-----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, DdoT5+75MLTh/n512KHLo7glAmIM1isR4hCJTGlz+Sg9e63FioHPwJVtCOty7ALq R4talapZjBS/BzvvWREf3w== 0000095676-96-000006.txt : 19961030 0000095676-96-000006.hdr.sgml : 19961030 ACCESSION NUMBER: 0000095676-96-000006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19961029 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SURVIVAL TECHNOLOGY INC CENTRAL INDEX KEY: 0000095676 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 520898764 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-05958 FILM NUMBER: 96649124 BUSINESS ADDRESS: STREET 1: 2275 RESEARCH BLVD STREET 2: STE 100 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3019261800 MAIL ADDRESS: STREET 1: 2275 RESEARCH BLVD SUITE 100 CITY: ROCKVILLE STATE: MD ZIP: 20850 10-K405 1 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (MARK ONE) FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended JULY 31, 1996. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to . Commission File Number 0-5958 SURVIVAL TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) DELAWARE 52-0898764 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 2275 RESEARCH BOULEVARD, ROCKVILLE, MARYLAND 20850 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 301-926-1800 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.10 PAR VALUE - --------------------------------------------------------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of September 30, 1996, the aggregate market value of voting stock held by non-affiliates of the Registrant, based on the average of the high and low sales prices of such stock reported by the National Association of Securities Dealers, Inc. on such date, was approximately $12,093,600. There were 3,097,487 shares of the Registrant's common stock outstanding as of September 30, 1996. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Survival Technology, Inc. definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended July 31, 1996 are incorporated by reference into Part III of this Form 10-K. (End of cover page) 2 TABLE OF CONTENTS PART I PAGE ---- ITEM 1. BUSINESS General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Products and Services . . . . . . . . . . . . . . . . . . . . . 5 Automatic Injectors . . . . . . . . . . . . . . . . . . . . 6 Commercial Products . . . . . . . . . . . . . . . . . . . 6 Military Products . . . . . . . . . . . . . . . . . . . 7 Contract Filling and Packaging . . . . . . . . . . . . . . . 9 CytoGuard . . . . . . . . . . . . . . . . . . . . . . . . . 9 R&D Services. . . . . . . . . . . . . . . . . . . . . . . . 9 Competition.. . . . . . . . . . . . . . . . . . . . . . . . . 10 Backlog and Renegotiation . . . . . . . . . . . . . . . . . . .10 Patents, Trademarks, and Licenses . . . . . . . . . . . . . . 11 Research and Development. . . . . . . . . . . . . . . . . . . .11 Product Liability Insurance . . . . . . . . . . . . . . . . . .12 Government Regulation . . . . . . . . . . . . . . . . . . . . .12 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . .13 ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . .14 ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . .14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . . . .14 EXECUTIVE OFFICERS OF THE REGISTRANT (UNNUMBERED ITEM) . . . . . . . . . . . . . . . . . . . . . 15 3 TABLE OF CONTENTS PART II PAGE ---- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . .16 ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . .17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . .18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . .44 PART III ITEMS 10 THROUGH 13. (Incorporated by reference to the definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended July 31, 1996, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of that fiscal year) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . .44 SIGNATURES. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .49 4 Certain statements in this Annual Report on Form 10-K are forward-looking and are identified by the use of forward-looking words or phrases such as "will be positioned", "expects", is or are "expected", "anticipates", and "anticipated". These forward-looking statements are based on the Company's current expectations. Because forward-looking statements involve risks and uncertainties, the Company's actual results could differ materially. In addition to the factors discussed under "Business--Competition", "Business--Product Liability Insurance" and "Business--Government Regulation", among the factors that could cause results to differ materially from current expectations are: (i) the general economical and competitive conditions in markets and countries where the Company and its subsidiaries offer products and services; (ii) changes in capital availability or costs; (iii) fluctuations in demand for certain of the Company's products, including changes in government procurement policy; (iv) technological challenges associated with the development and manufacture of current and anticipated products; (v) commercial acceptance of auto-injectors and competitive pressure from traditional and new drug delivery methods; and (vi) delays, costs and uncertainties associated with government approvals required to market new drugs and medical devices. PART I ITEM 1. BUSINESS GENERAL Survival Technology, Inc. (hereinafter referred to as the "Company" or "STI") is a technology-based health care company that designs, develops and produces a broad range of automatic injectors ("auto-injectors"), prefilled syringes and other innovative health care devices, with a major focus on safe and convenient participation by the patient in injection therapy. The Company also supplies customized drug delivery system design, pharmaceutical research and development and GMP-approved sterile product manufacturing to pharmaceutical and biotechnology companies. The Company's products and services are designed to improve the medical and economic value of drug therapy. On September 11, 1996, the Company and Brunswick Biomedical Corporation ("Brunswick"), a privately-held medical device company and holder of 61% of the Company's outstanding common stock, entered into an agreement and plan of merger providing for the merger of Brunswick with and into the Company. It is anticipated that the merger will be consummated during the fall of 1996. For additional information regarding the terms of the merger, see the Company's definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended July 31, 1996. The Company pioneered the development of auto-injectors for the self-administration of injectable drugs. An auto-injector is a spring-loaded, prefilled, pen-like device that allows a patient to automatically inject a precise drug dosage quickly, safely, reliably and without seeing the needle. One early application of auto-injectors has been the immediate self-injection of nerve gas antidotes by military personnel under battlefield conditions. STI is and intends to remain a key supplier of nerve gas antidotes to the U.S. and allied military forces. Auto-injectors also can be used effectively for emergency administration of drugs or to facilitate the easy administration of injectable drugs in any setting. The Company believes that auto-injectors help to reduce the fear of injection, simplify the injection procedure, ensure complete dose delivery, increase patient compliance and allow for cost-effective home health care treatment. 5 The Company currently has three commercial applications for its auto-injectors. One is an auto-injector for the self-injection of epinephrine to treat severe allergic reactions due to bee stings, insect bites, foods and other allergies. The second is an auto-injector for the self-injection of lidocaine to treat cardiac arrhythmias. The third application is a morphine-filled auto-injector for use in home health care pain management. The Company currently is developing several new auto-injectors (See "Research and Development") including some that will accommodate additional categories of drugs, while others will make auto-injectors more convenient and less expensive. The Company, together with pharmaceutical and biotechnology companies, currently is exploring additional applications for auto-injectors. The Company also offers ready-to-use prefilled syringes and vials, including its proprietary CartrixTM syringe system. STI invented and manufactures the CytoGuard-Registered Trademark-Aerosol Protection Device, a vial attachment used to protect medical professionals from inadvertent exposure to potentially dangerous drugs during reconstitution, particularly chemotherapeutics. The following table sets forth the proportion of the Company's total revenues contributed by each of its classes of products and services for the last five fiscal years. YEAR ENDED JULY 31 ----------------------------------------- PRODUCT/SERVICE CLASS: 1996 1995 1994 1993 1992 --------------------- ---- ---- ---- ---- ---- Automatic Injectors: Commercial Products 36% 39% 33% 19% 16% Military Products 51 41 29 43 15 Contract Filling and Packaging 3 5 6 16 57 CytoGuard 3 6 12 12 9 R&D Services 7 9 12 6 1 Divested Operations (1) 8 4 2 ---- ---- ---- ---- ---- 100% 100% 100% 100% 100% ---- ---- ---- ---- ---- Total revenue in millions(2) $31.4 $25.5 $24.9 $30.1 $40.9 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- (1) The Company's Medical Device Division was sold July 31, 1994 (See Note 5 in Notes to Consolidated Financial Statements). (2) The Company has no significant foreign operations and operates in one industry segment. Reference is made to the three-year Consolidated Statements of Income and Note 13 in Notes to Consolidated Financial Statements included herein pursuant to Part II of this Form 10-K for information concerning the Company's export sales and major customers. The Company was incorporated in 1969 under the laws of Delaware. PRODUCTS AND SERVICES The Company's principal activities include: the development and production of automatic injector products including applications of injector technology for commercial use (emergency and non-emergency situations) where intramuscular or subcutaneous injection is the preferred method of drug delivery and for military use in the defense against chemical warfare; and complete sterile parenteral contract filling and packaging services for a broad range of sterile injectable dosage forms: vials, dental cartridges and pre-filled, ready-to-use syringes. The Company also supplies delivery system design and pharmaceutical research and development to major pharmaceutical and biotechnology companies. 6 The Company purchases, in the ordinary course of business, necessary raw materials and supplies essential to the Company's operations from numerous suppliers in the U.S. and overseas. During fiscal 1996, the Company experienced some temporary component supply issues which have since been resolved. The Company does not anticipate availability problems or significant supply shortages in the future. The Company procures inventory principally when supported by customer purchase orders and does not provide extended payment terms to any customer. AUTOMATIC INJECTORS STI pioneered the use of auto-injectors beginning in the late 1950's when a predecessor of the Company invented the auto-injector for military use. The Company's auto-injectors are disposable, prefilled automatic syringes with which a medically untrained person can quickly inject himself or another person with a drug. To date, auto-injectors have been used in life-threatening situations. However, the Company believes that their use can be extended from such situations to the self-administered treatment of both acute and chronic conditions in any setting. COMMERCIAL PRODUCTS. Currently, the Company's principal commercial auto-injectors are the EpiPen-Registered Trademark- and EpiE-ZPenTM auto-injectors. The EpiPen and EpiE-ZPen are prescribed to patients at risk of anaphylaxis resulting from severe allergic reactions to bee stings, insect bites, foods, drugs and other substances as well as exercise-induced anaphylaxis. These auto-injectors permit the immediate self-injection of epinephrine, the drug of choice for emergency treatment of such conditions. Each of these auto-injectors has a junior variation with a pediatric/ adolescent dosage of epinephrine. During fiscal 1996, the Company launched the EpiE-ZPen, which is the first in a series of new commercial auto-injector products now in development at STI. The EpiE-ZPen has a more streamlined design to better serve the consumer market with additional safety features and product quality enhancements. This new product features a locking twist-top safety cap and push button activation. The Company introduced this new product during the third quarter of its fiscal 1996 while continuing to sell the EpiPen. The EpiE-ZPen will be positioned to expand its use in the U.S. and international markets for food allergy indications. The Company's epinephrine product line has historically been a seasonal product (spring/summer) used predominately for the treatment of severe allergic reactions from bee stings and insect bites. The Company markets the EpiPen and EpiE-ZPen through Center Laboratories, Inc. ("Center"), a subsidiary of E. Merck. The Company's exclusive marketing contract with Center, which extends until the year 2000 so long as certain minimum quantity requirements are met, is currently being amended to extend to the year 2010. Center has a co-marketing agreement with ALK, Inc., a Danish Company, for international markets representing 13 countries abroad. During fiscal 1996, ALK launched the EpiPen within the United Kingdom. Epinephrine product line sales accounted for $11.2 million (36%), $9.8 million (38%) and $8.3 million (33%) of the Company's total revenues in fiscal 1996, 1995 and 1994, respectively. The Company is the leading manufacturer of automatic injectors used for emergency self-administration of epinephrine. These products compete with other available products for self-administration of epinephrine which are non-automatic. Since their introduction in 1980, the Company has manufactured and delivered 5.1 million EpiPens and EpiPen, Jr's. The senior version of the epinephrine product line has a 27-month expiration date while the junior version has a 20-month expiration date and should be replaced after that time. 7 The Company also produces the LidoPen-Registered Trademark- auto-injector which is the same delivery system as the EpiPen, except that it is prefilled with lidocaine hydrochloride for self- injection by persons experiencing a serious cardiac event. The LidoPen is sold primarily in connection with the sale of the CardioBeeper-Registered Trademark- ECG transmitter previously sold by the Company. These sales have not been a significant source of revenue. STI will continue to supply the LidoPen auto-injector to Brunswick Biomedical Corporation under the terms of the Asset Purchase Agreement dated July 31, 1994. See Note 5 in Notes to Consolidated Financial Statements. STI has a licensing agreement and long-term supply arrangement with Mylan Laboratories ("Mylan") for the development and production of an injectable, non-narcotic prescription drug for the management of pain. Under the terms of this agreement, STI will develop, license and produce this new product, which will be marketed by Mylan to family physicians, neurologists, pain specialists, hospitals, and health maintenance organizations. The introduction is expected in fiscal 1998 pending FDA approval. On August 30, 1996, the Company entered into a Development and License Agreement with a European based, global pharmaceutical company for the continuing development and long-term supply of their prescription drug in an STI auto-injector. This new contract is an extension of an initial development agreement which was completed in fiscal 1996. The product is currently in phase III clinical trials and will be introduced upon successful completion of clinical trials and subsequent FDA approval. The Company is currently working with other pharmaceutical companies under development contracts to identify other drugs presently in sterile injectable dosage forms suitable for administration using STI's proprietary auto-injector delivery systems. MILITARY PRODUCTS. The Company's military contracts are for two types of auto-injectors developed by the Company. One type, the AtroPen, is capable of holding up to 0.8cc of a drug. The other type, the ComboPen, is capable of holding up to 3.0cc of a drug. The Company has developed and supplied the AtroPen and ComboPen to the U.S. Army combined (by a clip-like device) in one package known as the Mark I Antidote Kit ("Mark I"). The Company's military auto-injectors are intended to be used by military personnel under combat conditions for the self-administration of antidotes against the effects of chemical warfare. The United States and several allied foreign governments maintain stockpiles based upon the shelf-life of the antidotes (generally five years). To date, all DoD procurements of AtroPens, ComboPens, and Mark I's have been restricted to sources qualified as Planned Industrial Producers for these items. The Company is currently the only DoD Planned Industrial Producer for the AtroPen, ComboPen and Mark I. Sales of military auto-injector products were $16 million in fiscal 1996, of which $14.3 million related to the industrial base maintenance contract (discussed below) with the U.S. Department of Defense ("DoD") with the balance derived from sales of auto-injectors to various allied foreign governments. This represents a 52% increase over the $10.5 million generated from sales of military auto-injectors in fiscal 1995, of which $7.4 million was derived from DoD contracts. During the first quarter of fiscal 1997, STI's industrial base maintenance contract with the DoD was extended through November 30, 1996. The Company expects the first of two one-year renewal options to be exercised by the DoD before November 30, 1996. The industrial base maintenance contract calls for the retention of key personnel and facilities to assure expertise 8 for manufacturing auto-injectors containing nerve gas antidotes, the storage of serviceable material from expired auto-injectors, the management of the U.S. Army's shelf-life extension program and new product orders. A surge capability provision allows for the coverage of defense mobilization requirements in the event of rapid military deployment. In addition, the contract has been expanded during fiscal 1996 to include the pre-stocking of critical components at STI's St. Louis manufacturing facility to enhance readiness and mobilization capability. This contract is part of program by the DoD to assure adequate supplies of critical items in the event of war. Revenue from the base maintenance contract was $14.3 million, $7.4 million and $5.7 million in fiscal 1996, 1995 and 1994, respectively. Fiscal 1997 revenue from this contract, including production of automatic injectors, is expected to be consistent with fiscal 1996 levels. During the current year, the Company became a qualified manufacturer of the Diazepam auto-injector for the DoD. The Diazepam auto-injector is a ComboPen filled with the drug diazepam (valium). Diazepam product deliveries, supplied as part of the base maintenance contract, generated revenue of $2.7 million in its initial year. Sales to the DoD for this product are expected to continue in fiscal 1997. The U.S. Government continues to investigate new automatic injection delivery systems, as well as new drugs and antidotes, to be placed in new or existing automatic injectors. In fiscal 1996, the Company completed the initial phase of its contract with the U.S. Army to develop a single, multi-chamber automatic injector. STI submitted several proposals in response to the Army's request to evaluate and consider producing an alternative version of this product. During the current year, one of these design alternatives was accepted by the Army who then submitted this proposal to the Food and Drug Administration ("FDA") for their review. This review is expected to be complete during the second quarter of fiscal 1997. If developed, the earliest practical date for fielding this new injector would be fiscal 1999. Procurement and deployment of such a multi-chamber auto-injector would likely replace the Mark I and reduce the current domestic market for AtroPen and ComboPen auto-injectors over time. Sales of STI's auto-injectors to allied foreign governments decreased $1.4 million (45%) from $3 million in fiscal 1995. Although these revenues declined, the Company's intensified efforts to expand sales of military products internationally has resulted in orders from several new customers during fiscal 1996 and 1997. To this end, the Company secured an AtroPen order from the Republic of Germany for $2.7 million during the first quarter of fiscal 1997. Product deliveries are anticipated to commence in the second quarter of fiscal 1997 with the order being completed by the end of fiscal 1997. At present, the German government has indicated that their annual need for this product over the next two to four years will be comparable to their original order, although at this time no additional orders have been placed. In an effort to secure additional business in the highly competitive international marketplace, the Company is implementing a cost reduction program covering its military product line to be more cost competitive and improve margins. The Company has also introduced auto-injector systems that can store compounds in dry form and mix them in solution prior to administration. Limited quantities of this product (BinaJect) have been manufactured and sold to a foreign allied government. Many of the new nerve agent antidotes require this technology because of their limited shelf-life or instability in solution. In addition, market expansion efforts in regions subject to high temperatures will also require this specialized auto-injector drug delivery system. All export sales of military auto-injectors require U.S. State Department approval. 