitation of proxies or otherwise. EXECUTIVE OFFICERS OF THE REGISTRANT The following table lists, as of September 30, 1997, the names and ages of all executive officers of the Company, and their positions and offices held with the Company, and their positions and offices held with the Company. Name Age Present Positions with the Company - ---- --- ---------------------------------- James H. Miller 59 Chairman, President and Chief Executive Officer G. Troy Braswell 54 Vice President of Finance and Chief Financial Officer Mark D. Ruby 43 Vice President of Sales and Marketing, Drug Delivery Systems Group Mr. Miller joined the Company as President of STI in June 1989, was elected Chief Executive Officer in June 1990 and was elected Chairman of the Board in April 1996. In November 1993, Mr. Miller assumed the additional post of chairman and chief executive officer of Brunswick Biomedical Corporation while continuing his position with STI. Prior to joining the Company, Mr. Miller served as Executive Vice President of Beecham Laboratories from February 1987 to May 1989, responsible for the Pharmaceutical and Animal Health Divisions. Prior to joining Beecham, Mr. Miller spent ten years with Frank J. Corbet, Inc. (Advertising Agency) as Executive Vice President and fourteen years in marketing management with Abbott Laboratories. Mr. Braswell joined Meridian in February 1997 and was appointed Chief Financial Officer in May 1997. Prior to joining Meridian, he was Director and Treasurer of Amoco/Enron in Frederick, Maryland, a solar energy joint venture partnership between Amoco and Enron. From 1987 to 1995, Mr. Braswell served as Director of Finance and Administration and the Chief Financial Officer of Solarex Corporation, a unit of Amoco. Mr. Ruby joined the Company as Vice President of Marketing and Sales in January 1996. Prior to joining the Company, Mr. Ruby served in the same capacity at Jobts Institute, Inc. from March 1992 to December 1995 where he was responsible for domestic and international marketing, sales and service. Prior to joining Jobts, Mr. Ruby served in various capacities including Director of Business Development and Director of Domestic Sales for Medisense, Inc. from July 1988 to February 1991. Prior to joining Medisense, Mr. Ruby held various positions with Baxter Healthcare, Inc. from July 1979 to June 1988. 15 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the over-the-counter market and is quoted in the NASDAQ National Market System under the symbol MTEC. It was formerly traded under the name of Survival Technologies with the symbol of STIQ until the November 1996 merger. The following tables sets the high and low sales of the prices of the Company's (and its predecessor STI's) common stock for each fiscal quarter during the two year period ended July 31, 1997, as reported on the NASAQ National Market system. 1997 1996 ---------------- ------------------ Quarter High Low High Low - ------- ---- --- ---- --- First 8 6 1/2 9 1/2 6 1/2 Second 9 3/8 8 1/4 10 1/4 7 1/4 Third 7 5 3/8 10 1/8 7 1/2 Fourth 7 1/8 4 1/8 11 7/8 8 1/4 The Board of Directors has not declared any dividends on the Company's common stock since its organization. As of September 30, 1997, the number of shareholders of record was approximately 410. 16 ITEM 6 SELECTED FINANCIAL DATA Meridian Medical Technologies, Inc -- Five Year Summary of Operations and Financial Information (In Thousands, Except Per Share Data)
Year End One Month Year End Year End Year End Year End July 31, July 31, June 30, June 30, June 30, June 30, 1997 1996 1996 1995 1994 1993 ------------------------------------------------------------------- Operations: Net sales $ 40,665 $ 4,511 $ 10,375 $ 2,904 $ 2,427 $ 2,534 Gross profit 15,044 1,901 3,420 1,205 785 1,036 Operating (loss) income (1,699) 908 (6,212) (1,581) (1,627) (512) Other expense, net (2,395) (140) (539) (19) (98) (324) (Loss) income before income tax and minority interest (4,094) 768 (6,751) (1,600) (1,725) (836) Provision for income tax 45 440 27 -- -- -- Minority interest in consolidated subsidiary 265 327 17 -- -- -- ========= ========= ======== ======== ======= ======== Net (loss) income $ (4,404) $ 1 $ (6,795) $(1,600) $(1,725) $ (836) ========= ========= ======== ======= ======= ======== Net loss per share $ (2.16) $ 0.02 $ (99.32) $(23.39) $(24.69) $ (15.39) ========= ========= ======== ======= ======= ======== Average common shares and common share equivalents outstanding 2,040 68 68 68 70 54 ========= ========= ======== ======= ======= ======== Financial position: Current assets $ 16,032 $ 16,557 $ 16,351 $ 981 $ 3,930 $ 1,104 Working capital 845 4,230 4,144 (681) 2,719 (2,034) Fixed assets, net 15,778 14,984 14,990 200 95 116 Total assets 44,082 41,568 41,694 3,188 4,284 1,429 Long-term debt 13,922 16,385 16,057 55 56 30 Shareholders' equity 12,293 3,844 4,387 1,472 3,017 (1,739)
17 ITEM 7 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The following discussion and analysis of financial condition and results of operations cover the fiscal years ended July 31, 1997 and June 30, 1996. On November 20, 1996, Brunswick was merged into STI to form MMT. At the time of the merger, Brunswick held approximately 61% of STI's outstanding common stock, which it had purchased from the estate of STI's late founder on April 15, 1996. As a result, STI had been treated for financial accounting purposes as a consolidated, majority-owned subsidiary of Brunswick from that date. Although STI was the surviving corporation of the merger as a legal matter, the merger was treated as a purchase of STI by Brunswick for financial accounting purposes. As a result, Brunswick's historical financial statements became the Company's financial statements, STI's assets and liabilities have been revalued to their respective fair values and the Company's historical financial statements reflect the combined operations of STI and Brunswick after April 15, 1996 (subject to minority interests). The minority interests were eliminated upon completion of the merger on November 20, 1996. For the reasons described above, the fiscal year 1997 financial statements of the Company contained in this Form 10-K are not comparable to the financial statements contained in reports previously filed by STI with the Commission, and, due to substantial differences between the revenues and results of STI and those of Brunswick, comparisons of results between periods before and after the purchase of Brunswick's interest in STI are of limited utility. Therefore, management's discussion and analysis includes comparisons to prior year STI and Brunswick's combined proforma operating results to enhance the utility of the information herein. MMT's business plan following the merger is to operate as a medical device company focusing on Early Intervention Home Healthcare and Emergency Medical Technologies. The Company has three areas of business. The Drug Delivery Systems business capitalizes on injectable drug delivery devices with an emphasis on commercial auto-injectors. This business also supplies customized drug delivery system design, pharmaceutical research and development, and sterile product manufacturing to pharmaceutical and biotechnology companies. The Cardiopulmonary Systems business focuses on non-invasive cardiac diagnostics and telemedicine. The Cardiopulmonary Systems business is continuing the research and development activities for the PRIME ECG(TM) program, an 80-lead cardiac mapping system for rapid and improved diagnostic accuracy of cardiac ischemia and is planning a US expansion of its telemedicine business. The STI Military Systems business focuses on the world-wide market for auto-injectors used by military personnel for self-administration of nerve gas antidotes, morphine and diazepam. Financial Discussion MMT's net loss after taxes for the year ended July 31, 1997 was $4.4 million ($2.16 per share) on revenues of $40.7 million compared to a fiscal 1996 net loss of $6.8 million ($99.32 per share) on revenues of $10.4 million. Included in the net loss for 1997 and 1996 were write-offs of in-process R&D and merger related costs associated with the combination of STI and Brunswick. These write-offs were $3.9 million and $4.5 million in 1997 and 1996, respectively. Further, in 1997 there was a non-recurring charge of $1.5 million for the EpiEZPen(TM) Product Exchange Program. (See Note 13 of financial statements). 18 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The large disparity in revenues between 1997 and 1996 is a result of Brunswick's prior year financial statements becoming those of the Company. Only 2.5 months of STI results are included in 1996 revenues. Thus, a more meaningful financial comparison of MMT results is against prior year proforma combined operating results of STI and Brunswick. All comparisons against proforma combined results exclude one-time, non-recurring merger related costs. MERIDIAN MEDICAL TECHNOLOGIES, INC. PROFORMA COMBINED STATEMENT OF OPERATIONS $THOUSANDS 1997 1996 1995 ---- ---- ---- Net Sales $40,665 $35,015 $28,390 Gross Margin 15,044 10,606 9,464 % of Sales 37.0% 30.3% 33.3% Selling, general, and administrative expenses 5,330 5,378 6,015 Research and development expenses 2,783 2,154 1,641 Depreciation and amortization 3,142 3,104 3,022 Product exchange program 1,539 0 0 Restructuring charges 0 322 450 ------- ------- ------- Total 12,794 10,958 11,128 ------- ------- ------- Operating income $2,250 ($352) ($1,664) ======= ======= ======= EBITDA (1) $5,564 $2,754 $1,551 ======= ======= ======= (1) EBITDA represents proforma operating income plus other income and depreciation and amortization. EBITDA is not a measure of performance or financial condition under generally accepted accounting principles, but is presented to provide additional information related to debt service capability. EBITDA should not be considered in isolation or as a substitute for other measures of financial performance or liquidity under generally accepted accounting principles. While EBITDA is frequently used as a measure of operations and the ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. The Proforma Combined Statement of Operations assumes the merger of Brunswick and STI was in effect for the three years shown and excludes one-time, merger related costs in 1996 totaling $4.5 million and STI in 1997 totaling $3.9 million. The merger costs consisted of excess purchase price over the book value paid by Brunswick which was allocated to in-process R&D amounting to $4.5 million in 1996 and $2.7 million in 1997. A total of $1.2 million of transaction costs were paid in 1997 by STI. 19 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Year in Review -- Proforma Basis 1997 financial results improved over 1996 and 1995 on a proforma basis. Sales increased 16% to $40.7 million from $35.0 million in fiscal 1996 and increased 43% from $28.4 million in 1995. Operating income was $2.3 million compared to losses in both fiscal 1996 and 1995. Gross margins were 37% in 1997 compared to 30% in 1996 and 33% in 1995. Operating expenses were $1.8 million higher in 1997 primarily because of the non-recurring charge for the EpiEZPen(TM) Product Exchange Program amounting to $1.5 million. Results for 1997 benefited from record sales of EpiPen(R) brand products and cost reduction and fixed cost controls initiated after the merger. These improvements resulted in operating income increasing by $2.6 million compared to 1996 and $3.9 million over 1995. EBITDA was $5.6 million in 1997, double the 1996 EBITDA and 3.6 times the 1995 EBITDA. Drug Delivery business sales were $20.1 million in 1997, 32% higher than 1996 primarily from record EpiPen(R) brand sales. STI Military business sales were $17.8 million, 10% higher than 1996 as sales to foreign countries continued to grow. Cardiopulmonary sales were $2.7 million in 1997, down from $3.6 million in 1996 primarily reflecting the absence of a significant one-time product sales promotion which occurred in 1996 and the disposition of a non-strategic business in late 1997. Net sales were $35.0 million in 1996, $6.6 million or 23% higher than 1995. Most of the increased 1996 sales was in STI Military business as the Diazepam auto-injector and the base maintenance prestocking programs were introduced and contributed a combined $4.6 million in higher sales. 1996 Drug Delivery sales were $15.2 million, slightly higher than 1995 sales of $15.0 million. Higher sales of the newly launched EpiEZPen(TM) of $1.7 million were nearly offset by lower revenues, particularly for the Cytoguard aerosol protection device (which has now been discontinued). Cardiopulmonary sales were $3.6 million, $0.7 million higher than 1995 mostly from a significant one-time CardioBeeper(R) sales promotion. Gross margins were 37% of sales in 1997 compared to 30% in 1996 and 33% in 1995. The increased gross margins in 1997 resulted mostly from higher sales volume and cost reduction programs initiated after the merger which lowered variable costs and maintained fixed costs. Automation projects reduced labor and a full level of management was eliminated at our St. Louis facility. Gross margins in 1996 were 30% of sales, down from 33% of sales in 1995. The lower gross margin percentage reflected a product mix change where STI Military sales were a larger proportion of total sales in 1996 than in 1995 and the St. Louis facility experienced plant supply disruptions during the first quarter, 1996. Operating costs were $12.8 million in 1997, an increase of $1.8 million over 1996. Most of the increased cost was from a non-recurring charge for the voluntary EpiEZPen(TM) Product Exchange Program ($1.5 million), higher development cost in 1997 for the TruJect(TM) platform auto-injector and continued development of the PRIME ECG(TM) cardiac analysis system. The combination of increasing revenues, lower costs of sales and higher operating costs resulted in operating income growing to $2.3 million in 1997 from losses of $352,000 and $1.7 million in 1996 and 1995 respectively. 20 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Nonoperating Costs (Actual cost basis) Nonoperating expenses in 1997 were $2.4 million, significantly higher than the $539,400 and $18,600 in 1996 and 1995 respectively. The higher costs reflects a full year of higher interest expense ($2.6 million) to finance the merger compared to only 2.5 months in 1996 (whose fiscal year ended June 30, 1996). The interest cost includes amortization of warrants issued to finance the debt amounting to $458,900 in 1997 and $0 in 1996. Partially offsetting the 1997 interest cost were other income items amounting to $172,000. The income tax provision in 1997 was $45,400, slightly higher than the $26,900 provision in 1996. Minority interest in 1997 was $265,000 compared to $16,700 in 1996 reflecting STI net income allocable to minority shareholders of STI prior to the merger. In October, 1997, the Company initiated a voluntary EpiEZPen(TM) Product Exchange Program to replace all EpiEZPen(TM) sold since introduction in 1996 with EpiPens(R). The exchange program was in response to a very small number of EpiEZPens(TM) (less than 0.001%) which had self activated in the package. While the exchange was not required by the FDA, the Company took the action to protect its customers and the quality reputation of the Meridian name. The Company does not expect any significant sales impact from this action and is planning reintroduction of the EpiEZPen(TM) after all corrective actions are in place. The Company made its best estimate of the costs of the exchange program and recorded a provision in 1997 amounting to $1.5 million. Although no assurance can be given that the reserved amount is adequate, it is intended to cover all cost of the product exchange. Line of Business Discussion Drug Delivery sales were $20.1 million in 1997, 32% higher than 1996 mostly from record sales of $15.0 million for the EpiPen(R) family of products. Additionally, higher development revenue was achieved, mostly for a migraine auto-injector and licensing fees notably from strategic partners, Mylan Laboratories and Genpharm Laboratories, to develop a line of generic injectable drugs. Backlog at year-end was $5.4 million, an increase of 10% over July 31, 1996 reflecting strong demand for the EpiPen(R) brand products. EBITDA generated from Drug Delivery products increased 38% in 1997 to $5.1 million reflecting the higher EpiPen(R) revenues and increased margins from cost reduction programs partially offset by the product exchange reserve. STI Military revenues increased 10% in 1997 over the prior year to $17.8 million. The increase reflects higher sales particularly to foreign allied governments and increased pre-stocking for the USDoD. At year end, the STI Military backlog was $7.8 million, an increase of 150% from July 31, 1996 reflecting contract awards from an allied country and the third year of the US DoD Base Maintenance Contract. EBITDA generated from STI Military Systems products was $1.5 million reflecting higher revenues and a reduction of costs compared to 1996. Cardiopulmonary product revenues were $2.7 million, a decline from 1996 sales of $3.6 million. The reduction was due to the absence of a special one-time CardioBeeper(R) sales promotion in 1996 and from disposition of the assets of a non-strategic business. EBITDA from Cardiopulmonary Systems strengthened after the merger as cost reduction activities were implemented. Margins remained steady and development costs, particularly for PRIME ECG(TM), continued. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources Total cash balance at July 31, 1997 was $23,300, a reduction of $511,800 during fiscal 1997. The Company generated $3.6 million of cash from operations in 1997. Cash flow was positive despite the net loss for the year primarily because of noncash expenses for depreciation and amortization and the write-off of in-process R&D. Investing activities used $2.4 million of cash in fiscal 1997 with capital additions amounting to $3.3 million. The majority of capital was for cost reduction projects, including molds for new lower cost products. Financing activities required $1.7 million consisting of $1.0 million for paydown on the bridge loan upon completion of the merger between Brunswick and STI in November, 1996 and $838,400 for payments of debt principal. These uses were partially offset by a net increase in borrowings of $112,600 to finance equipment purchases and $40,200 from the working capital line. In fiscal 1998, principal and interest payments on long-term debt will total approximately $3.5 million. The Company recently increased its asset based working capital credit line with ING CAPITAL to a maximum of $6.5 million from $5.0 million and had $2.7 million available at July 31, 1997. Senior debt financial covenants with ING CAPITAL have been adjusted and the Company believes it can comply with such covenants at least through fiscal 1998. The Company is in active discussion with ING CAPITAL to restructure the existing ING CAPITAL term loan and to assist the Company in a broader refinancing of its long-term debt. No assurances can be made that the Company will be successful in this effort and a delay in such restructuring could have an adverse effect on the Company's liquidity. Management believes that existing financing sources and other actions available, such as reducing discretionary spending on research and development, capital expenditures and other costs if necessary, will enable it to meet its financing obligations through the end of fiscal 1998. However, additional capital is needed to fund its long-term planned strategic initiatives and growth objectives. Working capital at July 31, 1997 was $844,700, down from $4.1 million at June 30, 1996. Most of the decrease resulted from higher accounts payable and accrued liabilities of $2.1 million, increased current portions of long-term debt of $1.8 million partially offset by increased inventories ($719,900). Accounts receivable was $7.5 million representing 67 days-sales-outstanding and inventory was $6.0 million and represented a 4.3 turnover ratio for the year. Accounts payable at year end was $7.7 million, up $2.1 million from June 30, 1996 reflecting higher business levels and costs related to the merger. Borrowings under working capital lines were $4.1 leaving $2.7 million available credit at July 31, 1997. Total debt at fiscal year-end 1997 was $21.9 million or 64% of total capitalization of $34.2 million. Recent Events-Sale of Non-Core Assets The Company has entered into agreements to sell two non-core assets previously included in the Cardiopulmonary business unit. The first asset being divested, emergency care products generated revenues of approximately $1.5 million and EBITDA of approximately $250,000 in the latest 12 months. The second asset being divested is an esothoracic technology, which is still in the development stage. It is currently generating no revenue and negative cash flow. The Company has closed on the sale of emergency care product's assets and anticipates closing on the sale of esothoracic technology during the second quarter of fiscal 1998. The Company expects to realize gross proceeds of not more than $0.5 million. There was no impairment of related assets at July 31, 1997. 22 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Inflation In the view of management, the low levels of inflation in recent years and changing prices have had no significant effect on the Company's financial condition and results of operations. Generally, the Company is able to mitigate the effects of inflation on operating costs and expenses through price increases and productivity gains. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA CONSOLIDATED BALANCE SHEETS MERIDIAN MEDICAL TECHNOLOGIES
