-----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, PSwQ7ViKHWzuFy2Oxu5IdutOdGGgluz6eGd+Bx38r1rob2LroMLoIK8pX2kEj5j1 26QysFoqvwwthma4O93caQ== 0000950136-02-001914.txt : 20020627 0000950136-02-001914.hdr.sgml : 20020627 20020627121742 ACCESSION NUMBER: 0000950136-02-001914 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020627 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICAL ACTION INDUSTRIES INC CENTRAL INDEX KEY: 0000748270 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 112421849 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13251 FILM NUMBER: 02688604 BUSINESS ADDRESS: STREET 1: 800 PRIME PL CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5162314600 MAIL ADDRESS: STREET 1: 150 MOTOR PKWY STREET 2: STE 205 CITY: HAUPPAUGE STATE: NY ZIP: 11788 10-K 1 file001.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended March 31, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ________to________ Commission File No. 0-13251 MEDICAL ACTION INDUSTRIES INC. (Exact name of registrant as specified in its charter) Delaware 11-2421849 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 800 Prime Place, Hauppauge, New York 11788 (Address of Principal Executive Office) (Zip Code) Registrant's telephone number, including area code: (631) 231-4600 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. The aggregate market value of the registrant's Common Stock held by nonaffiliates of the registrant as of June 20, 2002 was approximately $110,000,000. As of June 20, 2002, registrant had outstanding 9,501,766 shares of Common Stock. Parts of the following documents are incorporated by reference to Parts I, II, III and IV of this Form 10-K Report: (1) Proxy Statement for registrant's 2002 Annual Meeting of Stockholders and (2) registrant's Annual Report to Stockholders for the fiscal year ended March 31, 2002. ================================================================================ PART I ITEM ONE - BUSINESS Medical Action Industries Inc. (the "Company" or "Medical Action") develops, manufactures, markets and distributes a variety of disposable surgical related products. Medical Action is a leading manufacturer and distributor of sterile disposable laparotomy sponges and operating room towels in the United States. Through its existing direct sales force, manufacturers' representatives and internal sales department, the Company's products are sold throughout the United States and certain international markets, and is expanding its end-user base to include physician, dental and veterinary offices. Medical Action has entered into preferred vendor agreements with national distributors, as well as sole source and/or committed contracts with nearly every major group purchasing alliance. The Company intends to utilize these sales channels to expand its product lines to include both surgical and non-surgical products. During the past several years, the Company has had an active acquisition program and has completed seven transactions since 1994. In August 1994, the Company acquired the disposable surgical products business of QuanTech, Inc. The acquired QuanTech products include a proprietary surgical light handle cover, uniquely designed and patented, which is used as a sterile barrier on surgical light handles in the operating room. The QuanTech line also produces and markets needle counters, instrument pouches, magnetic instrument drapes, and related products used primarily in the operating room environment. In January 1996, the Company acquired certain assets relating to the sterilization packaging, monitoring and contamination control products business of Lawson Mardon Medical Products, Inc. ("Lawson Mardon" or "SBW"). The primary products acquired from Lawson Mardon include sterility packaging, a line of sterilization indicators and integrators and such ancillary products as infectious waste bags, laboratory specimen bags and sterility maintenance covers. These products are used in hospital central supply, operating rooms and in physicians' offices. In October 1997, the Company acquired substantially all of the assets relating to the specialty packaging business of Dayhill Corporation ("Dayhill"). The acquired Dayhill products principally consist of collection systems for the containment and transport of biohazardous waste, including biohazard bags, autoclave bags, laboratory transport bags, zip lock bags and sponge counting bags. In January 1998, the Company acquired the sponge counter product lines of Sage Products, Inc., which included a uniquely designed and patented surgical sponge counting system, SAFE-T-Count(TM), as well as a counting system known as Pocket Count(TM). In March 1999, the Company acquired the medical products division of Acme United Corporation. Acme Healthcare, one of the first companies to design and sell disposable instrument kits and trays, is principally comprised of three product categories - (i) kit and tray products, including suture removal trays, I.V. start kits, and central line trays; (ii) net, padding, wound care and antiseptic products, including Acu-Dyne(R), an anti-microbial solution of povidone iodine which comes in various packages and applicators, and a line of proprietary Tubegauze(R) elastic netting used in dressing retention; and (iii) instrument packs, which include a broad line of sterile instruments, such as hemostats, scalpels, forceps and needle holders. In November 2001, the Company acquired the business related to sterile kits for the insertion of intravenous catheters ("I.V. Start Kits") and sterile procedure trays containing components necessary for the maintenance of large catheters inserted into the chest cavity ("Central Line Dressing Trays") from Medi-Flex Hospital Products, Inc. The Company focuses its resources on entering new markets for its existing product 2 lines, including alternate care, physician, veterinary and dental markets; accelerate the internal development of new products for its existing markets and pursuit of acquisitions which include products that complement existing product lines for utilization of the Company's extensive sales and distribution channels; the introduction of its products into the international marketplace; and to increase productivity by maximizing the utilization of its existing facilities. The products presently manufactured and/or marketed by the Company include: Disposable Laparotomy Sponges - Laparotomy sponges are designed primarily for use during surgical procedures in hospitals and health facilities. They are single use (disposable) and made of gauze and sold in varying sizes and utilized for a multitude of purposes. Laparotomy sponges cover exposed internal organs, isolating them from the part of the body being operated upon. They also absorb blood and act as a buffer between medical instruments and the skin, thereby reducing trauma to skin tissue caused by the medical instrument. Laparotomy sponges are sold in sterile packaging or as a non-sterile component to be used with other health care companies' products, primarily surgical pre-packaged procedure trays. The Company's laparotomy sponges contain an x-ray detectable element and loop handle in order to facilitate easy counting and identification in the operating room. For the fiscal years ended March 31, 2002, 2001, and 2000, laparotomy sponges accounted for 23%, 27% and 29%, respectively, of the Company's total sales. Absorbent Operating Room Towels - The Company's line of cotton absorbent operating room towels are used during surgery for drying hands, rolled up for propping instruments, on back tables and mayo stands for absorbing fluids, around the incision site for absorbing blood and to allow the surgeon to clip tubing and instruments close to the surgical site during the surgical procedure. Operating room towels are sold in sterile packaging for single (disposable) use and as a non-sterile component to be used with other health care companies' products, primarily surgical pre-packaged procedure trays. For the fiscal years ended March 31, 2002, 2001 and 2000, operating room towels accounted for 29%, 29% and 29%, respectively, of the Company's total sales. Gauze Sponges - Gauze sponges are used in the operating room as well as throughout the hospital. They are also used extensively throughout the alternate care market, including physicians' offices, health clinics, dentists' offices and in veterinary practices. The Company also introduced gauze fluffs, which are pre-folded gauze sponges used for compression and absorption of blood and other fluids. Burn Dressings - As an extension of its product line, the Company introduced dry burn and non-adherent gauze dressings. The dry burn dressing is composed of multiple layers of folded gauze that are typically customized for individual hospitals as to size, weave, folds, and stitching. The non-adherent dressings reduce sticking and skin removal during dressing changes, thereby alleviating trauma and pain to the wound site. Specialty Sponges - The Company's line of specialty sponges is an extension to its laparotomy sponges. The Company's specialty sponges are used invasively in a variety of surgical procedures and are manufactured for a multitude of purposes and classified as follows: (a) Dissecting Sponges - primarily utilized in surgical procedures to separate tissue as opposed to cutting, thereby reducing bleeding and trauma to the organ. The Company's dissecting sponges are produced in three specific types of sponges. (i) Peanut Sponge - a small, firm gauze sponge for dissecting and delicate sponging. The peanut sponge is carefully folded to encompass an x-ray element and is manufactured to allow the surgeon to adjust firmness for specific application. (ii) Kittner Dissector - a very firm, blunt dissector made of ravel free abdominal tape, 3 which is hand stitched to firmly lock in an x-ray element and to ensure the sponge integrity. (iii) Cherry Dissector - a round, soft dissector sponge constructed from cotton for blunt dissection. A small hole facilitates easy grasping with hemostatic forceps. (b) Tonsil Sponges - a round, fiber filled gauze constructed with a strong abdominal tape string sewn into the sponge to anchor the sponge when used in hard to retrieve places. (c) Stick Sponges - a round, fiber filled gauze sponge used for deep sponging or prepping. (d) Eye Spears - a cellulose fiber tip utilized during eye surgery, constructed with a memory-free plastic handle in order to bend to any angle the surgeon desires. The eye spear absorbs 10 times its weight in fluid. Endoscopic Specialty Sponges - As an extension of its line of specialty sponges, the Company introduced endoscopic specialty sponges. Endoscopic specialty sponges are used in less invasive surgical procedures. The Company's endoscopic specialty sponges, all of which are dissecting sponges, are made of 100% cotton affixed to a fiberglass stick and classified as follows: (a) Endoscopic Kittner - a very firm, blunt dissecting sponge made of a ravel-free abdominal tape, which is hand stitched to lock in an x-ray element and securely affixed to a fiberglass stick with orthopedic glue to ensure the sponge integrity. (b) Endoscopic Cherry/Bullet - the names refer to the shape of the sponges. Both are soft, blunt dissecting sponges made of spun cotton, securely affixed to a fiberglass stick with orthopedic glue to ensure the sponge integrity. Disposable Surgical Light Handle Covers - Light ShieldsTM - A patented design assures a secure fit and acts as a sterile barrier on surgical light handles in the operating room. Light ShieldsTM are manufactured of a heavy gauge flexible plastic for the optimum assurance of a sterile barrier. Needle Counters - Red plastic boxes manufactured from medical grade materials designed to resist breakage and punctures. They are produced with a variety of designs, including surgical grade magnets in order to facilitate sharps disposal, foam blocks and foam strips with varying count capacity and designs. Surgical Marking Pens - Specifically designed so that the pen barrel fits comfortably in the surgeon's hand and is made with gentian violet color ink. All pen barrels are embossed with a 5 cm. ruler and may also include a 15 cm. coated ruler and blank labels. Convenience Kits - The Company offers its customers the ability to purchase multiple products packaged with its needle counters. The Company has the flexibility to package many different kits to individualize a hospital's requirements. Medical Pouches - Used to house instruments during the sterilization process and maintain sterility of the instrument until it is needed. The pouches are primarily used in hospital central supply, operating rooms and in physicians' and dentists' offices as well as in any environment where sterile instruments are needed. There are three different styles of pouches available - self seal, heat seal and rolls. The self seal is already sealed on three sides and includes a peel back adhesive strip on the bottom of the package, which when folded over will seal the package. The second type is heat seal, which is also sealed on three sides but needs a heat sealer to seal the fourth side. The Company also markets a roll product, where the user could pull as long a pouch as needed. This requires both ends to be sealed. 4 Infectious Waste Bags - Used to collect, store and transport biohazardous and infectious waste. The bags come in a variety of sizes, and are red with the international biohazard symbol clearly marked on the bag. The bags are made of high quality resins with reinforced seals for puncture resistance and to reduce the risk of leakage. Laboratory Specimen Transport Bags - Used to collect, transport or hold samples from patients for examination or analytical procedures. The bags feature a separate pouch which can be used for accompanying paperwork. The pouch has a special seal that will ensure that the paperwork does not get contaminated or contaminate the lab specimen. Sterility Maintenance Covers - Used to cover sterile products and protect against dust, moisture or any other contaminants that may render the product non-sterile. They are used to package, store, and transport while maintaining a dust-free environment for sterile packs. Sterility maintenance covers come in a variety of sizes and are self seal like the sterilization pouches. Sterility maintenance covers are clear so that you can view the contents, are strong for protection, and tear in a linear fashion for easy access to the product. Sponge Counter Bags - A counting system, known as Pocket Count(TM), used in the operating room to count laparotomy sponges and gauze sponges after use. They are clear faced opaque backed plastic bags with five large pockets that extend vertically down. Each pocket is tacked in the center creating two compartments. The tack can be separated to create one large pocket. The bag can hold ten gauze sponges. When the tacks are separated, the bag will hold one large laparotomy sponge in each of its five pockets. The bag acts as a fluid receptacle as well as a visual count of the sponges. The Company also produces a uniquely designed and patented sponge counting system known as SAFE-T-Count(TM). Autoclavable Bags - Bags used for autoclaving and sterilizing infectious waste. Sterilization Monitoring Products - These are printed paper and chemical devices used to measure certain necessary parameters within a sterilization cycle. Indicators: measure presence of ETO or steam and temperature Integrators: a new technology that gives a better assurance than traditional indicators that the proper parameters of sterilization were fulfilled, including time, temperature and moisture. Bowie Dick Test Pack: tests for residual air left in an autoclave from air leaks, insufficient vacuum or poor steam quality. These products are used inside the packaged products and pouches throughout the hospital, clinic and doctor's office environment whenever sterilization takes place. Kit and Tray Products - The Company offers a proprietary One Time (R) brand of kit and tray products, which are packaged for use in a wide variety of minor procedures. Both procedural requirements and hospital preference determine tray components, and most contain proprietary items such as: ACU-dyne(R), an anti-microbial solution of povidone iodine which comes in various packages and applicators; and the One Time(R) brand of disposable instruments and antiseptics. Several examples of kit and tray configurations for various procedures are as follows: (a) Suture Removal Tray - Typically includes littauer scissors, alcohol prep pads, metal or plastic forceps, sponges and ACU-dyne(R) prep swabs. 