9 CONTRACT FILLING AND PACKAGING STI has complete sterile parenteral contract filling and packaging services for a broad range of sterile injectable dosage forms which includes vials, dental cartridges and pre-filled, ready-to-use syringes. The Company's proprietary CartrixTM syringe system is a line of unit-dose, disposable, prefilled syringes suitable for a broad range of injectable drugs. The Company fills Cartrix syringes and other lines of vials, dental cartridges and syringes with pharmaceuticals supplied by the contracting party and formulated by the Company to the contracting party's specifications. Revenues from these activities aggregated $918,800, $1,237,500 and $1,646,000 in fiscal years 1996, 1995 and 1994, respectively. STI designs and manufactures delivery systems tailored to the requirements of its customers' products. Presently, these arrangements, in the aggregate, do not produce significant revenues. The Company is actively negotiating with certain pharmaceutical companies to develop and manufacture generic forms of selected liquid injectable drugs that are nearing their patent expiration. These products would be in various dosage forms including single and multi-dose vials and prefilled syringes. Additionally, STI is working with other pharmaceutical and biotechnology companies for continued expansion of this business which includes syringes with sterile water used to reconstitute drugs in a dry compound state. CYTOGUARD The Company invented and now manufactures the patented CytoGuard-Registered Trademark- Aerosol Protective Device. The CytoGuard is a vial attachment used to reduce the risk of exposure of health care professionals while reconstituting toxic drugs, particularly chemotherapeutics, being administered to patients. The Company has an exclusive License and Supply Agreement with a subsidiary of Bristol Myers-Squibb ("BMS") for the distribution of CytoGuard in the United States. While this agreement expires in December 1996, the Company is exploring other business strategies for CytoGuard. Production and delivery of CytoGuards generated revenues of $865,700 (3%), $1,592,700 (6%) and $3,042,000 (12%) of consolidated sales in fiscal years 1996, 1995 and 1994, respectively. The Company does not expect further CytoGuard sales to BMS in fiscal 1997. R&D SERVICES STI provides fully validated formulation and aseptic filling services and regulatory assistance for those pharmaceutical and biotechnology companies not currently possessing such capabilities. The Company also supplies customized drug delivery system design, GMP-approved sterile product manufacturing and pharmaceutical research and development to a number of different companies. Development programs include feasibility and stability studies as well as the manufacturing of clinical trial materials in the Company's St. Louis pilot plant. If feasibility and stability studies are successful and all regulatory approvals are received, the Company anticipates contracts in the coming years to manufacture these products in vials, prefilled syringes or STI's proprietary auto-injector systems. Revenue from customer-funded research and development activities were $2.3 million, $2.3 million and $2.9 million in fiscal years 1996, 1995 and 1994, respectively. The Company expects fiscal 1997 revenues from funded R&D activities to be comparable with historical levels. 10 COMPETITION The Company operates in a highly competitive sector of the health care industry. STI competes directly with companies that manufacture drug injection devices and indirectly with companies that develop and market drug delivery systems which are alternatives to injection. Competition from large pharmaceutical companies, joint ventures, and others is intense and expected to increase. Many of these companies have substantially greater capital resources, larger research and development staffs and facilities than the Company, and substantially greater experience in the manufacturing and marketing of pharmaceutical products as well as obtaining regulatory approvals. The activities of these entities represent significant long-term competition for the Company. STI's auto-injectors compete with a number of other drug delivery systems, including those for the self-injection of epinephrine for treating anaphylaxis, which are not automatic. The Company's military auto-injectors compete in price and quality with auto-injectors sold by companies in Holland, South Korea and Israel. Major competitors in this area are Solvay Duphar B.V. (ComboPens only) and Astra Tech, both large international pharmaceutical manufacturers as well as Shalon Ltd, an Israeli-based manufacturer of chemical protective equipment, including auto-injectors (AtroPens only). The Company's contract filling and packaging services are in an intensely competitive field which is presently dominated by larger pharmaceutical companies, many having greater resources than the Company, and other disposable, prefilled syringe systems presently available which can be less expensive. A very small group of independent companies and a few pharmaceutical companies offer contract syringe filling services similar to those that the Company offers. BACKLOG AND RENEGOTIATION As of July 31, 1996, the Company had a backlog of orders approximating $8 million, of which $4.9 million related to production and delivery of commercial products and services and $3.1 million related to military products. The majority of this backlog is scheduled to be completed during the first quarter of fiscal 1996. This compares with commercial product sales backlog of $2.5 million and military auto-injector sales backlog of $1.3 million at July 31, 1995. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein pursuant to Part II of this Form 10-K. There is no material portion of the Company's business which is subject to renegotiation of profits. The Company's supply contracts with the DoD are subject to post-award audit and potential price redetermination. From time to time, the DoD makes claims for pricing adjustments with respect to completed contracts. At present, no claims are pending. All U.S. Government contracts provide that they may be terminated for the convenience of the Government as well as for default. Upon termination for convenience of cost reimbursement type contracts, the Company would be entitled to reimbursement of allowable costs plus a portion of the fixed or target fee related to work accomplished. Upon convenience termination of fixed-price contracts, the Company normally would be entitled to receive the contract price for items which have been delivered under the contract, as well as reimbursement for allowable costs for undelivered items, plus an allowance for profit thereon or adjustment for loss if completion of performance would have resulted in a loss. No such contract terminations are anticipated by the Company. 11 PATENTS, TRADEMARKS, AND LICENSES The Company considers its proprietary technology to be important in the development, marketing and manufacture of its products and seeks to protect its technology through a combination of patents and confidentiality agreements with its employees and others. Patents covering important features of the Company's current principal auto-injector products have expired. This loss of patent protection could have an adverse affect on the Company's revenues and results of operations. STI is currently developing a new generation of auto-injector products (See "Research and Development" following) for which a number of patents have been granted to the Company. Over the last few years, the Company was granted U.S. patent protection for several of its new auto-injector drug delivery systems, designed for fast and reliable patient self-administration of the expanding range of new pharmaceutical and biotechnology products that require injection. Some of these patents cover the EpiE-ZPen, whose product launch was in fiscal 1996. See "Commercial Products" above. The Company intends to file for additional patent protection for all of its new products currently under development. These products are expected to replace or supplement the Company's existing line of auto-injectors over time. The Company has several important patents related to thrombolytic therapy. These patents broaden the Company's patent protection, especially in the area of intramuscular administration of protein thrombolytic agents, including t-PA. The Company owns a number of trademarks in the U.S. and other countries. The Company is also licensed in the U.S. and other countries under patents and trademarks owned by others. In the aggregate, these trademarks and licenses are of material importance to the Company's business, with the most significant being the license and supply agreements with a division of American Home Products Corporation ("licensor") which grants the Company an exclusive license to manufacture, use and sell the licenser's patented product within the Company's auto-injectors (ComboPens). The term of the supply agreement extends through fiscal 1997 and automatically continues for consecutive one-year renewal periods. RESEARCH AND DEVELOPMENT The Company expended $606,600, $943,000, and $1,024,600 on research and development activities in fiscal 1996, 1995 and 1994, respectively. The Company intends to continue to expend funds on the activities discussed below and expects that amounts spent on research and development in fiscal 1997 to be higher than previous fiscal years. STI is currently developing a new family of auto-injectors to accommodate the expanding variety of injectable drugs that demand safe and convenient patient self-administration. These new auto-injectors are designed for use in emergency situations and for any episodic treatment where an intramuscular or subcutaneous injection is the preferred drug delivery method. The Company is currently exploring certain applications of these new auto-injectors which will be subject to certain regulations prior to the product reaching the marketplace. See "Government Regulation" following. 12 The Company has patented auto-injector systems that can store compounds in dry form and reconstitute them in solution prior to administration. An increasing array of biotechnology products and many traditional therapies require this technology because of their limited shelf-life or instability in solution. STI also has a single-chambered auto-injector for intramuscular and subcutaneous injection which utilize a very thin (27 gauge) needle for potential new applications. PRODUCT LIABILITY INSURANCE The Company maintains product liability coverage for its medical products and its commercial pharmaceutical products, including the LidoPen, EpiPen, EpiE-ZPen, and the Cartrix syringe system. The Company will continue to maintain liability insurance as it relates to divested operations to cover any potential claims incurred but not reported prior to their disposition. Although, the Company's management is of the opinion that, with respect to amounts, types, and risks insured, the insurance coverage is adequate for the business conducted by the Company, there can be no assurance that such insurance will provide sufficient insurance coverage against any or all potential product liability claims. GOVERNMENT REGULATION The business of the Company is highly regulated by governmental entities, including the FDA and corresponding agencies of states and foreign countries. The summary below does not purport to be complete and is qualified in its entirety by reference to the complete text of the statutes and regulations cited herein. As a manufacturer of auto-injectors and prefilled syringes, the Company's products are subject to regulation by the FDA under the Federal Food, Drug and Cosmetic Act ("Act"). All of the Company's auto-injectors are "new drugs" and may be marketed only with the FDA's approval of a NDA or a supplement to an existing NDA. The Company currently holds approved NDAs for each of its existing auto-injector products. The use of the Company's existing auto-injectors to administer FDA approved drugs generally would require the filing of a NDA or supplement to an existing NDA. In addition, the introduction of the Company's new generation auto-injectors, such as the EpiE-ZPen which received approval in August 1995, will require FDA approvals based on data demonstrating the safety and effectiveness of the drug delivered by these auto-injectors. There is no assurance that the NDAs will be processed in a timely manner or that FDA ultimately will approve such NDAs. The Company's Cartrix-TM- and other prefilled syringe systems are also regulated as drugs; however, the requisite FDA approval is held by the supplier of the drug that the Company fills into the syringe. To the extent the Company's auto-injectors or Cartrix-TM- syringe system are expected to be used to administer new drugs under development, FDA approval to market such drugs first must be received by the pharmaceutical manufacturer. Obtaining the requisite FDA approval is a time consuming and costly process through which the manufacturer must demonstrate the safety and effectiveness of a new drug product. The Cytoguard Aerosol Protection Device is regulated and currently marketed as a medical device. Certain of the Company's new auto-injectors also may be regulated as medical devices. Such devices are subject to a pre-market notification process. The requisite FDA filing must contain information that establishes that the new product is substantially equivalent to an existing device available for the same intended use. The FDA must either approve or deny the application or require further information within 90 days of its submission. Products which do 13 not receive approval through the FDA's pre-market notification process are subject to the FDA's much lengthier and more complex pre-marketing approval procedures. In connection with its manufacturing operations, the Company must comply with a variety of regulations, including the FDA's Good Manufacturing Practice ("GMP") regulations, and its manufacturing facilities are subject to periodic inspections. The Company's St. Louis facility underwent an inspection by the FDA during fiscal 1996 in which there were no material issues brought to management's attention. Suppliers of bulk drugs for filling into the Company's syringe systems, as well as some subcontractors who manufacture components for the Company's medical devices, also are subject to FDA regulation and inspection. The Company has only limited control over these other companies' compliance with FDA regulations. Failure of these companies to comply with FDA requirements could adversely affect the Company's ability to procure component parts, market finished products and may cause the Company's products made with non-compliant components to be adulterated or misbranded in violation of the Act, subjecting the products to a variety of FDA administrative and judicial actions. The FDA is empowered with broad enforcement powers. The FDA may initiate proceedings to withdraw its approval for marketing of the Company's products should it find that the drugs are not manufactured in compliance with GMP regulations, that they are no longer proven to be safe and effective, or that they are not truthfully labelled. Noncompliance with GMP regulations also can justify nonpayment of an existing government procurement contract and, until the deficiencies are corrected to FDA's satisfaction, can result in a nonsuitability determination, precluding the award of future procurement contracts. For any of the Company's auto-injectors and syringe systems, noncompliance with FDA regulations could result in civil seizure of the drugs, an injunction against the continued distribution of the drugs or criminal sanctions against the Company. The Company's medical devices also are subject to seizure by the FDA through administrative or judicial proceedings. In addition, the FDA may impose civil money penalties for most violations of law and may order that defective devices be recalled, repaired or replaced or that purchasers be refunded the cost of the device. The Company also is subject to regulation by other federal and state agencies under various statutes, regulations and ordinances, including environmental laws, occupational health and safety laws, labor laws and laws regulating the manufacture and sale of narcotics. EMPLOYEES As of September 30, 1996, the Company employed a total of 251 employees; 218 employees work at the Company's plant and warehouse facilities in St. Louis, Missouri; 10 employees work at the Company's facility in the United Kingdom and 23 employees work at the Company corporate headquarters in Rockville, Maryland (see "Properties"). Effective March 1, 1994, the Company entered into a five-year agreement with the Teamsters Local Union No. 688 ("Teamsters") which is affiliated with the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America. Teamsters are the exclusive agent for all production and maintenance employees of the Company at its St. Louis facility. Approximately 118 employees are covered by this collective bargaining agreement. The new labor union contract did not significantly change the mix of benefits previously provided to such employees. 