July 31, June 30, 1997 1996 - -------------------------------------------------------------------------------------------- ASSETS Current assets: Cash $ 23,300 $ 511,800 Restricted cash 264,400 958,200 Receivables, less allowance for doubtful accounts of $247,800 and $45,000 July 31, 1997 and June 30, 1996 respectively 7,507,600 7,536,700 Inventories 6,046,600 5,326,700 Prepaid expenses and other assets 531,000 800,200 Deferred income taxes 1,658,600 1,217,500 ---------------- --------------- Total Current Assets 16,031,500 16,351,100 ---------------- --------------- Fixed assets 17,246,300 27,016,100 Less accumulated depreciation 1,468,400 12,025,800 ---------------- --------------- Total fixed assets (net) 15,777,900 14,990,300 ---------------- --------------- Excess of cost over net assets acquired, net 9,168,000 6,849,300 Other intangible assets, net 3,104,800 3,503,100 ---------------- --------------- $ 44,082,200 $ 41,693,800 ================ =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued liabilities 7,733,000 $ 5,652,900 Note payable to bank 4,112,800 4,072,600 Note payable to Syntex -- 588,400 Current portion of long-term debt 2,299,400 516,800 Customer deposits 917,800 736,000 Restructuring reserve 123,800 640,400 ---------------- --------------- Total Current Liabilities 15,186,800 12,207,100 Long-term debt: Notes payable 13,062,600 14,872,300 Other long-term debt 859,000 1,184,300 Deferred revenue 314,900 -- Other noncurrent liabilities 625,000 616,500 Deferred income taxes 1,741,100 1,605,500 Long-term capital lease obligations -- 32,800 ---------------- -------------- Total Liabilities 31,789,400 30,518,500 ---------------- --------------- Minority interest in consolidated subsidiary -- 6,788,500 Shareholders' equity: Common Stock $.10 par, 18,000,000 shares authorized, 2,912,502 and 68,417 issued and outstanding 291,300 700 Additional capital 28,659,900 15,866,100 Preferred stock, Series A-F -- 7,500 Warrants 2,072,900 2,072,900 Accumulated deficit (18,311,800) (13,393,300) Unearned stock option compensation (139,600) (181,800) Foreign currency translation adjustment (67,000) 26,200 Treasury stock, at cost (212,900) (11,500) ---------------- --------------- Total shareholder's equity 12,292,800 4,386,800 ---------------- --------------- $ 44,082,200 $ 41,693,800 ================ ===============
See Notes to Consolidated Financial Statements 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA CONSOLIDATED STATEMENTS OF OPERATIONS MERIDIAN MEDICAL TECHNOLOGIES
Year Ended Month Ended Year Ended Year Ended July 31 July 31 June 30 June 30 1997 1996 1996 1995 - ----------------------------------------------------------------------------------------------------------------- Net Sales $40,664,700 $ 4,510,600 $10,375,300 $ 2,903,500 Cost of Goods 25,620,900 2,609,200 6,955,200 1,698,400 ------------ ----------- ----------- ----------- Gross Profit 15,043,800 1,901,400 3,420,100 1,205,100 Selling, general, and administrative expense 5,330,200 429,400 2,414,000 1,844,400 Research and development expenses 2,782,600 295,000 1,724,900 698,000 Depreciation and amortization 3,142,100 268,700 803,400 244,200 Write off in-process R&D 2,702,200 -- 4,464,000 -- Write off merger transaction costs 1,246,300 -- -- -- Product exchange program 1,539,400 -- -- -- Restructuring charges -- -- 225,800 -- ----------- ----------- ----------- ----------- 16,742,800 993,100 9,632,100 2,786,600 Operating (loss) income (1,699,000) 908,300 (6,212,000) (1,581,500) Other (expense) income: Interest expense (2,567,000) (153,800) (550,700) (18,600) Other income 172,000 14,000 11,300 -- ------------ ----------- ----------- ----------- (2,395,000) (139,800) (539,400) (18,600) ------------ ----------- ----------- ----------- (Loss) income before provision for income and minority interest (4,094,000) 768,500 (6,751,400) (1,600,100) Provision for income taxes 45,400 439,800 26,900 -- Minority interest in income of consolidated subsidiary 265,200 327,400 16,700 -- ------------ ---------- ----------- ----------- Net (loss) income $(4,404,600) $ 1,300 $(6,795,000) $(1,600,100) ============ ========== =========== =========== Weighted average shares outstanding: 2,040,000 68,417 68,417 68,417 ============ ========== ========== =========== Net (loss) income per share $ (2.16) $ 0.02 $ (99.32) $ (23.39) ============ ========== =========== ===========
See Notes to Consolidated Financial Statements 25 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY MERIDIAN MEDICAL TECHNOLOGIES
Number Number Additional of Shares Par Value of Shares Par Value Capital Warrants --------- --------- --------- --------- ------- -------- Balance at June 30, 1994 468,300 $ 4,700 68,400 $ 700 $8,098,200 $ -- Issuance of nonqualified stock options 209,700 Amortization of stock option compensation Issuance of treasury stock in exchange for services 3,500 Cummulative translation adjustment Net loss --------------------------------------------------------------------------- Balance at June 30, 1995 468,300 4,700 68,400 700 8,311,400 -- Sales of Series D preferred stock net of issuance costs of $19,929 45,700 500 1,238,600 Sales of Series E preferred stock net of issuance costs of $10,607 24,300 200 659,200 Sales of Series F preferred stock net of issuance costs $91,019 208,700 2,100 5,656,900 Warrants issued with notes payable 2,072,900 Amortization of stock option compensation Cummulative translation adjustment Net loss --------------------------------------------------------------------------- Balance June 30, 1996 747,000 7,500 68,400 700 15,866,100 2,072,900 Cummulative translation adjustment Amortization of stock option compensation Adjust for STI earnings previously recorded Net income --------------------------------------------------------------------------- Balance July 31, 1996 747,000 7,500 68,400 700 15,866,100 2,072,900 Merger with STI (747,000) (7,500) 2,843,900 290,600 12,793,800 Exchange of treasury stock for assets Amortization of stock option compensation Cummulative translation adjustment Net loss --------------------------------------------------------------------------- Balance July 31, 1997 -- $ -- 2,912,300 $291,300 $28,659,900 $2,072,900 ===========================================================================
See Notes to Consolidated Financial Statements 26
Treasury Stock Unearned Foreign ---------------- Stock Accumulate Currency Number Option Shareholders' Deficit Adjustment of Shares Cost Compensation Equity ---------- ---------- --------- ---- ------------ ------------ Balance at June 30, 1994 $(4,998,300) $ 29,400 1,900 $(13,000) $(104,900) $ 3,016,800 Issuance of nonqualified (209,700) -- stock options Amortization of stock option compensation 59,400 59,400 Issuance of treasury stock in exchange for services (200) 1,500 5,000 Cummulative translation adjustment (9,800) (9,800) Net loss (1,600,100) (1,600,100) ---------------------------------------------------------------------------------- Balance at June 30, 1995 (6,598,400) 19,600 1,700 (11,500) (255,200) 1,471,300 Sales of Series D preferred stock 1,239,100 net of issuance costs of $19,929 Sales of Series E preferred stock net of issuance costs of $10,607 659,400 Sales of Series F preferred stock net of issuance costs $91,019 5,659,000 Warrants issued with notes payable 2,072,900 Amortization of stock option compensation 73,400 73,400 Cummulative translation adjustment 6,600 6,600 Net loss (6,749,900) (6,794,900) ---------------------------------------------------------------------------------- (13,393,300) 26,200 1,700 (11,500) (181,800) (4,386,800) Balance June 30, 1996 Cummulative translation adjustment (35,200) (35,200) Amortization of stock option compensation 6,200 6,200 Adjust for STI earnings previously recorded (515,200) (515,200) Net income 1,300 1,300 ---------------------------------------------------------------------------------- Balance July 31, 1996 (13,907,200) (9,000) 1,700 (11,500) (175,600) 3,843,900 Merger with STI 13,076,900 Exchange of treasury stock for assets (201,400) (201,400) Amortization of stock option compensation 36,000 36,000 Cummulative translation adjustment (58,000) (58,000) Net loss (4,404,600) (4,404,600) ----------------------------------------------------------------------------------- $(18,311,800) (67,000) 1,700 $(212,900) $(139,600) $12,292,800 Balance July 31, 1997 ====================================================================================
27 CONSOLIDATED STATEMENT OF CASH FLOWS MERIDIAN MEDICAL TECHNOLOGIES
Year ended Month ended Year ended Year ended July 31, July 31, June 30, June 30, 1997 1996 1996 1995 ---------------------------------------------------- Operating activities: Net (loss) income $ (4,404,600) $ 1,300 (6,795,000) $(1,600,100) Adjustments to reconcile net (loss) income to net cash provided by (used for) operating activities -- -- -- -- Depreciation and amortization 3,142,100 268,700 803,400 244,200 Amortization of deferred compensation 36,000 6,200 73,400 59,400 Amortization of notes payable discount 458,900 -- -- -- Issuance of treasury stock for payment of services -- -- -- 5,100 Loss on fixed asset disposals 347,000 -- -- -- Deferred income taxes (305,000) (36,100) -- -- Write off of in-process R&D 2,702,200 -- 4,464,000 -- Write off of patents and other intangibles 340,000 -- -- -- Minority interest 265,200 327,400 16,700 -- Changes in assets and liabilities Receivables (68,300) (1,911,700) 929,400 (264,200) Inventories (716,200) 153,900 (998,800) 150,300 Prepaid expenses and other assets 203,000 (72,900) -- 22,900 Accounts payable 1,959,800 530,100 500 365,500 Restructuring reserve (516,600) -- 185,400 -- Other liabilities and accrued expenses (647,900) (69,800) 572,500 (4,400) Deferred revenue 314,900 -- -- -- Other noncurrent assets 489,100 -- (356,000) -- Other noncurrent liabilities (30,500) -- 56,000 (109,400) ------------------------------------------------------ Net cash provided by (used for) operating activities 3,569,100 (802,900) (1,048,500) (1,130,700) ------------------------------------------------------ Investing activities: Purchases of fixed assets (3,286,500) (548,300) (463,300) (34,800) Purchases of patents and licenses (58,600) -- (800) -- Decrease (increase) in restricted cash 696,800 (3,000) (958,200) -- Purchase of STI -- -- (21,589,400) -- Purchase of Telemedicine division -- -- -- (2,063,000) Sale (purchase) of short - term investments 257,500 (257,500) -- -- Proceeds from sale of fixed assets 2,900 -- -- -- ------------------------------------------------------ Net cash used for investing activities (2,387,900) (808,800) (23,011,700) (2,097,800) ------------------------------------------------------ Financing activities: Proceeds from line of credit 40,200 1,660,200 361,300 7,900 (Net payment) proceeds on note payable (long-term) (1,838,400) -- 14,672,200 200,000 (Net payment) proceeds on other long-term debt 112,600 65,200 (86,200) (35,900) Payment under noncompete agreement -- -- (57,500) (180,000) Proceeds from issuance of warrants -- -- 2,072,900 -- Proceeds from issuance of preferred stock -- -- 7,557,600 -- ---------------------------------------------------- Net cash (used for) provided by financing activities (1,685,600) 1,725,400 24,520,300 (8,000) ---------------------------------------------------- Ajustment for STI cash flows previously recorded -- (97,800) -- -- ---------------------------------------------------- Net (decrease) increase in cash (504,400) 15,900 460,100 (3,236,500) Cash at beginning of period 527,700 511,800 51,700 3,288,200 ---------------------------------------------------- Cash at end of period $ 23,300 $ 527,700 $ 511,800 $ 51,700 ====================================================
See Notes to Consolidated Financial Statements 28 ITEM 8. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Meridian Medical Technologies, Inc. 1. Business and Summary of Significant Accounting Policies Meridian Medical Technologies, Inc. ("Company") is a technology-based health care company that designs, develops and produces a broad range of automatic injectors, prefilled syringes, cardiopulmonary products, and other innovative health care devices, with a major focus on safe and convenient participation by the patient in injection therapy and cardiac monitoring. The Company also supplies customized drug delivery system design, pharmaceutical research and development and Good Manufacturing Practices GMP-approved sterile product manufacturing to pharmaceutical and biotechnology companies. On November 20, 1996, Brunswick Biomedical Corporation ("Brunswick") was merged into Survival Technology, Inc. ("STI") to form the Company. At the time of the merger, Brunswick held approximately 61% of STI's outstanding common stock, which it had purchased from the estate of STI's late founder on April 15, 1996. Upon completion of the merger, the Company's fiscal year end was changed from June 30 to July 31. Although STI was the surviving corporation of the merger as a legal matter, the merger was treated as a purchase of STI by Brunswick for financial accounting purposes. As a result, Brunswick's historical financial statements became the Company's financial statements, STI's assets and liabilities have been revalued to their respective fair values and the Company's historical financial statements reflect the combined operations of STI and Brunswick after April 15, 1996 (subject to minority interests). The minority interests were eliminated upon completion of the merger on November 20, 1996. Liquidity The Company's liquidity at July 31, 1997 and for the first quarter of 1998 has been adversely impacted by the Company's current obligations under its senior debt and the voluntary exchange program (see note 13). The Company expects its liquidity to improve substantially in 1998 upon the completion of an anticipated restructuring of its debt. The restructuring is anticipated to extend principal payments and/or increase the Company's borrowing capacity. A delay in the restructuring of the Company's debt could have an adverse effect on the Company's liquidity. The Company and International Nederlanden (U.S.) Capital Corporation ("ING"), its primary lender, have agreed to modifications of certain debt covenants through the maturity of the term loan. Management believes that these modifications will enable the Company to operate in compliance with all covenants through at least July 31,1998. The Company believes it has a good working relationship with ING and that ING will continue to work with the Company. The Company is pursuing the restructuring of its debt structure, and, if necessary, would consider other alternatives such as reductions in discretionary spending. Management believes that debt restructuring and additional capital is needed to continue with its planned strategic initiatives and growth objectives. 29 Principles of Consolidation All intercompany balances and transactions have been eliminated in consolidation. Inventories Inventories relating to commercial and military products are stated at the lower of cost (first-in, first-out) or market. Fixed Assets Fixed assets are stated at cost. The Company computes depreciation and amortization under straight-line and accelerated methods using the following estimated useful lives: Furniture and equipment 2 to 15 years Capital leases and leasehold improvements 4 to 20 years The Company uses either the units of production method or the straight line method over a 10-year life (whichever period is shorter) to depreciate production molds and tooling over their estimated production life cycle. Intangible Assets Intangible assets consist of the following: July 31, 1997 June 30, 1996 ------------- ------------- Excess of cost over net assets acquired $10,350,700 $ 7,017,900 Patents and licenses 2,417,600 2,523,500 Other 1,479,200 1,654,700 ----------- ----------- 14,247,500 11,196,100 Less: accumulated amortization (1,974,700) (843,700) ----------- ----------- $12,272,800 $10,352,400 =========== =========== Excess of cost over net assets acquired and other intangible assets are amortized over 10 years. Legal costs incurred in connection with patent applications and costs of acquiring patents and licenses are capitalized and amortized on a straight-line basis over the shorter of the patent life (not to exceed seventeen years) or the period of expected benefit. 30 Revenue Recognition Sales of medical products are recorded when shipments are made to customers. Revenues from the U.S. Department of Defense ("DoD") industrial base maintenance contract are recorded ratably throughout the contract term with the exception of revenue from the component prestocking program that is recorded upon component receipt in MMT's warehouse and product sales which are recorded upon acceptance by the customer. Revenues from license fees are recorded when the fees are due and non-refundable. Revenues from research and development arrangements are recognized in the period related work has been substantially completed. Foreign Currency Assets and liabilities of foreign operations are translated at the exchange rate in effect at the balance sheet date. Revenue and expense accounts are translated using a weighted average of exchange rates in effect during the year. Cumulative translation adjustments are shown in the accompanying consolidated balance sheets as a separate component of shareholders' equity. Research and Development Research and development expenses are charged to operations in the period incurred. Income Taxes The Company accounts for income taxes using the asset and liability approach as prescribed by Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". The asset and liability approach requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences between carrying amounts and the tax basis of assets and liabilities. Value of Financial Instruments Other than described below, the Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash, accounts receivable, accounts payable and other accrued liabilities to approximate the fair value of the respective assets and liabilities at July 31, 1997 and June 30, 1996. Management believes the principal balance of its term note payable with ING, which is $1.6 million higher than the carrying value, is a better estimate of the fair value of that note. Use of Estimates and Assumptions The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates and assumptions. 31 Net Income (Loss) Per Common Share Net income (loss) per common share is computed on the weighted average number of common and common equivalent shares outstanding which were as follows: 2,040,000 for the year ended July 31, 1997 , 68,417 for the one month ended July 31, 1996, and 68,417 for the years ended June 30 1996 and 1995. Stock options and warrants are considered to be common equivalent shares when dilutive. Reclassification Certain reclassifications have been made to prior year financial statements in order to conform with the current year presentation. Accounting Standards Not Adopted In February 1997, the Financial Accounting Standards Board issued (FASB) Statement No. 128, "Earnings per Share" which is required to be adopted in the Company's quarter ending January 31, 1998. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary basic per share, the dilutive effect of stock options will be excluded. The Company does not expect the impact of adopting this new accounting standard to be significant. In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. This statement is effective for fiscal years beginning after December 15, 1997. In June 1997, the FASB issued Statement No. 131, "Disclosure about Segments of an Enterprise and Related Information" which establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. It also establishes the standards for related disclosures about products and services, geographic areas and major customers. This Statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. The financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This statement is effective for financial statements for periods beginning after December 15, 1997. Management is currently evaluating the requirements of Statements No. 130 and No. 131, respectively. 32 2. Inventories Inventories as of July 31, 1997 and June 30, 1996 consist of the following: July 31, June 30 1997 1996 ---- ---- Components and subassemblies $4,788,000 $3,217,200 Work in process 1,459,500 1,436,900 Finished goods 345,400 966,100 ---------- ---------- 6,592,900 5,620,200 Inventory valuation allowance (546,300) (293,500) ---------- ---------- $6,046,600 $5,326,700 ========== ========== 3. Fixed Assets Fixed assets as of July 31, 1997 and June 30,1996 consist of the following: July 31, June 30 1997 1996 ---- ---- Furniture and equipment $10,676,100 $18,191,000 Leasehold improvements 3,957,900 6,707,200 Construction in progress 2,612,300 2,117,900 ----------- ----------- 17,246,300 27,016,100 Less: accumulated depreciation (1,468,400) (12,025,800) ----------- ----------- $15,777,900 $14,990,300 =========== =========== The Company capitalized interest costs of $153,200 and $90,300 on internally constructed fixed assets in years ended July 31, 1997 and June 30, 1996, respectively. 4. Restructuring Charge In fiscal 1995, STI's Board of Directors approved a restructuring plan which resulted in a $450,000 charge against earnings for the relocation of the corporate headquarters. As part of this plan, STI initiated certain organizational changes during 1996 and 1997 resulting in additional charges related to employee severance benefits provided to certain employees terminated during fiscal 1996 and 1997. The Company's fiscal 1996 consolidated financial statements include a charge of $225,800 related to restructuring charges incurred subsequent to the acquisition of STI. The restructuring reserve was $123,800 and $640,400 as of July 31, 1997 and June 30, 1996, respectively. Reductions were related to cash payments for severance, moving costs and the differential on the lease cost of STI's former headquarters office and the income from the sublease of the facility. 33 5. Merger of STI and Brunswick Biomedical Corporation The acquisition of 61% of STI's common stock and subsequent merger of Brunswick and STI to form the Company were accounted for as a purchase. The purchase price was allocated first to tangible assets and identifiable intangible assets and liabilities of STI based on an independent assessment of their fair market values with the remainder allocated to the excess of cost over the fair value of net assets acquired. The purchase price and the purchase price allocation are as follows:
61% Interest 39% Interest Total ------------ ------------ ----- Cash consideration paid $16,069,386 $ 0 $16,069,386 Promissory note to the founder's estate 4,700,000 0 4,700,000 Stock exchanged 11,885,000 11,885,000 Transaction expenses 820,019 1,200,000 2,020,019 ----------- ------------ ----------- Purchase price 21,589,405 13,085,000 34,674,405 Historical book value of net assets acquired 10,680,600 6,788,500 17,469,100 ----------- ------------ ----------- Excess of purchase price over historical book value of net assets acquired $10,908,805 $ 6,296,500 $17,205,305 =========== ============ =========== The excess purchase price was allocated as follows: Property, plant and equipment $ (2,689) $ (308,991) $ (311,680) In-process research and development 4,464,007 2,702,234 7,166,241 Other intangible assets 942,230 570,387 1,512,617 Excess of cost over fair value of net assets acquired 5,505,257 3,332,870 8,838,127 ----------- ------------ ----------- $10,908,805 $ 6,296,500 $17,205,305 =========== ============ ===========
The intangible assets are amortized on a straight-line basis over their estimated life of 10 years. The allocation of excess purchase price to in-process research and development represents the independent assessment of the fair value of a number of research and development projects whose technological feasibility has not yet been established. These research and development projects have no alternative future use and, therefore, have been charged to expense as of the date of consummation of the transactions. 34 Pursuant to the Merger Agreement, each outstanding share of Brunswick's common stock was exchanged for 2.1 shares of STI's common stock and STI's common stock remained outstanding and unchanged. Each of Brunswick's outstanding shares of preferred stock was converted into 2.1 shares of STI's common stock and the preferred shareholders received a warrant to purchase 0.4 of a share of STI's common stock at an exercise price of $11.00 per share for each preferred share owned, exercisable for a period of five years following the merger. In addition, STI assumed Brunswick's obligations under outstanding option and warrant agreements. Prior to the merger, there were 3,091,700 shares of STI common stock issued and outstanding. In connection with the merger, STI issued 1,708,928 shares of common stock in exchange for all of the outstanding common and preferred stock of Brunswick. In addition, each of the 1,888,126 shares of STI common stock previously owned by Brunswick were retired. Following the merger, the Company (previously STI) had 2,912,502 shares outstanding. Upon completion of the merger, the Company assumed Brunswick's indebtedness under a senior bridge loan of $11 million, a subordinated promissory note ("Note") of $4.7 million, and a subordinated loan ("Subordinated Loan") of $1 million. Upon completion of the merger the senior bridge loan converted into a $10 million Term Loan ("Term Loan") and $1 million of the outstanding principal amount was repaid. In addition, the lenders of the senior bridge loan made available to the Company a $5 million revolving credit loan, a portion of which was used to discharge the Company's existing debt under its previous line of credit. (See Note 6). A total of $2,446,332 in transaction expenses were incurred by Brunswick and STI to complete the merger. Of these costs, $1,200,000 was included as transaction expenses in the determination of the purchase price. The remaining costs, amounting to $1,246,332 and consisting primarily of costs incurred by STI, were expensed during fiscal 1997. The following unaudited pro forma information adjusts the operating results as shown in the consolidated financial statements of operations to give the effect to the merger as if the transaction had occurred at the beginning of each of the years presented. The unaudited information below is not necessarily indicative of the results which would have occurred had the companies been actually merged during the periods presented. Year ended Year ended July 31, 1997 June 30, 1996 ------------- ------------- Net Sales $40,665,000 $35,015,000 Pro forma net loss (5,978,900) (6,900,600) Pro forma loss per share (2.05) (2.37) 35 6. Debt Line of Credit Prior to the merger, STI had a revolving credit agreement with Merrill Lynch Business Financial Services, Inc. ("MLBFS") for a maximum commitment of $5 million. Upon completion of the merger (see Note 5), the Company terminated the agreement with MLBFS and entered into a credit agreement with International Nederlanden (U.S.) Capital Corporation ("ING") for a new $5 million line of credit and a $10 million long- term loan. The Company increased its available line of credit with ING, subject to certain limitations, to $6.5 million as of September 2, 1997. An additional line of credit exists for the operation in N. Ireland. The line of credit is for 145,000 pounds and is secured by an irrevocable standby Letter of Credit. The line of credit matures annually each December and bears interest at the banks published rate approximately 8% at July 31, 1997. The MLBFS line of credit had an interest rate equal to the 30 day commercial paper rate plus 265 basis points (8.04% at July 31, 1996). The MLBFS line of credit was secured by substantially all of STI's assets and general intangibles. The ING line of credit accrues interest at either the greater of the Prime Rate plus 1.25% (9.75% at July 31, 1997) or the federal funds rate plus 1.75%; or the eurodollar loan rate plus 3.25%. The ING line is secured by certain accounts receivable and inventory. The outstanding borrowings on the Company's lines of credit were $4.1 million at both July 31, 1997 and June 30,1996. The Company pays a commitment fee to ING of .0025% per month on the average unused portion of the line of credit. Long-Term Debt (ING) In April 1996, in order to finance a portion of the acquisition of STI, Brunswick entered into a credit agreement with ING for a $11 million bridge loan, of which $1 million was held in escrow. Upon completion of the merger (See Note 5), the Company assumed Brunswick's obligation, repaid the $1 million held in escrow and converted the remaining balance into a $10 million term loan. The term loan accrues interest at either the Eurodollar loan rate plus 3.5%; or the greater of the prime rate plus 1.5% or the federal funds rate plus 2.00%, (10.0% at July 31, 1997) with quarterly principal payments of $250,000 beginning in June 1997 increasing to $500,000 in December 1997 and maturing on October 31, 2001. The outstanding balance on the term debt was $9,750,000 at July 31, 1997. Warrants were issued to ING in the financing described above. The Company allocated $2,072,900 of the note proceeds to the warrants based on the relative fair value of the warrants and the note at the agreement date. Accordingly, the note is carried at a discount from its maturity value. The Company is amortizing the discount over the term of the debt using the effective interest rate method. This resulted in a charge against operations of $458,900 in fiscal 1997. Any extinguishment of this debt will result in a charge against earnings for the unamortized amount remaining when extinguishment occurs. The Company is required to maintain certain financial covenants and is restricted from paying cash dividends. 36 Subordinated Promissory Note Payable to Sarnoff Estate In April 1996, in order to finance the initial phase of the STI acquisition, Brunswick signed a $4.7 million promissory note to the founder's estate. The promissory note matures on the fifth anniversary of the merger with STI (November 2001). The loan is unsecured and has an interest rate of 12% through April 1998 and 13% thereafter. Prior to April 1998, accrued interest on the note will be added to the principal balance, and as of April 1998, interest will be payable monthly. Accrued interest added to principal as of July 31, 1997 and June 30, 1996 was $809,600 and $169,100, respectively, resulting in an outstanding balance as of July 31, 1997 and June 30, 1996 of $5,509,600 and $4,869,100, respectively. EM Industries, Inc. Subordinated Loan In April 1996, in order to finance a portion of the STI acquisition, Brunswick obtained a $1 million loan from EM Industries, Inc. The loan matures in November 2001. Seven consecutive quarterly installment payments of $125,000 commence April 1999 and the remaining loan balance is due upon maturity. The loan is unsecured and has an interest rate of 12% through April 1998 and 13% thereafter. Accrued interest is to be added to the principal through April 1998 and is to be paid monthly thereafter. The balance at July 31, 1997 and June 30, 1996 was $1,167,400 and $1,025,500, respectively. Other Long-Term Debt In April 1991, STI borrowed $5.4 million from Syntex Laboratories, Inc. ("Syntex"). Principal repayments commenced August 1, 1991 through credits against amounts invoiced to Syntex for products delivered under a Manufacturing and Packaging Agreement between the parties. Outstanding principal as of July 31, 1997 and June 30, 1996 was $0 and, $588,400, respectively. In May 1995, the Company entered into a loan agreement with the CIT Group/Equipment Financing, Inc. ("CIT") to assist in financing the Company's capital investment programs. This arrangement consists of a series of loans for the acquisition of production molds, high-speed component preparation and filling equipment and facility renovations. Loan principal outstanding was $1.1 million and $1.2 million as of July 31, 1997 and June 30, 1996, respectively. The interest rate in both years was approximately 8.8%. Repayment of each loan is due in sixty (60) equal monthly installments. The agreement with CIT is collateralized by the asset financed with the loan. In January 1996, the Company received a non-interest bearing loan in the amount of $375,000 from Center Laboratories, Inc. -- Center, now Dey Laboratories, (Dey) STI's exclusive distributor for the EpiPen(R) and EpiE-ZPen(TM). The proceeds from this loan assisted the Company in purchasing high-speed filling and automated packaging equipment which will reduce the cost of manufacturing the EpiE-Zpen(TM). Repayment of this loan commenced during the first quarter of fiscal 1997 with an agreed upon credit per unit of product shipments to Dey. The Company anticipates loan repayment to be completed by fiscal 1999. The balance at July 31, 1997 and June 30, 1996 was $281,200 and $375,000, respectively. 37 Maturities of all long term-debt are as follows: 1998 - $2,299,400 1999 - 2,845,300 2000 - 3,132,300 2001 - 8,808,000 2002 - 750,000 Thereafter - 0 ---------- Sub-total $17,835,000 Discount on term loans (1,614,000) ---------- Total debt per balance sheet $16,221,000 =========== Interest paid for the year ended July 31, 1997 and the month ended July 31, 1996 was $2,466,700 and $26,100. 7. Shareholders Equity Common Stock The average number of common shares outstanding for the year ended July 31, 1997 reflects the weighted average of Brunswick shares through the merger date and the Company's shares thereafter. The number of Brunswick common shares outstanding as of June 30, 1996 was 68,417. The number of the Company's weighted average shares outstanding for year ended July 31, 1997 was 2,040,000. Stock Options In November 1993, Brunswick adopted the 1993 Stock Option Plan ("the 1993 Plan"). As of June 30, 1996, 124,720 Brunswick options were outstanding. At the merger date, the Company assumed Brunswick's obligations with respect to such options, and all Brunswick options were converted to stock options of the Company at a rate of 2.1 to 1 resulting in 258,100 options. Pursuant to the merger, the Company assumed STI's 293,800 outstanding options. The Company has adopted two Stock Option Plans ("the Plans") which reserve 500,000 shares for granting of options through 2001 and 500,000 shares, subject to shareholder approval, for granting of options through 2007. The Plans provide for issuance of non-qualified stock options, incentive stock options, stock appreciation rights, incentive shares and restricted stock. Options granted to employees, officers and directors pursuant the Company's stock option plans generally have been exercisable in varying amounts in cumulative annual installments up to ten years from the date of grant. The exercise price on all options granted during year ended July 31, 1997 was equivalent to the market value of the Company's stock on the date of grant. 38 In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which recommends a fair value based methodology of accounting for all stock option plans. Under SFAS No. 123, companies may account for stock options under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations and provide pro forma disclosure of net income, as if the fair value based method of accounting defined in SFAS No. 123 had been applied. The Company has elected to follow APB 25 and related Interpretations in accounting for its employee stock options and provide pro forma fair value disclosure under SFAS 123. The Company recognized $36,000, $73,400 and $59,400 of expense in fiscal 1997, 1996 and 1995, respectively, as a result of options issued in prior years with exercise prices less than fair market value at the date of grant. For SFAS 123, the fair value of options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997: Risk-free interest rate of 6.5%; no dividends; a volatility factor of the expected market price of the Company's common stock of .53 and a weighted-average expected life of the options of approximately 4 years. Options assumed in the merger have been included in the fair value estimates assuming the original grant date and adjusted exercise price. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For the purpose of pro forma disclosures, the estimated fair value of the stock options is amortized to expense over the options' vesting periods. The Company's pro forma net loss and net loss per share calculated using the provisions of FAS 123 were as follows: Year ended July 31, 1997 ------------- Net (loss) $(4,404,600) Pro Forma FAS 123 expense (153,400) ----------- Pro forma net (loss) income $(4,558,000) =========== Weighted average shares outstanding 2,040,000 Pro forma net loss per share ($2.23) =========== 39 The following table summarizes stock options activity for the year ended July 31, 1997. Amounts presented reflect the combined option plans of Brunswick and STI with the adjustments as necessary to reflect the exchange ratio in connection with the November 1996 merger of Brunswick and STI. Year ended Number of Shares 1997 - ---------------- ---- Options outstanding at beginning of year 551,900 Granted during the year 57,600 Exercised during the year (8,800) Expired or terminated (47,400) ------- Options outstanding at end of year 553,300 At July 31, 1997 the price range of options outstanding are as follows: Less than $1.00 148,512 $1.00-$5.00 111,000 $5.00-9.00 120,475 $9.00 + 173,313 ------- 553,300 Options exercisable at July 31, 1997 were 380,200. The average contractual life of the Company's options is approximately 6 years. The weighted average fair value of options granted during 1997 was $5.85. Common Stock Warrants Outstanding warrants to acquire the Company's common stock as of July 31, 1997 are as follows: Number of Exercise Price Shares - -------------- --------- Less than $1.00 153,655 At $11.00 534,635 At $27.55 76,226 ------- 764,516 ======= The warrants outstanding begin to expire in 2000 with the majority expiring in 2001. 40 Convertible Redeemable Preferred Stock In April 1996, Brunswick issued 208,710 shares of Series F preferred stock for $27.55 per share, resulting in net proceeds of $5,568,950. In connection with the series F preferred stock financing, all shares of Series D and E preferred stock automatically converted into an equal number of shares of Series F preferred stock. In March 1996, Brunswick issued 45,695 shares of Series D preferred stock and 24,319 shares of Series E preferred stock for $27.55 per share, resulting in net proceeds of $1,239,059 and $659,492, respectively. In November 1993, Brunswick issued 374,462 shares of Series C preferred stock in exchange for cash and the conversion of certain notes payable. In connection with the merger of Brunswick and STI in November 1996, each share of preferred stock was converted into shares of the Company's common stock(See Note 5). 8. Income Taxes As a result of net operating losses incurred by Brunswick in fiscal 1995, there was no provision for income taxes. In fiscal 1996, a provision for income taxes of $26,900 was recorded to provide for the earnings of STI subsequent to the acquisition of 61% of STI's common stock by Brunswick. The provision for federal and state income taxes consist of the following: Year ended Month ended July 31, July 31, 1997 1996 ---------- ----------- Current: Federal $482,400 $374,800 State 71,000 65,000 Other 22,000 - NOL utilization (225,000) - --------- -------- 350,400 $439,800 Deferred: Federal (259,000) - State (35,000) - Other (11,000) - -------- -------- (305,000) - --------- -------- $ 45,400 $439,800 ======== ======== 41 The following is a reconciliation of the provision for income taxes to provision calculated at the statutory rate:
Year ended Month ended July 31, 1997 July 31, 1996 ------------- -------------- Provision for income taxes at federal statutory rate ($1,498,000) $261,000 State taxes, net of federal income tax benefit (265,000) 46,000 Write off non-deductible in process R&D 1,024,607 - Taxable income provided by STI not available for Brunswick NOL's - 195,000 Non deductible merger costs 473,606 - Non-deductible amortization costs 345,787 93,000 Other (35,600) (155,200) ----------- -------- $ 45,400 $439,800 =========== ========
The Company paid income taxes of $551,900, $0, $0 and $0 for the year ended July 31, 1997, month ended July 31, 1996 and years ended June 30, 1996 and 1995, respectively. The Company provides deferred income taxes for temporary differences between the book basis of assets and liabilities for financial purposes and the book basis assets and liabilities for tax return purposes. Deferred tax assets and liabilities were as follows at July 31, 1997 and June 30, 1996: July 31, June 30, 1997 1996 ---- ---- Net operating loss and tax credits carryforward $ 2,123,000 $ 2,378,000 Inventory valuation 90,600 255,600 Uniform inventory capitalization 373,400 322,300 Postretirement benefits 241,300 173,700 Deferred lease income - 64,200 Vacation expense 57,900 57,900 Restructuring charge 47,800 247,200 Product exchange reserve 594,900 - Other 252,700 418,600 Valuation allowance (2,123,000) (2,700,000) ----------- ----------- Deferred tax asset $ 1,658,600 $ 1,217,500 =========== =========== Depreciation $(1,601,900) $(1,492,700) Patent costs (135,500) (112,800) Other (3,700) - ----------- ----------- Deferred tax liability $(1,741,100) $(1,605,500) At July 31, 1997, the Company has net operating losses (NOLs) available for future use of approximately $6 million. These NOL's begin to expire in 2005. 42 9. Employee Retirement Plans Pension and Savings Plans The Company maintains a profit sharing thrift plan covering all full-time employees not covered by a collective bargaining agreement. Annual contributions under the plan may be made up to 6.6% of the base annual salary of all plan participants. Plan benefit allocations are based on the participants' annual compensation. The Company made no contributions in fiscal 1996 or 1997. As part of this profit sharing thrift plan, eligible employees may elect to contribute up to 12% of their base salary to the plan. The Company matches a portion of the employee contributions which amounted $35,800 in fiscal 1996 and $152,000 in fiscal 1997. The Company also made payments to a pension plan for its full-time employees in St. Louis, Missouri covered by a collective bargaining agreement. Contributions to this plan resulted in expense of $16,400 (after the initial purchase of STI common stock) in fiscal 1996 and $92,000 in fiscal 1997. Other Postretirement Benefits The Company sponsors a postretirement benefit plan (the "Plan") to provide certain medical and life insurance benefits to retirees, their spouses and dependents. Employees who terminated from active service after March 1992 and are at least 60 years of age, but no more than age 65, with 20 years service, are eligible for medical coverage. Employees who terminated from active service prior to April 1, 1992 and were at least 55 years of age, but no more than age 65, with 10 years service, are eligible for medical and life insurance coverage. The Plan is contributory for medical benefits based on the retiree's years of service and is noncontributory for life insurance benefits. The Company funds its obligations under the Plan as incurred. The following table sets forth the Plan's funded status: 1997 1996 ---- ---- Accumulated postretirement benefit obligation: Retirees $448,000 $ 877,000 Fully eligible and other Plan participants 380,000 502,000 -------- --------- 828,000 1,379,000 Unrecognized prior service cost (51,000) (60,000) Unrecognized net gain (loss) 544,000 (106,000) Unrecognized transition obligation (718,000) (763,000) -------- -------- Accrued postretirement benefit cost $603,000 $450,000 ======== ========= 43 In fiscal 1997, the Company recognized net periodic postretirement expense of $153,000 as follows: 1997 ---- Service cost-benefits attributed to service during periods $ 48,000 Interest cost on accumulated postretirement benefit obligation 112,000 Amortization of prior service 9,000 Amortization of net gain (61,000) Amortization of transition obligation 45,000 -------- Net periodic postretirement benefit cost $153,000 ======== The cost for fiscal 1996 (after the initial purchase of STI common stock) was $ 42,700. For measurement purposes, a 9.0% annual rate of increase in cost of health care was assumed for fiscal 1997; the rate was assumed to decrease gradually to 5% by 2005 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing assumed health care cost by 1% in each year would increase the accumulated postretirement benefit obligation as of July 31, 1997 by $183,000 and the aggregate of the service and interest cost component of net periodic postretirement benefit cost by $47,000 for the year ended July 31, 1997. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8% for 1997 and 1996. 