5 (b) I.V. Start Kit - Typically includes a tourniquet, ACU-dyne(R) ampule and ointment, alcohol prep pads, and a dressing. (c) Central Line Tray - Typically includes alcohol swabs and prep pads, ACU-dyne(R) swabs and ointment, Benzoin, a cotton-tipped applicator, gauze tape and a dressing. Net, Padding and Wound Care - Includes proprietary Tubegauz(R) premium brand and SePro(R) value brand elastic nets, which are tubular bandages used for dressing retention. This category also includes Tubegauz(R) brand tubular gauze, which is used to bandage fingers, toes, hands, or other areas that require wrapping to bodily contours. Padding products are used as a protective cushioning material for sensitive areas, and are sold in styles that offer unique characteristics such as being mold-resistant, water-repellant or designs for improved air circulation. Instrument Packs - Includes a broad array of needle holders, hemostats, various procedural scissors, scalpels and forceps. Patents and Trademarks The Company actively pursues a policy of seeking patent protection, both in the United States and abroad, for its proprietary technology. There can be no assurance that the Company's patents will not be violated or that any issued patents will provide protection that has commercial significance. Litigation may be necessary to protect the Company's patent position. Such litigation may be costly and time-consuming, and there can be no assurance that the Company will be successful in such litigation. Since no single patent covers product lines that constitute 5% or more of any sales of the Company for fiscal 2002, the Company does not believe that any violation of any patents owned by the Company would have a material adverse effect on it or its business prospects. The Company owns several patents and trademarks. While it considers that in the aggregate the patents and trademarks are important in the operation of its business, it does not consider that any of them, or any group of them, are of such importance that termination would materially affect its business. Although there is no assurance that other companies will not be successful in developing similar products without violating the rights of the Company, management does not believe that the invalidation of any patents owned by the Company would have a material adverse effect on it or its business prospects. While the protection of patents is important to the Company's business, management does not believe any one patent is essential to the success of the Company. Competition There are many companies, both public and private, engaged in the development and marketing of disposable sterile and non-sterile surgical supplies, including laparotomy sponges. The Company is subject to various levels of competition based upon performance, quality and pricing. The Company's major competitors include large manufacturers, which have greater financial resources than the Company. The competitors differ based upon the products being sold. In the sale of sterile laparotomy sponges, where Allegiance Healthcare Corporation, a subsidiary of Cardinal Health, Inc., the Kendall Company, a subsidiary of Tyco Industries, Inc. and Medline Industries, Inc. are competitors, Medical Action's sales represent a significant share of the domestic market. The Company's primary competitors in the sale of sterile operating room towels, in which the Company is also the leading supplier in the domestic market, are Allegiance Healthcare Corporation, a Subsidiary of Cardinal Health, Inc., Medline Industries, Inc. and DeRoyal, Inc. In the sale of medical pouches to the hospital market, where the Company is one of the leading suppliers, the Company's primary competitors include Tower Medical, a subsidiary of Rexam, PLC. In the sale of QuanTech products, where the Company's portion of the market is relatively insignificant, the 6 Company's primary competitor is Devon Industries, Inc., a subsidiary of Tyco Industries, Inc. Healthcare Reform In recent years, several comprehensive healthcare reform proposals were introduced in the U.S. Congress. The intent of the proposals was, generally, to expand healthcare coverage for the uninsured and reduce the growth of total healthcare expenditures. While none of the proposals were adopted, healthcare reform may again, be addressed by the current U.S. Congress. While the Company cannot predict whether any healthcare reform legislation will be approved or what effect, if any, that such healthcare reform legislation will have on the Company or its operations, the Company believes that based on the intent of such proposals, healthcare legislation may have some beneficial effects on its business by increasing the availability of healthcare. Regulation As a manufacturer of medical devices, the Company is subject to regulation by, among other governmental entities, the U.S. Food and Drug Administration ("FDA") and the corresponding agencies of the states and foreign countries in which the Company sells its products. These regulations govern the introduction of new medical devices, the observance of certain standards with respect to the manufacture, testing and labeling of such devices, the maintenance of certain records, the tracking of devices and other matters. All medical devices are required to be registered with the FDA. The Company must update its establishment and listing information on an annual basis. Pursuant to the Food, Drug and Cosmetic Act ("FDC Act"), medical devices intended for human use are classified into three categories, Classes I, II and III, on the basis of the controls deemed necessary by the FDA to reasonably assure their safety and effectiveness. Class I devices are subject to general controls (for example, labeling, premarket notification and adherence to good manufacturing practice regulations) and Class II devices are subject to general and special controls (for example, performance standards, post-market surveillance, patient registries and FDA guidelines). Generally, Class III devices are those which must receive premarket approval ("PMA") from the FDA to ensure their safety and effectiveness (for example, life-sustaining, life-supporting and implantable devices, or new devices which have not been found substantially equivalent to legally marketed devices. Class I devices, unless exempt, and Class II devices require premarket notification clearance pursuant to Section 510(k) of the FDC Act. Class III devices are required to have a PMA. A 510(k) premarket notification clearance indicates that the FDA agrees with an applicant's determination that the product for which clearance has been sought is substantially equivalent to another medical device that has been previously marketed. To date, all of the Company's products have received 510(k) clearances or are exempt from the 510(k) clearance process. In addition to requiring clearance or approval for new products, the FDA may require clearance or approval prior to marketing products that are modifications of existing products. The FDC Act provides that new 510(k) clearances are required when, among other things, there is a major change or modification in the intended use of the device or a change or modification to a legally marketed device that could significantly affect its safety or effectiveness. A manufacturer is expected to make the initial determination as to whether a proposed change to a cleared device or to its intended use is of a kind that would necessitate the filing of a new 510(k) notification. The Company is also required to register with the FDA as a device manufacturer and to comply with the FDA's Good Manufacturing Practices under the Quality System Regulations ("GMP/QSR"). These regulations require that the Company manufacture its products and maintain its records in a prescribed manner with respect to manufacturing, testing and control activities. The Company's manufacturing, quality control and quality assurance procedures and documents are 7 inspected and evaluated periodically by the FDA. The European Union has promulgated rules, under the Medical Devices Directive, or MDD, which require medical devices to bear the "CE mark". The CE mark is an international symbol of adherence to quality assurance standards. The Company received ISO9001/EN46001 certification for its Arden, North Carolina manufacturing facility and has instituted all the systems necessary to meet the Medical Device Directive, thus acquiring the ability to affix the CE mark to certain products. Sales, Marketing and Customers The Company's products are presently marketed and sold primarily to acute care facilities throughout the United States through a network of direct sales personnel and manufacturers' representatives. In addition, the Company is expanding its target markets to include physician, dental and veterinary offices. There are approximately 29 direct sales personnel and 3 manufacturers' representatives throughout the United States engaged in the sales and marketing of the Company's products. Sales are primarily made to independent distributors, who maintain sufficient inventory to service customer requirements. The Company's distribution network is comprised of hospital distributors, alternate care distributors, physician distributors, veterinary distributors, dental distributors and industrial safety distributors covering the entire United States and certain international marketplaces. The Company's products are typically purchased pursuant to purchase orders or supply agreements in which the purchaser specifies whether such products are to be supplied through a distributor or directly by the Company. Management believes that the continuing pressure to utilize low-cost, disposable medical products has significantly expanded the use of custom procedure trays, which contain the necessary items designed for use in specific procedures by surgical teams. Many of the custom tray suppliers are vertically integrating the packaging process by buying bulk, non-sterile operating room towels, laparotomy sponges and other products manufactured by the Company to place in these custom trays. The trays are then sterilized, saving valuable nursing time and the costs associated with individual product packaging. In addition to private and public hospitals and health facilities, customers for the Company's products include group purchasing organizations and investor-owned hospital chains. With the emergence of these cooperative buying groups and chains as major purchasers of medical/surgical products, a significant portion of the Company's sales are dependent upon its ability to provide its products throughout a wide geographical area and to service substantially all members of the group or chain. The Company's present distributor-oriented marketing network has enabled it to become a selected source for many of the cooperative buying groups and chains. The Company records sales upon the shipment of inventory to the distributor, at which time title passes to the distributor. Pricing to its ultimate customer under these supply agreements is usually established for the contract period, which will typically be from one to three years. The Company views its ultimate customers as the medical professionals who use its products, rather than the distributors. No individual customer or affiliated group of customer accounts accounted for more than 10% of the Company's net sales in any of the past three fiscal years. Nevertheless, sales to Owens & Minor, Inc., Allegiance Healthcare Corporation and McKesson General Medical, diversified distribution companies (the "Distributors") accounted for approximately 33%, 28% and 10%, respectively, for the fiscal year ended March 31, 2002, 31%, 23% and 12% of net sales, respectively, for the fiscal year ended March 31, 2001 and 27%, 24% and 11%, respectively for the fiscal year ended March 31, 2000. Although the Distributors may be deemed in a technical sense to be major purchasers of the Company's products, the Distributors typically serve as a distributor under a purchase order or supply agreement between the customer and the Company and does not purchase for its own account. The Company, therefore, does not believe it is appropriate to categorize the Distributors as actual customers. 8 The Company believes it has established an efficient system for marketing its products throughout the United States, and intends to utilize these existing sales methods and channels to market new products as they are developed or acquired. Research and Development Product development costs charged to income were $453,000, $457,000 and $519,000 for the fiscal years ended March 31, 2002, 2001 and 2000, respectively. Employees As of June 1, 2002, the Company had 236 full-time employees with 170 in manufacturing and distribution, 44 in marketing and sales, and 22 in administration. None of the Company's employees are represented by a labor union. The Company believes that its employee relations are satisfactory. Raw Materials The principal raw materials used by the Company are a four-ply mesh gauze laparotomy sponge and cotton huck towel. Other materials and supplies used by the Company include gauze, gauze sponges, injection molded and thermoformed plastics, medical instruments, foam, medical grade magnets and a variety of packaging material. Several of these raw materials are supplied from vendors outside the United States. The Company presently purchases its principal cotton raw materials primarily from the Peoples Republic of China and to a lesser extent, India and is currently sourcing instruments from Pakistan, a portion of its thermoform plastics from Taiwan, packaging material from the United Kingdom and needle counters from the People's Republic of China. The Company's operating room towels, which are imported from the Peoples Republic of China, have been classified as a non-medical device by the U.S. Department of Customs, and until December 31, 2001, were subject to import quota restrictions. With the admittance of the People's Republic of China into the World Trade Organization, the Company's operating room towels are no longer subject to import quota restrictions. Backlog The Company does not believe that its backlog figures are necessarily indicative of its business since most hospitals and health related facilities order their products on a continuous basis and not pursuant to any contractual arrangements. Since typical shipment times range from two to five days, the Company must maintain sufficient inventories of all products at all times. Manufacturing The Company currently purchases its laparotomy sponges, burn dressings, operating room towels and needle counters from the People's Republic of China. During the past few years, the Company also purchased certain of these products, to a lesser extent, from a number of different countries, including Mexico and the Dominican Republic. After these products are manufactured, they are shipped to the Company's manufacturing facility in Arden, North Carolina, where they are packaged. The Company's QuanTech products, medical pouches and Acme Healthcare products are predominantly manufactured and/or assembled in the Company's Arden, North Carolina manufacturing facility. Some of the medical and surgical specialty products sold by the Company are purchased from other manufacturers, which the Company believes are readily available from a variety of manufacturers and suppliers. 9 ITEM TWO - PROPERTIES The Company owns a 205,000 square foot manufacturing, warehouse and distribution facility located on approximately 32 acres in Arden, North Carolina and a 12,000 square foot general office building on approximately 1.4 acres in Hauppauge, New York. Management believes that the Company's facilities are adequate to meet its current needs and should continue to be adequate for the foreseeable future. Set forth below is a summary of the facilities owned or leased by the Company. Location Primary Use Square Feet - -------- ----------- ----------- Arden, North Carolina Manufacturing/Warehouse/Distribution 205,000 (a) Hauppauge, New York Executive Offices 12,000 (b) - ------------------------- (a) The principal manufacturing, distribution and warehouse facility of the Company is located on premises, which the Company owns in Arden, North Carolina. An Industrial Revenue Bond in the amount of $4,240,000 was outstanding as of March 31, 2002, which was used to acquire and renovate the facility and acquired certain manufacturing equipment. (b) The Hauppauge, New York corporate offices were acquired by the Company in July 2000, no mortgage indebtedness was incurred with respect to the premises. ITEM THREE - LEGAL PROCEEDINGS The Company is a party to several lawsuits arising out of the conduct of its business in the ordinary course. While the results of such lawsuits cannot be predicted with certainty, management does not expect that the ultimate liabilities, if any, will have a material adverse effect on the financial position or results of operations of the Company. ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year. PART II ITEM FIVE - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item is set forth in registrant's 2002 Annual Report to Stockholders under the captions "Selected Financial Data" and "Stock Trading", which information is hereby incorporated herein by reference. ITEM SIX - SELECTED FINANCIAL DATA The information required by this Item is set forth in registrant's 2002 Annual Report to Stockholders contained under the caption "Selected Financial Data", which information is hereby incorporated herein by reference. ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is set forth in registrant's 2002 Annual Report to Stockholders contained under the caption "Management's Discussion and Analysis of Financial 10 Condition and Results of Operations", which information is hereby incorporated herein by reference. INFORMATION REGARDING FORWARD-LOOKING STATEMENTS Certain statements in the Company's "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Report constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Statements indicating the Company "plans", "expects", "estimates" or "believes" are forward-looking statements that involve known and unknown risks, including the Company's future economic performance and financial results. The forward-looking statements relate to (i) expansion of the Company's market share, (ii) the Company's growth into new markets, (iii) internal development of new products and product lines, and (iv) retention of the Company's earnings for use in the operation and expansion of its business. Important factors and risks that could cause actual results to differ materially from those referred to in the forward-looking statements include, but are not limited to, the effect of economic and business conditions, the impact of consolidation throughout the healthcare supply chain, the impact of healthcare reform, opportunities for acquisitions, the Company's ability to effectively integrate acquired companies, the ability of the Company to maintain its gross profit margins, the ability to obtain additional financing to expand the Company's business, the ability to successfully compete with the Company's competitors that have greater financial resources, the availability and possible increases in raw material prices for operating room towels, the impact of current or pending legislation and regulation, as well as the risks described from time to time in the Company's filings with the Securities and Exchange Commission, which include its Annual Report on Form 10-K and Quarterly Reports on From 10-Q. The forward-looking statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results, performance and/or achievements of the Company to differ materially from any future results, performance or achievements, express or implied, by the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, and that in light of the significant uncertainties inherent in forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. The Company undertakes no obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. ITEM SEVEN (A) - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this Item is set forth in registrant's 2002 Annual Report to Stockholders contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations", which information is hereby incorporated herein by reference. ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is set forth in registrant's 2002 Annual Report to Stockholders under the captions "Reports of Independent Certified Public Accountants", "Balance Sheets", "Statements of Earnings", "Statement of Shareholders' Equity", "Statements of Cash Flows" and "Notes to Financial Statements", which information is hereby incorporated herein by reference. 11 ITEM NINE - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The information required by Part III is incorporated by reference to the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in August 2002, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company's fiscal year ended March 31, 2002. PART IV ITEM FOURTEEN - EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) (1) and (2) List of Financial Statements and Financial Statement Schedules The following financial statements of Medical Action Industries Inc., included in its Annual Report to Stockholders for the year ended March 31, 2002, are incorporated by reference in Item 8: Balance Sheets at March 31, 2002 and 2001 Statements of Earnings for the Years Ended March 31, 2002, 2001 and 2000 Statement of Shareholders Equity for the Years Ended March 31, 2002, 2001 and 2000 Statements of Cash Flows for the Years Ended March 31, 2002, 2001 and 2000 Notes to Financial Statements The following financial statement schedule and Report of Independent Certified Public Accountants of Medical Action Industries Inc. and subsidiary is included in Item 14(d): Report of Independent Certified Public Accountants on Schedule II Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (3) Exhibits: Exhibit No. 2.1 Agreement and Plan of Reorganization dated as of August 12, 1994 among Registrant, QuanTech Acquisition Corp. and QuanTech, Inc. (Exhibit 2.1 to the Company's Annual Report on Form 10-K for the year ended March 31, 1995). 2.2 Purchase Agreement dated as of January 30, 1996 among Registrant, SBW Acquisition Corp., Lawson Mardon Medical Products, Inc. and Lawson Mardon Medical Products, a trading division of Lawson Mardon Packaging UK Ltd. (Exhibit 2 to the Company's Current Report on Form 8-K dated February 6, 1996). 12 2.3 Asset Purchase Agreement dated as of March 9, 1999 between Acme United Corporation and Registrant (Exhibit 2 to the Company's Current Report on Form 8-K dated April 1, 1999). 2.4 Asset Purchase Agreement dated as of October 3, 2001 between Medi-Flex Hospital Products, Inc. and Registrant (Exhibit 2 the Company's Current Report on Form 8-K dated November 30, 2001). 3.1* Certificate of Incorporation, as amended. 3.2 By-Laws, as amended (Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended March 31, 1988). 10.1 1996 Non-Employee Director Stock Option Plan (Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended March 31, 1997). 10.2 Restricted Management Stock Bonus Plan, as amended (Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended March 31, 1988). 10.3* 1989 Non-Qualified Stock Option Plan, as amended. 10.4* 1994 Stock Incentive Plan, as amended. 10.5 Employment Agreement dated as of February 1, 1993 between the Registrant and Paul D. Meringolo (Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended March 31, 1993). 10.6 Modification Agreement dated as of February 5, 1996 between the Registrant and Paul D. Meringolo (Exhibit 10 to the Company's Current Report on Form 8-K dated February 7, 1996). 10.7 Modification Agreement dated as of May 28, 1997 between the Registrant and Paul D. Meringolo (Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended March 31, 1997). 10.8 Modification Agreement dated as of July 21, 1999 between the Registrant and Paul D. Meringolo (Exhibit 10 to the Company's current report on Form 8-K dated July 30, 1999). 10.9 Modification Agreement dated as of May 31, 2000 between the Registrant and Paul D. Meringolo (Exhibit 10 to the Company's current report on Form 8-K dated June 5, 2000). 10.10 Revolving Credit Note and Agreement between the Registrant and a lending institution dated as of March 18, 1999, as amended. 10.11 Change in Control Agreement dated as of June 1, 1995 between the Registrant and certain executive officers (Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended March 31, 1995). 23.1* Consent of Grant Thornton LLP. 99* Additional Exhibit - Undertakings 13 (b) Reports on Form 8-K: (i) Amendment No. 1 to Current Report on Form 8-K dated January 23, 2002 re: Item 7 - Financial Statements and Exhibits (c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules The response to this portion of Item 14 is submitted as a separate section of this report. - ---------------------- With the exception of the aforementioned information incorporated by reference in this Annual Report on Form 10-K, the Company's Annual Report to Stockholders for the year ended March 31, 2002 is not to be deemed "filed" as part of this report. *Filed herewith 14 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 21st day of June, 2002. MEDICAL ACTION INDUSTRIES INC. By: /s/ Paul D. Meringolo ---------------------------- Paul D. Meringolo Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on June 21, 2002 by the following persons in the capacities indicated: /s/ Paul D. Meringolo Chief Executive Officer, President - ------------------------------- and Director Paul D. Meringolo /s/ Richard G. Satin Vice President-Operations, General Counsel, - ------------------------------- Corporate Secretary and Director Richard G. Satin /s/ Bernard Wengrover Director - ------------------------------- Bernard Wengrover /s/ Philip F. Corso Director - ------------------------------- Philip F. Corso /s/ Thomas A. Nicosia Director - ------------------------------- Thomas A. Nicosia 15 Report of Independent Certified Public Accountants on Schedule Stockholders and Board of Directors Medical Action Industries Inc. In connection with our audit of the financial statements of Medical Action Industries Inc. referred to in our report dated May 20, 2002, which is included in the Annual Report to Shareholders and incorporated by reference in Part II of this form, we have also audited Schedule II for each of the three years in the period ended March 31, 2002. In our opinion, this schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be set forth therein. GRANT THORNTON LLP Melville, New York May 20, 2002 16
S-1 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS MEDICAL ACTION INDUSTRIES INC. - ------------------------------------------------------------------------------------------------------------------------------------ COL. A COL. B COL. C COL. D COL. E - ------------------------------------------------------------------------------------------------------------------------------------ ADDITIONS - ------------------------------------------------------------------------------------------------------------------------------------ Additions --------- Additions Charged to Other Balance at Charged Other Changes - Balance Beginning of to Costs and Accounts - Add(Deduct) End of Description Period Expenses Describe Describe Period - ------------------------------------------------------------------------------------------------------------------------------------ Year ended March 31, 2002 Deducted from asset accounts: Allowance for doubtful accounts $ 192,998 $ 41,000 $ 223,998 Reserve for slow moving and obsolete inventory $ 241,187 ($ 28,001) $ 213,186 Total Valuation and Qualifying Accounts $ 434,185 $ 41,000 -- ($ 28,001) $ 447,184 Year ended March 31, 2001 Deducted from asset accounts: Allowance for doubtful accounts $ 156,998 $ 36,000 $ 192,998 Reserve for slow moving and obsolete inventory $ 134,717 $ 106,470 $ 241,187 Total Valuation and Qualifying Accounts $ 291,715 $ 142,470 -- -- $ 434,185 Year ended March 31, 2000 Deducted from asset accounts: Allowance for doubtful accounts $ 128,998 $ 28,000 $ 156,998 Reserve for slow moving and obsolete inventory $ 32,599 $ 102,118 $ 134,717 Total Valuation and Qualifying Accounts $ 161,597 $ 130,118 -- -- $ 291,715 - --------- (1) Disposal and sale of slow moving and obsolete inventory. - ------------------------------------------------------------------------------------------------------------------------------------
================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED March 31, 2002 ------------------ MEDICAL ACTION INDUSTRIES INC. (Exact name of registrant as specified in its charter) EXHIBIT INDEX ================================================================================ Exhibit No. 3.1 Certificate of Incorporation, as amended 10.3 1989 Non-Qualified Stock Option Plan, as amended 10.4 1994 Stock Incentive Plan, as amended 10.10 Revolving Credit Note and Agreement between the Registrant and a lending institution dated as of March 18, 1999, as amended. 23 Consent of Grant Thornton LLP. 99 Additional Exhibit - Undertakings EX-3.1 3 file002.txt CERTIFICATE OF INCORPORATION, AS AMENDED EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF MEDICAL ACTION INDUSTRIES INC. 1. The name of the Corporation is MEDICAL ACTION INDUSTRIES INC. 2. The address of the registered office of the Corporation in Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent is The Corporation Trust Company. 3. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. The aggregate number of shares of stock that this Corporation shall have authority to issue is (i) 15,000,000 shares of Common Stock, $.001 par value per share ("Common Stock") and (ii) 5,000,000 shares of Preferred Stock, $.001 par value per share ("Preferred Stock"). A. COMMON STOCK. The holders of Common Stock shall be entitled to one vote for each share held; the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors; and in the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of the Common Stock shall be entitled to receive all the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them, respectively. B. PREFERRED STOCK. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or not voting powers, and such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and 3 and expressed in such resolutions, all to the full extent now or hereafter permitted by the General Corporation Law of Delaware. Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law. Except as expressly provided elsewhere in this Article FOURTH, no vote of holders of the Preferred Stock or Common Stock shall be required in connection with the designation or the issuance of any shares of any series of any Preferred Stock authorized by and complying with the conditions herein, the right to have such vote being expressly waived by all present and future holders of the capital stock of the Corporation." 5. The affairs, business and property of the Corporation shall be managed and controlled by the Board of Directors. The number of Directors of the Corporation shall not be less than three nor more than eleven, shall be initially fixed at five and may thereafter be changed from time to time by action of not less than a majority of the members of the Board then in office. The Board of Directors shall be divided into three classes, as nearly equal in number as possible, with the term of office for one class expiring each year. The initial Board of Directors shall consist of two directors of the first class to be elected to hold office for a term expiring at the first annual meeting of stockholders, one for a term expiring at the second annual meeting of stockholders, and two directors of the third class to be elected to hold office for a term expiring at the third annual meeting of stockholders. At each annual meeting of stockholders, the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason and any newly created directorships resulting from any increase in the number of directors shall be filled by the Board of Directors, acting by not less than a majority of the directors then in office, although less than a quorum. Any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. Notwithstanding any other provision of this Certificate of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Certificate of Incorporation or the Bylaws of the Corporation), any director or the entire Board of Directors may be removed only with cause and only by the affirmative vote 4 of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). As used in this Certificate of Incorporation, the term (1) "other entity" shall include any individual, corporation, partnership, person or entity and any other entity with which it or its "affiliate" or "associate", as those terms are defined in Rule 12b-2 (or any successor rule) of the General Rules and Regulations under the Securities Exchange Act of 1934, together with the successors and assigns of such persons in any transaction or series of transactions not involving a public offering of the Corporation's stock within the meaning of the Securities Act of 1933; and (2) the term "continuing director" shall mean a member of the initial Board of Directors of the Corporation, or a member of the Board of Directors of the Corporation who was elected by the public stockholders prior to the time that such other entity acquired shares of stock of the Corporation entitling such other entity to exercise in excess of ten (10%) percent of the total voting power of all classes of stock of the Corporation entitled to vote in the election of directors, or a member of the Board of Directors of the Corporation who was elected or nominated for election by a majority of continuing directors. 6. Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations other than by the Board of Directors shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than ninety (90) days prior to the first anniversary of the date of the last meeting of stockholders of the Corporation called for the election of directors. Each notice shall set forth (i) the name, age and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of the corporation entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) the name, age, business address and, if known, residence address of each nominee proposed in such notice; (iv) the principal occupation or employment of each such nominee; (v) a description of all arrangements or understandings between the stockholder and each such nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (vi) such other information regarding each such nominee as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board of Directors of the Corporation; and (vii) the 5 consent of each such nominee to serve as a director of the Corporation if so elected. The Chairman of any meeting of stockholders may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he or she should so determine, the Chairman shall declare to the meeting and the defective nomination shall be disregarded Except as required in the Bylaws no election need be by written ballot. 7. The vote of stockholders of the Corporation required to approve any Business Combination shall be as set forth in this Article 7. The term "Business Combination" shall have the meaning ascribed to it in (a)(B) of this Article; each other capitalized term used in this Article shall have the meaning ascribed to it in (c) of this Article. (a)(A) In addition to any affirmative vote required by law or this Certificate of Incorporation and except as otherwise expressly provided in (b) of this Article 7: (1) any merger or consolidation of the Corporation or any Subsidiary with (i) any Interested Stockholder or (ii) any other corporation or entity (whether or not itself is an Interested Stockholder) which is, or after each merger or consolidation would be, an Affiliate of an Interested Stockholder; or (2) any sale, lease, exchange, mortgage, pledge, transfer, or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of assets of the Corporation or any Subsidiary having an aggregate Fair Market Value of $5,000,000 or more; or (3) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of any Affiliate or any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $5,000,000 or more, other than the issuance of securities upon the conversion of convertible securities of the Corporation or any Subsidiary which were not acquired by such Interested Stockholder (or such Affiliate) from the Corporation or a Subsidiary; or (4) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an 6 Interested Stockholder or any Affiliate of any Interested Stockholder; or (5) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which in any such case has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series of stock or securities convertible into the stock of the Corporation or any Subsidiary which is directly or indirectly beneficially owned by any Interested Stockholder or any affiliate of any Interested Stockholder; shall not be consummated without the affirmative vote of the holders of at least 80 percent of the combined voting power of the then outstanding shares of stock of all classes and series of the Corporation entitled to vote generally in the election of directors ("Voting Stock"), in each case voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by this Certificate of Incorporation or in any agreement with any national securities exchange or otherwise. (B) The term "Business Combination" as used in this Article 7 shall mean any transaction that is referred to in any one or more clauses (1) through (5) of (a)(A) of this Article 7. (b) The provisions of (a) of this Article 7 shall not be applicable to any Business Combination in respect of which all of the conditions specified in either of the following paragraphs (A) and (B) are met, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of the Certificate of Incorporation. (A) such Business Combination shall have been approved by a majority of the Disinterested Directors, or (B) each of the six conditions specified in the following clauses (1) through (6) shall have been met: (1) the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination (the "Consummation Date") of any consideration other than cash to be received by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following: 7 (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of Common Stock beneficially owned by the Interested Stockholder which were acquired beneficially by such Interested Stockholder (x) within the two year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Stockholder, whichever is higher; or (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (the Determination Date), whichever is higher; and (2) the aggregate amount of the cash and the Fair Market Value as of the Consummation Date of any consideration other than cash to be received per share by holders of shares of any other class or series of Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this clause (B)(2) shall be required to be met with respect to each class and series of such outstanding Voting Stock, whether or not the Interested Stockholder beneficially owns any shares of a particular class or series of Voting Stock): (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of such class or series of voting stock beneficially owned by the Interested Stockholder, which were acquired beneficially by such Interested Stockholder (x) within the two year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Stockholder, whichever is higher; (ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and (iii) the Fair Market Value per share of such class or series of Voting Stock on the Announcement Date or the Determination Date, whichever is higher; and (3) the consideration to be received by holders of a particular class or series of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as were previously paid in order to acquire beneficially shares of such class or series of Voting Stock that are beneficially owned by the Interested Stockholder and, if the Interested Stockholder beneficially owns shares of any class or series of Voting Stock that were acquired with varying forms of consideration, the 8 form of consideration to be received by holders of such class or series of Voting Stock shall be either cash or the form used to acquire beneficially the largest number of shares of such class or series of Voting Stock beneficially acquired prior to the Announcement Date; and (4) after such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular dates therefor the full amount of any dividends (whether or not cumulative) payable on any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation. (ii) there shall have been (x) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors and (y) an increase in such annual rate of dividends (as necessary to prevent any such reduction) in the event of any reclassification (including any reverse stock split) recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate was approved by a majority of the Disinterested Directors; and (iii) such Interested Stockholder shall not have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction in which it became an Interested Stockholder; and (5) after such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise; and (6) a proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). 9 (c) For purposes of this Article 7: (A) A "person" shall mean any individual, firm or corporation or other entity. (B) "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary) who or which: (1) is the beneficial owner, directly or indirectly, of more than 10 percent of the combined voting power of the then outstanding shares of Voting Stock; or (2) is an Affiliate of the Interested Stockholder and at any time within the two year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10 percent or more of the combined voting power of the then outstanding shares of Voting Stock; or (3) is an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock that were at any time within the two year period immediately prior to the date in question beneficially owned by an Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (C) A person shall be a "beneficial owner" of any Voting Stock: (1) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (2) which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote or direct the vote pursuant to any agreement, arrangement or understanding; or (3) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares, of Voting Stock. 10 (D) For the purposes of determining whether a person is an Interested Stockholder pursuant to (c)(B) of this Article 7, the number of shares of Voting Stock deemed to be outstanding shall include shares owned through application of (c)(C) of this Article but shall not include any other shares of Voting Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (E) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on September 1, 1985. (F) "Subsidiary" means any corporation more than 50 percent of whose outstanding stock having ordinary voting power in the election of directors is owned, directly or indirectly, by the Corporation or by a Subsidiary or by the Corporation and one or more Subsidiaries, provided, however, that for the purposes of the definition of Interested Stockholder set forth (c)(B) of this Article 7 the term "Subsidiary" shall mean only a corporation of which a majority of each class or equity security is owned, directly or indirectly, by the Corporation. (G) "Disinterested Director" means any member of the Board of Directors of the Corporation who is unaffiliated with, and not a nominee of, the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, any successor of a Disinterested Director who is unaffiliated with, and not a nominee of, the Interested Stockholder and who is recommended to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board of Directors. (H) "Fair Market Value" means: (1) in the case of stock, the highest closing sale price during the 30 day period immediately preceding the date in question of a share of such stock in the Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite Tape on the New York Stock Exchange, or, if such stock is not listed on any such exchange, the highest closing sales price or bid quotation with respect to a share of such stock during the 30 day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of stock as determined by a majority of the Disinterested Directors in good faith; and (2) in the case of stock of any class or series which is not traded on any United States registered securities exchange nor in the over-the-counter market or in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Disinterested Directors in good faith. 11 (I) In the event of any Business Combination in which the Corporation survives, the phrase "other consideration to be received" as used in (b)(B)(1) and (2) of this Article 7 shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. (J) "Announcement Date" means the date of first public announcement of the proposed Business Combination. (K) "Determination Date" means the date on which the Interested Stockholder became an Interested Stockholder. (d) A majority of the Disinterested Directors of the Corporation shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article 7, including, without limitation (A) whether a person is an Interested Stockholder, (B) the number of shares of Voting Stock beneficially owned by any person, (C) whether a person is an Affiliate or Associate of another person, (D) whether the requirements of (b) of this Article 7 have been met with respect to any Business Combination, and (E) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary or Business Combination has, an aggregate Fair Market Value of $5,000,000 or more. The good faith determination of a majority of the Disinterested Directors on such matters shall be conclusive and binding for al purposes of this Article 7. (e) Nothing contained in this Article 7 shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. (f) Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of the Voting Stock, voting together as a single class, shall be required to alter, amend, or repeal this Article 7 or to adopt any provision inconsistent therewith. 8. Special meetings of the stockholders may be called only by the Board of Directors and the power of stockholders to call a special meeting for any and all purposes whatsoever is specifically denied. 9. Notwithstanding any other provision of this Certificate of Incorporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Certificate of Incorporation or the Bylaws of the corporation), the affirmative vote of the holders of not less than two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter, change or repeal Article 5, 6, 12 8 and 9 of the Certificate of Incorporation; provided, further that the provisions of this Article 9 shall not apply to, and only such vote as shall be required by statute shall be required for, any amendment, alteration, change or repeal recommended to the stockholders by two-thirds of the whole Board of Directors of the Corporation, provided that and so long as majority of the members of the Board of Directors acting upon such matter shall be continuing directors (as defined in Article 5 of this Certificate of Corporation). 10. The Board of Directors shall have the power to make, alter or repeal Bylaws subject to the power of the stockholders to alter or repeal the Bylaws made or altered by the Board of Directors. 11. No person who is or was at any time a director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty by such person as a director; provided, however, that unless and except to the extent otherwise permitted from time to time by applicable law, the provisions of this Article shall not eliminate or limit the liability of a director (i) for breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for any act or omission by the director which is not in good faith or which involves intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware law, (iv) for any transaction from which the director derived an improper personal benefit or (v) for any act or omission occurring prior to the date the Liability Amendment becomes effective. No amendment to or repeal of this Article 11 shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any act or omission of such director occurring prior to such amendment or repeal. 13 EX-10.3 4 file003.txt 1989 NON-QUALIFIED STOCK OPTION PLAN. AS AMENDED EXHIBIT 10.3 MEDICAL ACTION INDUSTRIES INC. 1989 NON-QUALIFIED STOCK OPTION PLAN, AS AMENDED 1. PURPOSE AND EFFECT (a) The purpose and effect of this plan (the "Plan") is to induce officers, directors and other senior executives and management and supervisory personnel of and consultants to Medical Action Industries Inc., a Delaware corporation ("Medical Action") and its subsidiaries (Medical Action and its subsidiaries being hereinafter collectively referred to as the "Company"), who are in a position to make material contributions to the Company's success, to remain in the service of the Company, to offer them incentives and rewards in recognition of their share in the Company's progress, and to encourage them to continue to promote the best interests of the Company through the grant to them of options (the "Options") for the purchase of Common Stock, $.001 par value, of Medical Action (the "Common Stock"). The Plan is also intended to aid the Company in competing with other enterprises for the services of new senior executives needed to help insure continued development. For purposes of this Plan, the term "subsidiaries" shall include all corporations at least 50% of the voting stock of which is owned directly or indirectly by Medical Action. (b) In the event that this Plan is not approved by the stockholders of Medical Action, the Plan and all Options granted and to be granted hereunder shall be null and void, and the Company shall have no obligation of any nature whatsoever to any employee, director or other person arising out of either the Plan or any Options granted or to be granted thereunder. 