14 ITEM 2. PROPERTIES The Company's corporate headquarters occupy approximately 17,000 square feet in an executive office building complex located in Rockville, Maryland. STI signed a ten-year lease agreement for this office space beginning January 1992. This facility contains corporate administration; human resources; finance; commercial business development; and product, design and development functions. During the fourth quarter of fiscal 1995, the Company initiated a restructuring plan which includes the relocation of its corporate office to reduce occupancy costs while subleasing this current office space. In October 1996, the Company signed a letter of intent to sublease its corporate office space in Rockville, Maryland and entered into a new lease in Columbia, Maryland. See Note 3 in Notes to Consolidated Financial Statements. The Company's primary pharmaceutical operations are located in St. Louis, Missouri. These facilities are used primarily for formulation, aseptic filling, assembly and final packaging of the Company's auto-injectors, vials and prefilled syringes. The St. Louis manufacturing facilities consist of eight separate buildings occupying over 90,000 square feet. The principal St. Louis facilities are leased pursuant to lease agreements which begin to expire in fiscal 1996 and 1997 but contain renewal options for additional five-year and ten-year periods. See "Leases" in Note 11 of the Notes to Consolidated Financial Statements included herein pursuant to Part II of this Form 10-K. The Company believes that its current production facilities in St. Louis, Missouri are suitable and adequate for the Company's current business. STI International Limited is located in the Medway City Industrial Estate, an enterprise zone in Rochester, Kent in the United Kingdom. The facility consists of one modern building occupying approximately 4,200 square feet which is used primarily for aseptic assembly and final packaging of the Mediject morphine automatic injector under a contract with the United Kingdom Ministry of Defense. This facility is also used as a sales and marketing office to promote STI's commercial and military products in Europe and the Middle East. The facility is leased pursuant to a lease which expires in 2010. ITEM 3. LEGAL PROCEEDINGS Information required by this Item 3 is included in Note 11 "Commitments and Contingencies - Litigation," of the Notes to Consolidated Financial Statements included herein pursuant to Part II of this Form 10-K. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted by the Company during the fourth quarter of fiscal 1996 to a vote of security holders, through the solicitation of proxies, or otherwise. 15 EXECUTIVE OFFICERS OF THE REGISTRANT The following table lists, as of September 30, 1996, the names and ages of all executive officers of the Company, and their positions and offices held with the Company. NAME AGE PRESENT POSITIONS WITH THE COMPANY - ---- --- ---------------------------------- James H. Miller 58 Chairman, President and Chief Executive Officer Jeffrey W. Church 39 Sr. Vice President-Finance and Chief Financial Officer Glenn F. Wickes, Jr. 51 Sr. Vice President-Pharmaceutical Operations Mark D. Ruby 43 Vice President - Marketing and Sales There are no family relationships among the executive officers and directors of the Company as a group. Mr. Miller joined the Company as President in June 1989, was elected Chief Executive Officer in June 1990 and was elected Chairman of the Board in April 1996. In November 1993, Mr. Miller assumed the additional post of chairman and chief executive officer of Brunswick Biomedical Corporation while continuing his position with STI. Prior to joining the Company, Mr. Miller served as Executive Vice President of Beecham Laboratories from February 1987 to May 1989, responsible for the Pharmaceutical and Animal Health Divisions. Prior to joining Beecham, Mr. Miller spent ten years with Frank J. Corbett, Inc. (Advertising Agency) as Executive Vice President and fourteen years in marketing management with Abbott Laboratories. Mr. Church joined the Company in April 1986 as Corporate Controller, became Vice President - Finance and Chief Financial Officer in June 1988 and became Senior Vice President - Finance and Chief Financial Officer in November 1994. Prior to joining the Company, Mr. Church was with the accounting firm of Price Waterhouse LLP seven years. Mr. Wickes joined the Company as Vice President of Pharmaceutical Operations in August 1993 and became Senior Vice President of Pharmaceutical Operations in November 1994. Prior to joining the Company, Mr. Wickes served as Executive Vice President of Duoject Medical Systems from December 1991 to July 1993, responsible for new business development and technical affairs for this specialized drug delivery company. Prior to joining Duoject, Mr. Wickes was Director of Operations, Marketing and New Business Development for Adria Sterile Products, Inc. from April 1988 until December 1991. Prior to joining Adria, Mr. Wickes held senior executive positions at Summa Manufacturing Corporation and Ben Venue Laboratories, Inc. Mr. Wickes'employment with the Company was terminated in October 1996. Mr. Ruby joined the Company as Vice President of Marketing and Sales in January 1996. Prior to joining the Company, Mr. Ruby served in the same capacity at Jobst Institute, Inc. from March 1992 to December 1995 where he was responsible for domestic and international marketing, sales and service. Prior to joining Jobst, Mr. Ruby served in various capacities including Director of Business Development and Director of Domestic Sales for Medisense, Inc. from July 1988 to February 1991. Prior to joining Medisense, Mr. Ruby held various positions with Baxter Healthcare, Inc. from July 1979 to June 1988. 16 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded in the over-the-counter market and is quoted in the NASDAQ National Market System under the symbol STIQ. The following table sets the high and low sales prices of the Company's common stock for each fiscal quarter during the two year period ended July 31, 1996, as reported on the NASDAQ National Market System. 1996 1995 ---------------- ---------------- QUARTER HIGH LOW HIGH LOW -------------------------------------------------------- First $9 1/2 $6 1/2 $8 3/4 $6 1/2 Second 10 1/4 7 1/4 9 1/4 6 3/4 Third 10 1/8 7 1/2 10 7 1/4 Fourth 11 7/8 8 1/4 9 1/2 7 1/4 -------------------------------------------------------- The Board of Directors has not declared any dividends on the Company's stock since its organization. As of September 30, 1996, the number of shareholders of record was 390. 17 SELECTED FINANCIAL DATA Survival Technology, Inc. - Five-Year Summary of Operations and Financial Information (In Thousands, Except Per Share Data)
Year Ended July 31 1996 1995 1994 1993 1992 Operations: Net sales $31,385 $25,487 $24,856 $30,075 $40,931 Gross profit 8,957 8,259 8,657 9,726 8,133 Operating income (1) 2,274 890 1,928 3,111 2,153 Gain on sale of Medical Device Division 1,562 Other income (expense), net (300) (180) 81 (106) 158 Income before income taxes and extraordinary item 1,974 710 3,571 3,005 2,311 Provision for income tax 698 250 1,442 1,160 634 ------- ------- ----- ------- ------- Income before extraordinary item 1,276 460 2,129 1,845 1,677 Extraordinary item 37 ------- ------- ----- ------- ------- Net income $ 1,276 $ 460 $ 2,129 $ 1,845 $ 1,714 ------- ------- ----- ------- ------- ------- ------- ----- ------- ------- Per share data: Income before extraordinary item $ .41 $ .15 $ .68 $ .60 $ .55 Extraordinary item .01 ------- ------- ----- ------- ------- Net income $ .41 $ .15 $ .68 $ .60 $ .56 ------- ------- ----- ------- ------- ------- ------- ----- ------- ------- Average common shares and common share equivalents outstanding 3,117 3,102 3,118 3,092 3,086 ------- ------- ----- ------- ------- ------- ------- ----- ------- ------- Financial position: Current assets $14,414 $11,553 $10,227 $10,022 $13,937 Working capital 4,204 3,668 5,193 5,635 5,782 Fixed assets, net 14,815 14,209 11,893 9,801 7,818 Total assets 31,085 27,715 24,201 21,911 22,487 Long-term debt 1,184 1,486 1,620 2,740 2,014 Shareholders' equity 17,469 16,150 15,690 13,558 11,149
(1) Fiscal 1996 and 1995 operating income includes a restructuring charge of $321,900 and $450,000, respectively. The Company has not declared any dividends on its common stock since its inception. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion and analysis of financial condition and results of operations cover the fiscal years ended July 31, 1996, 1995 and 1994. RESULTS OF OPERATIONS 1996 AND 1995 The Company reported net income of $391,400 ($.12 per share) and $1,276,000 ($.41 per share) on sales of $8.6 million and $31.4 million for the fourth quarter and fiscal year ended July 31, 1996. This compares with net income of $257,400 ($.08 per share) and $460,500 ($.15 per share) on sales of $8.5 million and $25.5 million for the quarter and year ended July 31, 1995. Net income improved $134,000 ($.04 per share or 52%) in the current quarter and nearly tripled increasing $815,500 ($.26 per share) in the current year when compared with the same prior year periods. While remaining relatively constant in the fourth quarter, revenue increased $5.9 million (23%) during the current year when compared with the corresponding prior year on the strength of higher U.S. military product and EpiPen-Registered Trademark- auto-injector sales. Military sales increased $1.2 million (37%) to $4.4 million in the current quarter and $5.5 million (52%) to $16 million in fiscal 1996 when compared with the concurrent prior year periods. These increases were due to shipments of military auto-injectors during the current quarter coupled with additional services provided as part of the Industrial Base Maintenance Contract with the U.S. Department of Defense ("DoD"). Revenues under this DoD contract increased $1.3 million (61%) to $3.4 million for the quarter and increased $6.9 million (92%) to $14.3 million for the year ended July 31, 1996 when compared with the same periods last year. Product deliveries included sales of the Diazepam auto-injector which was approved by the U.S. Food and Drug Administration ("FDA") in December 1995. Revenues for this new injector were $1.8 million and $2.7 million for the quarter and year ended July 31, 1996. Additional services provided to the DoD during the current year included the prestocking of critical components at STI's St. Louis manufacturing facility to enhance readiness and mobilization capability. These increases were partially offset by declines in revenue from international military products of $132,900 (13%) and $1.4 million (45%) for the quarter and year ended July 31, 1996 compared with the same periods last year. The Industrial Base Maintenance Contract is a continuation of the program adopted in 1993 by the DoD to assure adequate supplies of critical items in the event of war. STI is the only U.S. supplier of nerve gas antidote auto-injectors, which were widely deployed by U.S. allied forces during the Persian Gulf War. This contract calls for the retention of key personnel and facilities to assure expertise for manufacturing auto-injectors containing nerve gas antidotes, the storage of serviceable material from expired auto-injectors, the management of the DoD's shelf-life extension program and new product orders. This contract has a surge capability provision allowing for the coverage of defense mobilization requirements in the event of rapid military deployment. Moreover, the contract was expanded in fiscal 1996 to include the prestocking of critical components at STI's St. Louis manufacturing facility to enhance readiness and mobilization capability. Revenue from this component prestocking program was $1.7 million in fiscal 1996. The Company believes this contract represents a cost-saving measure for the Government by allowing the DoD to consolidate its warehouse depots and personnel necessary to manage this material. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Commercial products and services generated revenues of $4.3 million and $15.4 million for the quarter and year ended July 31, 1996 compared with $5.3 million and $15 million in the respective prior year periods. While these revenues were comparable for the years ended July 31, 1996 and 1995, a decrease of $1 million (19%) in the fourth quarter of fiscal 1996 was primarily attributable to the timing of CytoGuard-Registered Trademark- sales ($800,100) which occurred during the previous quarter of the current fiscal year. The fiscal 1996 commercial revenue increase resulted primarily from higher sales of the Company's epinephrine auto-injector product line ($1.4 million or 14%) which was partially offset by lower revenue ($1 million or 36%) from various other contract filling and packaging work which includes CytoGuard. The EpiPen and EpiE-ZPen are automatic injectors that contain epinephrine which are indicated for immediate use by persons in the emergency treatment for severe allergic reactions to bee stings, insect bites and ingestion of certain foods. The EpiE-ZPen is a smaller, more streamlined auto-injector that is easier to use than previous injectors and resembles an ordinary fountain pen with a pocket clip for easy carrying. Revenues from these products totalled $3.4 million and $11.2 million for the quarter and year ended July 31, 1996 compared with $3.5 million and $9.8 million in the corresponding prior year periods. While these revenues were comparable in the quarter, the epinephrine product line experienced continued growth of $1.4 million (14%) in fiscal 1996 when compared with fiscal 1995. This increase can be attributed to the expanded promotional efforts over the last several years by Center Laboratories, Inc. ("Center"), STI's exclusive distributor of the EpiPen and the EpiE-ZPen. The Company anticipates epinephrine product sales to continue improving over prior year levels with Center's continuing expansion of marketing efforts in the U.S. and international markets coupled with the recent introduction of the EpiE-ZPen. The Company's patented CytoGuard Aerosol Protective Device is designed to reduce the risk of exposure of health care professionals while reconstituting toxic drugs administered to patients, such as chemotherapeutics. CytoGuard, sold exclusively to Bristol-Myers Squibb ("BMS") for distribution in the U.S. with BMS products, generated revenue of $865,800 in fiscal 1996 which represents a $726,900 (46%) decline from fiscal 1995 revenue of $1.6 million. As previously reported, lower in-market sales of these BMS products continued to adversely effect CytoGuard sales during fiscal 1996. Although no sales of CytoGuard are expected in fiscal 1997, the Company is exploring various business strategies for this product. STI has development programs that include feasibility and stability studies as well as the manufacturing of clinical trial materials in the Company's St. Louis pilot plant. If feasibility and stability studies are successful and all regulatory approvals are received, the Company anticipates contracts in the coming years to manufacture these products in vials, prefilled syringes or STI's proprietary auto-injector systems. These customer-funded development programs generated revenue of $2.3 million in both fiscal 1996 and 1995, respectively. Gross margins were 31% and 29% for the quarter and year ended July 31, 1996 compared to 33% and 32% for the quarter and year ended July 31, 1995. The decrease in gross margins were due to various factors including component supply issues which disrupted production in fiscal 1996 coupled with higher military product sales which have inherently lower margins. The Company has resolved this component supply issues and is working to improve gross margins through the completion of several manufacturing cost reduction programs currently in progress. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Selling, general and administrative expenses decreased $122,000 (10%) in the current quarter and $309,600 (7%) in fiscal 1996 when compared with the same prior year periods. These anticipated decreases resulted primarily from the absence of certain administrative costs related to organizational changes made during fiscal 1996 to streamline reporting relationships. This was done in conjunction with the previously reported restructuring plan adopted by the Board of Directors in fiscal 1995. See Note 3 in Notes to Consolidated Financial Statements. Research and development expenditures decreased $316,700 (34%) in fiscal 1996 when compared with fiscal 1995. This was due to the timing of expenditures related to certain projects which have been deferred into fiscal 1997. The Company remains focused on development efforts to its new generation auto-injector products designed for outpatient/in-home use. These products target infrequent injection of medication in acute episodes of disease as well as treatment of chronically ill patients. This will result in higher R&D expenses in fiscal 1997 when compared to fiscal 1996 and will be comparable to historical levels. Depreciation and amortization remained relatively constant increasing $68,300 (4%) in fiscal 1996 when compared with fiscal 1995. This increase includes a significantly lower amortization expense ($142,500 or 44%) during the current year due to selected patent write-offs which occurred in fiscal 1995. Absent amortization, depreciation expense increased $210,800 (14%). As previously reported, higher depreciation expense was anticipated due to increased levels of capital expenditures made over the last two fiscal years. As part of the restructuring plan adopted in fiscal 1995, the Company initiated certain organizational changes during fiscal 1996 resulting in additional charges of $321,900 related to employee severance expense in fiscal 1996. These charges are in addition to a $450,000 charge assessed against fiscal 1995 earnings for relocating STI's corporate headquarters to reduce occupancy costs. To this end, the Company is planning to move its corporate office facility from Rockville, Maryland, to Columbia, Maryland. See Note 3 in Notes to Consolidated Financial Statements. Other expense, net of other income, increased $119,900 (67%) in the current year when compared with the last year. This was primarily attributable lower royalty income for the year ended July 31, 1996 which the Company receives from the sale of its Medical Device Division to Brunswick Biomedical Corporation in fiscal 1994. Interest expense was comparable increasing slightly by $14,300 (4%) in fiscal 1996. 