10. Commitments and Contingencies Leases The Company has various commitments under operating leases through 2009 relating to computer hardware and software, its pharmaceutical manufacturing facility and warehouses in St. Louis, Missouri, its facility in the United Kingdom and administrative offices in Columbia, Maryland and St. Louis, Missouri. Future minimum rentals as of July 31, 1997 under noncancellable leases are as follows: Operating Sublease Year Ending July 31 Leases Revenue ------------------- ------ ------- 1998 $1,131,000 $ 330,100 1999 1,064,000 330,100 2000 1,000,000 330,100 2001 860,000 330,100 2002 534,000 165,100 Thereafter 1,426,000 - ---------- ---------- $6,015,000 $1,485,500 ========== ========== The Company incurred rental expense of $825,400 in 1997 and $ 63,600 in July 1996. 44 Sales/Leaseback of Corporate Headquarters Building In connection with the December 1988 sale of the Company's former headquarters building in Bethesda, Maryland, the Company's obligations under the Leasehold Deed of Trust ("Ground Lease") were assigned to and assumed by the purchaser of the building. The Company remains contingently liable under the Ground Lease. The annual commitment under the Ground Lease aggregated $147,000 in 1997 (adjusted for increases in the Consumer Price Index) and extends until the year 2042. Litigation Lawsuits and claims are filed from time to time against the Company and its subsidiaries in the ordinary course of business. Management of the Company, after reviewing developments to date with legal counsel, is of the opinion that the outcome of such matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. Government Contract Revenue The Company's supply contracts with the Department of Defense ("DoD) are subject to post-award audit and potential price redetermination. In the opinion of management, adjustments, if any, on completed contracts would not have a material adverse effect on the Company's consolidated financial position or results of operations. Employee Contracts The Company entered into agreements with certain key employees which provide for certain benefits should the employee be terminated within the term of the agreement for other than specified reasons. The Company also entered into agreements with certain other key employees which provide for certain benefits should the employee be terminated within a two year period subsequent to a change of control (as defined by the agreements) for other than specified reasons. Benefits to be provided under these agreements include continued life, disability, accident and health insurance coverage for a period of two years and a severance payment up to 200% of the employee's annual base compensation. Additionally, all stock options held by the employee become immediately exercisable and any restrictions on transfer of the Company's stock held by the employee shall lapse. These arrangements renew for one-year periods unless timely notice of non-renewal is given. The maximum contingent liability under these agreements at July 31, 1997 aggregates $1.1 million. 11. Industry Segment Information The Company operates in one industry segment which includes the design, development, manufacture and sale of medical products and related services, with a major focus on safe and convenient participation by the patient in injection therapy and in Cardiopulmonary Analysis Systems. The Cardiopulmonary business unit operates in N. Ireland with most of its revenue generated overseas. 45 12. Significant Customers Financial information relating to major customers and export sales follows: 1997 1996 1995 ---- ---- ---- Sales to major U.S. customers U.S. Department of Defense $13,115,800 $2,535,700 $ - Dey Laboratories, Inc. 15,027,900 2,515,800 - Other 5,051,100 4,556,900 2,903,500 ----------- ---------- ---------- Total $33,194,800 $9,608,400 $2,903,500 Export Sales: Contract sales to the Governments of foreign countries 4,709,400 680,600 - Other 2,760,500 86,300 - ----------- ---------- ---------- Total export sales 7,469,900 766,900 - ----------- ---------- ---------- Total net sales $40,664,700 10,375,300 $2,903,500 =========== ========== ========== The Company extends credit to domestic customers and generally requires a letter of credit for export sales. At July 31, 1997 the Company had 68% of its accounts receivable from two customers, Dey and the U.S. government. Dey's parent is a shareholder of the Company. 13. Subsequent Events On October 8, 1997, the Company announced a product exchange program for all of its EpiEZPen(R) product sold since March 1996 (approximately 500,000 units). This exchange program was initiated after a minimal amount of units (less than 10 units) were returned for premature activation in the package. The estimated cost of the exchange program is $1.5 million and is included in fiscal 1997 results of operations. Management has performed an analysis of potential costs of the exchange program and made their best estimate regarding these costs. Actual costs could differ materially from management's estimates. The Company has not included any anticipated cost sharing of this exchange with potentially responsible parties as the benefit and probability of such an arrangement are not determinable at this time. The Company believes the exchange will be substantially complete by the end of fiscal 1998. 14. Quarterly Operating Results (unaudited) (in Thousands, except per share data) Quarter Ended -------------------------------------- Fiscal year 1997 Oct 31 Jan 31 Apr 30 July 31 - ----------------------- -------------------------------------- Net sales $10,197 $ 8,787 $10,680 $11,001 Cost of sales 6,416 5,552 6,875 6,778 -------------------------------------- Gross profit 3,781 3,235 3,805 4,223 Operating expenses 3,289 6,638 2,843 3,973 -------------------------------------- Operating Income 492 (3,403) 962 250 Other (expense) income, net (400) (1,082) (373) (540) -------------------------------------- Income (loss) before income tax 92 (4,485) 589 (290) Provision for income tax 415 (48) -- (321) Minority interest 256 9 -- -- -------------------------------------- Net (loss) $ (579) (4,446) 589 $ 31 ====================================== Net (loss) per share $ (8.51) (2.24) 0.2 $ 0.01 ====================================== Fiscal year 1996 Sep 30 Dec 31 Mar 30 Jun 30 - ----------------------- -------------------------------------- Net sales $ 819 $ 664 $ 1,422 $ 7,470 Cost of sales 439 360 875 5,281 -------------------------------------- Gross profit 380 304 547 2,189 Operating expenses 657 737 607 7,631 -------------------------------------- Operating Income (277) (433) (60) (5,442) Other (expense) income, net (56) (49) (49) (385) ------------------------------------- Income (loss) before income tax (333) (482) (109) (5,827) Provision for income tax -- -- -- 27 Minority interest -- -- -- 17 ------------------------------------- Net income (loss) $ (333) $ (482) $ (109) $(5,871) ===================================== Net (loss) per share $ (4.90) $ (7.09) $ (1.60) $(86.34) ===================================== During the quarters ended June 30, 1996 and January 31, 1997, the Company recorded nonrecurring charges of $4.5 million and $3.9 million , respectively, for the write off of in-process R&D and merger transaction costs related to the acquisition of 61% of STI's common stock and subsequent merger of Brunswick and STI. During the quarter ended July 31, 1997, the Company recorded a charge of $1.5 million for the estimated cost of a product exchange program related to the Company's EpiEZPen product. The Company's results from April 15, 1996 reflect the inclusion of STI in the consolidated operating results. Shares used in net income (loss) per share calculations are based on the outstanding shares of Brunswick and STI on November 20, 1996. Subsequent to the merger of Brunswick and STI on November 20, 1996, per share calculations are based on the outstanding shares of the Company. During the quarter ended January 31, 1997, the Company recorded an adjustment to interest expense (included in other (expense) income net) to provide for the cumulative amortization of debt discount related to debt incurred by Brunswick in April 1996. 46 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders Meridian Medical Technologies, Inc. We have audited the accompanying consolidated balance sheet of Meridian Medical Technologies, Inc. and subsidiaries as of July 31, 1997 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended July 31, 1997 and the month ended July 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Meridian Medical Technologies, Inc. and subsidiaries at July 31, 1997, and the results of their operations and their cash flows for the year ended July 31, 1997 and the month ended July 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Washington DC September 4, 1997, except for Note 13, as to which the date is October 21, 1997 47 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Brunswick Biomedical Corporation In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Brunswick Biomedical Corporation and its subsidiaries at June 30, 1996 and the results of their operations and their cash flows for the year in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The financial statements of the Company for the years ended June 30, 1995 and 1994 were audited by other independent accountants whose report dated August 24, 1995 expressed an unqualified opinion on those statements. PRICE WATERHOUSE LLP Washington, DC October 29, 1997 48 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Brunswick Biomedical Corporation: We have audited the consolidated statements of operations, stockholders' equity (deficit) and cash flows of Brunswick Biomedical Corporation (a Massachusetts Corporation) and subsidiaries for the year ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Brunswick Biomedical Limited, a subsidiary, which reflect total assets and total revenues of 11% and 3% in 1995 of the consolidated totals. Those statements were audited by other audits whose reports has been furnished to us, and our opinion, insofar as it relates to the amounts included for Brunswick Biomedical Limited, is based solely on the report of the other auditors. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether statements of operations, stockholders' equity (deficit) and cash flows are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements of operations, stockholders' equity (deficit) and cash flows. 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 and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the statements of operations, stockholders' equity (deficit) and cash flows referred to above present fairly, in all material respects, the results of operations, cash flows and changes in stockholders' equity (deficit) of Brunswick Biomedical Corporation and subsidiaries for the year ended June 30, 1995, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Boston, Massachusetts August 24, 1995 49 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEMS 10. through 13. Information required by Part III (Items 10 through 13) of this form 10-K is incorporated by reference to the Company's definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended July 31, 1997, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year to which this report relates. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS FORM 8-K (a) The following documents are included under Item 8 in this report: 1. Financial Statements: Consolidated Balance Sheets at July 31, 1997 and June 30, 1996 Consolidated Statements of Operations for the year ended July 31, 1997, month ended July 31, 1996, and years ended June 30, 1996 and June 30,1995. Consolidated Statements of Shareholders Equity for the year ended July 31, 1997, month ended July 31, 1996 and years ended June 30, 1996 and June 30, 1995. Consolidated Statements of Cash Flows for the year ended July 31, 1997, month ended July 31, 1996 and years ended June 30, 1996 and June 30, 1995. Notes to Consolidated Financial Statements Reports of Independent Accountants The above-listed financial statements are included in Item 8 to this Form 10-K. 2. Financial Statement Schedule: The following financial statement schedule immediately follow the signatures to this report: Schedule II -- Valuation and Qualifying Accounts and Reserves All other schedules are omitted because they are immaterial, not applicable or the required information is shown in the consolidated financial statements or the notes thereto. 50 3. Exhibits: Exhibit No. Description of Exhibit - ----------- ---------------------- (2.1) Agreement and Plan of Merger dated September 11, 1996 (incorporated by reference herein from Exhibit 6(a) to Amendment No. 1 to Schedule 13D filed by Brunswick dated September 13, 1996). (2.2) Agreement and Plan of Merger dated September 11, 1996 between Survival Technology, Inc. and Brunswick Biomedical Corporation. Incorporated by reference to Exhibit 6(a) to amendment No. 1 to Schedule 13D filed by Brunswick Biomedical Corporation dated September 13, 1996. (3.1) The Company's Bylaws (As Amended). Filed herewith. (3.2) First Amended and Restated Certificate of Incorporation and certification of the amendment of first amended and restated Certificate of Incorporation. Filed herewith. (3.3) Amendment to First Amended and Restated Certificate of Incorporation, dated November 20, 1996. Incorporated by Reference 8K filed by Meridian on December 5, 1996. (4.1) Form of warrant to be issued by the Registrant to former holders of Brunswick preferred stock. Incorporated by reference herein from Exhibit 4.1 to Form 8-K filed by the Registrant dated December 5, 1996. (4.2) Forms of warrants assumed and to be issued by the Registrant in connection with the merger with Brunswick. Incorporated by reference herein from Exhibit 4.1 to Form 8-K filed by the Registrant dated December 5, 1996. (4.3) Form of warrant issued to the Estate of Stanley J. Sarnoff, assumed by the Registrant. Incorporated by reference herein from Exhibit 4b to Schedule 13D filed by Brunswick dated April 15, 1996. (10.1) Indenture of Lease, dated January 1, 1982, between Survival Technology, Inc. and Abraham M. Morrison, Incorporated by reference to Exhibit (10.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1988 (File No. 0-5958). (10.4) Survival Technology, Inc., 1982 Stock Option Plan. Incorporated by reference to Exhibit (4.4) to Registration Statement No. 2-80908 on Form S-8.* (10.5) Survival Technology, Inc. 1986 Stock Option Plan (As Amended). Incorporated by reference to Exhibit (4.2) to Registration Statement No. 33-46981 on Form S-8.* (10.6) Contract SP0200-96-D-001 dated October 27, 1995 between the U.S. Government (Defense Personnel Support Center) and the Company. Incorporated by reference to Exhibit (10.6) to the Company's Annual Report on Form 10-K for the year ended July 31, 1996 (File No. 0-5958). (10.6.1) Contract SP0200-96-D-0001 modification No. 8004 dated October 15, 1996 between the U.S. Government (Defense Personnel Support Center) and the Company. Incorporated by reference to Exhibit (10.6) to the Company's Annual Report on Form 10-K for the year ended July 31, 1996 (File No. 0-5958). 51 (10.7) Agreement dated as of January 1, 1987 between Center Laboratories, a division of EM Industries, Inc. and the Company. Incorporated by reference to Exhibit (10.11) to the Company's Annual Report on Form 10-K for the year ended July 31, 1988 (File No. 0-5958). (10.7.1) Letter Agreement dated as of January 31, 1990 between Center Laboratories, a division of EM Industries, Inc. and the Company. Incorporated by reference to Exhibit (10.10.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1990. (10.8) Agreement dated June 23, 1981 between Survival Technology, Inc, and American Home Products Corporation. Incorporated by reference to Exhibit (10.12) to the Company's Annual Report on Form 10-K for the year ended July 31, 1988 (File No. 0-5958). (10.8.1) License Agreement dated April 20, 1982 between Survival Technology, Inc. and American Home Products Corporation. Incorporated by reference to Exhibit (10.12.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1988 (File No. 0-5958). (10.8.2) Supply Agreement dated August 3, 1993 between Survival Technology, Inc. and Wyeth-Ayerst Laboratories (A Division of American Home Products Corporation). Incorporated by reference to Exhibit (10.7.2) to the Company's Annual Report on Form 10-K for the year ended July 31, 1993 (File No. 0-5948). (10.9) Loan Agreement dated April 16, 1991 between Syntex Laboratories, Inc. and the Company. Incorporated by reference to Exhibit (10.11.1) to the Company's Current Report on Form 8-K dated April 16, 1991 (File No. 0-5958). (10.9.1) Agreement dated November 25, 1993 between Survival Technology, Inc. and Syntex Laboratories, Inc. with respect to the termination of the March 1, 1989 Manufacturing and Packaging Agreement. Incorporated by reference to Exhibit (10.9.2) to the Company's Annual Report on Form 10-K for the year ended July 31, 1993. (10.10) Development, Manufacturing and Supply Agreement between Mylan Laboratories, Inc. and Survival Technology, Inc. dated August 31, 1993. Incorporated by reference to Exhibit (10.11) to the Company's Annual Report on Form 10-K for the year ended July 31, 1993 (File No. 0-5958). (10.10.1) Development, Manufacturing and Supply Amendment Agreement dated July 28, 1994 between Mylan Laboratories, Inc. and Survival Technology, Inc. Incorporated by reference to Exhibit (10.12.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1994. (10.11) Lease Agreement dated August 26, 1991 between Pru Beta 2 and the Company. Incorporated by reference to Exhibit (10.12) the Company's Annual Report on Form 10-K for the year ended July 31, 1991 (File No. 0-5958). 52 (10.12.3) Change in Control Agreement dated January 10, 1996 between Mark D. Ruby and the Company. Incorporated by reference to Exhibit (10.12.3) to the Company's Annual Report on Form 10-K for the year ended July 31, 1996 (File No. 0-5958). (10.13) Commitment letter dated May 4, 1995 between the CIT Group/Equipment, Financing Inc., and the Company. Incorporated by reference to Exhibit (10.15) to the Company's Annual Report on Form 10-K for the year ended July 31, 1995 (File No. 0-5958). (10.14) Letter dated March 15, 1996 from Brunswick Biomedical Corporation. Incorporated by reference to Exhibit (10) to Form 8-K dated March 19, 1996. (10.15) Credit Agreement, dated as of April 15, 1996, among Brunswick, as the Borrower, Various Lenders and Internationale Nederlanden (U.S.) Capital Corporation as the Agent for the Lenders (incorporated by reference herein Exhibit 1 to Schedule 13D filed by ING (U.S.) Investment Corporation dated December 2, 1996). (10.16) Warrant Purchase Agreement, dated as of April 15, 1996, between Brunswick and Internationale Nederlanden (U.S.) Capital Corporation (incorporated by reference herein from Exhibit 2 to Schedule 13D filed by ING (U.S.) Investment Corporation dated December 2, 1996) (10.17) Registration Rights Agreement, dated as of April 15, 1996, between Brunswick and Internationale Nederlanden (U.S.) Capital Corporation (incorporation by reference herein from Exhibit 3 to Schedule 13D filed by ING (U.S.) Investment Corporation dated December 2, 1996). (10.18) First Amendment to Credit Agreement, dated as October 25, 1996, between Brunswick and Internationale Nederlanden (U.S.) Capital Corporation (incorporation by reference herein from Exhibit 4 to Schedule 13D filed by ING (U.S.) Investment Corporation dated December 2, 1996). (10.18.1) Second Amendment to Credit Agreement, date September 2, 1997 between Meridian Medical Technologies, Inc. and Internationale Nederlanden (U.S.) Capital Corporation (filed herewith). (10.19) First Amendment to warrant Purchase Agreement, dated as of October 25, 1996, between Brunswick and Internationale Nederlanden (U.S.) Capital Corporation (incorporated by reference herein from Exhibit 5 to Schedule 13D filed by ING (U.S.) Investment Corporation dated December 2, 1996). (10.20) Assumption Agreement to the Credit Agreement, dated as of November 20, 1996, between Meridian Medical Technologies, Inc. and Internationale Nederlanden (U.S.) Capital Corporation (incorporated by reference herein from Exhibit 6 to Schedule 13D filed by ING (U.S.) Investment Corporation dated December 2, 1996). (10.21) Assumption Agreement to the Warrant Purchase Agreement, dated as of November 20, 1996, between Meridian Medical Technologies, Inc. and Internationale Nederlanden (U.S.) Capital Corporation (incorporated by reference herein from Exhibit 7 to Schedule 13D filed by ING (U.S.) Investment Corporation dated December 2, 1996). (10.22) $10,000,000 Term Note of Meridian Medical Technologies, Inc. dated November 20, 1996 (incorporated by reference herein from Exhibit 9 to Schedule 13D filed by ING (U.S.) Investment Corporation dated December 2, 1996). 53 (10.23) $15,000,000 Revolving Note of Meridian Medical Technologies, Inc. dated November 20, 1996 (incorporated by reference herein from Exhibit 10 to Schedule 13D filed by ING (U.S.) Investment Corporation dated December 2, 1996). (10.24) Warrant Certificate for 90,912 Warrants of Meridian Medical Technologies, Inc. Certificate No. 1 (incorporated by reference herein from Exhibit 10 to Schedule 13D filed by ING (U.S.) Investment Corporation dated December 2, 1996). (10.25) Warrant Certificate for 83,579 Warrants of Meridian Medical Technologies, Inc. -- Certificate No. 1 (incorporated by reference herein from Exhibit 11 to Schedule 13D filed by ING (U.S.) Investment Corporation dated December 2, 1996). (10.26) Employment agreement with James H. Miller, dated November 20, 1996. Incorporated by reference to the Company's Form 10K for the year ended July 31, 1996 (File No. 0-5958). (10.27) Form of Registration Rights Agreement with former Brunswick stockholders (Incorporated by reference to the Company's Form 10K for the year ended July 31, 1996. (File No. 0-5958). (22) A list of the Company's subsidiaries is not provided because they, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of the end of the year covered by this report. (24.1) Consent of Independent Accountant -- Ernst and Young LLP. Filed herewith. (24.2) Consent of Independent Accountant -- Price Waterhouse LLP. Filed herewith (24.3) Consent of Independent Accountant -- Arthur Anderson LLP. Filed herewith ________________ *Management contract, compensatory plan or arrangement. (b) Reports on Form 8-K: There was no Current Reports on Form 8-K filed by Registrant during the three months ended July 31, 1996. 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MERIDIAN MEDICAL TECHNOLOGIES, INC. (Registrant) By /S/JAMES H. MILLER James H. Miller Chairman of the Board President & CEO Dated: October 22, 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: /s/ JAMES H. MILLER Chairman of the Board October 27, 1997 - ------------------- President and Director James H. Miller (Principal Executive Officer) /s/ G. TROY BRASWELL Vice President of Finance October 27, 1997 - -------------------- (Principal Financial and G. Troy Braswell Accounting Officer) /s/ MARK D. RUBY Vice President of Marketing October 27, 1997 - ---------------- and Sales Mark D. Ruby /s/ BRUCE M. DRESNER Director October 27, 1997 - -------------------- Bruce M. Dresner /s/ ROBERT G. FOSTER Director October 27, 1997 - -------------------- Robert G. Foster /s/ DAVID L. LOUGEE Director October 27, 1997 - ------------------- David L. Lougee /s/ E. ANDREWS GRINSTEAD, III Director October 27, 1997 - ----------------------------- E. Andrews Grinstead, III 55 MERIDIAN MEDICAL TECHNOLOGIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES SCHEDULE II