2. ADMINISTRATION (a) The Plan shall be administered by the Board of Directors of Medical Action (the "Board"), provided however, that the Board may, in the exercise of its discretion, designate from among its members a Compensation Committee (the "Committee") consisting of no fewer than three directors, each of whom shall be a "disinterested person" within the meaning of Rule 16b-3 (or any successor rule or regulation) promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"), and may delegate to the Committee full power and authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be issued or adopted by the Board, to interpret the provisions and supervise the administration of the Plan. Any member of the Committee may be removed at any time either with or without cause by resolution adopted by the Board, and any vacancy on the 14 Committee may at any time be filled by resolution adopted by the Board. Any or all powers and functions of the Committee may at any time and from time to time be exercised by the Board; provided, however, that with respect to the participation in the Plan of persons who are members of the Board, such powers and functions of the Committee may be exercised by the Board only if, at the time of such exercise, a majority of the members of the entire Board and a majority of the directors acting in the particular matter are "disinterested persons" within the meanings of Rule 16b-3 promulgated under the Exchange Act. (b) Each Option shall be evidenced by an Option Agreement that shall contain terms and conditions (consistent with the terms and conditions of this Plan) as may be approved by the Board or the Committee, as the case may be, and shall be signed by an officer of Medical Action and the optionee (the "Optionee"). (c) Subject to an applicable provision of Medical Action's By-Laws, all decisions made by the Board or the Committee pursuant to the provisions of the Plan and related orders or resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, stockholders, employees and Optionees. 3. SHARES SUBJECT TO THE PLAN (a) The shares of Common Stock to be delivered upon the exercise of Options granted under the Plan shall be made available, at the discretion of the Board, either from the authorized but unissued shares of Common Stock or from shares of Common Stock reacquired by Medical Action and held in treasury. (b) Subject to adjustments made pursuant to the provisions of Paragraph (c) of this Section 3, the aggregate number of shares to be delivered upon exercise of all Options that may be granted under this Plan shall be 2,150,000 shares. If an Option granted under the Plan shall expire or terminate for any reason during the term of the Plan, the shares subject to but not delivered under such Option shall be available for the grant of other Options. The foregoing notwithstanding, no person may be granted Options in any calendar year to purchase shares of Common Stock which in the aggregate have a fair market value of more than $100,000. (c) In the event of a merger, reorganization, consolidation, recapitalization, stock dividend, stock split, or other change in corporate structure affecting the Common Stock, appropriate adjustment shall be made in the aggregate number of shares subject to the Plan and in the number of shares subject to unexercised Options previously granted under the Plan. 15 4. ELIGIBILITY AND PARTICIPATION The persons eligible to receive Options shall consist of officers, directors and other senior executives and management and supervisory personnel of and consultants to the Company. Subject to the limitations of the Plan, the Board or the Committee, as the case may be, shall select the person to be granted Options, determine the number of shares and exercise price subject to each Option, and determine the time when each Option shall be granted. More than one Option may be granted to the same person. 5. TERM OF PLAN AND OPTION PERIOD The terms during which Options may be granted under the Plan shall commence on October 25, 1989 and expire on October 24, 2009, provided, however, that if the Plan is not approved by the stockholders of Medical Action all Options granted hereunder shall become null and void. Subject to the provisions of the Plan with respect to death, retirement and termination of employment, the maximum period during which each Option may be exercised may be fixed by the Board or the Committee, as the case may be, at the time such Option is granted but shall in no event exceed ten (10) years. 6. EXERCISE PRICE (a) The price at which shares of Common Stock may be purchased upon exercise of a particular Option shall not be less than eighty-five (85%) of the fair market value of such shares on date such Option is granted, as determined by the Board or the Committee, as the case may be. (b) For purposes of determining the Fair Market Value of a share of Common Stock on the date of grant, if the Common Stock (i) is then listed on any national securities exchange, the Fair Market Value shall be the closing price per share of the Common Stock on such exchange at the close of the trading session on the date of grant, (ii) is then listed on NASDAQ (but not on any national securities exchange), the Fair Market Value shall be the closing price per share of the Common Stock on NASDAQ on the date of grant, or (iii) is then traded on the over-the-counter market (but not on a national securities exchange or NASDAQ), the Fair Market Value shall be the average of the closing bid and asked prices of the Common Stock as reported by the National Quotation Bureau, Inc. or other entity then publishing bid and asked prices for the Common Stock for the date of grant, or, if unavailable, then the last trading date on which bid and asked quotations were published immediately preceding the date of grant. 16 7. EXERCISE OF OPTIONS (a) Each Option granted under this Plan may be exercised only during the continuance of the Optionee's employment or service with the Company and only as to such percentage of the shares covered thereby during such periods as may be determined at the time of grant by the Board or the Committee, as the case may be, but if no such percentage is specified, then each Option granted under this Plan may be exercised as to 50% of the shares covered thereby one year after the date of grant and as to an additional 50% of the shares covered thereby two years after the date of grant (so that such Option may be exercised as to 100% of the shares covered thereby beginning two (2) years after the date of grant), except in the case of death, retirement or termination of employment or service as hereinafter provided. Subject to the foregoing limitations and the terms and conditions of the option certificate, each Option shall be exercisable with respect to such number of shares and during such periods as shall be fixed by the Board or the Committee, as the case may be; provided, however, that if the Board or the Committee grants an Option or Options exercisable in more than one installment, and if the employment or service of an Optionee holding such Option is terminated, the Option shall be exercisable as to such number of shares as to which the Optionee had the right to exercise on the date of termination of employment services. (b) No shares of Common Stock shall be delivered pursuant to the exercise of any Option, in whole or in part, until qualified for delivery under such laws and regulations as may be deemed by the Board or the Committee, as the case may be, to be applicable thereto and until payment in full of the exercise price thereof is received by the Company. (c) When exercising Options in whole or in part, Optionees may pay the exercise price in cash, in shares of Common Stock or by means of any other consideration acceptable to the Board or the Committee. For purposes of valuing any share of Common Stock used to exercise any Option in whole or in part, such shares shall be valued as provided in Section 6(b). Shares of Common Stock used to exercise any Option granted hereunder shall be free and clear of all liens, pledges, claims, encumbrances and restrictions of any kind or nature whatsoever, other than restrictions imposed upon such shares pursuant to the provisions of the Securities Act of 1933, as amended. (d) No Optionee, or legal representative, legatee, or distributee of an Optionee, shall be deemed to be a holder of any shares subject to any Option granted hereunder unless and until the certificate or certificates therefor have been issued and delivered. 17 8. NON-TRANSFERABILITY OF OPTIONS An Option granted under the Plan may not be transferred except by will or the laws of descent and distribution, and during the lifetime of the person to whom granted, may be exercised only by such person. 9. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT Any Option, the period of which has not theretofore expired, shall terminate at the time of death of the person to whom granted or at the time of retirement or termination for any reason of such person's employment or service with the Company, and no share of Common Stock may thereafter be delivered pursuant to such Option, except that: (a) upon retirement or termination of employment or service (other than by death, disability, voluntary termination or termination for cause), an Optionee may within two (2) months after the date of such retirement or termination, purchase all or part of the shares with respect to which such Optionee is entitled to exercise such Option, in accordance with the provisions of Section 7 hereof, but in no event after the expiration of the term of the Option ("cause" for purposes of this Plan shall mean (i) willful disregard of duties, (ii) habitual absence from employment or service, (ii) intoxication, or (iv) dishonesty); (b) upon the "disability" of any Optionee, the Optionee may within six (6) months after the date of such termination of employment, but in no event after the expiration of the term of the Option, purchase all or part of the shares with respect to which such Optionee is entitled to exercise such Option, in accordance with the provisions of Section 7 hereof. For purposes of the Plan, the term "disability" shall mean a physical or mental disability as defined in Section 105 of the Internal Revenue Code of 1986, as amended; and (c) upon the death of any Optionee while in active employment or service, the person or person to whom such Optionee's rights under the Option are transferred by will or the law of descent and distribution may, within six (6) months after the date of such Optionee's death, but in no event after the expiration of the term of the Option, purchase all or any part of the shares with respect to which the Option was exercisable on the date of death in accordance with the provisions of Section 7 hereof. 10. AMENDMENTS AND DISCONTINUANCE The Board may amend, suspend, or discontinue the Plan, but may not, without the prior approval of Medical Action's stockholders, make any 18 amendments that would (i) make any material change in the class of eligible persons as defined in the Plan, (ii) increase the total number of shares for which Options may be granted under the Plan, (iii) extend the term of the Plan or the maximum option period, (iv) decrease the minimum option price, or (v) permit adjustments in the number and option price of shares granted under the Plan except as permitted by the provisions of Paragraph (c) of Section 3 above. 19 EX-10.4 5 file004.txt 1994 STOCK INCENTIVE PLAN, AS AMENDED EXHIBIT 10.4 MEDICAL ACTION INDUSTRIES INC. 1994 STOCK INCENTIVE PLAN, AS AMENDED SECTION 1 DEFINITIONS 1.1 DEFINITIONS. Whenever used herein, the masculine pronoun shall be deemed to include the feminine and the singular to include the plural, unless the context clearly indicates otherwise, and the following capitalized words and phrases are used herein within the meaning thereafter ascribed: (a) "BOARD OF DIRECTORS" means the board of directors of the Company. (b) "CHANGE IN CONTROL" means the first to occur of the following events: (i) any person (as defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof), excluding the Company, any Subsidiary and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee), but including 'group' as defined in Section 13(d)(3) of the Exchange Act (a "Person"), becomes the beneficial owner of shares of the Company having at least twenty (20%) percent of the total number of votes that may be cast for the election of directors of the Company (the "Voting Shares"); provided that no Change of Control will occur as a result of an acquisition of stock by the Company which increases, proportionately, the stock representing the voting power of the Company, and provided further that if such person or group acquires stock representing more than twenty percent (20%) of the voting power of the Company by reason of share purchases by the Company, and after such share purchases by the Company acquires any additional shares representing the voting power of the Company, then a Change in Control shall occur; (ii) the shareholders of the Company shall approve any merger or other business combination of the Company, sale of the Company's assets or combination of the foregoing transactions (a "Transaction") other than a Transaction involving only the Company and one or more of its Subsidiaries, or a Transaction immediately following which the shareholders of the Company immediately prior to the Transaction continue to have a majority of the voting power in the resulting entity excluding for this purpose any shareholder owning directly or indirectly more than ten percent (10%) of the shares of the other company involved in the merger; or (iii) within any 24-month period beginning on or after June 30, 1994, who were directors of the Company immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other 20 than death) to constitute at least a majority of the Board of Directors or the board of directors of any successor to the Company, provided that any director who was not a director as of July 1, 1994 shall be deemed to be an Incumbent Director if such director was elected to the Board of Directors by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of this clause (iii); and provided further that any director elected to the Board of Directors to avoid or settle a threatened or actual proxy contest shall in no event be deemed to be an Incumbent Director. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means the committee appointed by the Board of Directors to administer the Plan. The Committee shall consist of at least two members of the Board of Directors, each of whom shall be a "disinterested person", as defined in Rule 16b-3 as promulgated under the Exchange Act. (e) "COMPANY" means Medical Action Industries Inc., a Delaware corporation. (f) "DISABILITY" has the same meaning as provided in the long-term disability plan or policy maintained or, if applicable, most recently maintained, by the Company or, if applicable, any affiliate of the Company for the Participant. If no long-term disability plan or policy was ever maintained on behalf of the Participant or, if the determination of Disability relates to an Incentive Stock Option, disability shall mean the condition described in Code Section 22(e)(3), as amended from time to time. In the event of a dispute, the determination of Disability shall be made by the Committee and shall be supported by advice of a physician competent in the area to which such Disability relates. (g) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time. (h) "FAIR MARKET VALUE" with regard to a date means the closing price at which Stock shall have been sold on the last trading date prior to that date as reported by the National Association of Securities Dealers Automated Quotation System (or, if applicable, as reported by a national securities exchange selected by the Committee on which the shares of Stock are then actively traded) and published in The Wall Street Journal; provided that, for purposes of granting awards other than Incentive Stock Options, Fair Market Value of the shares of Stock may be determined by the Committee by reference to the average market value determined over a period certain or as of specified dates, to a tender offer price for the shares of Stock (if settlement of an award is triggered by such an event) or to any other reasonable measure of fair market value. 