1995 AND 1994 The Company reported net income of $460,500 ($.15 per share) on sales of $25.5 million for the fiscal year ended July 31, 1995. This compares with net income of $2.1 million ($.68 per share) on sales of $24.9 million for the fiscal year ended July 31, 1994. Fiscal 1994 operating results include a $953,000 ($.30 per share) non-recurring gain, net of tax, from the fourth quarter sale of the Company's Medical Device Division ("MDD"). Fiscal 1995 operating results were adversely effected by a $292,500 ($.09 per share) restructuring charge, net of tax, recorded in its fourth quarter. Absent this restructuring charge in fiscal 1995 and the non-recurring gain in fiscal 1994, earnings for the fiscal year ended July 31, 1995 would have decreased by $422,500 ($.14 per share) when compared with fiscal 1994 operating results. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Revenues in fiscal 1995 increased $2.5 million (11%) over the prior year, exclusive of the $1.9 million in revenues generated by the MDD which was sold in fiscal 1994. Contributing to this sales improvement was a $3.4 million (48%) increase in military product sales which was partially offset by a $900,000 (6%) decrease in commercial sales. While current year revenues were increasing over the prior year, gross margins were decreasing from 35% in fiscal 1994 to 32% in the current fiscal year. This decline in gross margins was attributable to several factors including the plant shutdown during the first quarter of fiscal 1995, lower revenues from funded R&D activities and lower margin foreign military auto-injector sales. The Company's competitive bid for this foreign military contract anticipated a lower margin in pursuit of contact award to better position itself for future business. Military product sales in fiscal 1995 consisted of $7.4 million in revenue from the U.S. DoD which represents a $1.8 million (31%) increase over fiscal 1994. Foreign military sales were $3 million in fiscal 1995 which represents a $1.6 million (113%) increase over the prior year. This increase is attributable to the Company's competitive bid for a foreign military contract anticipating a lower margin in pursuit of contract award. This was done in an effort to better position STI for additional future business and minimize bid losses to a competitor with local manufacturing operations, which occurred in fiscal 1994. The decline in commercial sales is attributable to lower revenues from both CytoGuard sales and funded R&D activities. These lower revenues were partially offset by a growth in revenues from the EpiPen auto-injector which aggregated $9.8 million in fiscal 1995 and represents a $1.4 million (17%) increase over fiscal 1994. This increase is primarily attributable to expanded promotional efforts over the last two years by Center. CytoGuard revenues were $1.6 million in fiscal 1995, which represents a 48% decrease from the $3 million recognized in fiscal 1994. During fiscal 1994, the Company under the direction of BMS, changed the packaging of this product from a single unit to a multi-unit package. Creation of inventories of the new multi-unit package coupled with lower in-market sales of BMS' products resulted in lower CytoGuard sales in STI's fiscal 1995 with this decline expected to continue in fiscal 1996. Revenues from these development contracts during the current year were $2.3 million, which represents a $598,000 (21%) decrease from last year. Selling, general and administrative expenses ("SG&A") decreased $298,300 (7%) during fiscal 1995 when compared with fiscal 1994. This decrease resulted primarily from the absence of SG&A expenses related to the MDD which was sold in July 1994. During the fourth quarter of fiscal 1995, the restructuring plan was approved by the Company's Board of Directors resulting in a $450,000 restructuring charge against operations. This restructuring plan is expected to further reduce SG&A expenses in fiscal 1996 and beyond. Research and development expenditures remained relatively constant decreasing $81,600 (8%) in the current year. Depreciation and amortization increased $570,100 (46%) in fiscal 1995 when compared with the prior year. The Company continues to invest significantly in capital expenditures (see "Balance Sheet Review") and, as previously reported, expected depreciation expense to increase in the current period and in future periods. Also contributing to this increase was the accelerated amortization/write-off of certain patent costs which the Company does not believe will provide previously anticipated future benefit. 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Other income, net of other expenses, decreased $1.9 million in the current fiscal year primarily due to the $1.6 million pre-tax gain on the sale of the MDD in fiscal 1994. See Note 5 in Notes to Consolidated Financial Statements. Also contributing to this increase was higher interest expense of $302,300 in fiscal 1995 due to higher levels of bank borrowings as well as the commencement of interest payments on the outstanding note payable to Syntex Laboratories, Inc. (see "Liquidity and Capital Resources" following). LIQUIDITY AND CAPITAL RESOURCES The Company has a revolving credit agreement ("Agreement") with Merrill Lynch Business Financial Services, Inc. ("MLBFS") with a maximum commitment of $5 million. Outstanding borrowings under the Agreement totalled $3.9 million at July 31, 1996 with an interest rate equal to the 30-day commercial paper rate as published in the Wall Street Journal plus 265 basis points (8.04% at July 31, 1996). The Agreement is collateralized by substantially all of the Company's assets and general intangibles. Financial covenants under the Agreement require the Company to maintain certain levels of tangible net worth and debt to net worth ratios and limits capital expenditures in any one fiscal year to $5 million. On August 15, 1996, the Agreement was extended through December 31, 1996 with the same terms and conditions in anticipation of the previously announced merger with Brunswick Biomedical Corporation ("BBC"). Upon consummation of this merger, proceeds from a newly established $5 million line of credit will become immediately available for repayment of the MLBFS note payable. If the merger with BBC is not consummated, the Company will seek a renewal of the Agreement or an alternative source of financing. There can be no assurance that any such alternative source of financing will be available on terms favorable to the Company. The merger would subject the Company to the financial commitments of BBC which currently include an $11 million bridge loan that will be converted to a $10 million long-term loan upon completion of the merger. The long-term loan contains covenants which are applicable to the financial condition of the merged Company. In order to adequately service the long-term loan and comply with the financial covenants, the merged Company must achieve significantly higher operating results, obtain external financing from strategic partners interested in its R&D programs and/or obtain additional equity financing. At this time, there is no assurance that the merger will occur, and, if the merger does occur, that the Company will comply with the financial covenants of the long-term loan. Over the last five fiscal years, the Company has expended more than $15 million for capital equipment designed to expand production capacity to accommodate commercial sales growth. Partial proceeds from a $5.4 million secured loan agreement with Syntex were used to finance a portion of this capital program. Principal repayments commenced August 1, 1991 through credits against amounts invoiced to Syntex for product delivered under a related Manufacturing and Packaging Agreement. As part of the termination of this agreement, the repayment terms of the loan agreement were modified to include an eighteen-month moratorium on the repayment of principal beginning with the calendar quarter ended March 31, 1993 through the calendar quarter ended June 30, 1994. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Principal payments to Syntex resumed for the calendar quarter ended September 30, 1994 at the minimum of $200,000 per quarter reducing the outstanding loan balance $800,000 during fiscal 1996 to $588,400 at July 31, 1996. The loan bears interest at the same rate the Company pays on its current line of credit facility. Interest expense recognized on this loan totalled $86,000 in fiscal 1996. The loan is subject to acceleration upon the occurrence of certain events. See Note 7 in Notes to Consolidated Financial Statements. The Company has significant capital needs which will need to be funded externally in order to finance its plans to automate many of the Company's aseptic filling, assembly and final packaging processes. During fiscal 1996, the Company began to purchase high-speed, drug cartridge preparation and filling equipment as well as automated assembly and packaging equipment. This equipment will not only increase efficiency and capacity while improving profit margins, but it will also result in less human contact with products during the manufacturing process. Finally, as part of STI's new product development efforts, the Company must purchase high cavitation molds for its new automatic injection devices which will also require external funding. To assist in financing the capital investment program mentioned above, the Company entered into a loan agreement with The CIT Group/Equipment Financing, Inc. ("CIT") in May 1995. This arrangement consists of a series of loans for the acquisition of production molds, high speed component preparation and filling equipment and facility renovations not to exceed a maximum aggregate of $3 million. Additional terms include repayment of each loan in sixty (60) equal monthly installments at a fixed interest rate equal to the Treasury Yield (as published in the Wall Street Journal two business days prior to closing a loan amount) plus 247 basis points. Loan proceeds to date totalled $1.5 million with a loan balance outstanding of $1.2 million at July 31, 1996 with a weighted average interest rate of 8.8%. See Note 7 in Notes to Consolidated Financial Statements. BALANCE SHEET REVIEW Working capital increased $539,900 (15%) to $4,204,200 at July 31, 1996 from $3,668,300 at July 31, 1995. Receivables increased $1.5 million (25%) on the strength of higher EpiPen and Diazepam auto-injector sales. Inventory levels increased $1.1 million (30%) in support of higher sales levels anticipated for the first quarter of fiscal 1997 when compared with the first quarter of fiscal 1996. These sales will include new products introduced earlier in fiscal 1996, the EpiE-ZPen and the Diazepam auto-injectors. Prepaid expenses and other current assets increased $416,300 resulting in the prepayment to the FDA for annual user fees. The deferred income tax asset increased $186,600 (18%) due to an increase in expenses related to the restructuring plan initiated in fiscal 1995. Note payable to bank remained constant at $3.9 million from fiscal 1995 to fiscal 1996 while accounts payable increased $1.2 million (120%) resulting from the acquisition of inventory components in support of fiscal 1997 sales as discussed above. Proceeds from operations during fiscal 1996 contributed to the funding necessary to make scheduled quarterly payments to Syntex which reduced the note payable to Syntex by $800,000 (58%) to $588,400 at July 31, 1996. See "Liquidity and Capital Resources" above. The increase in customer deposits ($703,500) represents an upfront payment for continuing development work to be completed in fiscal 1997. Other liabilities and accrued expenses increased $436,000 (37%) due to a higher 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) accrual for income taxes payable. The restructuring reserve increased $190,400 (42%), net of employee severance payments associated with the previously discussed organizational changes. Other long-term debt, including the current portion, increased $311,300 (22%) due to a non-interest bearing note from Center in the amount of $375,000 to assist in the cost reduction program associated with the EpiE-ZPen. This loan will be repaid to Center through credits on future EpiE-ZPen deliveries commencing in September 1996. Additional proceeds under the CIT loan agreement were more than offset by payments made on the initial CIT loan (see "Liquidity and Capital Resources") and capital lease obligations. Deferred revenue decreased $250,000 (100%) with the recognition of the remaining revenue of a development contract which was closed-out during the first quarter. Capital expenditures totalled $2.3 million in fiscal 1996 which consisted primarily of improvements designed to automate and validate current production processes at the Company's St. Louis manufacturing facility. The timing of capital expenditures to keep pace with prior year levels is contingent on the Company's ability to identify outside sources of capital. Shareholder's equity increased $1.3 million on the strength of net income ($1.28 million) and from the exercise of employee stock options. INFLATION AND ACCOUNTING POLICIES In the view of management, the low levels of inflation in recent years and changing prices have had no significant effect on the Company's financial condition and results of operations. Generally, the Company is able to mitigate the effects of inflation on operating costs and expenses through price increases and productivity gains. The Company applies the intrinsic value method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for its stock-based compensation. Accordingly, the Company has not recognized any compensation associated with fair value accounting. Beginning in fiscal 1997, the Company will be required to make certain additional disclosures as if the fair value method of accounting defined in SFAS 123, "Accounting for Stock-Based Compensation" had been applied to the Company's stock option plans. 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS SURVIVAL TECHNOLOGY, INC.
- ---------------------------------------------------------------------------------------- July 31 1996 1995 - ---------------------------------------------------------------------------------------- ASSETS Current assets: Cash $ 122,800 $ 503,600 Receivables, less allowance for doubtful accounts of $45,000 and $13,000 7,332,300 5,852,700 Inventories 4,988,800 3,829,800 Prepaid expenses and other assets 752,400 336,100 Deferred income taxes 1,217,500 1,030,900 ----------- ----------- Total current assets 14,413,800 11,553,100 ----------- ----------- Fixed assets: Furniture and equipment 17,696,500 15,389,000 Leasehold improvements 6,726,800 5,619,800 Construction in progress 2,124,100 3,572,500 ----------- ----------- 26,547,400 24,581,300 Less accumulated depreciation and amortization 11,732,400 10,372,400 ----------- ----------- 14,815,000 14,208,900 ----------- ----------- Patents and licenses, at cost less amortization of $675,100 and $517,200 1,848,400 1,916,800 Other noncurrent assets 7,800 36,300 ----------- ----------- $31,085,000 $27,715,100 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Note payable to bank $ 3,875,400 $ 3,917,000 Note payable to Syntex 588,400 800,000 Current portion of long-term debt 516,800 492,600 Accounts payable 2,240,700 1,016,800 Customer deposits 736,000 32,500 Restructuring reserve 640,400 450,000 Other liabilities and accrued expenses 1,611,900 1,175,900 ----------- ----------- Total current liabilities 10,209,600 7,884,800 Long-term debt: Note payable to Syntex 588,400 Other long-term debt 1,184,300 897,200 Deferred revenue 250,000 Other noncurrent liabilities 616,500 489,200 Deferred income taxes 1,605,500 1,455,000 ----------- ----------- Total liabilities 13,615,900 11,564,600 ----------- ----------- Commitments and contingencies Shareholders' equity: Common stock $.10 par value; 10,000,000 shares authorized; 3,091,700 and 3,085,400 shares issued and outstanding 309,100 308,500 Paid-in capital in excess of par value 5,114,700 5,072,700 Retained earnings 12,045,300 10,769,300 ----------- ----------- Total shareholders' equity 17,469,100 16,150,500 ----------- ----------- $31,085,000 $27,715,100 ----------- ----------- ----------- -----------
See Notes to Consolidated Financial Statements. 26 CONSOLIDATED STATEMENTS OF INCOME SURVIVAL TECHNOLOGY, INC.
- ---------------------------------------------------------------------------------------------------------- Year Ended July 31 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------- Net sales $31,385,300 $25,486,800 $24,856,500 Cost of sales 22,428,200 17,227,500 16,199,600 ----------- ----------- ----------- Gross profit 8,957,100 8,259,300 8,656,900 ----------- ----------- ----------- Selling, general, and administrative expenses 3,881,600 4,171,500 4,469,800 Research and development expenses 606,600 943,000 1,024,600 Depreciation and amortization expenses 1,873,300 1,805,000 1,234,900 Restructuring charge 321,900 450,000 ----------- ----------- ----------- 6,683,400 7,369,500 6,729,300 ----------- ----------- ----------- Operating income 2,273,700 889,800 1,927,600 ----------- ----------- ----------- Other income (expense): Interest expense (387,200) (372,900) (70,600) Other income (expense), net 87,600 193,200 151,200 Gain on sale of Medical Device Division 1,562,300 ----------- ----------- ----------- (299,600) (179,700) 1,642,900 ----------- ----------- ----------- Income before income taxes 1,974,100 710,100 3,570,500 Provision for income taxes 698,100 249,600 1,442,000 ----------- ----------- ----------- Net income $ 1,276,000 $ 460,500 $ 2,128,500 ----------- ----------- ----------- ----------- ----------- ----------- Per common share: Net income $.41 $ .15 $ .68 ----------- ----------- ----------- ----------- ----------- -----------
See Notes to Consolidated Financial Statements. 27 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY SURVIVAL TECHNOLOGY, INC.
Paid-in Common Stock Capital in ------------ Excess of Retained Shares Amount Par Value Earnings Total - ------------------------------------------------------------------------------------------------------------------- Balance at July 31, 1993 3,085,000 $308,500 $5,068,900 $8,180,300 $13,557,700 1994 net income 2,128,500 2,128,500 Exercise of stock options 400 3,800 3,800 --------- --------- ---------- ----------- ----------- Balance at July 31, 1994 3,085,400 308,500 5,072,700 10,308,800 15,690,000 1995 net income 460,500 460,500 --------- --------- ---------- ----------- ----------- Balance at July 31, 1995 3,085,400 308,500 5,072,700 10,769,300 16,150,500 1996 net income 1,276,000 1,276,000 Exercise of stock options 6,300 600 42,000 42,600 --------- --------- ---------- ----------- ----------- Balance at July 31, 1996 3,091,700 $ 309,100 $5,114,700 $12,045,300 $17,469,100 --------- --------- ---------- ----------- ----------- --------- --------- ---------- ----------- -----------
See Notes to Consolidated Financial Statements. 28 CONSOLIDATED STATEMENTS OF CASH FLOWS SURVIVAL TECHNOLOGY, INC.