Additions Additions Balance at Charged to Charged to Balance Beginning other Costs and Write-off at End of Period Accounts(1) Expenses Deductions of Period -------------------------------------------------------------- For the year ended June 30, 1995 - ------------------------- Allowance for doubtful accounts $ 17,000 $ -- $ 49,000 $ -- $ 66,000 Inventory reserves $ -- $ -- $ -- $ -- $ -- Restructuring reserves $ -- $ -- $ -- $ -- $ -- ========= ========== ========= ========== ======== For the year ended June 30, 1996 - ------------------------- Allowance for doubtful accounts $ 66,000 $ 24,500 $ 20,600 $ 66,100 $ 45,000 Inventory reserves $ -- $ 640,400 $ 209,700 $ 556,600 $293,500 Restructuring reserves $ -- $ 481,600 $ 225,800 $ 67,000 $640,400 ========= ========== ========= ========== ======== For the one month ended July 31, 1996 - ------------------------- Allowance for doubtful accounts $ 45,000 $ -- $ -- $ -- $ 45,000 Inventory reserves $ 293,500 $ -- $ -- $ -- $293,500 Restructuring reserves $ 640,400 $ -- $ -- $ -- $640,400 ========= =========== ========= ========== ======== For the year ended July 31, 1997 - ------------------------- Allowance for doubtful accounts $ 45,000 $ -- $ 292,000 $ 89,200 $247,800 Inventory reserves $ 293,500 $ -- $ 695,200 $ 442,400 $546,300 Restructuring reserves $ 640,400 $ -- $ 64,300 $ 580,900 $123,800 ========= =========== ========= ========== ========
(1) Additions resulting from the acquisition of STI by Brunswick EX-3.1 2 THE COMPANY'S BYLAWS Exhibit 3.1 MERIDIAN MEDICAL TECHOLOGIES, INC. BY-LAWS (As of November 20, 1996) ARTICLE 1. OFFICES 1.1. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. 1.2. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2. MEETINGS OF STOCKHOLDERS 2.1. All meetings of the Stockholders shall be held at such place, within or without the State of Delaware, as shall be fixed from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. 2.2. An annual meeting of Stockholders shall be held on the first day of November, if not a legal holiday, and if a legal holiday then on the next secular day following, at 10:00 a.m., local time, or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meeting the Stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting. 2.3. Special meetings of the Stockholders for any purpose or purposes may be called at any time only by the Board of Directors pursuant to a resolution adopted by a majority of the members of the Board of Directors then in office. Business transacted at any special meeting of Stockholders, other than procedural matters and matters relating to the conduct of the meeting, shall be limited to the purpose or purposes stated in the notice of the meeting pursuant to Section 2.4 of these By-Laws. - 2 - 2.4. Written notice of the annual or any special meeting of the Stockholders shall be given to each Stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting (unless a different time is specified by law). The notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which such meeting has been called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the Stockholder at his address as it appears on the records of the Corporation. Any such notice may be waived and shall be deemed waived by any Stockholder who signs a written waiver of such notice before or after the time stated therein, or by any Stockholder who attends the meeting unless at the beginning of the meeting or promptly upon arrival, the Stockholder objects to the holding of the meeting or the transacting of specified business at the meeting. 2.5. At all meetings of the Stockholders, the holders of stock having a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the Stockholders, the chairman of the meeting or the holders of stock having a majority of the voting power of the stock entitled to vote thereat who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting or as may be required under the Delaware General Corporation Law, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting. 2.6. When a quorum is present at any meeting, all elections for the Board of Directors shall be decided by a plurality of the votes cast and all other questions shall be decided by a majority of the votes cast, except as otherwise required by statute or as provided for in the Certificate of Incorporation or - 3 - these By-Laws. Abstentions shall not be considered to be votes cast. 2.7. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each such Stockholder and the number of shares registered in the name of each such Stockholder. Such list shall be open to the examination of any Stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. 2.8. Except as provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of Stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such Stockholders, may be taken without a meeting, without prior notice and without a vote, if consents in writing have been signed by the holders of all of the outstanding stock entitled to vote thereon at a meeting at which all shares entitled to vote thereon were present and voted. 2.9. Votes by written ballot at any meeting of Stockholders may be conducted by one or more inspectors, appointed for that purpose, either by the Board of Directors or by the chairman of the meeting. The inspector or inspectors may decide upon the qualifications of voters and the validity of proxies, and may count the votes and declare the result. STOCKHOLDER PROPOSALS AND NOMINATIONS 2.10. (a) No proposal for a Stockholder vote shall be submitted by a Stockholder (a "Stockholder Proposal") to the Corporation's Stockholders unless the Stockholder submitting such proposal (the "Proponent") shall have filed a written notice setting forth with particularity (i) the names and business addresses of the Proponent and all Persons (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of - 4 - 1934, as amended through the date of adoption of these By-Laws) acting in concert with the Proponent; (ii) the names and addresses of the Proponent and the Persons identified in clause (i), as they appear on the Corporation's books (if they so appear); (iii) the class and number of shares of the Corporation beneficially owned by the Proponent and the Persons identified in clause (i); (iv) a description of the Stockholder Proposal containing all material information relating thereto; and (v) such other information as the Board of Directors reasonably determines is necessary or appropriate to enable the Board of Directors and Stockholders of the Corporation to consider the Stockholder Proposal. Upon receipt of the Stockholder Proposal and prior to the Stockholder meeting at which such Stockholder Proposal will be considered, if the Board of Directors or a designated committee or the officer who will preside at the Stockholders meeting determines that the information provided in a Stockholder Proposal does not satisfy the informational requirements of these By-Laws or is otherwise not in accordance with law, the Secretary of the Corporation shall promptly notify such Proponent of the deficiency in the notice. Such Proponent shall have an opportunity to cure the deficiency by providing additional information to the Secretary within the period of time, not to exceed five days from the date such deficiency notice is given to the Proponent, determined by the Board of Directors, such committee or such officer. If the deficiency is not cured within such period, or if the Board of Directors, such committee or such officer determines that the additional information provided by the Proponent, together with the information previously provided, does not satisfy the requirements of this Section 2.10, then such proposal shall not be presented for action at the meeting in question. (b) Only persons who are selected and recommended by the Board of Directors or a committee thereof, or who are nominated by Stockholders in accordance with the procedures set forth in this Section 2.10, shall be eligible for election, or qualified to serve, as Directors. Nominations of individuals for election to the Board of Directors of the Corporation at any annual meeting or any special meeting of Stockholders at which Directors are to be elected may be made by any Stockholder of the Corporation entitled to vote for the election of Directors at that meeting by compliance with the procedures set forth in this Section 2.10. Nominations by Stockholders (the "Nominating Stockholders") shall be - 5 - made by written notice (a "Nomination Notice"), which shall set forth (i) as to each individual nominated, (A) the name, date of birth, business address and residence address of such individual; (B) the business experience during the past five years of such nominee, including his principal occupations and employment during such period, the name and principal business of any corporation or other organization in which such occupations and employment were carried on and such other information as to the nature of his responsibilities and level of professional competence as may be sufficient to permit assessment of his prior business experience; (C) whether the nominee is or has ever been at any time a Director, officer or owner of five percent (5%) or more of any class of capital stock, partnership interests or other equity interest of any corporation, partnership or other entity; (D) any directorships held by such nominee in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, as amended; and (E) whether, in the last five years, such nominee has been convicted in a criminal proceeding or has been subject to a judgment, order, finding or decree of any federal, state or other governmental entity, concerning any violation of federal, state or other law, or any proceeding in bankruptcy, which conviction, judgment, order, finding, decree or proceeding may be material to an evaluation of the ability or integrity of the nominee; and (ii) as to the Nominating Stockholder and any Persons acting in concert with such Nominating Stockholder (x) the names and business addresses of such Nominating Stockholder and Persons, (y) the names and addresses of such Nominating Stockholder and Persons as they appear on the Corporation's books (if they so appear) and (z) the class and number of shares of the Corporation which are beneficially owned by such Nominating Stockholder and Persons. A written consent to being named in a proxy statement as a nominee, and to serve as a Director if elected, signed by the nominee, shall be filed with any Nomination Notice. If the presiding officer at any Stockholders meeting determines that a nomination was not made in accordance with the procedures prescribed by these By-Laws, such officer shall so declare to the meeting and the defective nomination shall be disregarded. (c) Nomination Notices and Stockholder Proposals for an annual Stockholders meeting shall be delivered to - 6 - the Secretary at the principal executive offices of the Corporation not later than the time permitted for submission of a stockholder proposal for inclusion in the Corporation's proxy statement for the corresponding meeting of stockholders pursuant to Rule 14a-8(a)(3) of the Securities Exchange Act of 1934, as amended or any successor thereto. Nomination Notices and Stockholder Proposals shall be delivered to the Secretary at either of the principal executive offices of the Corporation no later than the close of business on the tenth day following the day on which notice of the date of a special meeting of Stockholders was given if the Nomination Notices or Stockholder Proposals are to be submitted at a special Stockholders meeting. ARTICLE 3. BOARD OF DIRECTORS 3.1. The business of the Corporation shall be managed by its Board of Directors, which may exercise all such powers of the Corporation and all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the Stockholders. 3.2. The number of Directors that shall constitute the whole Board shall be the number from time to time fixed exclusively by a vote of a majority of the Board of Directors then in office, which number shall not be less than one. The Board by resolution may from time to time increase or decrease the number of Directors to any number not less than one, provided that any reduction in the number of Directors shall not have the effect of shortening the term of any Director in office at the time such resolution becomes effective and provided that the number of directors shall not be increased by fifty percent (50%) or more in any twelve-month period without the approval of at least sixty-six and two-thirds percent (66-2/3%) of the members of the Board of Directors then in office. The phrase "the whole Board," as used in these By-Laws, shall refer to the total number of Directors which the Corporation would have if there were no vacancies. The Directors shall be elected at the Annual Meeting of the Stockholders as provided in Section 6.4 of the Certificate of Incorporation, except as provided in Section 3.3 of these By-Laws, and each Director elected shall hold office until removal or resignation or until his successor is elected and qualified. A director may resign at any time by giving written notice to the - 7 - Chairman of the Board, to the Chief Executive Officer or to the Secretary. Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. 3.3. Any or all of the Directors may be removed only for cause by the Stockholders, as provided for in the Certificate of Incorporation. 3.4. Vacancies and newly created directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the remaining Directors then in office, though less than a quorum, or by a sole remaining Director, and the Directors so chosen shall hold office until the next election of the class for which such Directors have been chosen and until their successors are duly elected and qualified. If at any time there are no Directors in office, by reason of death, resignation or other cause, then any Stockholders or any executor or administrator or other fiduciary entrusted with like responsibility for the estate of a Stockholder may call a special meeting of the Stockholders to elect a Board of Directors. If at the time of filling any vacancy or any newly created directorship, the Directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any Stockholder or Stockholders holding at least ten percent of the total number of the shares outstanding at the time and having the right to vote for such Directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the Directors chosen by the Directors then in office. MEETINGS OF THE BOARD OF DIRECTORS 3.5. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. 3.6. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. A meeting of the Board of Directors for the election of officers and the transaction of such other business as may come before it may be held without - 8 - notice immediately following the annual meeting of Stockholders. 3.7. Special meetings of the Board may be called by the Chairman of the Board, the Chief Executive Officer or upon the written request of a majority of the whole Board on two days' notice to each Director, either personally or by telephone, or on four days' notice by mail (computed from the date of mailing). Any such notice may be waived and shall be deemed waived by any Director who signs a written waiver of such notice before or after the time stated therein or who is present at a meeting of the Board of Directors when a vote on any matter is taken unless at the beginning of the meeting or promptly upon arrival, the Director objects to the holding of the meeting or the transacting of specified business at the meeting. 3.8. At all meetings of the Board, a majority of the Directors constituting the whole Board shall constitute a quorum for the transaction of business, and the vote of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, the Certificate of Incorporation or these By-Laws. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 3.9. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or committee. 3.10. A Director of the Corporation who is present at a meeting of the Board of Directors when a vote on any matter is taken is deemed to have assented to the action taken unless he votes against or abstains from the action taken, or unless at the beginning of the meeting or promptly upon arrival, the Director objects to the holding of the meeting or the transacting of specified business at the meeting. Any such dissenting votes, abstentions or objections shall be entered in the minutes of the meeting. - 9 - THE CHAIRMAN OF THE BOARD AND THE VICE-CHAIRMAN OF THE BOARD 3.11. The Board of Directors, at its first meeting following the annual meeting of Stockholders in each year, or at such other time when there shall be a vacancy, shall elect one of its members as Chairman of the Board, and may elect one of its members as Vice- Chairman of the Board; each to serve for one year or until his successor is elected and qualified. The Chairman of the Board shall preside at all meetings of the Stockholders, except as the Board may otherwise determine, and of the Board of Directors and shall perform such other duties as may be required of him by the Board of Directors and by these By-Laws. The Vice- Chairman of the Board, if one is elected, shall, in the absence of the Chairman of the Board, preside at the meetings of the Stockholders and of the Board of Directors and shall perform such other duties as may be required of him by the Board of Directors. In the absence of the Chairman of the Board and the Vice- Chairman, if any, those members of the Board who are present shall choose from among themselves a person to preside at the meeting of the Board. COMMITTEES OF DIRECTORS 3.12. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board may, by resolution passed by a majority of the whole Board, designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution and as limited by the Delaware General Corporation Law, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. In the absence or disqualification of any member of such committee or committees, except as otherwise provided to the extent that there shall have been designated alternate members who shall be present, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such - 10 - absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors as requested by the Board of Directors. COMPENSATION OF DIRECTORS 3.13. The Board of Directors shall have the authority to fix the compensation to be paid to Directors. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, or of any committee of the Board of Directors, in addition to a fixed sum for attendance at each such meeting and/or a stated salary as Director or committee member. Unless otherwise provided by the Board of Directors, no such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE 4. OFFICERS 4.1. The Board of Directors shall elect the officers of the Corporation, which shall be a Chief Executive Officer, a President, a Secretary and a Treasurer, at the first meeting of the Board following each annual meeting of the Stockholders. The Board may from time to time also elect one or more Vice-Presidents in such gradations as the Board of Directors may determine, Assistant Vice-Presidents, Assistant Secretaries, Assistant Treasurers and such other officers and agents as it shall deem necessary, or it may delegate the authority to appoint such officers and agents to an officer subject to the control of the Board of Directors. Any number of offices may be held by the same person. 4.2. Unless otherwise provided in the resolution of election or appointment, the officers of the Corporation shall hold office until their successors are chosen and qualified or until their earlier resignation or removal. Any officer may resign at any time by giving written notice to the Chief Executive Officer or the Secretary. Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in - 11 - the absence of such specification, it shall take effect upon the receipt thereof. Any officer, servant or agent of the Corporation may be removed at any time with or without cause by the Board of Directors or by the officer having power to appoint the successor of the person being removed. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors or otherwise as provided in this Article. 4.3. The officers of the Corporation shall receive such compensation for their services as the Board of Directors may determine. The Board of Directors may delegate its authority to determine compensation to a committee or designated officers of the Corporation. 4.4. The duties and powers of the officers of the Corporation shall be as provided in these By-Laws or as defined in the resolutions appointing them, or shall be those duties and powers customarily exercised by corporate officers holding such offices. 