21 (i) "OPTION" means a non-qualified stock option or an incentive stock option. (j) "OVER 10% OWNER" means an individual who at the time an Incentive Stock Option is granted owns Stock possessing more than 10% of the total combined voting power of the Company or one of its Subsidiaries, determined by applying the attribution rules of Code Section 424(d). (k) "PARTICIPANT" means an individual who receives a Stock Incentive hereunder. (l) "PLAN" means the Medical Action Industries Inc 1994 Stock Incentive Plan. (m) "STOCK" means the Company's common stock, $.001 par value. (n) "STOCK INCENTIVE AGREEMENT" means an agreement between the Company and a Participant or other documentation evidencing an award of a Stock Incentive. (o) "STOCK INCENTIVE PROGRAM" means a written program established by the Committee, pursuant to which Stock Incentives are awarded under the Plan under uniform terms, conditions and restrictions set forth in such written program. (p) "STOCK INCENTIVES" means, collectively, Incentive Stock Options, Non-Qualified Stock Options and Stock Awards. (q) "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, with respect to Incentive Stock Options, at the time of the granting of the Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. SECTION 2 THE STOCK INCENTIVE PLAN 2.1 PURPOSE OF THE PLAN. The Plan is intended to (a) provide incentive to officers and key employees of the Company and its affiliates to stimulate their efforts toward the continued success of the Company and to operate and manage the business in a manner that will provide for the long-term growth and profitability of the Company; (b) encourage stock ownership by officers and key employees by providing them with a means to acquire a proprietary interest in the Company, acquire shares of Stock, or to receive compensation which is based upon appreciation in the value of Stock; and (c) provide a means of obtaining, rewarding and retaining key personnel. 22 2.2 STOCK SUBJECT TO THE PLAN. Subject to adjustment in accordance with Section 5.2, 1,350,000 shares of Stock (the "Maximum Plan Shares") are hereby reserved exclusively for issuance pursuant to Stock Incentives. At no time shall the Company have outstanding Stock Incentives in excess of the Maximum Plan shares; for this purpose, the outstanding Stock Incentives and shares of Stock issued in respect of Stock Incentives shall be computed in accordance wit Rule 16b-3(a)(1) as promulgated under the Exchange Act. To the extent permitted by Rule 16b-3(a)(1) as promulgated under the Exchange Act, the shares of Stock attributable to the nonvested, unpaid, unexercised, unconverted or otherwise unsettled portion of any Stock Incentive that is forfeited or cancelled or expires or terminates for any reason without becoming vested, paid, exercised, converted or otherwise settled in full shall again be available for purposes of the Plan. 2.3 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee. The Committee shall have full authority in its discretion to determine the officers and key employees of the Company or its affiliates to whom Stock Incentives shall be granted and the terms and provisions of Stock Incentives subject to the Plan; provided, however, that any award of a Stock Incentive to any employee who is also a member of the Board of Directors shall be approved by the majority of the "disinterested persons", as defined in Rule 16b-3 as promulgated under the Exchange Act, then serving as members of the Board of Directors, upon the recommendation of the Committee. Subject to the provisions of the Plan, the Committee shall have full and conclusive authority to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the respective Stock Incentive Agreements and to make all other determinations necessary or advisable for the proper administration of the Plan. The Committee's determinations under the Plan need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, awards under the Plan (whether or not such persons are similarly situated). The Committee's decisions shall be final and binding on all Participants. 2.4 ELIGIBILITY AND LIMITS. Stock Incentives may be granted only to officers and key employees of the Company, or any affiliate of the Company; provided, however, that directors who serve on the Committee shall not be eligible to receive awards that are subject to Section 16 of the Exchange Act while they are members of the Committee and that an incentive stock option may only be granted to an employee of the Company or any Subsidiary. In the case of incentive stock options, the aggregate Fair Market Value (determined as at the date an incentive stock option is granted) of stock with respect to which stock options intended to meet the requirements of Code Section 422 become exercisable for the first time by an individual during any calendar year under all plans of the Company and its Subsidiaries shall not exceed $100,000; provided further, that if the limitation is exceeded, the incentive stock option(s) which cause the limitation to be exceeded shall be treated as non-qualified stock option(s). 23 SECTION 3 TERMS OF STOCK INCENTIVES 3.1 TERMS AND CONDITIONS OF ALL STOCK INCENTIVES. (a) The number of shares of Stock as to which a Stock Incentive shall be granted shall be determined by the Committee in its sole discretion, subject to the provisions of Section 2.2 as to the total number of shares available for grants under the Plan. (b) Each Stock Incentive shall either be evidenced by a Stock Incentive Agreement in such form and containing such terms, conditions and restrictions as the Committee may determine to be appropriate, or be made subject to the terms of a Stock Incentive Program, containing such terms, conditions and restrictions as the Committee may determine to be appropriate. Each Stock Incentive Agreement or Stock Incentive Program shall be subject to the terms of the Plan and any provisions contained in the Stock Incentive Agreement or Stock Incentive Program that are inconsistent with the Plan shall be null and void. (c) The date a Stock Incentive is granted shall be date on which the Committee has approved the terms and conditions of the Stock Incentive and has determined the recipient of the Stock Incentive and the number of shares covered by the Stock Incentive. (d) Each Stock Incentive Agreement or Stock Incentive Program shall provide that, in the event of a Change in Control, the Stock Incentive shall be cashed out on the basis of any price not greater than the highest price paid for a share of Stock in any transaction reported by the National Association of Securities Dealers Automated Quotation System or any national securities exchange selected by the Committee on which the shares of Stock are then actively traded during a specified period immediately preceding or ending on the date of the Change in Control or offered for a share of Stock in any tender offer occurring during a specified period immediately preceding or ending on the date the tender offer commenced; provided that, in no case shall any such specified period exceed one (1) year (the "Change in Control Price"). For purposes of this Subsection the cash-out of a Stock Incentive shall be determined as follows: (i) Options shall be cashed out on the basis of the excess, if any, of the Change in Control Price (but not more than the Fair Market Value of the Stock on the date of the cash-out in the case of Incentive Stock Options) over the Exercise Price with or without regard to whether the Option may otherwise be exercisable only in part; and (ii) Stock Awards shall be cashed out in an amount equal to the Change in Control Price with or without regard to any conditions or restrictions otherwise applicable to any such Stock Incentive. 24 (e) Any Stock Incentive may be granted in connection with all or any portion of a previously or contemporaneously granted Stock Incentive. Exercise or vesting of a Stock Incentive granted in connection with another Stock Incentive may result in a pro rata surrender or cancellation of any related Stock Incentive, as specified in the applicable Stock Incentive Agreement or Stock Incentive Program. (f) Stock Incentives shall not be transferable or assignable except by will or by the laws of descent and distribution and shall be exercisable, during the Participant's lifetime, only by the Participant, or in the event of the Disability of the Participant, by the legal representative of the Participant. 3.2 TERMS AND CONDITIONS OF OPTIONS. Each Option granted under the Plan shall be evidenced by a Stock Incentive Agreement. At the time any Option is granted, the Committee shall determine whether the Option is to be an incentive stock option described in Code Section 422 or a non-qualified stock option, and the Option shall be clearly identified as to its status as an incentive stock option or a non-qualified stock option. An incentive stock option may only be granted within ten (10) years from the earlier of the date the Plan is adopted or approved by the Company's stockholders. (a) OPTION PRICE. Subject to adjustment in accordance with Section 5.2 and the other provisions of this Section 3.2, the exercise price (the "Exercise Price") per share of Stock purchasable under any Option shall be as set forth in the applicable Stock Incentive Agreement, but in no event shall it be less than the Fair Market Value on the date the Option is granted. With respect to each grant of an incentive stock option to a Participant who is an Over 10% Owner, the Exercise Price shall not be less than 110% of the Fair Market Value on the date the Option is granted. The Exercise Price of an Option may not be amended or modified after the grant of the Option, and an Option may not be surrendered in consideration of or exchanged for a grant of a new Option having an Exercise Price below that of an Option which was surrendered or exchanged. (b) OPTION TERM. Any incentive stock option granted to a Participant who is not an Over 10% Owner shall not be exercisable after the expiration of ten (10) years after the date the Option is granted. Any incentive stock option granted to an Over 10% Owner shall not be exercisable after the expiration of five (5) years after the date the Option is granted. The term of any non-qualified stock option plan shall be as specified in the applicable Stock Incentive Agreement. (c) PAYMENT. Payment for all shares of Stock purchased pursuant to exercise of an Option shall be made in any form or manner authorized by the Committee in the Stock Incentive Agreement or by amendment thereto, including, but not limited to, cash or, if the Stock Incentive Agreement provides, (i) by delivery to the Company of a number of shares of Stock which have been owned by the holder for at least six (6) months prior to the date of exercising having an aggregate Fair Market Value of not less than the product of the Exercise Price 25 multiplied by the number of shares the Participant intends to purchase upon exercise of the Option on the date of delivery; (ii) in a cashless exercise through a broker; or (iii) by having a number of shares of Stock withheld, the Fair Market Value of which as of the date of exercise is sufficient to satisfy the Exercise Price. In its discretion, the Committee also may authorize (at the time an Option is granted or thereafter) Company financing to assist the Participant as to payment of the Exercise Price on such terms as may be offered by the Committee in its discretion. Any such financing shall require the payment by the Participant of interest on the amount financed at a rate not less than the "applicable federal rate" under the Code. Payment shall be made at the time that the Option or any part thereof is exercised, and no shares shall be issued or delivered upon exercise of an Option until full payment has been made by the Participant. The holder of an Option as such shall have none of the rights of a stockholder. (d) CONDITIONS TO THE EXERCISE OF AN OPTION. Each Option granted under the Plan shall be exercisable by whom, at such time or times, or upon the occurrence of such event or events, and in such amounts, as the Committee shall specify in the Stock Incentive Agreement; provided, however, that subsequent to the grant of an Option, the Committee, at any time before complete termination of such Option, may accelerate the time or times at which such Option may be exercised in whole or in part, including, without limitation, upon a Change in Control and may permit the Participant or any other designated person to exercise the Option, or any portion thereof, for all or part of the remaining Option term, notwithstanding any provision of the Stock Incentive Agreement to the contrary. (e) TERMINATION OF INCENTIVE STOCK OPTION. With respect to an incentive stock option, in the event of termination of employment of a Participant, the Option or portion thereof held by the Participant which is unexercised shall expire, terminate, and become unexercisable no later than the expiration of three (3) months after the date of termination of employment; provided, however, that in the case of a holder whose termination of employment is due to death or Disability, one (1) year shall be substituted for such three (3) month period. For purposes of this Subsection (e), termination of employment of the Participant shall not be deemed to have occurred if the Participant is employed by another corporation (or a parent or subsidiary corporation of such other corporation) which has assumed the incentive stock option of the Participant in a transaction to which Code Section 424(a) is applicable. (f) SPECIAL PROVISIONS FOR CERTAIN SUBSTITUTE OPTIONS. Notwithstanding anything to the contrary in this Section 3.2, any Option issued in substitution for an option previously issued by another entity, which substitution occurs in connection with a transaction to which Code Section 424(a) is applicable, may provide for an exercise price computed in accordance with such Code Section and the regulations thereunder and may contain such other terms and conditions as the Committee may prescribe to cause such substitute Option to contain as nearly as possible the same terms and conditions (including the applicable vesting 26 and termination provisions) as those contained in the previously issued option being replaced thereby. 