Year Ended July 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 1,276,000 $ 460,500 $ 2,128,500 Adjustments to reconcile net income to net cash provided by (used for) operating activities net of effects from sale of Medical Device Division in 1994: Depreciation and amortization 1,873,300 1,805,000 1,234,900 Gain on sale of Medical Device Division (1,562,300) Loss (gain) on equipment disposals 800 (63,500) Deferred income taxes (36,100) 32,800 660,300 Deferred lease incentives (30,200) (30,200) 16,800 (Increase) decrease in receivables (1,479,600) 83,600 (805,800) Increase in inventories (1,159,000) (1,034,500) (230,800) (Increase) decrease in prepaid expenses and other assets (416,300) 216,700 (35,600) Increase (decrease) in accounts payable 1,223,900 (313,600) (141,300) Increase (decrease) in customer deposits 703,500 (33,800) (161,800) (Decrease) increase in deferred revenue (250,000) 250,000 Increase in restructuring reserve 190,400 450,000 Increase in other liabilities and accrued expenses 593,500 154,000 476,600 ----------- ----------- ----------- Net cash provided by operating activities 2,490,200 1,790,500 1,766,000 ----------- ----------- ----------- Cash flows from investing activities: Purchases of fixed assets (2,338,100) (3,797,800) (3,172,800) Purchases of patents and licenses (89,500) (199,900) (184,800) Proceeds from fixed asset dispositions 38,700 Decrease (increase) in other noncurrent assets 5,500 34,200 (38,200) ----------- ----------- ----------- Net cash used for investing activities (2,383,400) (3,963,500) (3,395,800) ----------- ----------- ----------- Cash flows from financing activities: Net (payments) proceeds on note payable to bank (41,600) 2,612,500 1,704,500 Payments on note payable to Syntex (800,000) (800,000) Proceeds from other long-term debt 820,300 1,299,300 Payments on other long-term debt (508,900) (500,200) (288,200) Proceeds from issuance of common stock 42,600 3,800 ----------- ----------- ----------- Net cash (used for) provided by financing activities (487,600) 2,611,600 1,420,100 ----------- ----------- ----------- Net (decrease) increase in cash (380,800) 438,600 (209,700) Cash at beginning of year 503,600 65,000 274,700 ----------- ----------- ----------- Cash at end of year $ 122,800 $ 503,600 $ 65,000 ----------- ----------- ----------- ----------- ----------- ----------- Cash paid for interest $ 526,100 $ 514,300 $ 189,800 ----------- ----------- ----------- ----------- ----------- ----------- Cash paid for income taxes $ 513,300 $ 234,300 $ 807,200 ----------- ----------- ----------- ----------- ----------- -----------
See Notes to Consolidated Financial Statements. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SURVIVAL TECHNOLOGY, INC. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Survival Technology, Inc. ("Company") is a technology-based health care company that designs, develops and produces a broad range of automatic injectors, prefilled syringes and other innovative health care devices, with a major focus on safe and convenient participation by the patient in injection therapy. The Company also supplies customized drug delivery system design, pharmaceutical research and development and GMP-approved sterile product manufacturing to pharmaceutical and biotechnology companies. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Survival Technology, Inc. and its wholly owned subsidiaries ("Company"). All intercompany accounts and transactions are eliminated in consolidation. INVENTORIES Inventories relating to commercial and military products are stated at the lower of cost (first-in, first-out) or market. FIXED ASSETS AND DEPRECIATION Fixed assets are stated at cost. The Company computes depreciation and amortization under straight-line and accelerated methods using the following estimated useful lives: Furniture and equipment 2 to 15 years Capital leases and leasehold improvements 4 to 20 years In addition, the Company uses either the units of production method or the straight line method over a 10-year life (whichever period is shorter) to depreciate production molds and tooling over their estimated production life cycle. Major additions and improvements including validation costs are capitalized and ordinary repairs, maintenance, and renewals are expensed in the year incurred. Gains or losses on the sale or retirement of fixed assets result from the difference between sales proceeds and the assets' net book value. PATENTS AND LICENSES Legal costs incurred in connection with patent applications and costs of acquiring patents and licenses are capitalized and amortized on a straight-line basis over the life of the patent (not to exceed seventeen years) or license or over the period expected to be benefitted, principally over 5 to 20 years. REVENUE RECOGNITION Sales of medical products are recorded when shipments are made to customers. Revenues from the U.S. Department of Defense ("DoD") industrial base maintenance contract are recorded ratably throughout the contract term with the exception of revenue from the component prestocking program that is recorded upon component receipt in STI's warehouse and product 30 sales which are recorded upon shipment to the customer. Revenues from license fees are recorded when the fees are due and non-refundable. Revenues from research and development arrangements are recognized in the period in which related work has been substantially completed. RESEARCH AND DEVELOPMENT Research and development expenses are charged to operations in the period incurred. INCOME TAXES The Company accounts for taxes using the asset and liability approach as prescribed by Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". The asset and liability approach requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences between carrying amounts and tax basis of assets and liabilities. FINANCIAL INSTRUMENTS The estimated fair value of the Company's financial instruments, which include cash, receivables, notes payable and current/long-term debt, approximates their carrying value. USE OF ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates and assumptions. NET INCOME PER COMMON SHARE Net income per common share is computed on the weighted average number of common and common equivalent shares outstanding which were as follows: 3,116,700 in 1996, 3,102,500 in 1995 and 3,117,600 in 1994. Stock options are considered to be common equivalent shares when dilutive. RECLASSIFICATION Certain reclassifications have been made to prior year financial statements in order to conform with the current year presentation. 31 2. INVENTORIES Inventories are comprised of the following: July 31 1996 1995 - ------- ---- ---- Components and subassemblies $2,968,600 $2,780,200 Labor and overhead costs in process 1,401,900 605,100 Finished goods 1,055,800 674,800 ---------- ---------- 5,426,300 4,060,100 Inventory reserve (437,500) (230,300) ---------- ---------- $4,988,800 $3,829,800 ---------- ---------- ---------- ---------- Inventories do not include amounts related to the DoD component prestocking program which are segregated in STI's warehouse facilities for future DoD contract requirements. 3. RESTRUCTURING CHARGE In fiscal 1995, a restructuring plan was approved by the Company's Board of Directors resulting in a $450,000 charge against earnings for the relocation of its corporate office. As part of this plan, the Company initiated certain organizational changes during fiscal 1996 resulting in additional charges related to severance benefits provided to certain employees terminated during fiscal 1996. The following table sets forth the Company's restructuring charges for the year ended July 31, 1996 and 1995: Loss From Restructuring of Operations ------------------------------------- 1996 1995 Corporate: Employee severance accrued $ 321,900 0 Relocation of facilities 0 $ 450,000 --------- --------- $ 321,900 $ 450,000 --------- --------- --------- --------- The following table sets forth the Company's restructuring reserve as of July 31, 1996: Restructuring Reserve --------------------- Relocation Employee of facilities Separations Total ------------- ----------- ----- Reserve as of July 31, 1995 $ 450,000 $ 450,000 Restructuring of operations 321,900 321,900 Cash payments (7,200) (124,300) (131,500) --------- --------- --------- Reserve as of July 31, 1996 $ 442,800 $ 197,600 $ 640,400 --------- --------- --------- --------- --------- --------- In October 1996, the Company signed a letter of intent to sublease its corporate office space in Rockville, Maryland and entered into a new lease in Columbia, Maryland for the relocation of the corporate headquarters. The reserve balance for the relocation of facilities at July 31, 1996 is sufficient to cover both the moving costs and the lease rate differential on the sublease. The Company is scheduled to move its corporate headquarters by December 1996. 32 4. MERGER WITH BRUNSWICK BIOMEDICAL CORPORATION On April 15, 1996, Brunswick Biomedical Corporation ("BBC"), a privately-held medical device company, purchased 61.1% of the Company's outstanding common stock from the estate of the Company's late founder, Dr. Stanley J. Sarnoff. On September 11, 1996, the Company and BBC entered an Agreement and a Plan of Merger ("Merger Agreement"). Pursuant to the Merger Agreement, each outstanding share of BBC's common stock will be exchanged for 2.1 shares of the Company's common stock and the Company's common stock will remain outstanding. Each of BBC's outstanding shares of preferred stock will be converted into a right to receive 2.1 shares of the Company's common stock and a warrant to purchase 0.4 share of the Company's common stock at an exercise price of $11.00 per share, exercisable for a period of five years following the merger. In addition, the Company will assume BBC's obligations under outstanding options and warrants. These provisions of the agreement will result in 1,708,928 shares of the Company's common stock being issued in exchange for BBC stock at the time of the merger and could result in the issuance of an additional 1,053,358 shares of the Company's common stock if all options and warrants were exercised and the required consideration paid. Each of the 1,888,126 shares of Company's common stock currently owned by BBC will be retired in the merger. The transaction requires approval by both the Company's and BBC's shareholders and is expected to be completed during the second quarter of fiscal 1997. The merger would subject the Company to the financial commitments of BBC which currently include an $11 million bridge loan that will be converted to a $10 million long-term loan upon completion of the merger. The long-term loan contains covenants which are applicable to the financial condition of the merged Company. In order to adequately service the long-term loan and comply with the financial covenants, the merged Company must achieve significantly higher operating results, obtain external financing from strategic partners interested in its R&D programs and/or obtain additional equity financing. At this time, there is no assurance that the merger will occur, and, if the merger does occur, that the Company will comply with the financial covenants of the long-term loan. Pursuant to the Merger Agreement, BBC will be merged into the Company, the existence of BBC will cease, and the Company, as the surviving corporation, will continue to exist. Although the Company will be the surviving corporation in the merger as a legal matter, the merger will be treated as a purchase of the Company by BBC for accounting purposes. As a result, the Company's assets and liabilities, revalued to their respective fair values, and BBC's historical financial statements will reflect the combined operation of the Company and Brunswick after the effective date of the merger. 33 The following unaudited pro forma financial information reflects the adjustment of the historical financial information to give effect to the merger as if the merger transaction occurred on August 1, 1995. Statement of Operations for the year ended July, 31, 1996: - ---------------------------------------------------------- Total revenue $35,014,900 Cost of sales 24,408,600 ----------- Gross profit 10,606,300 Operating expenses * 15,421,700 ----------- Operating loss (4,815,400) Non-operating expenses 1,985,200 Provision for income taxes 100,000 ----------- Net loss $(6,900,600) ----------- ----------- Net loss per share $(2.09) ------ ------ * Included in operating expenses is a non-recurring write-off of in-process research and development totalling $4.5 million. Balance sheet at July, 31, 1996: - -------------------------------- Current assets $16,351,100 Property, plant and equipment 14,743,500 Other assets 13,354,900 ----------- Total assets $44,449,500 ----------- ----------- Current liabilities $12,723,900 Long-term debt 16,089,400 Other liabilities 2,222,000 Total stockholders' equity 13,414,200 ----------- Total liabilities and shareholders' equity $44,449,500 ----------- ----------- 5. SALE OF MEDICAL DEVICE DIVISION On July 31, 1994, the Company sold substantially all of the assets (exclusive of trade receivables) and the business of its Medical Device Division ("MDD") to Brunswick Biomedical Corporation ("BBC") of Marlboro, Massachusetts. The MDD designed, manufactured and marketed electronic heart monitoring devices known as CardioBeeper-Registered Trademark- ECG transmitters ("CardioBeepers"). James H. Miller, president, chief executive officer and director of the Company also is chairman, president, chief executive officer and a shareholder of BBC. The assets sold consisted primarily of business equipment, inventories of CardioBeepers and related components, patents and customer account lists. In consideration of the asset purchase, BBC paid the Company $2 million in cash at the closing date with future payments not to exceed $1 million based on net sales of the Division over the next five years. The proceeds of the sale ($2 million) were used to reduce current bank borrowings at July 31, 1994. Royalty payments in fiscal 1996 and 1995 aggregated $90,000 and $133,400, respectively. At July 31, 1996, royalty payments of $59,600 were outstanding and unpaid. 34 This sale was recorded by the Company in the fourth quarter of its fiscal year ended July 31, 1994 resulting in a non-recurring pretax gain on disposal of $1,562,300 which includes a provision for costs associated with the sale, including employee severance costs and legal expenses. This nonrecurring gain is exclusive of potential future payments. Revenues generated from this division in fiscal 1994 were $1.9 million. 6. ACQUISITION OF MEDIMECH ASSETS On November 18, 1992, the Company acquired the principal assets of Medimech International Limited ("Medimech"), a designer and manufacturer of auto- injectors based in the United Kingdom for $1,524,200 in cash. In addition, the Company will be required to make future payments for an eight-year period equal to 7.5% of the net sales of Medimech products after such sales exceed $3 million. There have been no additional payments made through July 31, 1996. The acquisition was accounted for as a purchase. The purchase of Medimech was financed in part through an arrangement with E.M. Industries, Inc. ("EMI"), whose division, Center Laboratories, Inc. ("Center"), is the Company's exclusive distributor of EpiPen-Registered Trademark- auto- injectors. EMI provided $1.2 million to the Company in exchange for: 61,900 shares of the Company's common stock, a license fee totalling $300,000 for the exclusive marketing rights to certain future products under agreements to be negotiated and a $300,000 non-interest bearing loan to be repaid through credits on future sales of EpiPen auto-injectors by the Company to Center commencing January 1, 1993. The loan was paid off in fiscal 1995. The balance of the purchase price was financed by the Company through internal sources. 7. DEBT ACTIVITY NOTE PAYABLE TO BANK The Company has a revolving credit agreement ("Agreement") with Merrill Lynch Business Financial Services, Inc. ("MLBFS") with a maximum commitment of $5 million. Outstanding borrowings under the Agreement totalled $3.9 million at July 31, 1996 and 1995, respectively, with an interest rate equal to the 30-day commercial paper rate as published in the Wall Street Journal plus 265 basis points (8.04% at July 31, 1996 and 8.48% at July 31, 1995.) The agreement is collateralized by substantially all of the Company's assets and general intangibles. Financial covenants under the Agreement require the Company to maintain certain levels of tangible net worth and debt to net worth ratios while limiting capital expenditures to no more than $5 million in any one fiscal year. During the first quarter of fiscal 1997, the Agreement was extended through December 1996 with the same terms and conditions. NOTE PAYABLE TO SYNTEX On April 16, 1991, the Company signed a Loan Agreement (the "Loan Agreement") pursuant to which Syntex Laboratories, Inc. ("Syntex") of Palo Alto, California agreed to lend $5.4 million to the Company. Approximately $2.9 million of the loan proceeds were used to finance capital expenditures with the balance of $2.5 million to finance working capital requirements. The Company drew down on the capital expenditure portion of the Loan Agreement as equipment was purchased. Principal repayments commenced August 1, 1991 through credits against amounts invoiced to Syntex for product delivered under a Manufacturing and Packaging Agreement between the parties. 35 On November 30, 1992, the Company and Syntex agreed to terminate the Manufacturing and Packaging Agreement effective February 15, 1993. As part of this termination agreement, the repayment terms of the Loan Agreement were modified to include an eighteen-month moratorium on the repayment of principal beginning with the calendar quarter ended March 31, 1993 through the calendar quarter ended June 30, 1994. The outstanding loan balance (approximately $2.2 million) was non-interest bearing from January 1, 1993 through June 30, 1994 and effective July 1, 1994 began bearing interest at a rate equal to that which the Company pays on its current commercial line of credit facility. Principal payments resumed for the calendar quarter ended September 30, 1994 at the minimum of $200,000 per quarter and aggregated $800,000 in both fiscal 1996 and 1995. The loan is subject to acceleration upon the occurrence of certain events. The Loan Agreement is collateralized by approximately $6.5 million of existing equipment and general intangibles. Any security interest that Syntex may have on newly acquired equipment by the Company and all proceeds thereof is subject and subordinate to the security interest of MLBFS. OTHER LONG-TERM DEBT On May 23, 1995, the Company entered into a loan agreement with The CIT Group/Equipment Financing, Inc. ("CIT") to assist in financing the Company's capital investment programs. This arrangement will consist of a series of loans for the acquisition of production molds, high speed component preparation and filling equipment and facility renovations not to exceed a maximum aggregate of $3 million. Loan proceeds totalled $445,300 and $1,046,100 in fiscal 1996 and 1995, respectively, of which $1.2 million was outstanding at July 31, 1996 with an interest rate of 8.8%. Terms include repayment of each loan in sixty (60) equal monthly installments at a fixed interest rate equal to the Treasury Yield (as published in the Wall Street Journal two business days prior to closing on a loan amount) plus 247 basis points. The agreement with CIT is collateralized by the assets financed with the loan proceeds. CIT's security interest in such assets is subject and subordinate to the security interest of Syntex. On January 11, 1996, the Company received a non-interest bearing loan in the amount of $375,000 from Center Laboratories, Inc. ("Center"), STI's exclusive distributor for the EpiPen and EpiE-ZPen. The proceeds from this loan will assist the Company in purchasing high-speed filling and automated packaging equipment which will reduce the cost of manufacturing the EpiE-ZPen. Repayment of this loan will commence during the first quarter of fiscal 1997 with an agreed upon credit per unit on EpiE-ZPen shipments to Center. The Company anticipates loan repayment to be completed in fiscal 1999. Other long-term debt consisted of the following: July 31 1996 1995 - ------- ------ ------ CIT Group/Equipment Financing, Inc. $1,209,100 $ 996,600 Capital lease obligations (See Note 11) 117,100 393,200 Note payable to Center, non-interest bearing 375,000 ---------- --------- 1,701,200 1,389,800 Less current portion 516,800 492,600 ---------- --------- Other long-term debt $1,184,400 $ 897,200 ---------- --------- ---------- --------- 36 Minimum annual principal payments on other long-term debt, exclusive of capitalized lease obligations, are as follows: 1997 - $417,100; 1998 - $477,500; 1999 - $374,900; 2000 - $287,900; 2001 - $26,700. Capitalized interest costs in fiscal 1996, 1995 and 1994 totalled $132,400, $137,700, and $130,100, respectively. 