4.5. The Chief Executive Officer of the Corporation shall have general charge and supervision of its business. He shall preside at all meetings of the Stockholders and at meetings of the Board of Directors in the absence of the Chairman and the Vice-Chairman of the Board, if any, if they were to preside; shall see that all orders and resolutions of the Board of Directors are carried into effect; and shall have such other powers and duties as normally pertain to his office or as shall be prescribed by the Board of Directors. 4.6. Unless otherwise specified by the Board of Directors, the President of the Corporation shall be the Chief Executive Officer of the Corporation. If a person other than the Chief Executive Officer, the President shall have such powers and perform such duties as may be assigned from time-to-time by the Board of Directors or by the Chief Executive Officer, subject to the powers and control of the Board of Directors. 4.7. The Vice-Presidents, if any, shall perform such duties and have such powers as the Board of Directors may from time to time prescribe by standing or special resolution, or the Chief Executive Officer may from time to time provide, subject to the powers and the control of the Board of Directors. - 12 - 4.8. The Secretary of the Corporation or an Assistant Secretary, as designated by the Chairman of the Board or other presiding officer, or another person so designated, shall act as secretary and record the minutes of meetings of the Board of Directors and committees thereof and of the Stockholders. Unless given by another authorized officer, the Secretary shall give, or cause to be given, notices of all meetings of Stockholders and Directors and of such committees as directed by the Board of Directors. The Secretary shall have charge of such books and papers as the Board of Directors may require. The Secretary or any Assistant Secretary is authorized to certify copies of extracts from minutes and of documents in the Secretary's charge and anyone may rely on such certified copies to the same effect as if such copies were originals and may rely upon any statement of fact concerning the Corporation certified by the Secretary (or any Assistant Secretary). The Secretary shall have custody of the corporate seal of the Corporation and shall have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by the Secretary's signature. The Board of Directors may give general or special authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall perform all acts incident to the office of Secretary, subject to the control of the Board of Directors, the Chairman of the Board or the Chief Executive Officer, under whose supervision the Secretary shall be. 4.9. The Assistant Secretary, if there be any, or, if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the Secretary may from time to time prescribe. 4.10. Unless the Board of Directors shall designate another officer, the Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation, and may deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such banks, trust companies or other depositories, as the Board of - 13 - Directors may select or as may be selected by an officer, employee or agent of the Corporation to whom such power may from time to time be delegated by the Board of Directors. He shall perform such other duties and have such other powers as may be prescribed by the Board of Directors or the Chief Executive Officer, under whose supervision he shall be. The Treasurer may act with the assistance of such Assistant Treasurers, if any, or such other employees of the Company as he may reasonably designate. 4.11. The Assistant Treasurer, if there be any, or, if there be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer, and shall perform such other duties and have such other powers as the Board of Directors, the Chief Executive Officer, or the Treasurer may from time to time prescribe. 4.12. Checks, notes, drafts, other commercial instruments, assignments, guarantees of signatures and contracts (except as otherwise provided herein or by law) shall be executed by the Chief Executive Officer, the President, any Vice President or such officers or employees or agents as the Board of Directors or any of such designated officers may direct. 4.13. The Chief Executive Officer, the President, any Vice President or the Secretary may authorize any endorsement on behalf of the Corporation to be made by such mechanical means or stamps as any of such officers may deem appropriate. ARTICLE 5. CERTIFICATES OF STOCK 5.1. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation certifying the number of shares owned by him in the Corporation. Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or (2) by a registrar other than the Corporation or its employee, any other - 14 - signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or it were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES 5.2. The Board of Directors may in its discretion direct, or vest in the officers of the Corporation the power to direct, that a new certificate or certificates be issued in place of any certificate or certificates theretofore issued by the Corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require, or vest in the officers of the Corporation the power to require, that the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. The Corporation may refuse to issue a new certificate except as ordered by the Court of Chancery of Delaware. TRANSFERS OF STOCK 5.3. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. The Board of Directors may make such further rules and regulations as it may deem expedient concerning the issue, transfer and registration of stock certificates of the Corporation. 5.4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. - 15 - FIXING RECORD DATE 5.5. In order that the Corporation may determine the Stockholders entitled to notice of or to vote at any meeting of Stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which date shall be a permitted record date under the Delaware General Corporation Law with respect to such meeting or action. A determination of Stockholders of record entitled to notice of or to vote at a meeting of Stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS 5.6. The Corporation shall be entitled to recognize a person registered as the owner of shares on its books as being the owner of such shares for the purpose of receiving dividends, voting those shares, and being accorded all other rights and liabilities of an owner of shares, and the Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. Every Stockholder shall furnish to the Corporation his address, and the Corporation may rely for all purposes upon the address of such Stockholder so furnished to it. If any Stockholder shall not furnish the Corporation with his address, his address shall be presumed to be at the registered office of the Corporation, in its care. ARTICLE 6. GENERAL PROVISIONS DIVIDENDS 6.1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in - 16 - property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. 6.2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interest of the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. FISCAL YEAR 6.3. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. CORPORATE SEAL 6.4. The corporate seal shall be in such form as the Board of Directors may prescribe. VOTING OF STOCK IN OTHER CORPORATIONS 6.5. Any shares of stock or other securities in any other corporation or organization, with respect to which the Corporation may from time to time have the right to vote or to give approvals, ratifications or consents may be represented and voted at any meeting of security holders of such other corporation or organization, or approvals, ratifications or consents may be given with respect thereto, by the Chief Executive Officer of the Corporation or by the proxy or proxies appointed by the Chief Executive Officer, or by any other person appointed by resolution of the Board of Directors, of which resolution a certified copy under the seal of the Corporation shall be conclusive evidence. POSITION WITH CORPORATION NOT TO IMPOSE DUTY TO REFRAIN FROM EXERCISING RIGHTS 6.6. No person who is an officer, Director or controlling Stockholder of the Corporation shall be deemed to be under any disability, by reason of his status as such officer, Director or controlling Stockholder, from exercising as against the Corporation - 17 - any rights or privileges whatsoever which he may enjoy under the terms of any provision of any certificate of incorporation, by-law, resolution or contract, in his personal capacity (including his capacity as a fiduciary for another person or persons); and any such officer, Director or controlling Stockholder may exercise any such rights or privileges as fully as if such person were not such officer, Director or controlling Stockholder. ARTICLE 7. AMENDMENTS These By-Laws of the Corporation may be amended, altered, changed, adopted and repealed by a vote of the majority of the Board of Directors then in office at any regular or special meeting. The Stockholders also shall have the power to amend, alter, change, adopt and repeal the By-Laws of the Corporation at any annual or special meeting pursuant to the requirements of the Certificate of Incorporation. EX-3.2 3 FIRST AMENDED AND RESTATED CERTIFICATES Exhibit 3.2 FIRST AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF SURVIVAL TECHNOLOGY, INC. Survival Technology, Inc., a corporation organized and existing under and by virtue of the Delaware General Corporation Law (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is Survival Technology, Inc.; the original certificate of incorporation was filed on August 18, 1969 with the Secretary of State of the State of Delaware. 2. This First Amended and Restated Certificate of Incorporation, the entirety of which is set forth below, has been duly adopted in accordance with Sections 242 and 245 of the Delaware General Corporation Law. * * * ARTICLE I NAME The name of the Corporation is Survival Technology, Inc. (the "Corporation"). ARTICLE II ADDRESS OF REGISTERED OFFICE; NAME OF REGISTERED AGENT The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III PURPOSE The Corporation may engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. - 2 - ARTICLE IV CAPITAL STOCK Section 4.1. Total Number of Shares of Capital Stock. The total number of shares of stock of all classes that the Corporation shall have authority to issue is 20,000,000 shares. The authorized capital stock is divided into 2,000,000 shares of Preferred Stock, $.01 par value per share (the "Preferred Stock"), 17,800,000 shares of Common Stock, $.10 par value per share (the "Voting Common Stock"), and 200,000 shares of Class A Common Stock, $.10 par value per share (the "Non-Voting Common Stock"). The Voting Common Stock and the Non-Voting Common Stock shall be identical in all respects except as set forth in Sections 4.3 and 4.4 below and shall, except as otherwise required by law, be treated as a single class. Section 4.2. Preferred Stock. (a) The shares of Preferred Stock of the Corporation may be issued from time to time in one or more classes or series thereof, the shares of each class or series thereof to have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as are stated and expressed herein or in the resolution or resolutions providing for the issue of such class or series, adopted by the Board of Directors as hereinafter provided. (b) Authority is hereby expressly granted to the Board of Directors of the Corporation, subject to the provisions of this Article IV and to the limitations prescribed by the Delaware General Corporation Law, to authorize the issue of one or more classes, or series thereof, of Preferred Stock and with respect to each such class or series to fix by resolution or resolutions providing for the issue of such class or series the voting powers, full or limited, if any, of the shares of such class or series and the designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof. The authority of the Board of Directors with respect to each class or series thereof shall include, but not be limited to, the determination or fixing of the following: (i) the designation of such class or series; (ii) the number of shares to compose such class, which number the Board of Directors may thereafter (except where otherwise provided in a resolution - 3 - designating a particular class) increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares thereof then outstanding); (iii) the dividend rate of such class or series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock or any other series of any class of stock of the Corporation, and whether such dividends shall be cumulative or noncumulative; (iv) whether the shares of such class or series shall be subject to redemption by the Corporation and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption; (v) the terms and amount of any sinking fund provided for the purchase or redemption of the shares of such class or series; (vi) whether or not the shares of such class or series shall be convertible into or exchangeable for shares of any other class or classes of any stock or any other series of any class of stock of the Corporation, and, if provision is made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange; (vii) the extent, if any, to which the holders of shares of such class or series shall be entitled to vote with respect to the election of Directors or otherwise; (viii) the restrictions, if any, on the issue or reissue of any additional Preferred Stock; (ix) the rights of the holders of the shares of such class or series upon the dissolution of, or upon the distribution of assets of, the Corporation; and (x) the manner in which any facts ascertainable outside the resolution or resolutions providing for the issue of such class or series shall operate upon the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of such class or series. - 4 - Section 4.3. Voting Common Stock. (a) Subject to all of the powers, rights and preferences of the holders of Preferred Stock provided by resolution or resolutions of the Board of Directors pursuant to this Article IV or by the Delaware General Corporation Law, the holders of the shares of the Voting Common Stock shall be entitled to one vote for each share so held with respect to all matters voted on by the Stockholders of the Corporation. (b) Subject to the powers, rights and preferences of any other class of stock, the holders of the Common Stock, consisting of the Voting Common Stock and the Non-Voting Common Stock, shall have the right (i) to receive dividends when, as and if properly declared by the Board of Directors in its sole discretion and (ii) to receive ratably all the assets of the Corporation remaining after providing for the payment of the creditors of the Corporation upon the liquidation, dissolution or winding up of the Corporation. Section 4.4. Non-Voting Common Stock. (a) Voting Rights. Except as specifically required by law, the holders of the shares of Non-Voting Common Stock shall not be entitled to any vote whatsoever, but shall be entitled to notice of, and participation in, the meetings of the Stockholders of the Corporation. To the extent that the Non-Voting Common Stock is entitled to vote on the increase in the number of authorized shares of Non-Voting Common Stock, it shall vote together with the Voting Common Stock as a single class. (b) Conversion of Non-Voting Common Stock. (i) At any time and from time to time, each record holder of Non-Voting Common Stock will be entitled to convert any and all of the shares of such holder's Non-Voting Common Stock into the same number of shares of Voting Common Stock at such holder's election; provided, however, that shares of Non-Voting Common Stock may be converted into shares of Voting Common Stock only after the record holder of such shares of Non-Voting Common Stock shall have certified to the Corporation that it is not a "bank holding company" or a "subsidiary" of a "bank holding company" within the meaning of Section 4 of the Bank Holding Company Act of 1956, as amended, and Regulation Y promulgated thereunder, or one of the following shall have occurred: (1) the bona fide sale to any purchaser (including, without - 5 - limitation, an underwriter) of such shares of NonVoting Common Stock (x) pursuant to a registration statement declared effective by the United States Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"), covering the offer and sale of the Corporation's Common Stock in a bona fide public offering, or (y) pursuant to Rules 144 and 144A promulgated under the Act, or in a public distribution pursuant to Regulation A of the General Rules and Regulations under the Act; (2) the bona fide sale to any purchaser of such shares of Non-Voting Common Stock in a transaction not involving a sale of the Corporation's Common Stock to the public, provided that such purchaser does not immediately after such transaction hold shares of Voting Common Stock (including any shares converting to Voting Common Stock in accordance herewith) equaling two percent (2%) or more of the then outstanding shares of Voting Common Stock; or (3) the receipt by the Corporation of (x) a staff opinion, ruling or other written advice from the Board of Governors of the Federal Reserve System, or from the appropriate Federal Reserve Bank, or (y) an opinion of counsel experienced in bank regulatory matters, in each case to the effect that such shares of Non-Voting Common Stock may be converted into shares of Voting Common Stock without violation of Section 4 of the Bank Holding Company Act of 1954, as amended, and Regulation Y promulgated thereunder. (ii) Each conversion of shares of NonVoting Common Stock into shares of Voting Common Stock shall be effected by the surrender of the certificate or certificates representing the shares to be converted at the principal office of the Corporation (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holder or holders of the Non-Voting Common Stock) at any time during normal business hours, together with a written notice by the holder of such Non-Voting Common Stock stating that such holder desires to convert the shares, or a stated number of the shares, of Non-Voting Common Stock represented by such certificate or certificates into Voting Common Stock and that such conversion is permitted in accordance herewith. Upon receipt of such statement, the Corporation shall be obligated to issue such Voting Common Stock without further inquiry. Such conversion shall be deemed to have been effected as of the close of - 6 - business on the date on which such certificate or certificates have been surrendered and such notice has been received, and at such time the rights of the holder of the converted Non-Voting Common Stock shall cease and the person or persons in whose name or names the certificate or certificates for shares of Voting Common Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Voting Common Stock represented thereby. (iii) Promptly after such surrender and the receipt of such written notice, the Corporation shall issue and deliver in accordance with the surrendering holder's instructions (1) the certificate or certificates for the Voting Common Stock issuable upon such conversion and (2) a certificate representing any Non-Voting Common Stock which was represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which was not converted. (iv) The issuance of certificates for Voting Common Stock upon conversion of Non-Voting Common Stock shall be made without charge to the holders of such shares for any stamp, transfer or issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of Voting Common Stock. The Corporation shall not close its books against the transfer of Non-Voting Common Stock or of Voting Common Stock issued or issuable upon conversion of Non-Voting Common Stock in any manner which would interfere with the timely conversion of Non-Voting Common Stock. ARTICLE V STOCKHOLDER ACTIONS Section 5.1. Written Consent. Except as may be provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV hereof, any action required or permitted to be taken by the Stockholders of the Corporation at any annual or special meeting may be taken without a meeting, without prior notice and without a vote, but only if consents in writing, setting forth the action so taken, have been signed by the holders of all of the outstanding stock entitled to vote thereon at a meeting at which all shares entitled to vote thereon were present and voted. - 7 - Section 5.2. Stockholder Meetings. Meetings of Stockholders may be held within or without the State of Delaware, as the By-Laws may provide. Section 5.3. Special Stockholder Meetings. Special Meetings of Stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the members of the Board of Directors then in office. Section 5.4. Form of Ballot. Elections of Directors need not be by written ballot unless the By-Laws of the Corporation so provide. ARTICLE VI BOARD OF DIRECTORS Section 6.1. Management of the Corporation. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. Section 6.2. Meetings of the Board. Meetings of the Board of Directors may be held within or without the State of Delaware, as the By-Laws may provide. Section 6.3. Number of Directors. The number of Directors constituting the Board of Directors shall be as specified in or determined pursuant to the By-Laws of the Corporation. Section 6.4. Classes, Election and Term. The Board of Directors shall be divided into three classes, with each class to be as nearly equal in number as reasonably possible, and with the initial term of office of the first class of Directors to expire at the Annual Meeting of Stockholders to be held after the end of the Corporation's 1997 fiscal year, the initial term of office of the second class of Directors to expire at the Annual Meeting of Stockholders to be held after the end of the Corporation's 1998 fiscal year and the initial term of office of the third class of Directors to expire at the Annual Meeting of Stockholders to be held after the end of the Corporation's 1999 fiscal year. Commencing with the Annual Meeting of Stockholders to be held after the end of the Corporation's 1997 fiscal year, Directors elected to succeed those Directors whose terms have thereupon expired shall be elected for a term of office to expire at the third succeeding Annual Meeting of Stockholders after their election, and upon the election and qualification of their successors. If the number of Directors is changed, any - 8 - increase or decrease shall be apportioned among the classes so as to maintain or attain, if possible, the number of Directors in each class as nearly equal as reasonably possible, but in no case will a decrease in the number of Directors shorten the term of any incumbent Director. Section 6.5. Vacancies. Any vacancies in the Board of Directors for any reason and any newly created directorships resulting by reason of any increase in the number of Directors may be filled only by the Board of Directors, acting by a majority of the remaining Directors then in office, although less than a quorum, or by a sole remaining Director, and any Directors so appointed shall hold office until the next election of the class for which such Directors have been chosen and until their successors are elected and qualified. Section 6.6. Removal. Except as may be provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV hereof with respect to any Directors elected by the holders of such class or series, any Director, or the entire Board of Directors, may be removed from office at any time, but only for cause by the affirmative vote of the holders of at least 75% of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of Directors, voting together as a single class. Section 6.7. Constituencies. In connection with the exercise of its or their judgment in determining what is in the best interests of the Corporation and its Stockholders, the Board of Directors of the Corporation, any committee of the Board of Directors or any individual Director may, but shall not be required to, in addition to considering the long-term and short-term interests of the Stockholders, consider all of the following factors and any other factors which it or they deem relevant: (i) the social and economic effects of the matter to be considered on the Corporation and its subsidiaries, its and their employees, customers, and creditors and the communities in which the Corporation and its subsidiaries operate or are located; and (ii) when evaluating a business combination or a proposal by another Person or Persons to make a business combination or a tender or exchange offer or any other proposal relating to a potential change of control of the Corporation, (x) the business and financial condition and earnings prospects of the acquiring Person or Persons, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the acquisition, and other likely financial obligations of the - 9 - acquiring Person or Persons, and the possible effect of such conditions upon the Corporation and its subsidiaries and the communities in which the Corporation and its subsidiaries operate or are located, (y) the competence, experience, and integrity of the acquiring Person or Persons and its or their management, and (z) the prospects for successful conclusion of the business combination, offer or proposal. The provisions of this Section 6.7 shall be deemed solely to grant discretionary authority to the Directors and shall not be deemed to provide to any constituency the right to be considered. The term "Person" means any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity; when two or more Persons act as a partnership, limited partnership, syndicate, or other group acting in concert for the purpose of acquiring, holding, voting or disposing of securities of the Corporation, such partnership, limited partnership, syndicate or group shall also be deemed a "Person." ARTICLE VII INDEMNIFICATION Section 7.1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact: (a) that he or she is or was a director or officer of the Corporation, or (b) that he or she, being at the time a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (collectively, "another enterprise" or "other enterprise"), whether either in case (a) or in case (b) the basis of such proceeding is alleged action or inaction (x) in an official capacity as a director or officer of the Corporation, or as a director, trustee, officer, employee or agent of such other enterprise, or (y) in any other capacity related to the Corporation or such other enterprise while so serving as a director, trustee, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent not prohibited by Section 145 of the Delaware - 10 - General Corporation Law (or any successor provision or provisions) as the same exists or may hereafter be amended (but, in the case of any such amendment, with respect to actions taken prior to such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such person in connection therewith if such person satisfied the applicable level of care to permit such indemnification under the Delaware General Corporation Law. The persons indemnified by this Article VII are hereinafter referred to as "indemnitees." Such indemnification as to such alleged action or inaction shall continue as to an indemnitee who has after such alleged action or inaction ceased to be a director or officer of the Corporation, or director, officer, employee or agent of another enterprise; and shall inure to the benefit of the indemnitee's heirs, executors and administrators. The right to indemnification conferred in this Article VII: (i) shall be a contract right; (ii) shall not be affected adversely as to any indemnitee by any amendment of this Certificate with respect to any action or inaction occurring prior to such amendment; and (iii) shall, subject to any requirements imposed by law, this Article VII, and the By-laws, include the right to have paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition. Section 7.2. Agents and Employees. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to the advancement of expenses, to any employee or agent of the Corporation (or any person serving at the Corporation's request as a director, trustee, officer, employee or agent of another enterprise) or to persons who are or were a director, officer, employee or agent of any of the Corporation's affiliates, predecessor or subsidiary corporations or of a constituent corporation absorbed by the Corporation in a consolidation or merger or who is or was serving at the request of such affiliate, predecessor or subsidiary corporation or of such constituent corporation as a director, officer, employee or agent of another enterprise, in each case as determined by the Board of Directors to the fullest extent of the provisions of this Article VII in cases of the indemnification and advancement of expenses of directors and officers of the Corporation, or to any lesser extent (or greater extent, if permitted by law) determined by the Board of Directors. - 11 - Section 7.3. Undertakings for Advances of Expenses. An advancement by the Corporation of expenses incurred by an indemnitee pursuant to clause (iii) of the last sentence of Section 7.1 (hereinafter an "advancement of expenses") shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Article VII or otherwise; provided, however, that no such advance need be made in any particular case in which the Board of Directors determines, at any time, that based on the information then known, the Director or officer is not entitled to indemnification. Section 7.4. Partial Indemnification. If the indemnitee is entitled under any provision of this Article VII to indemnification by the Corporation for some or a portion of the expenses, liabilities, losses, judgments, fines, penalties or ERISA excise taxes actually and reasonably incurred by him or her in the investigation, defense, appeal or settlement of any proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the indemnitee for the portion of such expenses, liabilities, losses, judgments, fines, penalties or ERISA excise taxes to which the indemnitee is entitled. Section 7.5. Indemnification Procedure; Determination of Right to Indemnification. (a) Promptly after receipt by the indemnitee of written notice of the commencement of any proceeding, the indemnitee will, if a claim in respect thereof is to be made against the Corporation in accordance herewith, notify the Corporation of the commencement thereof. The omission so to notify the Corporation (i) will relieve it from any liability which it may have to the indemnitee hereunder only to the extent that the Corporation is able to establish that its ability to avoid such liability was materially prejudiced by such omission and (ii) will not relieve it from any liability which it may otherwise have to the indemnitee. (b) If a claim for indemnification under this Article VII is not paid in full by the Corporation within sixty days after it has been received in writing by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the - 12 - unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses), it shall be a defense that, and in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses only upon a final adjudication that the indemnitee has not met the applicable standard of conduct set forth in Section 145 of the Delaware General Corporation Law (or any successor provision or provisions). Neither the failure of the Corporation (including the Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in Section 145 of the Delaware General Corporation Law (or any successor provision or provisions), nor an actual determination by the Corporation (including the Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to have or retain such advancement of expenses, under this Article VII or otherwise, shall be on the Corporation. (c) The Corporation shall not be obligated to indemnify or advance expenses to the indemnitee under this Article VII in connection with a proceeding (or part thereof) initiated or brought voluntarily by the indemnitee (other than to enforce the rights to indemnification hereunder) unless the initiation thereof was approved by the Board of Directors of the Corporation. (d) In the case of a settlement of a proceeding by an indemnitee, the payment of amounts and indemnification thereof shall be approved, in advance, by the Corporation, - 13 - which approval shall not be unreasonably withheld, or by a court of competent jurisdiction. Section 7.6. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, trustee, officer, employee or agent of the Corporation or another enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. Section 7.7. Binding Effect; Successors and Assigns. The indemnification and advance of expenses provided by or granted pursuant to this Article VII shall continue as to a person who has ceased to be a Director or officer, and shall inure to the benefit of the heirs, executors and administrators of such Director or officer. Section 7.8. Severability. In the event that any of the provisions of this Article VII (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the full extent permitted by law. Section 7.9. Relationship to Other Rights and Provisions Concerning Indemnification. The rights to indemnification and to the advancement of expenses conferred in this Article VII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, this Certificate, By-laws, agreement, vote of stockholders or disinterested directors or otherwise. The By-laws may contain such other provisions concerning indemnification, including provisions specifying reasonable procedures relating to and conditions to the receipt by indemnitees of indemnification, provided that such provisions are not inconsistent with the provisions of this Article VII. ARTICLE VIII LIMITATION ON LIABILITY OF DIRECTORS As to any act or omission occurring after this provision becomes effective, a Director of the Corporation shall, to the maximum extent permitted by the laws of Delaware, have no personal liability to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this Article - 14 - VIII shall not eliminate or reduce the liability of a director in any case where such elimination or reduction is not permitted by law. ARTICLE IX BOOKS OF THE CORPORATION The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the ByLaws of the Corporation. ARTICLE X COMPROMISE Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its Stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or Stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of section 291 of Title 8 of the Delaware Code, as that section may read from time to time, or any successor provision, or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of section 279 of Title 8 of the Delaware Code, as that section may read from time to time, or any successor provision, order a meeting of the creditors or class of creditors, and/or of the Stockholders or class of Stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the Stockholders or class of Stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the Stockholders or class of Stockholders, of this Corporation, as the case may be, and also on this Corporation. - 15 - ARTICLE XI AMENDMENT OF BY-LAWS The Board of Directors shall have power to adopt, amend, alter, change and repeal any By-Laws of the Corporation by vote of the majority of the Board of Directors then in office. In addition to any requirements of the Delaware General Corporation Law (and notwithstanding the fact that a lesser percentage may be specified by the Delaware General Corporation Law), any adoption, amendment, alteration, change or repeal of any By-Laws by the holders of capital stock of the Corporation shall require the affirmative vote of either: (a) the holders of at least 75% of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of Directors, voting together as a single class, or (b) the holders of a majority of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of Directors, voting as a single class, if such adoption, amendment, alteration, change or repeal has been previously recommended by a vote of the Continuing Directors. For the purposes of this Certificate of Incorporation, Continuing Director shall mean either (x) an individual who was a member of the Board of Directors prior to the time any Person after November 20, 1996 acquired 25% or more of the voting power of any voting securities of the Corporation or (y) an individual designated (before his or her initial election as a Director) as a Continuing Director by a majority of the then Continuing Directors. ARTICLE XII AMENDMENT OF CERTIFICATE OF INCORPORATION The Corporation hereby reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon Stockholders are granted subject to this reservation. Except as may be provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV hereof and which relate to such class or series of Preferred Stock, any amendment, alteration, change or repeal of Articles IV, V, VI, XI and XII hereof shall require the affirmative vote of either: (a) the holders of at least 75% of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of Directors, voting together as a single class, or (b) the holders of a majority of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election - 16 - of Directors, voting as a single class, if such amendment, alteration, change or repeal has been previously recommended by a vote of the Continuing Directors. Except as may be provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV hereof and which relate to such class or series of Preferred Stock, any other amendment, alteration, change or repeal of any other provision of this Certificate of Incorporation shall require the affirmative vote of both (a) a majority of the members of the Board of Directors then in office and (b) a majority of the voting power of all of the shares of capital stock of the Corporation entitled to vote generally in the election of Directors, voting together as a single class. ARTICLE XIII SEVERABILITY In the event that any of the provisions of this Certificate of Incorporation (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the full extent permitted by law. * * * I, THE UNDERSIGNED, being the duly elected Chief Executive Officer of the Corporation, do on behalf of the Corporation make this First Amended and Restated Certificate of Incorporation of the Corporation, hereby declaring and certifying, under penalties of perjury, that this is the act and deed of the Corporation and that the facts herein stated are true, and accordingly have hereunto set my hand this ___ day of ___, 1996. By: ------------------------ James H. Miller Chief Executive Officer 4 SURVIVAL TECHNOLOGY, INC. CERTIFICATE OF AMENDMENT OF FIRST AMENDED AND RESTATED CERTIFICATE OF INCORPORATION SURVIVAL TECHNOLOGY, INC., a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY AS FOLLOWS: FIRST: The Board of Directors of the Corporation, by unanimous written consent, in accordance with Section 141(f) of the General Corporation Law of the State of Delaware, duly adopted a resolution in accordance with Section 242 of the General Corporation Law of the State of Delaware proposing, declaring advisable and recommending an amendment to the First Amended and Restated Certificate of Incorporation of the Corporation. The resolution setting forth the proposed amendment is as follows: NOW THEREFORE BE IT RESOLVED: That the Board of Directors of the Corporation hereby proposes and declares advisable that, assuming Brunswick Biomedical Corporation merges with and into the Corporation, then immediately after the effective time of such merger Article I of the First Amended and Restated Certificate of Incorporation of the Corporation be amended so that it shall read: ARTICLE I NAME The name of the Corporation is Meridian Medical Technologies, Inc. (the "Corporation"). SECOND: That the annual meeting of the stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares were voted in favor of said amendment. THIRD: The aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: This certificate of amendment is to become effective at 4:00 p.m. on November 20, 1996. IN WITNESS WHEREOF, the undersigned, SURVIVAL TECHNOLOGY, INC., has caused this Certificate of Amendment of First Amended and Restated Certificate of Incorporation to be executed on its behalf by its Chief Financial Officer and Senior Vice President - Finance and attested by its Assistant Secretary as of this ___ day of November, 1996. SURVIVAL TECHNOLOGY, INC. By: /s/ Jeffrey W. Church --------------------------- Jeffrey W. Church Chief Financial Officer and Senior Vice President - Finance Attest: /s/ J. Chontelle Woodward ------------------------- J. Chontelle Woodward Assistant Secretary EX-10.18.1 4 SECOND AMENDMENT TO CREDIT AGREEMENT SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of September 2,1997, among MERIDIAN MEDICAL TECHNOLOGIES, INC. (as successor by merger to Brunswick Biomedical Corporation), a Delaware corporation (the "Borrower"), and ING (U.S.) CAPITAL CORPORATION (formerly known as Internationale Nederlanden (U.S.) Capital Corporation), a Delaware corporation ("ING"), constituting the sole Lender under the Credit Agreement referenced below (together with its successors and assigns, the "Lenders"), and ING in its capacity as Agent for the Lenders. WITNESSETH: RECITALS: A. The Borrower, the Lenders and the Agent have entered into a certain Credit Agreement, dated as of April 15, 1996 (as amended, supplemented or otherwise modified prior to the date hereof, the "Credit Agreement"); capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Credit Agreement. B. The Borrower has requested an amendment to the Credit Agreement to increase the Revolving Loan Commitment from $5,000,000 to $6,500,000, and the Lenders have agreed to so amend the Credit Agreement on the terms and conditions set forth herein. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Amendment to Section 1. 