3.3 TERMS AND CONDITIONS OF STOCK AWARDS. The number of shares of Stock subject to a Stock Award and restrictions or conditions on such shares, if any, shall be as the Committee determines, and the certificate for such shares shall bear evidence of any restrictions or conditions. Subsequent to the date of the grant of the Stock Award, the Committee shall have the power to permit, in its discretion, an acceleration of the expiration of an applicable restriction period with respect to any part or all of the shares awarded to a Participant. The Committee may require a cash payment from the Participant in an amount no greater than the aggregate Fair Market Value of the shares of Stock awarded determined at the date of grant in exchange for the grant of a Stock Award or may grant a Stock Award without the requirement of a cash payment. In the event that shares of Stock subject to Stock Awards are forfeited by a Participant, such shares of Stock may again be subject to a new Stock Award under the Plan. 3.4 TREATMENT OF AWARDS UPON TERMINATION OF EMPLOYMENT. Except as otherwise provided by Plan Section 3.2(e), any award under this Plan to a Participant who has terminated employment may be cancelled, accelerated, paid or continued, as provided in the applicable Stock Incentive Agreement or Stock Incentive Program, or, in the absence of such provision, as the Committee may determine. The portion of any award exercisable in the event of continuation or the amount of any payment due under a continued award may be adjusted by the Committee to reflect the Participant's period of service from the date of grant through the date of the Participant's termination of employment or such other factors as the Committee determines are relevant to its decision to continue the award. SECTION 4 RESTRICTIONS ON STOCK 4.1 ESCROW OF SHARES. Any certificates representing the shares of Stock issued under the Plan shall be issued in the Participant's name, but, if the applicable Stock Incentive Agreement or Stock Incentive Program so provides, the shares of Stock shall be held by a custodian designated by the Committee (the "Custodian"). Each applicable Stock Incentive Agreement or Stock Incentive Program providing for transfer of shares of Stock to the Custodian shall appoint the Custodian as the attorney-in-fact for the Participant for the term specified in the applicable Stock Incentive Agreement or Stock Incentive Program, with full power and authority in the Participant's name, place and stead to transfer, assign and convey to the Company any shares of Stock held by the Custodian for such Participant, if the Participant forfeits the shares under the terms of the applicable Stock Incentive Agreement or Stock Incentive Program. During the period that the Custodian holds the shares subject to this Section, the Participant shall be entitled to all rights, except as provided in the applicable Stock Incentive Agreement or Stock Incentive Program, applicable to shares of Stock not so held. Any dividends 27 declared on shares of Stock held by the Custodian shall, as the Committee may provide in the applicable Stock Incentive Agreement or Stock Incentive Program, be paid directly to the Participant or, in the alternative, be retained by the Custodian or by the Company until the expiration of the term specified in the applicable Stock Incentive Agreement or Stock Incentive Program and shall then be delivered, together with any proceeds, with the shares of Stock to the Participant or to the Company, as applicable. 4.2 RESTRICTIONS ON TRANSFER. The Participant shall not have the right to make or permit to exist any disposition of the shares of Stock issued pursuant to the Plan except as provided in the Plan or the applicable Stock Incentive Agreement or Stock Incentive Program. Any disposition of the shares of Stock issued under the Plan by the Participant not made in accordance with the Plan or the applicable Stock Incentive Agreement or Stock Incentive Program shall be void. The Company shall not recognize, or have the duty to recognize, any disposition not made in accordance with the Plan and the applicable Stock Incentive Agreement or Stock Incentive Program, and the shares so transferred shall continue to be bound by the Plan and the applicable Stock Incentive Agreement or Stock Incentive Program. SECTION 5 GENERAL PROVISIONS 5.1 WITHHOLDING. The Company shall deduct from all cash distributions under the Plan any taxes required to be withheld by federal, state or local government. Whenever the Company proposes or is required to issue or transfer shares of Stock under the Plan or upon the vesting of any Stock Award, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such shares or the vesting of such Stock Award. A Participant may pay the withholding tax in cash, or, if the applicable Stock Incentive Agreement or Stock Incentive Program provides, a Participant may elect to have the number of shares of Stock he is to receive reduced by, or with respect to a Stock Award, tender back to the Company, the smallest number of whole shares of Stock which, when multiplied by the Fair Market Value of the shares of Stock determined as of the Tax Date (defined below), is sufficient to satisfy federal, state and local, if any, withholding taxes arising from exercise or payment of a Stock Incentive (a "Withholding Election"). A Participant may make a Withholding Election only if both of the following conditions are met: (a) The Withholding Election must be made on or prior to the date on which the amount of tax required to be withheld is determined (the "Tax Date") by executing and delivering to the Company a properly completed notice of Withholding Election as prescribed by the Committee; and 28 (b) Any Withholding Election made will be irrevocable except on six months advance written notice delivered to the Company; however, the Committee may in its sole discretion disapprove and give no effect to the Withholding Election. 5.2 CHANGES IN CAPITALIZATION; MERGER; LIQUIDATION. (a) The number of shares of Stock reserved for the grant of Options and Stock Awards; the number of shares of Stock reserved for issuance upon the exercise or payment, as applicable, of each outstanding Option, and upon vesting or grant, as applicable, of each Stock Award; the Exercise Price of each outstanding Option shall be proportionately adjusted for any increase or decrease in the number of issued shares of Stock resulting from a subdivision or combination of shares or the payment of a stock dividend in shares of Stock to holders of outstanding shares of Stock or any other increase or decrease in the number of shares of Stock outstanding effected without receipt of consideration by the Company. (b) In the event of a merger, consolidation or other reorganization of the Company or tender offer for shares of Stock, the Committee may make such adjustments with respect to awards and take such other action as it deems necessary or appropriate to reflect such merger, consolidation, reorganization or tender offer, including, without limitation, the substitution of new awards, or the adjustment of outstanding awards, the acceleration of awards or the removal of restrictions on outstanding awards. Any adjustment pursuant to this Section 5.2 may provide, in the Committee's discretion, for the elimination without payment therefor of any fractional shares that might otherwise become subject to any Stock Incentive, but shall not otherwise diminish the then value of the Stock Incentive. (c) The existence of the Plan and the Stock Incentives granted pursuant to the Plan shall not affect in any way the right or power of the Company to make or authorize any adjustment, reclassification, reorganization or other change in its capital or business structure, any merger or consolidation of the Company, any issue of debt or equity securities having preference or priorities as to the Stock or the rights thereof, the dissolution or liquidation of the Company, any sale or transfer of all or any part of its business or assets, or any other corporate act or proceeding. 5.3 CASH AWARDS. The Committee may, at any time and in its discretion, grant to any holder of a Stock Incentive the right to receive, at such times and in such amounts as determined by the Committee in its discretion, a cash amount which is intended to reimburse such person for all or a portion of the federal, state and local income taxes imposed upon such person as a consequence of the receipt of the Stock Incentive or the exercise of rights thereunder. 5.4 COMPLIANCE WITH CODE. All incentive stock options to be granted hereunder are intended to comply with Code Section 422, and all provisions of the 29 Plan and all incentive stock options granted hereunder shall be construed in such manner as to effectuate that intent. 5.5 RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in any Stock Incentive shall confer upon any Participant the right to continue as an employee or officer of the Company or any of its affiliates or affect the right of the Company or any of its affiliates to terminate the Participant's employment at any time. 5.6 NON-ALIENATION OF BENEFITS. Other than as specifically provided with regard to the death of a Participant, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Participant. 5.7 LISTING AND LEGAL COMPLIANCE. The Committee may suspend the exercise or payment of any Stock Incentive so long as it determines that securities exchange listing or registration or qualification under any securities laws is required in connection therewith and has not been completed on terms acceptable to the Committee. 5.8 TERMINATION AND AMENDMENT OF THE PLAN. The Board of Directors at any time may amend or terminate the Plan without stockholder approval; provided, however, that the Board of Directors may condition any amendment on the approval of stockholders of the Company if such approval is necessary or advisable with respect to tax, securities or other applicable laws. No such termination or amendment without the consent of the holder of a Stock Incentive shall adversely affect the rights of the Participant under such Stock Incentive. 5.9 STOCKHOLDER APPROVAL. The Plan shall be submitted to the stockholders of the Company for their approval within twelve (12) months before or after the adoption of the Plan by the Board of Directors of the Company. If such approval is not obtained, any Stock Incentive granted hereunder shall be void. 5.10 CHOICE OF LAW. The laws of the State of Delaware shall govern the Plan, to the extent not preempted by federal law. 5.11 EFFECTIVE DATE OF PLAN. The Plan shall become effective upon the date the Plan is approved by the stockholders of the Company and shall terminate on August 9, 2009. 30 EX-10.10 6 file005.txt REVOLVING CREDIT NOTE AND AGREEMENT EXHIBIT 10.10 SIXTH AMENDMENT TO LOAN AGREEMENT THIS SIXTH AMENDMENT ("Amendment") made this 18th day of June, 2002 between MEDICAL ACTION INDUSTRIES INC., a Delaware corporation, having its principal place of business at 800 Prime Place, Hauppauge, New York 11788 (the "Borrower") and CITIBANK, N.A., having an office at 730 Veterans Memorial Highway, Hauppauge, New York 11788 (the "Bank"). W I T N E S S E T H : WHEREAS, the Borrower and the Bank entered into a Loan Agreement dated as of the 18th day of March, 1999, which Loan Agreement has heretofore been amended pursuant to that certain First Amendment dated as of September 1, 1999, that certain Second Amendment dated as of June 28, 2000, that certain Third Amendment dated as of October 10, 2000, that certain Fourth Amendment dated as of November 10, 2000 and that certain Fifth Amendment dated as of November 28, 2001 (as so amended, the "Agreement"); and WHEREAS, the Bank has made loans to the Borrower as evidenced by certain notes of the Borrower and specifying interest to be paid thereon; and WHEREAS, the Borrower has requested that the Bank: (i) increase the Commitment for Revolving Credit Loans to Thirteen Million ($13,000,000.00) Dollars; (ii) amend the Borrowing Base; and (iii) amend certain financial covenants contained in the Agreement. NOW, THEREFORE, in consideration of Ten ($10.00) Dollars and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Guarantors and the Bank do hereby agree as follows: 1. Defined Terms. As used in this Amendment, capitalized terms, unless otherwise defined, shall have the meanings set forth in the Agreement. 2. Representations and Warranties. As an inducement for the Bank to enter into this Amendment, the Borrower and each Guarantor represents and warrants as follows: A. That with respect to the Agreement and the Loan Documents executed in connection therewith and herewith: 31 (i) There are no defenses or offsets to the Borrower's or any Guarantor's obligations under the Agreement as amended hereby, the Note or any of the Loan Documents or any other agreements in favor of the Bank referred to in the Agreement, and if any such defenses or offsets exist without the knowledge of the Borrower or any Guarantor, the same are hereby waived. (ii) All of the representations and warranties made by the Borrower and any Guarantor in the Agreement as amended hereby are true and correct in all material respects as if made on the date hereof, except for those made with respect to a particular date, which such representations and warranties are restated as of such date; and provided further that the representations and warranties set forth in Section 4.01(f) of the Agreement shall relate to the financial statements of the Borrower for the fiscal year ended March 31, 2002. 4. New and Amended Definitions. (a) The following definition is hereby added to the Agreement: "AMENDED AND RESTATED REVOLVING CREDIT NOTE" means a promissory note of the Borrower payable to the order of the Bank, in substantially the form of Exhibit A annexed to the Sixth Amendment to this Agreement, evidencing the aggregate indebtedness of the Borrower to the Bank resulting from Revolving Credit Loans made by the Bank to the Borrower pursuant to this Agreement. (b) The following definitions contained in the Agreement are hereby amended to read as follows: "BORROWING BASE" means the sum of eighty (80%) of the Borrower's Eligible Accounts Receivable, plus (ii) the lesser of (x) fifty five (55%) percent of the Borrower's Eligible Inventory or (y) $8,000,000.00. "NOTE" OR "NOTES" means the Term Loan Note, the Amended and Restated Revolving Credit Note, the Term Loan II Note or any or all of the same as the context may require. "REVOLVING CREDIT MATURITY DATE" means March 31, 2004. 5. Amendments. (a) Section 2.08 of the Agreement is hereby amended to read as follows: 32 "SECTION 2.08. THE REVOLVING CREDIT LOANS. The Bank agrees, on the date of this Agreement, on the terms and conditions of this Agreement and in reliance upon the representations and warranties set forth in this Agreement, to lend to the Borrower prior to the Revolving Credit Maturity Date such amounts as the Borrower may request from time to time (individually, a "Revolving Credit Loan" or collectively, the "Revolving Credit Loans"), which amounts may be borrowed, repaid and reborrowed; provided, however, that the aggregate amount of such Revolving Credit Loans plus L/C Exposure plus B/A Exposure outstanding at any one time shall not exceed the lesser of (i) Thirteen Million ($13,000,000.00) Dollars (the "Commitment"), or (ii) the Adjusted Borrowing Base, or such lesser amount of the Commitment as may be reduced pursuant to Section 2.14 hereof. Each Revolving Credit Loan shall be a Prime Rate Loan or a Eurodollar Loan (or a combination thereof) as the Borrower may request subject to and in accordance with Section 2.09. The Bank may at its option make any Eurodollar Loan by causing a foreign branch or affiliate to make such Loan, provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of the Revolving Credit Note. Subject to the other provisions of this Agreement, Revolving Credit Loans of more than one type may be outstanding at the same time." (b) Section 2.10 of the Agreement is hereby amended to read as follows: "SECTION 2.10. AMENDED AND RESTATED REVOLVING CREDIT NOTE. Each Revolving Credit Loan shall be (i) in the case of each Prime Rate Loan, in the minimum principal amount of $100,000.00, and in minimum increased multiples of $50,000.00, and (ii) in the case of each Eurodollar Loan, in the minimum principal amount of $1,000,000.00 and in minimum increased multiples of $100,000.00 (except that, if any such Prime Rate Loan so requested shall exhaust the remaining available Commitment, such Prime Rate Loan may be in an amount equal to the amount of the remaining available Commitment). Each Revolving Credit Loan shall be evidenced by the Amended and Restated Revolving Credit Note of the Borrower. The Amended and Restated Revolving Credit Note shall be dated the date of the Sixth Amendment to this Agreement and be in the principal amount of Thirteen Million ($13,000,000.00) Dollars, and shall mature on the Revolving Credit Maturity Date, at which time the entire outstanding principal balance and all interest thereon shall be due and payable. The Amended and Restated 33 Revolving Credit Note shall be entitled to the benefits and subject to the provisions of this Agreement. At the time of the making of each Revolving Credit Loan and at the time of each payment of principal thereon, the holder of the Amended and Restated Revolving Credit Note is hereby authorized by the Borrower to make a notation on the schedule annexed to the Amended and Restated Revolving Credit Note of the date and amount, and the type and Interest Period of the Revolving Credit Loan or payment, as the case may be. Failure to make a notation with respect to any Revolving Credit Loan shall not limit or otherwise affect the obligation of the Borrower hereunder or under the Amended and Restated Revolving Credit Note with respect to such Revolving Credit Loan, and any payment of principal on the Amended and Restated Revolving Credit Note by the Borrower shall not be affected by the failure to make a notation thereof on said schedule." (c) Section 2.11 of the Agreement is hereby amended to read as follows: "SECTION 2.11. PAYMENT OF INTEREST ON THE AMENDED AND RESTATED REVOLVING CREDIT NOTE. (a) In the case of a Prime Rate Loan, interest shall be payable at a rate per annum equal to the Prime Rate. Such interest shall be payable on each Interest Payment Date, commencing with the first Interest Payment Date after the date of such Prime Rate Loan and on the Revolving Credit Maturity Date. Any change in the rate of interest on the Amended and Restated Revolving Credit Note due to a change in the Prime Rate shall take effect as of the date of such change in the Prime Rate. (b) In the case of a Eurodollar Loan, interest shall be payable at a rate per annum equal to the Reserve Adjusted LIBOR Rate plus the LIBOR Applicable Margin. Such interest shall be payable on each Interest Payment Date, commencing with the first Interest Payment Date after the date of such Eurodollar Loan and on the Revolving Credit Maturity Date. In the event Eurodollar Loans are available, the Bank shall determine the rate of interest applicable to each requested Eurodollar Loan for each Interest Period at 11:00 a.m., New York City time, or as soon as practicable thereafter, two (2) Business Days prior to the commencement of such Interest Period and shall use its best efforts to notify the Borrower of the rate of interest so determined. Such determination shall be conclusive absent manifest error." 