8. STOCK OPTION PLANS The Company has adopted two Stock Option Plans ("the Plans") which reserve 700,000 shares for the granting of options through 2001 and provide for issuance of non-qualified stock options, incentive stock options, stock appreciation rights, incentive shares and restricted stock. Options granted to employees, officers and directors pursuant to the Company's stock option plans generally have been exercisable in varying amounts in cumulative annual installments up to ten years from the date of grant. The exercise price on all options granted during the three years ended July 31, 1996 was equivalent to the market value of the Company's stock on the date of grant. At July 31, 1996, there were no stock appreciation rights outstanding. The following table summarizes the activity in the Company's stock options during fiscal 1996, 1995 and 1994: Number of Shares 1996 1995 1994 - ---------------- ------ ------ ------ Options outstanding at beginning of year 305,000 269,200 169,400 Granted during the year 36,900 60,100 109,700 Exercised during the year (6,200) 0 (400) Expired or terminated during the year (41,900) (24,300) (9,500) ------- ------- ------- Options outstanding at end of year Number of shares 293,800 305,000 269,200 Price per share $6.75-20.75 $6.75-20.75 $6.75-20.75 Aggregate price $3,011,400 $3,205,300 $3,032,800 Options reserved for granting at end of year 106,800 109,100 156,000 Options exercised during the year Number of shares 6,200 none 375 Price per share $6.75-8.75 $10.125 Aggregate price $42,600 $3,800 Fair value per share $8.00-11.51 $12.75 Aggregate fair value $61,400 $4,800 Options exercisable at end of year 196,800 176,100 118,600 The Estate of Stanley J. Sarnoff, the Company's late founder, holds options to purchase up to 32,500 shares of the Company's common stock through September 14, 2000 (as to 30,000 shares) and 2003 (as to 2,500 shares) at a price of $9.875 and $10.78, respectively. The Company is obligated under certain circumstances to register, under the Securities Act of 1933, shares of the Company's stock owned by the Estate. During the first quarter of fiscal 1997, an executive officer was granted an option to purchase 40,000 shares of the Company's common stock at an exercise price equal to its fair market value ($9.50). Under the terms of the grant, the option is exercisable as to 10,000 common stock shares six months after the date of grant and will vest with respect to the remaining 30,000 shares in one-third annual increments. In addition, the vesting of such 30,000 shares wil1 be accelerated, in 10,000 share increments, if the market price for the common stock reaches $18.00, $27.00 and $36.00, respectively. 37 9. INCOME TAXES As discussed in Note 1, the Company records income taxes using the asset and liability approach as prescribed by SFAS 109, "Accounting for Income Taxes." The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. The provision (benefit) for income taxes in fiscal 1996, 1995 and 1994 consists of: Year Ended July 31 1996 1995 1994 ------------------ ---------- ---------- ---------- Current: Federal $ 618,300 $ 220,000 $ 603,100 State 115,900 (3,200) 178,600 ---------- ---------- ---------- 734,200 216,800 781,700 ---------- ---------- ---------- Deferred: Federal (29,500) 26,900 588,200 State ( 6,600) 5,900 72,100 ---------- ---------- ---------- (36,100) 32,800 660,300 ---------- ---------- ---------- $ 698,100 $ 249,600 $1,442,000 ---------- ---------- ---------- ---------- ---------- ---------- The Company provides deferred taxes for temporary differences between the book basis of assets and liabilities for financial reporting purposes and the book basis of assets and liabilities for tax return purposes. The net deferred tax liability is attributable to the following: July 31 1996 1995 ------- ----------- ----------- Inventory valuation $ 255,600 $ 175,700 Uniform inventory capitalization 322,300 370,300 Postretirement benefits 173,700 112,900 Deferred lease income 64,200 75,900 Vacation expenses 57,900 57,900 Restructuring charge 247,200 173,700 Other 96,600 64,500 ------------ ----------- Gross deferred tax asset 1,217,500 1,030,900 ------------ ----------- Depreciation (1,492,700) (1,370,400) Patent costs (112,800) (77,200) Other (7,400) ------------ ----------- Gross deferred tax liability $ (1,605,500) (1,455,000) ------------ ----------- Net deferred tax liability $ (388,000) $ (424,100) ------------ ----------- ------------ ----------- A reconciliation of the effective tax rate for fiscal 1996, 1995 and 1994 to the U.S. Federal income tax rate is provided in the following tabulation: Year Ended July 31 1996 1995 1994 ------------------ ---- ---- ---- Statutory Federal tax rate 34.0% 34.0% 34.0% State taxes, net of Federal tax benefit 4.6% 4.6% 4.6% Other (3.2%) (3.5%) 1.8% ---- ---- ---- Effective income tax rate 35.4% 35.1% 40.4% ---- ---- ---- ---- ---- ---- 38 10. EMPLOYEE RETIREMENT PLANS PENSION AND SAVINGS PLANS The Company maintains a profit sharing thrift plan covering all full-time employees not covered by a collective bargaining agreement. Annual contributions by the Company under the plan may be made on the basis of available retained earnings up to 6.6% of the base annual salary of all plan participants. Plan benefit allocations are based on the participants' average annual compensation. The Company made no contributions in fiscal 1996 while contributing $50,000 and $75,000 in fiscal 1995 and 1994, respectively. As part of this profit sharing thrift plan, eligible employees may elect to contribute up to 12% of their base annual salary to the plan. The Company matches a portion of employee contributions which amounted to $172,000, $161,000 and $129,100 in fiscal 1996, 1995 and 1994, respectively. The Company also made payments to pension plans for its full-time employees in St. Louis, Missouri covered by a collective bargaining agreement. Contributions to this plan aggregated $78,900, $72,900 and $76,900 in fiscal 1996, 1995 and 1994, respectively. OTHER POSTRETIREMENT BENEFITS The Company sponsors a postretirement benefit plan ("the Plan") to provide certain medical and life insurance benefits to retirees, their spouses and dependents. Employees terminated from active service after March 1992 who are at least 60 years of age but no more than age 65, with 20 years service, are eligible for medical coverage. Employees who terminated from active service prior to April 1, 1992 who were at least 55 years of age, but no more than age 65, with 10 years service, are eligible for medical and life insurance coverage. Upon reaching age 65, Medicare becomes the retiree's primary medical coverage. The Plan is contributory for medical benefits based on the retiree's years of service and noncontributory for life insurance benefits. On August 1, 1993, the Company adopted Statement of Financial Accounting Standard No. 106 "Employee's Accounting of Postretirement Benefits Other Than Pension" ("SFAS 106"). The Company had previously recorded the expense associated with these benefits on a pay-as-you-go basis. Under SFAS 106, the cost of providing retiree health care and life insurance benefits is actuarially determined and accrued over the service period of an employee. The unrecognized transition obligation upon adoption of the standard on August 1, 1993, was $898,000. The Company has elected to amortize the transition obligation on a straight-line basis over a twenty-year period. The following table sets forth the Plan's funded status reconciled with the amount included in deferred compensation in the balance sheet:
July 31 1996 1995 1994 - ------- ---- ----- ---- Accumulated postretirement benefit obligation: Retirees $ 877,000 $ 665,000 $ 234,000 Fully eligible and other Plan participants 502,000 554,000 775,000 ---------- ---------- ---------- 1,379,000 1,219,000 1,009,000 Unrecognized prior service cost (60,000) Unrecognized net loss (107,000) (98,000) Unrecognized transition obligation (762,000) (808,000) (852,700) ---------- ---------- ---------- Accrued postretirement benefit cost $ 450,000 $ 313,000 $ 156,300 ---------- ---------- ---------- ---------- ---------- ----------
39 In fiscal year 1995, the Plan incurred an unrecognized net loss of $105,000, which the Company has elected to amortize on a straight-line basis over a fifteen-year period. Net periodic postretirement benefit cost included the following:
Year ended July 31 1996 1995 1994 - ------------------ ------ ------ ------ Service cost-benefits attributed to service during periods $ 53,000 $ 66,000 $ 55,000 Interest cost on accumulated postretirement benefit obligation 100,000 85,000 76,000 Amortization of net loss 7,000 Amortization of transition obligation 45,000 45,000 45,000 -------- -------- -------- Net periodic postretirement benefit cost $205,000 $196,000 $176,000 -------- -------- -------- -------- -------- --------
For measurement purposes, a 9.5% annual rate of increase in cost of health care was assumed for fiscal 1996; the rate was assumed to decrease gradually to 5% by 2005 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing assumed health care cost by 1% in each year would increase the accumulated postretirement benefit obligation as of July 31, 1996 by $218,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost by $33,000 for the year ended July 31, 1996. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8%. 11. COMMITMENTS AND CONTINGENCIES LEASES The Company has various commitments under capital and operating leases through 2009 relating to computer hardware and software, its pharmaceutical manufacturing facility and warehouses in St. Louis, Missouri, its facility in the United Kingdom and administrative offices in Rockville, Maryland and St. Louis, Missouri. Future minimum rentals as of July 31, 1996 under noncancellable leases are as follows: Capital Operating Year Ending July 31 Leases Leases ------------------- ------ ------- 1997 $118,300 $ 947,500 1998 19,200 923,600 1999 875,200 2000 798,700 2001 653,800 Thereafter 1,659,600 --------- ----------- 137,500 $ 5,858,400 ----------- ----------- Less amount representing interest (imputed at 10.5%) (20,400) -------- Capital lease obligations 117,100 Less current portion 99,800 -------- Long-term obligations $ 17,300 -------- -------- 40 These future minimum rentals do not include CPI adjustments to which some of the leases are subject. The Company incurred rental expense of $818,800 in 1996, $773,400 in 1995 and $728,300 in 1994. During fiscal 1996 and 1995, the Company amortized $30,200 of lease incentives previously deferred in fiscal 1994 and prior (aggregating $226,600) which were received in connection with a lease for office space. These incentives are being amortized over the ten-year life of the respective lease. The schedule of operating lease payments does not include reimbursement of rent expense related to the sublease agreement for the corporate office facility discussed in Note 3 of the Notes to Consolidated Financial Statements. SALE/LEASEBACK OF CORPORATE HEADQUARTERS BUILDING In connection with the December 1988 sale of the Company's former corporate headquarters building in Bethesda, Maryland, the Company's obligations under the Leasehold Deed of Trust ("Ground Lease") were assigned to and assumed by the purchaser of the building. The Company remains contingently liable under the Ground Lease. The annual commitment under the Ground Lease aggregated $143,700 in 1996 (adjusted for increases in the Consumer Price Index) and extends until the year 2042. LITIGATION Lawsuits and claims are filed from time to time against the Company and its subsidiaries in the ordinary course of business. Management of the Company, after reviewing developments to date with legal counsel, is of the opinion that the outcome of such matters will not have a material adverse effect on the consolidated financial position or results of operations of the Company. GOVERNMENT CONTRACT REVENUE The Company's supply contracts with the Department of Defense ("DoD") are subject to post-award audit and potential price redetermination. In the opinion of management, adjustments, if any, on completed contracts would not have a material adverse effect on the Company's consolidated financial position or results of operations. EMPLOYEE CONTRACTS The Company entered into agreements with certain key employees which provide for certain benefits should the employee be terminated within the term of the agreement for other than specified reasons. The Company also entered into agreements with certain other key employees which provide for certain benefits should the employee be terminated within a two year period subsequent to a change of control (as defined by the agreements) for other than specified reasons. Benefits to be provided under these agreements include continued life, disability, accident and health insurance coverage for a period of two years and a severance payment up to 200% of the employee's annual base compensation. Additionally, all stock options held by the employee become immediately exercisable and any restrictions on transfer of the Company's stock held by the employee shall lapse. These agreements began to expire in April 1996 through December 1996 and renew for one-year periods unless timely notice of non-renewal is given. The maximum contingent liability under these agreements at July 31, 1996 aggregates $1.3 million. 41 12. CASH FLOWS During fiscal 1995 and 1994, the Company entered into additional capital leases for more computer hardware related to the new management information system totalling $170,400 and $104,900 respectively. There was no such activity in fiscal 1996. 13. INDUSTRY SEGMENT INFORMATION The Company has no significant foreign operations and operates in one industry segment which includes the design, development, manufacture and sale of medical products and related services, with a major focus on safe and convenient participation by the patient in injection therapy. Financial information relating to major customers and export sales follows:
Year Ended July 31 1996 1995 1994 - ------------------ ----------- ----------- ----------- Sales to major U.S. customers: U.S. Department of Defense $14,299,000 $ 7,439,500 $ 5,669,000 Center Laboratories, Inc. 11,171,900 9,756,700 8,325,200 Bristol-Myers Squibb 865,800 1,592,700 3,042,000 Development Contracts 2,282,200 2,264,700 2,862,700 Other 918,800 1,237,500 2,172,200 ----------- ----------- ----------- 29,537,800 22,291,100 22,071,100 ----------- ----------- ----------- Export sales: Contract Sales to the Governments of Foreign Countries 1,675,100 3,050,400 1,427,700 Other 172,400 145,300 1,357,700 ----------- ----------- ----------- Total net sales $31,385,200 $25,486,800 $24,856,500 ----------- ----------- ----------- ----------- ----------- -----------
Substantially all export revenue consists of sales of automatic injectors to the Government of Israel and sales of medical devices, primarily CardioBeepers, to a company in Israel during fiscal year 1994. The Company extends credit to domestic customers and generally requires a letter of credit for export sales. 14. OTHER LIABILITIES AND ACCRUED EXPENSES Included in other liabilities and accrued expenses at July 31, 1996 and 1995 are costs related to accrued employee compensation totalling $415,900 and $444,100 respectively. 15. RELATED PARTY TRANSACTIONS On April 15, 1996, Brunswick Biomedical Corporation ("BBC"), a privately held medical device company acquired 61.1% of the Company's outstanding stock. During the current year, the Company provided office space and certain administrative services to BBC at fair values which totalled $8,700 and were outstanding and unpaid at July 31, 1996. The Company also has an additional balance of $168,700 for costs incurred on behalf of BBC included in receivables which too is outstanding and unpaid as of July 31, 1996. 42 16. QUARTERLY OPERATING RESULTS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended ---------------------------------------------------- FISCAL YEAR 1996 Oct 31 Jan 31 Apr 30 Jul 31 - ---------------- ------- ------- ------- ------- Net sales $ 5,295 $ 8,569 $ 8,897 $ 8,624 Cost of sales 3,515 6,187 6,731 5,995 ------- ------- ------- ------- Gross profit 1,780 2,382 2,166 2,629 Operating expenses (1) 1,491 1,629 1,516 2,047 ------- ------- ------- ------- Operating income 289 753 650 582 Other (expense) income, net (54) (139) (71) (35) ------- ------- ------- ------- Income before income taxes 235 614 579 547 Provision for income taxes 91 232 220 156 ------- ------- ------- ------- Net income $ 144 $ 382 $ 359 $ 391 ------- ------- ------- ------- ------- ------- ------- ------- Net income per share $ .05 $ .12 $ .12 $ .12 ------- ------- ------- ------- ------- ------- ------- ------- FISCAL YEAR 1995 Oct 31 Jan 31 Apr 30 Jul 31 - ---------------- ------- ------- ------- ------- Net sales $ 4,967 $ 6,445 $ 5,592 $ 8,483 Cost of sales 3,216 4,671 3,693 5,648 ------- ------- ------- ------- Gross profit 1,751 1,774 1,899 2,835 Operating expenses (1) 1,677 1,696 1,616 2,380 ------- ------- ------- ------- Operating income 74 78 283 455 Other (expense) income, net (33) (41) (44) (62) ------- ------- ------- ------- Income before income taxes 41 37 239 393 Provision for income taxes 16 13 85 136 ------- ------- ------- ------- Net income $ 25 $ 24 $ 154 $ 257 ------- ------- ------- ------- ------- ------- ------- ------- Net income per share $ .01 $ .01 $ .05 $ .08 ------- ------- ------- ------- ------- ------- ------- -------