1. Section 1. I of the Credit Agreement is hereby amended by adding thereto, in alphabetical order the following additional defined terms: "Account" means any "Account" (as such term is defined in Section 9-106 of the UCC) of the Borrower or any of its Subsidiaries arising from the sale or lease of goods or the providing of services. "Account Debtor" means any Person who is or becomes obligated to the Borrower or any of its Subsidiaries under, with respect to, or on account of, an Account. "Borrowing Base" means an amount in Dollars equal to eighty percent (80%) of Eligible Accounts plus thirty percent (30%) of Eligible Inventory, in each case as such percentages may be decreased pursuant to Section 2.2.4. To the extent that, in order to determine the amount of the Borrowing Base in Dollars, the amount of any Eligible Account or Eligible Inventory is required to be converted into Dollars from any foreign currency amount, such Dollar amount shall be computed using the Dollar Equivalent of the amount of such foreign currency as of the date of calculation of the Borrowing Base. As used herein, "Dollar Equivalent" means, at any time with respect to any amount denominated in a foreign currency, the amount of Dollars for which such foreign currency could be exchanged as determined by (i) the New York foreign exchange selling rates as of the date of determination (or, if such day is not a Business Day, as of the immediately preceding Business Day), as quoted in The Wall Street Journal (Eastern Edition) under "Currency Trading -- Exchange Rates", or (ii) in the event such report shall no longer appear, the rate of exchange set forth for such date on the relevant Reuters currency page, or (iii) in the event such rate of exchange shall not be so set forth, the rate of exchange set forth in such other nationally recognized publication as the Agent may, from time to time, designate to the Borrower in writing. "Borrowing Base Certificate" means a certificate of the chief executive, accounting or financial officer of the Borrower in the form of Exhibit 1. "Eligible Account" means the net outstanding balance, excluding all finance charges, late fees and other fees, of all Accounts of the Borrower and its Subsidiaries, provided that no Account shall be deemed eligible if- (a) a representation or warranty contained in this Agreement, the Security Agreement or any other Loan Document applicable to such Account or Accounts or to Accounts generally has been breached in any material respect with respect to such Account; (b) more than forty percent (40%) of the Accounts outstanding from the Account Debtor are ineligible by reason of clause (c), (e), (h), (i), 0), (q), (r), or (s) of this definition; (c) if the Account Debtor has (1) become insolvent or general fail to pay, or admitted in writing its inability to pay, its debts as they become due, (ii) applied for, consented to, or acquiesced in, the appointment of a trustee, receiver, sequestrator or other custodian for such Account Debtor or any property thereof or made a general assignment for the benefit of creditors, (iii) in the absence of such application, consent or acquiescence, permitted or suffered to exist the appointment of a trustee, receiver, sequestrator or other custodian for such Account Debtor or for a substantial part of its property, or (iv) - 2 - commence or permit or suffer to exist the commencement of, any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law or any dissolution, winding up or liquidation proceeding in respect of such Account Debtor; (d) such Account is billed other than on standard terms of payment (but in no event longer payment terms than 67 days after invoice date); (e) such Account has remained unpaid for a period exceeding 60 days after the due date therefor; (f) the Account is denominated in other than Dollars, British Pounds Sterling or Irish Pounds or is payable outside the United States, the United Kingdom or the Republic of Ireland or the Account Debtor for such Account is located outside the United States, the United Kingdom or the Republic of Ireland (unless the Agent shall have approved such Account Debtor in writing) unless the payment of such Account is backed by a letter of credit denominated in Dollars issued or confirmed by an Eligible Lending Institution, and the Agent has received an assignment of rights under such Letter of Credit or has been irrevocably designated the payee of such Letter of Credit; (g) the Account Debtor for such Account is an affiliate or employee of the Borrower or any of its Subsidiaries; (h) the Account is subject to any setoff by the Account Debtor, in which event such Account will be deemed ineligible to the extent of such setoff, (i) the Agent has determined by its own credit analysis exercised in good faith, or the Borrower has reason to know, that there is a reasonable probability that such Account may not be paid; (j) the Account is subject to a material claim or dispute by the Account Debtor, but only to the extent of the amount of such claim or dispute; - 3 - (k) the Account is subject to any Lien whatsoever, other than Liens in favor of the Agent, for its benefit and the benefit of the Lenders and Permitted Liens; (1) the Account is not evidenced by an invoicewriting;r (m) the Account is evidenced by chattel paper or any instrument unless such chattel paper or instrument is pledged to the Agent as security for the Obligations; (n) the Account Debtor of such Account is not the U.S. Department of Defense or Dey Laboratories/E. Merck and such Account, individually or when aggregate with all other outstanding Accounts having the same Account Debtor, exceeds ten percent (20%) of the amount of all Eligible Accounts of the Borrower and its Subsidiaries, in which case such Account or Accounts will be deemed ineligible to the extent of such excess; (o) in order to be entitled to collect such Account, the Borrower or any of its Subsidiaries is required to perform additional services for, or perform or incur additional obligations to, the Account Debtor in respect of such Account; (p) on and after October 31, 1997, the Account Debtor with respect to such Account is the United States Government or an agency or instrumentality of the United States, unless the Borrower or its Subsidiary has complied with the requirements of the Federal Assignment of Claims Act (32 U.S.C. 3727), or the government of any state of the United States or agency or instrumentality of such state, unless the Borrower or its Subsidiary has complied with any state assignment of claims or similar laws relative to the assignment of such Account and the right to receive payment thereof by the Agent for its benefit and the benefit of the Lenders; (q) the Borrower or its Subsidiary, as the case may be, has not submitted or supplied to the Account Debtor all necessary documentation or information for payment of such Account or has not fulfilled all other obligations in respect thereof, - 4 - (r) there are procedures or investigations pending or overtly threatened by or before any Governmental Authority (i) asserting the invalidity of such Account or the underlying contract related thereto, or (ii) seeking any determination or ruling that might materially and adversely affect the validity or enforceability of such Account or the underlying contract related thereto; (s) the Account contravenes in any material respect any laws, rules or regulations applicable thereto (including laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy); (t) the Account Debtor for such Account is located in any state imposing conditions on the right of a foreign (out-of-state) creditor to collect account receivables from Account Debtors located in such state, and the Borrower or such Subsidiary that is the creditor has not satisfied such condition; or (u) the Account arose pursuant to a contract that is not, or was not at the time of delivery of goods or services giving rise to such Account, in full force and effect, such contract does not constitute the legal, valid and binding obligations of the Account Debtor or such Account was not created in all material respects in accordance with such contract and all applicable Requirements of Law. "Eligible Inventory" means the lower of cost or market value of the Inventory of the Borrower and its Subsidiaries, provided that no Inventory shall be deemed eligible if- (a) any warranty or representation contained in this Agreement or any of the other Loan Documents applicable either to Inventory in general or to any specific Inventory has been breached in any material respect with respect to such Inventory; (b) it is neither (i) located at one of the places of business of the Borrower or its Subsidiary listed in the Perfection Certificate delivered to the Agent on November 20, 1996 by the Borrower in connection with the Security Agreement or in a Jurisdiction where, if such location is in the United States, all necessary UCC filings have - 5 - been made to perfect the security interest of the Agent under the Security Agreement in such Inventory and, if located in the United Kingdom or the Republic of Ireland, all actions and filings shall have been taken or made such that the Agent and the Lenders shall have a perfected, first-priority security interest (or the equivalent thereof) in such Inventory under the laws of such jurisdiction, nor (ii) located at such other place of business which is reported to the Agent pursuant to Section 4(a) of the Security Agreement, which the Agent agrees in writing is an acceptable location for Eligible Inventory and which is located in a jurisdiction where, if such location is in the United States, all necessary UCC filings have been made to perfect the security interest of the Agent under the Security Agreement in such Inventory and, if located in the United Kingdom or the Republic of Ireland, all actions and filings shall have been taken or made such that the Agent and the Lenders shall have a perfected, first-priority security interest (or the equivalent thereof) in such Inventory under the laws of such jurisdiction, nor (iii) in transit from one place of business to another; (c) with respect to Inventory located in a public warehouse or at a leased location, the Agent has not received a bailee letter or landlord's lien waiver, in form and substance reasonably satisfactory to the Agent; (d) it is located at any outside processing location; (e) it does not consist of finished goods or raw materials Inventory (i.e., it consists of work-in-process); (f) it consists of returned goods; (g) it is under consignment to or from any Person; (h) it is not of good and merchantable quality, free from defects which would materially and adversely affect the market value thereof, (i) it does not meet in all material respects all standards in all material respects imposed by any governmental authority, or any agency, department or division thereof, having regulatory authority over such Inventory; - 6 - it is obsolete or is otherwise currently not usable or saleable in the ordinary course of business of the Borrower and its Subsidiaries; or (k) it consists of Inventory located outside of the United States, the United Kingdom or the Republic of Ireland. "Inventory" means any "inventory" (as such term is defined in Section 9-109(4) of the UCC) of the Borrower or any of its Subsidiaries. SECTION 2. Amendment to Section 1. 1. Section 1. I of the Credit Agreement is hereby amended by replacing the definition of Revolving Loan Commitment Amount in its entirety with the following: "Revolving Credit Commitment Amount" means $6,500,000. SECTION 3. Amendment to Section 2.2.3. Section 2.2.3 is hereby amended by replacing said Section in its entirety with the following: "SECTION 2.2.3. Limitations on Revolving Credit Commitment. No Lender shall be required to make any Revolving Loan if, after giving effect thereto: (a) the then aggregate outstanding principal amount of all Revolving Loans would exceed the Borrowing Base; or (b) the then aggregate outstanding principal amount of all Revolving Loans would exceed the Revolving Loan Commitment Amount less the amount of reserves established by the Agent pursuant to Section 2.3; or (c) the then aggregate outstanding principal amount of such Lender's Revolving Loans would exceed its Revolving Percentage of an amount equal to the Revolving Loan Commitment Amount less the amount of reserves established by the Agent pursuant to Section 2.3. Subject to the terms hereof, the Borrower may from time to time borrow, prepay and reborrow Revolving-Loans, in all cases pursuant to the Revolving Loan Commitment." -7- SECTION 4. Amendment to Article 2. Article 2 of the Credit Agreement is hereby amended by adding thereto a new Section 2.2.4 as follows: "SECTION 2.2.4. Advance Ratios. The Borrower acknowledges that the advance ratios against Eligible Accounts and Eligible Inventory provided in the definition of "Borrowing Base" included in Section 1. I hereof have been established based upon the Agent's determination of the loan value of the Borrower's and its Subsidiaries' Eligible Accounts and Eligible Inventory as of the date of this Agreement. The Agent may, upon the occurrence of change, event or other development which the Agent determines, in its good faith discretion, reasonably likely to have a Material Adverse Change, decrease the advance ratios against Eligible Accounts and Eligible Inventory, and any such decrease shall become effective immediately upon the Agent's giving notice thereof to the Borrower." SECTION 5. Amendment to Section 6. 1. 1. Section 6. 1.1 of the Credit Agreement is hereby amended by deleting the "and" appearing immediately after clause (i) thereof, by deleting the period appearing immediately after clause 0) thereof and inserting in lieu thereof and" and by inserting the following new clause (k): (k) within fifteen (I 5) days after the close of each calendar month, a Borrowing Base Certificate as of the last day of the preceding calendar month and, if the Borrower shall elect or the Agent shall request in writing, a Borrowing Base Certificate as of a more recent date (any such Borrowing Base Certificate as of a more recent date requested by the Agent shall be delivered no later than the Business Day immediately following such date). SECTION 6. Amendment to Exhibits. The Credit Agreement is hereby amended by adding thereto a new Exhibit I in the form of Exhibit I attached to this Amendment. SECTION 7. Continuing Effectiveness of Credit Agreement. The Credit Agreement and each of the other Loan Documents shall remain in full force and effect in accordance with their respective terms, except as expressly amended or modified by this Amendment. SECTION 8. Cost and Expenses. The Borrower agrees to pay all out-of-pocket expenses reasonably incurred the Agent for the negotiation, preparation, execution and delivery of this Amendment (including reasonable fees and expenses of counsel to the Agent). - 8 - SECTION 9. Effectiveness. This Amendment shall become effective upon receipt by the Agent of (a) a copy of this Amendment, duly executed by each of the Borrower and the Agent, and duly acknowledged and consented to by Brunswick Biomedical Technologies, Inc. in the form attached to this Amendment, (b) an original Revolving Note, dated as of the date of this Amendment, in the principal amount of $6,500,000, and (c) a Borrowing Base Certificate, in the form of Exhibit I to this Amendment, as of the last day of July, 1997. Upon delivery of the Revolving Note referred to in clause (b) above, the Borrower's existing Revolving Note shall be marked "cancelled" and returned to the Borrower. SECTION 10. Additional Obligations. In order to induce the Lenders to enter into this Amendment and to increase the Revolving Credit Commitment Amount as set forth herein, the Borrower hereby agrees that, on or before September 30, 1997, it shall deliver to the Agent the following: (a) a certificate, dated as of the date of this Amendment, of the Secretary of each Loan Party as of such date as to: (i) resolutions of its Board of Directors, then in full force and effect authorizing the execution, delivery and performance of this Amendment and the other documents referenced in Section 9 of this Amendment and the related transactions contemplated hereby and thereby, and (ii) the incumbency and signatures of those of its officers authorized to act with respect to such documents, upon which certificate each Lender may conclusively rely until it shall have received further certificates of the Secretary of such Loan Party canceling or amending such prior certificate; (b) copies of the Organic Documents of each Loan Party as of a recent date, certified by, in the case of charters, the appropriate Governmental Authority of the State of such Loan Party's incorporation and, in the case of its other Organic Documents, such Loan Party's Secretary, which documents shall be satisfactory to the Agent; (c) a so-called "good standing" certificate with respect to each Loan Party as of a recent date from the appropriate Governmental Authority of the State of its incorporation; - 9 - (d) evidence of qualification of each Loan Party as of a recent date to do business in each other jurisdiction in which the failure to so qualify could result in a Material Adverse Change; (e) an opinion letter, dated as of the date of this Amendment, addressed to the Agent and all Lenders, from counsel to the Borrower and its Subsidiaries in form and substance reasonably satisfactory to the Agent covering such matters as the Agent may reasonably request regarding this Amendment and the transactions contemplated hereby; and (f) such other documents (certified if requested) as the Agent or the Required Lenders may reasonably request with respect to this Amendment and the other documents referenced in Section 9 of this Amendment, the transactions contemplated hereby or thereby, or any Organic Document, Contractual Obligation or Regulatory Approval. The Borrower hereby further agrees that the failure to deliver any of the above items on or prior to September 30, 1997 shall constitute and Event of Default under the Credit Agreement. SECTION 11. Headings. The various headings of this Amendment are inserted for convenience only and shall not affect the meaning or interpretation of this Amendment or any provision hereof. SECTION 12. Counterparts. This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Amendment shall become effective when counterparts hereof executed on behalf of the Borrower and each Lender (or notice thereof satisfactory to the Agent) shall have been received by the Agent and notice thereof shall have been given by the Agent to the Borrower and each Lender. SECTION 13. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTION 14. Successors and Assigns. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Borrower may not assign or transfer its rights or obligations - 10- hereunder or under the Credit Agreement except in accordance with the terms of the Credit Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. MERIDIAN MEDICAL TECHNOLOGIES (as successor by merger to Brunswick Biomedical Corporation) By: ----------------------------------- James H. Miller President [CORPORATESEAL] ING (U.S.) CAPITAL CORPORATION, (formerly known as Internationale Nederlanden (U.S.) Capital Corporation) in its capacity as lender By: ----------------------------------- Darren J. Wells Managing Director [SIGNATURE PAGE TO SECOND AMENDMENT] ACKNOWLEDGMENT AND CONSENT The undersigned hereby acknowledges receipt of a copy of the foregoing Amendment, consents to the terms and provisions set forth therein, and agrees that the Subsidiary Guaranty dated as of April 15, 1996 as amended and supplemented to the date hereof (the "Subsidiary Guaranty") made by the undersigned, in favor of Internationale Nederlanden (U.S.) Capital Corporation ("ING") and such other Lenders as are, or may from time to time become, parties to the Credit Agreement, and ING as Agent for such Lenders, will continue in full force and effect without diminution or impairment notwithstanding the execution and delivery of the amendment. The undersigned further acknowledges and agrees that, upon effectiveness of the amendment and from and after the date thereof, each reference to the Credit Agreement in the Subsidiary Guaranty and each other Loan Document (as such term is defined in the Credit Agreement) to which any of the undersigned is a party shall mean and be a reference to the Credit Agreement as amended by the foregoing amendment. BRUNSWICK BIOMIEDICAL TECHNOLOGIES, INC. By: ------------------------------- James H. Miller President [SIGNATURE PAGE TO SECOND AMENDMENTI BORROWING BASE CERTIFICATE In accordance with that certain Credit Agreement, dated as of April 15, 1996. as amended by that certain First Amendment to Credit Agreement, dated as of October 25, 1996., that certain Assumption Agreement, dated as of November 20, 1996, and that certain Second Amendment to Credit Agreement, dated as of September 2, 1997 (and as amended, restated, supplemented, extended or otherwise modified from time to time, the "Credit Agreement"; capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Credit Agreement), among MERIDIAN MEDICAL TECHNOLOGIES, INC. (as successor by merger to Brunswick Biomedical Corporation) (the "Borrower"), the Lenders which are, or may from time to time become, party thereto (the "Lenders") and ING (U.S.) CAPITAL CORPORATION (formerly known as Internationale Nederlanden (U.S.) Capital Corporation), as Agent for the Lenders (in such capacity, the "Agent"), the undersigned hereby certifies that as of the date indicated below (the "Borrowing Base Calculation Date") the amounts and representations set forth below are true and correct. Borrowing Base Calculation Date: 7/31/97 The calculations contained herein are based upon Eligible Accounts and Eligible Inventory that meet the criteria set forth in the Credit Agreement for Eligible Accounts and Eligible Inventory: 1. Amount of Eligible Accounts: (detailed listing attached) $7,483,784 2. Item I multiplied by 80%: $5,987,027 3. Amount of Eligible Inventory: (detailed listing attached) $4,240,249 4. Item 3 multiplied by 30%: $1,272,075 5. Borrowing Base: [Item 2 plus Item 4] $7,259,102 The information contained in this Borrowing Base Certificate is true and correct in all material respects as of the Borrowing Base Calculation Date. IN WITNESS WHEREOF, the Borrower has caused this Certificate to be executed and delivered and the certification and warranties contained herein to be made by an authorized officer of the Borrower authorized to execute and deliver this Certificate. Dated this 2nd day of September, 1997. MERIDIAN MEDICAL TECHNOLOGIES, INC. By: ------------------------------ Name: Title: EX-24.1 5 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 24.1 CONSENT OF INDEPENDENT ACCOUNTANTS Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-18279; Form S-8 Nos. 33-46981, 33-34045, 33-26681 and 2-80908) and in the related prospectus of Meridian Medical Technologies, Inc. or its predecessor, Survival Technologies, Inc. of our report dated September 4, 1997, except for note 13, as to which the date is October 21, 1997, with respect to the consolidated financial statements and schedule of Meridian Medical Technologies, Inc. included in this Annual Report (Form 10-K) for the year ended July 31, 1997. /s/ Ernst & Young LLP Washington, D.C. October 27, 1997 EX-24.2 6 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 24.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 33-18279, 33-46981, 33-34045, 33-26681 and 2-80908) of Meridian Medical Technologies, Inc. of our report date October 27, 1997 appearing under Item 8 of the Annual Report of Form 10-K of Meridian Medical Technologies, Inc. for year ended July 31, 1997. /s/ PRICE WATERHOUSE LLP Washington, DC October 28, 1997 EX-24.3 7 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 24.3 CONSENT OF INDEPENDENT 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 registration Statements (File Nos. 33-46981, 33-34045, 33-26681 and 2-80908)on Form S-8 and registration statement (File No. 333-18279) on Form S-3. /s/ ARTHUR ANDERSON LLP Boston Massachusetts October 29, 1997 EX-27 8 FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 0000095676 Meridian Medical Technologies 1.00 U.S. Dollars 12-MOS JUL-31-1997 AUG-01-1996 JUL-31-1997 1.0 23,300 0 7,507,600 247,800 6,046,600 16,031,500 17,246,300 1,468,400 44,082,200 15,186,800 20,333,800 0 0 291,300 12,001,500 44,082,200 40,664,700 40,664,700 25,620,900 16,742,800 (172,000) 0 2,567,000 (4,094,000) 45,400 (265,200) 0 0 0 (4,404,600) (2.16) (2.16)
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