34 (d) The first sentence of Section 5.01 of the Agreement is hereby amended to read as follows: "SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any amount shall remain outstanding under the Term Loan II Note, the Revolving Credit Note or the Amended and Restated Revolving Credit Note, or so long as the Commitment shall remain in effect, the Borrower will, unless the Bank shall otherwise consent in writing:" (e) The first sentence of Section 5.02 of the Agreement is hereby amended to read as follows: "SECTION 5.02. NEGATIVE COVENANTS. So long as any amount shall remain outstanding under the Term Loan II Note, the Revolving Credit Note or the Amended and Restated Revolving Credit Note, or so long as the Commitment shall remain in effect, the Borrower will not, without the written consent of the Bank:" (f) Section 5.02(d) of the Agreement is hereby amended to read as follows: "(d) Merger. Merge into, or consolidate with or into, or have merged into it, any Person; and, for the purpose of this subsection (d), the acquisition or sale by the Borrower by lease, purchase or otherwise, of all, or substantially all, of the common stock or the assets of any Person or of it shall be deemed a merger of such Person with the Borrower other than in connection with Permitted Acquisitions, provided that the total aggregate consideration (whether cash, stock or assumed liabilities) for all Permitted Acquisitions (not including the acquisition of the medical products division of Acme United Corp., certain assets of Medi-Flex Products, Inc. or the acquisition of MD Industries) shall not exceed $2,000,000.00 in any fiscal year or $5,000,000.00 in the aggregate during the term of this Agreement." (g) The first sentence of Section 5.03 of the Agreement is hereby amended to read as follows: "SECTION 5.03. FINANCIAL REQUIREMENTS. So long as any amount shall remain outstanding under the Revolving Credit Note, the Amended and Restated Revolving Credit Note or the Term Loan II Note or so long as the Commitment shall remain in effect:" (h) Section 5.03(a) of the Agreement is hereby amended to read as follows: 35 "(a) Minimum Capital Base. The Borrower will maintain at all times, to be tested as of each fiscal quarter end, a minimum Capital Base of not less than the following: Period Minimum Capital Base ------ -------------------- 3/31/01 to 3/30/03 $ 7,000,000.00 3/31/03 to 3/30/04 $12,000,000.00 3/31/04 and thereafter $17,000,000.00" (i) Section 5.03(b) of the Agreement is hereby amended to read as follows: "(b) Maximum Cash Flow Leverage Ratio. The Borrower will maintain at all times a maximum Cash Flow Leverage Ratio of not less than the following, to be tested quarterly (i) on an annualized basis during the period ending December 31, 2002, and (ii) on a rolling four quarter basis for each fiscal year thereafter: Maximum Cash Flow Period Leverage Ratio ------ -------------- 3/31/01 to 3/30/03 3.50 to 1.0 3/31/03 to 3/30/04 2.00 to 1.0 3/31/04 and thereafter 1.50 to 1.0" (j) Section 6.01(a) of the Agreement is hereby amended to read as follows: "(a) The Borrower shall fail to pay any installment of principal of, or interest on, the Term Loan Note, the Term Loan II Note, the Revolving Credit Note or the Amended and Restated Revolving Credit Note when due or any fees or other amounts owed in connection with this Agreement; or" (k) Section 6.01(d) of the Agreement is hereby amended to read as follows: "(d) The Borrower or any Subsidiary of the Borrower shall fail to pay any Debt (excluding Debt evidenced by the Term Loan Note, the Term Loan II Note, the Revolving Credit Note and the Amended and Restated Revolving Credit Note) of the Borrower or any such Subsidiary (as the case may be), or any interest or premium thereon, when due (whether by scheduled maturity, required 36 prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other default under any agreement or instrument relating to any such Debt, or any other event shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or" (l) Section 6.02 of the Agreement is hereby amended to read as follows: "SECTION 6.02. REMEDIES ON DEFAULT. Upon the occurrence and continuance of an Event of Default the Bank may by notice to the Borrower, (i) terminate the Commitment, (ii) declare the Term Loan Note, the Term Loan II Note, the Revolving Credit Note, the Amended and Restated Revolving Credit Note, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Commitment shall be terminated, the Term Loan Note, the Term Loan II Note, the Revolving Credit Note, the Amended and Restated Revolving Credit Note, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, and (ii) proceed to enforce its rights whether by suit in equity or by action at law, whether for specific performance of any covenant or agreement contained in this Agreement or any Loan Document, or in aid of the exercise of any power granted in either this Agreement or any Loan Document or proceed to obtain judgment or any other relief whatsoever appropriate to the enforcement of its rights, or proceed to enforce any other legal or equitable right which the Bank may have by reason of the occurrence of any Event of Default hereunder or under any Loan Document, provided, however, upon the occurrence of an Event of Default referred to in Section 6.01(e), the Commitment shall be immediately terminated, the Term Loan Note, the Term Loan II Note, the Revolving Credit Note, the Amended and Restated Revolving Credit Note, all interest thereon and all other amounts payable under this Agreement shall be immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower. Any amounts collected pursuant to action taken under this Section 6.02 shall be applied to the payment of, first, any costs incurred by 37 the Bank in taking such action, including but without limitation attorneys fees and expenses, second, to payment of the accrued interest on the Term Loan Note, the Term Loan II Note, the Revolving Credit Note and the Amended and Restated Revolving Credit Note,, and third, to payment of the unpaid principal of the Term Loan Note, the Term Loan II Note, the Revolving Credit Note and the Amended and Restated Revolving Credit Note,." (m) Section 7.04 of the Agreement is hereby amended to read as follows: "SECTION 7.04. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all costs and expenses of the Bank in connection with the preparation, execution, delivery and administration of this Agreement, the Term Loan II Note, the Revolving Credit Note, the Amended and Restated Revolving Credit Note and any other Loan Documents, including, without limitation, the fees and expenses of counsel for the Bank with respect thereto and with respect to advising the Bank as to its rights and responsibilities under this Agreement, and all costs and expenses, if any (including counsel fees and expenses), in connection with the enforcement of this Agreement, the Term Loan II Note, the Revolving Credit Note, the Amended and Restated Revolving Credit Note and any other Loan Documents. The Borrower shall at all times protect, indemnify, defend and save harmless the Bank from and against any and all claims, actions, suits and other legal proceedings, and liabilities, obligations, losses, damages, penalties, judgments, costs, expenses or disbursements which the Bank may, at any time, sustain or incur by reason of or in consequence of or arising out of the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. The Borrower acknowledges that it is the intention of the parties hereto that this Agreement shall be construed and applied to protect and indemnify the Bank against any and all risks involved in the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, all of which risks are hereby assumed by the Borrower, including, without limitation, any and all risks of the acts or omissions, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority, provided that the Borrower shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Bank's gross negligence or willful misconduct. The provisions of this Section 7.04 shall survive the payment of the Notes and the termination of this Agreement." 38 (n) Section 7.05 of the Agreement is hereby amended to read as follows: "SECTION 7.05. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, the Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank, or any affiliate of the Bank, to or for the credit or the account of the Borrower or any Guarantor against any and all of the obligations of the Borrower or any Guarantor now or hereafter existing under this Agreement, the Term Loan Note, the Term Loan II Note, the Revolving Credit Note and the Amended and Restated Revolving Credit Note, irrespective of whether or not the Bank shall have made any demand under this Agreement, the Term Loan Note, the Term Loan II Note, the Revolving Credit Note or the Amended and Restated Revolving Credit Note and although such obligations may be unmatured. The rights of the Bank under this Section are in addition to all other rights and remedies (including, without limitation, other rights of set-off) which the Bank may have." (o) Section 7.10 of the Agreement is hereby amended to read as follows: "SECTION 7.10. GOVERNING LAW. This Agreement, the Term Loan Note, the Term Loan II Note, the Revolving Credit Note, the Amended and Restated Revolving Credit Note and all other Loan Documents shall be governed by, and construed in accordance with, the laws of the State of New York." 7. Conditions Precedent to the Effectiveness of this Amendment. The obligation of the Bank hereunder is subject to the condition precedent that the Bank shall have received from the Borrower the following, in form and substance satisfactory to the Bank and its counsel: (a) The Amended and Restated Revolving Credit Note duly executed and payable to the order of the Bank. (b) Certified (as of the date of the Sixth Amendment to this Agreement) copies of the resolutions of the Board of Directors of the Borrower authorizing Amended and Restated Revolving Credit Note and authorizing and approving the Sixth Amendment to this Agreement and the other Loan Documents and the execution, delivery and performance thereof and certified copies of all 39 documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Sixth Amendment to this Agreement and the other Loan Documents. (c) A certificate of the Secretary or an Assistant Secretary (attested to by another officer) of the Borrower certifying: (i) the names and true signatures of the officer or officers of the Borrower authorized to sign the Sixth Amendment to this Agreement, the Amended and Restated Revolving Credit Note and the other Loan Documents to be delivered hereunder on behalf of the Borrower; and (ii) a copy of the Borrower's by-laws as complete and correct on the date of the Sixth Amendment to this Agreement. (d) Copies of the certificate of incorporation and all amendments thereto of the Borrower, certified by the Secretary of State (or equivalent officer) of the state of incorporation of the Borrower and a certificate of existence and good standing with respect to the Borrower from the Secretary of State (or equivalent officer) of the state of incorporation of the Borrower and from the Secretary of State (or equivalent officer) of any state in which the Borrower is authorized to do business. (e) An opinion of Richard G. Satin, Esq., counsel for the Borrower as to certain matters referred to in Article IV of the Agreement and as to such other matters as the Bank or its counsel may reasonably request. (f) A Commitment Fee equal to $9,500.00. (g) All schedules, documents, certificates and other information provided to the Bank pursuant to or in connection with the Sixth Amendment to this Agreement shall be satisfactory to the Bank in all respects. (i) The following statements shall be true and the Bank shall have received a certificate signed by the President or principal accounting officer of the Borrower dated the date of the Sixth Amendment to this Agreement, stating that: (i) The representations and warranties contained in Article IV of the Agreement and in the Loan Documents are true and correct on and as of such date; and (ii) No Default or Event of Default has occurred and is continuing, or would result from the increase in the Commitment contemplated hereby. 40 (h) All legal matters incident to the Sixth Amendment to this Agreement and the Loan transactions contemplated hereby shall be satisfactory to Cullen and Dykman, LLP, counsel to the Bank. (i) The Bank shall have received evidence that the Borrower has closed the acquisition of MD Industries, Inc. (j) Receipt by the Bank of such other approvals, opinions or documents as the Bank or its counsel may reasonably request. (k) The Borrower shall have paid the reasonable fees and disbursements of the Bank's counsel, Cullen and Dykman, LLP in connection with this Sixth Amendment to the Agreement." 8. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. 9. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 10. Ratification. Except as hereby amended, the Agreement and all other Loan Documents executed in connection therewith shall remain in full force and effect in accordance with their originally stated terms and conditions. The Agreement and all other Loan Documents executed in connection therewith, as amended hereby, are in all respects ratified and confirmed. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the year and date first above written. MEDICAL ACTION INDUSTRIES INC. CITIBANK, N.A. By:/s/ Paul D. Meringolo By:/s/ Richard Romano ---------------------------------- ----------------------- President Group Vice President 41 EX-23 7 file006.txt CONSENT OF GRANT THORNTON LLP EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference in this Annual Report on Form 10-K for the year ended March 31, 2002 of our report dated May 20, 2002, included in the 2002 Annual Report to Stockholders of Medical Action Industries Inc. We also consent to the incorporation by reference in the Registration Statement (Form S-8 Nos. 33-66038, 333-14993, 333-65585 and 333-83926) pertaining to the 1989 Non-Qualified Stock Option Plan and the 1994 Stock Incentive Plan of Medical Action Industries Inc., and the Registration Statement (Form S-8 No. 33-35015) pertaining to the 1996 Non-Employee Director Stock Option Plan of Medical Action Industries Inc. of our reports dated May 20, 2002, included and incorporated by reference in this Annual Report on Form 10-K of Medical Action Industries Inc. for the year ended March 31, 2002. GRANT THORNTON LLP Melville, New York June 25, 2002 42 EX-99 8 file007.txt ADDITIONAL EXHIBIT - UNDERTAKINGS EXHIBIT 99 The following undertakings are incorporated into the Company's Registration Statements on Form S-8 (Registration Nos. 33-66038, 333-14993, 333-65585, 333-83926 and 333-35015). (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement. (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any fact or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered 43 therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 44 -----END PRIVACY-ENHANCED MESSAGE-----