(1) During the quarters ended July 31, 1996, October 31, 1995 and July 31, 1995, the Company recorded a restructuring charge of $227,800, $94,100 and $450,000, respectively, which increased operating expenses accordingly. 43 ITEM 8. CONTINUED: REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders Survival Technology, Inc. In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a) (1) and (2) on pages 44 and 45 present fairly, in all material respects, the financial position of Survival Technology, Inc. and its subsidiaries at July 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Washington, DC October 3, 1996 44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has never filed a Current Report on Form 8-K reporting a change of accountants because of a disagreement on any matter of accounting principles or practices or financial statement disclosure or otherwise. PART III ITEMS 10. THROUGH 13. Information required by Part III (Items 10 through 13) of this Form 10-K is incorporated by reference to the Company's definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended July 31, 1996, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year to which this report relates. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS FORM 8-K (a) The following documents are filed with or incorporated by reference as part of this report: 1. Financial Statements: Consolidated Balance Sheets at July 31, 1996 and July 31, 1995 Consolidated Statements of Income for the years ended July 31, 1996, July 31, 1995 and July 31, 1994. Consolidated Statements of Shareholders' Equity for the years ended July 31, 1996, July 31, 1995 and July 31, 1994. Consolidated Statements of Cash Flows for the years ended July 31, 1996, July 31, 1995 and July 31, 1994. Notes to Consolidated Financial Statements Report of Independent Accountants The above-listed financial statements are included in Item 8 to this Form 10-K. 45 2. Financial Statement Schedules: The following financial statement schedules immediately follow the signatures to this report: Schedule V - Property and Equipment Schedule VI - Accumulated Depreciation and Amortization of Property and Equipment Schedule VIII - Valuation and Qualifying Accounts and Reserves All other schedules are omitted because they are immaterial, not applicable or the required information is shown in the consolidated financial statements or the notes thereto. 3. Exhibits: Exhibit No. Description of Exhibit - ----------- ---------------------- (2.1) Asset Purchase Agreement dated July 31, 1994 between Survival Technology, Inc. and Brunswick Biomedical Corporation. Incorporated by reference to Exhibit (2.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1994 (File No. 0-5958). (2.2) Agreement and Plan of Merger dated September 11, 1996 between SurvivalTechnology, Inc. and Brunswick Biomedical Corporation. Incorporated byreference to Exhibit 6(a) to amendment No. 1 to Schedule 13D filed by Brunswick Biomedical Corporation dated September 13, 1996. (3.1) The Company's Bylaws (As Amended). Filed herewith. (3.2) The Company's Articles of Incorporation (As Amended). Incorporated by reference to Exhibit (3.2) to the Company's Annual Report on Form 10-K for the year ended July 31, 1987 (File No. 0-5958). (10.1) Indenture of Lease, dated January 1, 1982, between Survival Technology, Inc. and Abraham M. Morrison. Incorporated by reference to Exhibit (10.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1988 (File No. 0-5958). (10.2) Revolving Credit Agreement dated November 4, 1993 between Merrill Lynch Financial Business Services, Inc. and the Company. Incorporated by reference to Exhibit (10.2) to the Company's Annual Report on Form 10-K for the year ended July 31, 1994. (10.2.1) Revolving Credit Extension Agreement dated August 15, 1996 between Merrill Lynch Financial Business Services, Inc. and the Company. Filed herewith. 46 (10.3.1) Registration Rights Agreement dated September 14, 1990 made by the Company in favor of Robert E. Herzstein as Personal Representative of the Estate of Stanley J. Sarnoff. Incorporated by reference to Exhibit (10.2.3) to the Company's Annual Report on Form 10-K for the year ended July 31, 1990 (File No. 0-5958). (10.3.2) Option Agreement dated September 14, 1990 made by the Company in favor of Robert E. Herzstein as Personal Representative of the Estate of Stanley J. Sarnoff. Incorporated by reference to Exhibit (10.2.2) to the Company's Annual Report and Form 10-K for the year ended July 31, 1990 (File No. 0-5958). (10.3.3) Option Agreement Amendment dated September 14, 1993 made by the Company in favor of Robert E. Herzstein as Personal Representative of the Estate of Stanley J. Sarnoff. Incorporated by reference to Exhibit (10.3.3) to the Company's Annual Report and Form 10-K for the year ended July 31, 1994 (File No. 0-5958). (10.4) Survival Technology, Inc., 1982 Stock Option Plan. Incorporated by reference to Exhibit (4.4) to Registration Statement No. 2- 80908 on Form S-8. * (10.5) Survival Technology, Inc. 1986 Stock Option Plan (As Amended). Incorporated by reference to Exhibit (4.2) to Registration Statement No. 33-46981 on Form S-8. * (10.6) Contract SP0200-96-D-0001 dated October 27, 1995 between the U. S. Government (Defense Personnel Support Center) and the Company. Filed herewith (File No. 0-5958) (10.6.1) Contract SP0200-96-D-0001 modification No. 8004 dated October 15, 1996 between the U.S. Government (Defense Personnel Support Center) and the Company. Filed herewith (File No. 0-5958). (10.7) Agreement dated as of January 1, 1987 between Center Laboratories, a division of EM Industries, Inc. and the Company. Incorporated by reference to Exhibit (10.11) to the Company's Annual Report on Form 10-K for the year ended July 31, 1988 (File No. 0-5958). (10.7.1) Letter Agreement dated as of January 31, 1990 between Center Laboratories, a division of EM Industries, Inc. and the Company. Incorporated by reference to Exhibit (10.10.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1990. (10.8) Agreement dated June 23, 1981 between Survival Technology, Inc. and American Home Products Corporation. Incorporated by reference to Exhibit (10.12) to the Company's Annual Report on Form 10-K for the year ended July 31, 1988 (File No. 0-5958). 47 (10.8.1) License Agreement dated April 20, 1982 between Survival Technology, Inc. and American Home Products Corporation. Incorporated by reference to Exhibit (10.12.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1988 (File No. 0-5958). (10.8.2) Supply Agreement dated August 3, 1993 between Survival Technology, Inc. and Wyeth-Ayerst Laboratories (A Division of American Home Products Corporation). Incorporated by reference to Exhibit (10.7.2) to the Company's Annual Report on Form 10-K for the year ended July 31, 1993 (File No. 0-5958). (10.9) Loan Agreement dated April 16, 1991 between Syntex Laboratories, Inc. and the Company. Incorporated by reference to Exhibit (10.11.1) to the Company's Current Report on Form 8-K dated April 16, 1991 (File No. 0-5958). (10.9.1) Agreement dated November 25, 1993 between Survival Technology, Inc. and Syntex Laboratories, Inc. with respect to the termination of the March 1, 1989 Manufacturing and Packaging Agreement. Incorporated by reference to Exhibit (10.9.2) to the Company's Annual Report on Form 10-K for the year ended July 31, 1993. (10.10) Development, Manufacturing and Supply Agreement between Mylan Laboratories, Inc. and Survival Technology, Inc. dated August 31, 1993. Incorporated by reference to Exhibit (10.11) to the Company's Annual Report on Form 10-K for the year ended July 31, 1993 (File No. 0-5958). (10.10.1) Development, Manufacturing and Supply Amendment Agreement dated July 28, 1994 between Mylan Laboratories,Inc. and Survival Technology, Inc. Incorporated by reference to Exhibit (10.12.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1994. (10.11) Lease Agreement dated August 26, 1991 between Pru Beta 2 and the Company. Incorporated by reference to Exhibit (10.12) to the Company's Annual Report on Form 10-K for the year ended July 31, 1991 (File No. 0-5958). (10.12) Employment Agreement dated March 2, 1993 between James H. Miller and the Company. Incorporated by reference to Exhibit (10.13) to the Company's Annual Report on Form 10-K for the year ended July 31, 1993 (File No. 0-5958). * (10.12.1) Employment Agreement dated January 28, 1994 between Jeffrey W. Church and the Company. Incorporated by reference to Exhibit (10.14.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1994. (File No. 0-5958). * (10.12.2) Employment Agreement dated January 28, 1994 between Glenn F. Wickes and the Company. Incorporated by reference to Exhibit (10.14.2) to the Company's Annual Report on Form 10-K for the year ended July 31, 1994 (File No. 0-5958). * 48 (10.12.3) Change in Control Agreement dated January 10, 1996 between Mark D. Ruby and the Company. Filed herewith. * (10.13) Commitment letter dated May 4, 1995 between The CIT Group/ Equipment Financing, Inc. and the Company. Incorporated by reference to Exhibit (10.15) to the Company's Annual Report on Form 10-K for the year ended July 31, 1995 (File No. 0-5958). (10.14) Letter dated March 15, 1996 from Brunswick Biomedical Corporation. Incorporated by reference to Exhibit (10) to Form 8-K dated March 19, 1996. (22) A list of the Company's subsidiaries is not provided because they, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of the end of the year covered by this report. (24) Consent of Independent Accountants. Filed herewith. * Management contract, compensatory plan or arrangement. (b) Reports on Form 8-K: There were no Current Reports on Form 8-K filed by the Registrant during the three months ended July 31, 1996. 49 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SURVIVAL TECHNOLOGY, INC. ------------------------- (Registrant) By /S/JAMES H. MILLER --------------------- James H. Miller Chairman of the Board President & CEO Dated: October 22, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: /S/JAMES H. MILLER Chairman of the Board October 22, 1996 - ------------------ President and Director James H. Miller (Principal Executive Officer) /S/JEFFREY W. CHURCH Senior Vice President, Finance October 22, 1996 - -------------------- (Principal Financial and Jeffrey W. Church Accounting Officer) /S/BRUCE M. DRESNER Director October 22, 1996 - ------------------- Bruce M. Dresner /S/ROBERT G. FOSTER Director October 22, 1996 - ------------------- Robert G. Foster /S/DAVID L. LOUGEE Director October 22, 1996 - ------------------ David L. Lougee /S/E. ANDREWS GRINSTEAD, III Director October 22, 1996 - ---------------------------- E. Andrews Grinstead, III 50 FINANCIAL STATEMENT SCHEDULES SCHEDULE V SURVIVAL TECHNOLOGY, INC. PROPERTY AND EQUIPMENT
Balance at Balance at Beginning Additions at End Classification of Period at Cost Retirements Dispositions Transfers of Period - -------------- --------- --------- ----------- ------------ --------- ---------- For the year ended July 31, 1994 - ------------------ Furniture and equipment $12,252,800 $ 515,600 $ $ (274,600)(1) $1,629,800 $14,123,600 Leasehold improvements 2,766,900 70,600 563,300 3,400,800 Construction in progress 3,001,800 2,586,600 (2,193,100) 3,395,300 ----------- ---------- --------- ---------- ---------- ----------- $18,021,500 $3,172,800 $ -0- $ (274,600) $ -0- $20,919,700 ----------- ---------- --------- ---------- ---------- ----------- ----------- ---------- --------- ---------- ---------- ----------- For the year ended July 31, 1995 - ------------------ Furniture and equipment $14,123,600 $ 512,500 $ $ (136,200) $ 889,100 $15,389,000 Leasehold improvements 3,400,800 5,700 2,213,300 5,619,800 Construction in progress 3,395,300 3,279,600 (3,102,400) 3,572,500 ----------- ---------- --------- ---------- ---------- ----------- $20,919,700 $3,797,800 $ -0- $ (136,200) $ -0- $24,581,300 ----------- ---------- --------- ---------- ---------- ----------- ----------- ---------- --------- ---------- ---------- ----------- For the year ended July 31, 1996 - ------------------- Furniture and equipment $15,389,000 $ 43,500 $ $ (371,900) $2,635,900 $17,696,500 Leasehold improvements 5,619,800 1,107,000 6,726,800 Construction in progress 3,572,500 2,294,500 (3,742,900) 2,124,100 ----------- ---------- --------- ---------- ---------- ----------- $24,581,300 $2,338,000 $ -0- $ (371,900) $ -0- $26,547,400 ----------- ---------- --------- ---------- ---------- ----------- ----------- ---------- --------- ---------- ---------- -----------
(1) Includes $94,100 of Medical Device equipment sold to Brunswick Biomedical Corporation 51 SCHEDULE VI SURVIVAL TECHNOLOGY, INC. ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Additions Balance at Charged to Balance Beginning Cost and at End Classification of Period Expenses Retirements Dispositions of Period - -------------- ---------- --------- ----------- ----------- --------- For the year ended July 31, 1994 - ------------------ Furniture and equipment $5,976,700 $ 819,300 $ $ (171,500) $ 6,624,500 Leasehold improvements 2,244,000 158,500 2,402,500 ----------- ---------- ----------- ------------ ----------- $8,220,700 $ 977,800 $ -0- $ (171,500) $ 9,027,000 ----------- ---------- ----------- ------------ ----------- ----------- ---------- ----------- ------------ ----------- For the year ended July 31, 1995 - ------------------ Furniture and equipment $6,624,500 $1,228,000 $ $ (136,200) $ 7,716,300 Leasehold improvements 2,402,500 253,600 2,656,100 ----------- ---------- ----------- ------------ ----------- $9,027,000 $1,481,600 $ -0- $ (136,200) $10,372,400 ----------- ---------- ----------- ------------ ----------- ----------- ---------- ----------- ------------ ----------- For the year ended July 31, 1996 - ------------------ Furniture and equipment $ 7,716,300 $1,405,400 $ $ (332,300) $ 8,789,400 Leasehold improvements 2,656,100 286,900 2,943,000 ----------- ---------- ----------- ------------ ----------- $10,372,400 $1,692,300 $ $ (332,300) $11,732,400 ----------- ---------- ----------- ------------ ----------- ----------- ---------- ----------- ------------ -----------
52 SCHEDULE VIII SURVIVAL TECHNOLOGY, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Additions Balance at Charged to Balance Beginning Costs and Write-off at End of Period Expenses Deductions of Period ---------- ---------- ---------- --------- For the year ended July 31, 1994 - ------------------ Allowance for doubtful accounts $ 177,500 $ 31,100 $ 178,600 $ 30,000 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- Inventory reserves $ 235,900 $ 82,000 $ 40,100 $ 277,800 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- For the year ended July 31, 1995 - ------------------ Allowance for doubtful accounts $ 30,000 $ 144,300 $ 161,300 $ 13,000 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- Inventory reserves $ 277,800 $ 308,400 $ 355,900 $ 230,300 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- For the year ended July 31, 1996 - ------------------ Allowance for doubtful accounts $ 13,000 $ 48,600 $ 16,600 $ 45,000 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- Inventory reserves $ 230,300 $ 297,900 $ 90,700 $ 437,500 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
SURVIVAL TECHNOLOGY, INC. EXHIBIT INDEX FORM 10-K FOR THE FISCAL YEAR ENDED JULY 31, 1995 Exhibit No. Description of Exhibit - ----------- ---------------------- (2.1) Asset Purchase Agreement dated July 31, 1994 between Survival Technology, Inc. and Brunswick Biomedical Corporation. Incorporated by reference to Exhibit (2.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1994 (File No. 0-5958). (2.2) Agreement and Plan of Merger dated September 11, 1996 between Survival Technology, Inc. and Brunswick Biomedical Corporation. Incorporated by reference to Exhibit 6(a) to amendment No. 1 to Schedule 13D filed by Brunswick Biomedical Corporation dated September 13, 1996. (3.1) The Company's Bylaws (As Amended). Filed herewith. (3.2) The Company's Articles of Incorporation (As Amended). Incorporated by reference to Exhibit (3.2) to the Company's Annual Report on Form 10-K for the year ended July 31, 1987 (File No. 0-5958). (10.1) Indenture of Lease, dated January 1, 1982, between Survival Technology, Inc. and Abraham M. Morrison. Incorporated by reference to Exhibit (10.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1988 (File No. 0-5958). (10.2) Revolving Credit Agreement dated November 4, 1993 between Merrill Lynch Financial Business Services, Inc. and the Company. Incorporated by reference to Exhibit (10.2) to the Company's Annual Report on Form 10-K for the year ended July 31, 1994. (10.2.1) Revolving Credit Extension Agreement dated August 15, 1996 between Merrill Lynch Financial Business Services, Inc. and the Company. Filed herewith. (10.3.1) Registration Rights Agreement dated September 14, 1990 made by the Company in favor of Robert E. Herzstein as Personal Representative of the Estate of Stanley J. Sarnoff. Incorporated by reference to Exhibit (10.2.3) to the Company's Annual Report on Form 10-K for the year ended July 31, 1990 (File No. 0-5958). (10.3.2) Option Agreement dated September 14, 1990 made by the Company in favor of Robert E. Herzstein as Personal Representative of the Estate of Stanley J. Sarnoff. Incorporated by reference to Exhibit (10.2.2) to the Company's Annual Report and Form 10-K for the year ended July 31, 1990 (File No. 0-5958). (10.3.3) Option Agreement Amendment dated September 14, 1993 made by the Company in favor of Robert E. Herzstein as Personal Representative of the Estate of Stanley J. Sarnoff. Incorporated by reference to Exhibit (10.3.3) to the Company's Annual Report and Form 10-K for the year ended July 31, 1994 (File No. 0-5958). 54 (10.4) Survival Technology, Inc., 1982 Stock Option Plan. Incorporated by reference to Exhibit (4.4) to Registration Statement No. 2- 80908 on Form S-8. * (10.5) Survival Technology, Inc. 1986 Stock Option Plan (As Amended). Incorporated by reference to Exhibit (4.2) to Registration Statement No. 33-46981 on Form S-8. * (10.6) Contract SP0200-96-D-0001 dated October 27, 1995 between the U. S. Government (Defense Personnel Support Center) and the Company. Filed herewith (File No. 0-5958) (10.6.1) Contract SP0200-96-D-0001 modification No. 8004 dated October 15, 1996 between the U.S. Government (Defense Personnel Support Center) and the Company. Filed herewith (File No. 0-5958). (10.7) Agreement dated as of January 1, 1987 between Center Laboratories, a division of EM Industries, Inc. and the Company. Incorporated by reference to Exhibit (10.11) to the Company's Annual Report on Form 10-K for the year ended July 31, 1988 (File No. 0-5958). (10.7.1) Letter Agreement dated as of January 31, 1990 between Center Laboratories, a division of EM Industries, Inc. and the Company. Incorporated by reference to Exhibit (10.10.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1990. (10.8) Agreement dated June 23, 1981 between Survival Technology, Inc. and American Home Products Corporation. Incorporated by reference to Exhibit (10.12) to the Company's Annual Report on Form 10-K for the year ended July 31, 1988 (File No. 0-5958). (10.8.1) License Agreement dated April 20, 1982 between Survival Technology, Inc. and American Home Products Corporation. Incorporated by reference to Exhibit (10.12.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1988 (File No. 0-5958). (10.8.2) Supply Agreement dated August 3, 1993 between Survival Technology, Inc. and Wyeth-Ayerst Laboratories (A Division of American Home Products Corporation). Incorporated by reference to Exhibit (10.7.2) to the Company's Annual Report on Form 10-K for the year ended July 31, 1993 (File No. 0-5958). (10.9) Loan Agreement dated April 16, 1991 between Syntex Laboratories, Inc. and the Company. Incorporated by reference to Exhibit (10.11.1) to the Company's Current Report on Form 8-K dated April 16, 1991 (File No. 0-5958). (10.9.1) Agreement dated November 25, 1993 between Survival Technology, Inc. and Syntex Laboratories, Inc. with respect to the termination of the March 1, 1989 Manufacturing and Packaging Agreement. Incorporated by reference to Exhibit (10.9.2) to the Company's Annual Report on Form 10-K for the year ended July 31, 1993. 55 (10.10) Development, Manufacturing and Supply Agreement between Mylan Laboratories, Inc. and Survival Technology, Inc. dated August 31, 1993. Incorporated by reference to Exhibit (10.11) to the Company's Annual Report on Form 10-K for the year ended July 31, 1993 (File No. 0-5958). (10.10.1) Development, Manufacturing and Supply Amendment Agreement dated July 28, 1994 between Mylan Laboratories,Inc. and Survival Technology, Inc. Incorporated by reference to Exhibit (10.12.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1994. (10.11) Lease Agreement dated August 26, 1991 between Pru Beta 2 and the Company. Incorporated by reference to Exhibit (10.12) to the Company's Annual Report on Form 10-K for the year ended July 31, 1991 (File No. 0-5958). (10.12) Employment Agreement dated March 2, 1993 between James H. Miller and the Company. Incorporated by reference to Exhibit (10.13) to the Company's Annual Report on Form 10-K for the year ended July 31, 1993 (File No. 0-5958). * (10.12.1) Employment Agreement dated January 28, 1994 between Jeffrey W. Church and the Company. Incorporated by reference to Exhibit (10.14.1) to the Company's Annual Report on Form 10-K for the year ended July 31, 1994. (File No. 0-5958). * (10.12.2) Employment Agreement dated January 28, 1994 between Glenn F. Wickes and the Company. Incorporated by reference to Exhibit (10.14.2) to the Company's Annual Report on Form 10-K for the year ended July 31, 1994 (File No. 0-5958). * . (10.12.3) Change in Control Agreement dated January 10, 1996 between Mark D. Ruby and the Company. Filed herewith. * (10.13) Commitment letter dated May 4, 1995 between The CIT Group/ Equipment Financing, Inc. and the Company. Incorporated by reference to Exhibit (10.15) to the Company's Annual Report on Form 10-K for the year ended July 31, 1995 (File No. 0-5958). (10.14) Letter dated March 15, 1996 from Brunswick Biomedical Corporation. Incorporated by reference to Exhibit (10) to Form 8-K dated March 19, 1996. (22) A list of the Company's subsidiaries is not provided because they, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of the end of the year covered by this report. (24) Consent of Independent Accountants. Filed herewith. * Management contract, compensatory plan or arrangement. (b) Reports on Form 8-K: There were no Current Reports on Form 8-K filed by the Registrant during the three months ended July 31, 1996. EX-3.1 2 EXHIBIT 3.1 Exhibit 3.1 SURVIVAL TECHNOLOGY, INC. BY-LAWS (Restated Through May 10, 1996) ARTICLE 1. OFFICES 1.1. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. 1.2. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2. MEETINGS OF STOCKHOLDERS 2.1. All meetings of the Stockholders shall be held at such place, within or without the State of Delaware, as shall be fixed from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. 2.2. An annual meeting of Stockholders shall be held on the first day of November, if not a legal holiday, and if a legal holiday then on the next secular day following, at 10:00 a.m., local time, or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meeting the Stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting. 2.3. Special meetings of the Stockholders for any purpose or purposes may be called at any time by the Board of Directors and shall be called by the President or Secretary at the request in writing of holders of stock having a majority in voting power of the entire capital stock of the Corporation issued and outstanding and entitled to be voted at such meeting. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting of Stockholders, other than procedural matters and matters - 2 - relating to the conduct of the meeting, shall be limited to the purpose or purposes stated in the notice of the meeting pursuant to Section 4 of this Article II of these By-Laws. 2.4. Written notice of the annual or any special meeting of the Stockholders shall be given to each Stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. The notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which such meeting has been called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the Stockholder at his address as it appears on the records of the Corporation. 2.5. At all meetings of the Stockholders the holders of stock having a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the Stockholders, the holders of stock having a majority of the voting power of the stock entitled to vote thereat who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting. 2.6. When a quorum is present at any meeting, all elections for the Board of Directors shall be decided by a plurality of the votes cast and all other questions shall be decided by a majority of the votes cast, except as otherwise required by statute or as provided for in the Certificate of Incorporation or these Bylaws. Abstentions shall not be considered to be votes cast. 2.7. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at - 3 - the meeting, arranged in alphabetical order, and showing the address of each such Stockholder and the number of shares registered in the name of each such Stockholder. Such list shall be open to the examination of any Stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. 2.8. Any action required by statute to be taken at any annual or special meeting of Stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such Stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which holders of all of the outstanding stock entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those Stockholders who have not consented in writing. 2.9. Votes by written ballot at any meeting of stockholders may be conducted by one or more inspectors, appointed for that purpose, either by the Board of Directors or by the chairman of the meeting. The inspector or inspectors may decide upon the qualifications of voters and the validity of proxies, and may count the votes and declare the result. ARTICLE 3. BOARD OF DIRECTORS 3.1. The business of the Corporation shall be managed by its Board of Directors, which may exercise all such powers of the Corporation and all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the Stockholders. - 4 - 3.2. The number of Directors that shall constitute the whole Board shall be the number from time to time fixed by the Board of Directors, which number shall not be less than one. The Board by resolution may from time to time increase or decrease the number of Directors to any number not less than one, provided that any reduction in the number of Directors shall not have the effect of shortening the term of any Director in office at the time such resolution becomes effective. The phrase "the whole Board," as used in these By-Laws, shall refer to the total number of Directors which the Corporation would have if there were no vacancies. The Directors shall be elected at the Annual Meeting of the Stockholders, except as provided in Section 3 of this Article, and each Director elected shall hold office until removal or resignation or until his successor is elected and qualified. A director may resign at any time by giving written notice to the Chairman of the Board, to the Chief Executive Officer or to the Secretary. Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. 3.3. Vacancies and newly created directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, though less than a quorum, or by a sole remaining Director, and the Directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified. If at any time there are no Directors in office, by reason of death, resignation or other cause, then any Stockholders or any executor or administrator or other fiduciary entrusted with like responsibility for the estate of a Stockholder may call a special meeting of the Stockholders to elect a Board of Directors. If at the time of filling any vacancy or any newly created directorship, the Directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any Stockholder or Stockholders holding at least ten percent of the total number of the shares outstanding at the time and having the right to vote for such Directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the Directors chosen by the Directors then in office. - 5 - MEETINGS OF THE BOARD OF DIRECTORS 3.4. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. 3.5. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. A meeting of the Board of Directors for the election of officers and the transaction of such other business as may come before it may be held without notice immediately following the annual meeting of stockholders. 3.6. Special meetings of the Board may be called by the Chairman of the Board, the Chief Executive Officer or upon the written request of a majority of the whole Board on two days' notice to each Director, either personally or by telephone, or on four days' notice by mail (computed from the date of mailing). Any such notice may be waived and shall be deemed waived by any Director who signs a written waiver of such notice before or after the time stated therein. 3.7. At all meetings of the Board, a majority of the Directors constituting the whole Board shall constitute a quorum for the transaction of business, and the vote of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, the Certificate of In- corporation or these By-Laws. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 3.8. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or committee. 3.9. A director of the Corporation who is present at a meeting of the Board of Directors when a vote on any matter is taken is deemed to have assented - 6 - to the action taken unless he votes against or abstains from the action taken, or unless at the beginning of the meeting or promptly upon arrival, the director objects to the holding of the meeting or the transacting of specified business at the meeting. Any such dissenting votes, abstentions or objections shall be entered in the minutes of the meeting. THE CHAIRMAN OF THE BOARD AND THE VICE-CHAIRMAN OF THE BOARD 3.10. The Board of Directors, at its first meeting following the annual meeting of Stockholders in each year, or at such other time when there shall be a vacancy, shall elect one of its members as Chairman of the Board, and may elect one of its members as Vice-Chairman of the Board; each to serve for one year or until his successor is elected and qualified. The Chairman of the Board shall preside at all meetings of the Stockholders and of the Board of Directors and shall perform such other duties as may be required of him by the Board of Directors and by these By-Laws. The Vice-Chairman of the Board, if one is elected, shall, in the absence of the Chairman of the Board, preside at the meetings of the Stockholders and of the Board of Directors and shall perform such other duties as may be required of him by the Board of Directors. In the absence of the Chairman of the Board and the Vice-Chairman, if any, those members of the Board who are present shall choose from among themselves a person to preside at the meeting of the Board. COMMITTEES OF DIRECTORS 3.11. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board may, by resolution passed by a majority of the whole Board, designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution and as limited by the Sixth Article, Section 2, of the Certificate of Incorporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. In the absence or disqualification of any member of such committee or committees, except as - 7 - otherwise provided to the extent that there shall have been designated alternate members who shall be present, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors as requested by the Board of Directors. COMPENSATION OF DIRECTORS 3.12. The Board of Directors shall have the authority to fix the compensation to be paid to Directors. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, or of any committee of the Board of Directors, in addition to a fixed sum for attendance at each such meeting and/or a stated salary as Director or committee member. Unless otherwise provided by the Board of Directors, no such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. 3.13. Any or all of the Directors may be removed for cause or for no cause by the Stockholders. One or more of the Directors may be removed for cause by a majority of the whole Board. ARTICLE 4. OFFICERS 4.1. The Board of Directors shall elect the officers of the Corporation, which shall be a Chief Executive Officer, a President, a Secretary and a Treasurer, at the first meeting of the Board following each annual meeting of the Stockholders. The Board may from time to time also elect one or more Vice-Presidents in such gradations as the Board of Directors may determine, Assistant Vice-Presidents, Assistant Secretaries, Assistant Treasurers and such other officers and agents as it shall deem necessary, or it may delegate the authority to appoint such officers and agents to an officer subject to the control of the Board of Directors. Any number of offices may be held by the same person. - 8 - 4.2. Unless otherwise provided in the resolution of election or appointment, the officers of the Corporation shall hold office until their successors are chosen and qualified or until their earlier resignation or removal. Any officer may resign at any time by giving written notice to the Chief Executive Officer or the Secretary. Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. Any officer, servant or agent of the Corporation may be removed at any time with or without cause by the Board of Directors or by the officer having power to appoint the successor of the person being removed. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors or otherwise as provided in this Article. 4.3. The officers of the Corporation shall receive such compensation for their services as the Board of Directors may determine. The Board of Directors may delegate its authority to determine compensation to a committee or designated officers of the Corporation. 4.4. The duties and powers of the officers of the Corporation shall be as provided in these By-Laws or as defined in the resolutions appointing them, or shall be those duties and powers customarily exercised by corporate officers holding such offices. 4.5. The Chief Executive Officer of the Corporation shall have general charge and supervision of its business. He shall preside at all meetings of the Stockholders and at meetings of the Board of Directors in the absence of the Chairman and the Vice-Chairman of the Board, if any; shall see that all orders and resolutions of the Board of Directors are carried into effect; and shall have such other powers and duties as normally pertain to his office or as shall be prescribed by the Board of Directors. 4.6. Unless otherwise specified by the Board of Directors, the President of the Corporation shall be the Chief Executive Officer of the Corporation. If a person other than the Chief Executive Officer, the President shall have such powers and perform such duties as may be assigned from time-to-time by the Board of directors or by the Chief Executive Officer. - 9 - 4.7. The Vice-Presidents, if any, shall perform such duties and have such powers as the Board of Directors may from time to time prescribe by standing or special resolution, or the Chief Executive Officer may from time to time provide, subject to the powers and the control of the Board of Directors. 4.8. The Secretary of the Corporation or an Assistant Secretary, as designated by the Chairman of the Board or other presiding officer, or another person so designated, shall act as secretary and record the minutes of meetings of the Board of Directors and committees thereof and of the Stockholders. Unless given by another authorized officer, the Secretary shall give, or cause to be given, notices of all meetings of stockholders and directors and of such committees as directed by the Board of Directors. The Secretary shall have charge of such books and papers as the Board of Directors may require. The Secretary or any Assistant Secretary is authorized to certify copies of extracts from minutes and of documents in the Secretary's charge and anyone may rely on such certified copies to the same effect as if such copies were originals and may rely upon any statement of fact concerning the Corporation certified by the Secretary (or any Assistant Secretary). The Secretary shall have custody of the corporate seal of the Corporation and shall have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by the Secretary's signature. The Board of Directors may give general or special authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall perform all acts incident to the office of Secretary, subject to the control of the Board of Directors, the Chairman of the Board or the Chief Executive Officer, under whose supervision the Secretary shall be. 4.9. The Assistant Secretary, if there be any, or, if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the Secretary may from time to time prescribe. - 10 - 4.10. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation, and may deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such banks, trust companies or other depositories, as the Board of Directors may select or as may be selected by an officer, employee or agent of the Corporation to whom such power may from time to time be delegated by the Board of Directors. He shall perform such other duties and have such other powers as may be prescribed by the Board of Directors or the Chief Executive Officer, under whose supervision he shall be. The Treasurer may act with the assistance of such Assistant Treasurers, if any, or such other employees of the Company as he may reasonably designate. 4.11. The Assistant Treasurer, if there be any, or, if there be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer, and shall perform such other duties and have such other powers as the Board of Directors, the Chief Executive Officer, or the Treasurer may from time to time prescribe. 4.12. Checks, notes, drafts, other commercial instruments, assignments, guarantees of signatures and contracts (except as otherwise provided herein or by law) shall be executed by the Chief Executive Officer, the President, any Vice President or such officers or employees or agents as the Board of Directors or any of such designated officers may direct. 4.13. The Chief Executive Officer, the President, any Vice President or the Secretary may authorize any endorsement on behalf of the Corporation to be made by such mechanical means or stamps as any of such officers may deem appropriate. ARTICLE 5. CERTIFICATES OF STOCK 5.1. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman or Vice- Chairman of the Board of Directors, or the President or a Vice-President, and by the Treasurer or an Assistant - 11 - Treasurer, or the Secretary or an Assistant Secretary of the Corporation certifying the number of shares owned by him in the Corporation. Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or it were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES 5.2. The Board of Directors may in its discretion direct, or vest in the officers of the Corporation the power to direct, that a new certificate or certificates be issued in place of any certificate or certificates theretofore issued by the Corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require, or vest in the officers of the Corporation the power to require, that the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. The Corporation may refuse to issue a new certificate except as ordered by the Court of Chancery of Delaware. TRANSFERS OF STOCK 5.3. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. The Board of Directors may make such further rules and regulations as it may deem expedient concerning the issue, transfer and registration of stock certificates of the Corporation. 5.4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for - 12 - shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. FIXING RECORD DATE 5.5. In order that the Corporation may determine the Stockholders entitled to notice of or to vote at any meeting of Stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of Stockholders of record entitled to notice of or to vote at a meeting of Stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS 5.6. The Corporation shall be entitled to recognize a person registered as the owner of shares on its books as being the owner of such shares for the purpose of receiving dividends, voting those shares, and being accorded all other rights and liabilities of an owner of shares, and the Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. Every Stockholder shall furnish to the Corporation his address, and the Corporation may rely for all purposes upon the address of such Stockholder so furnished to it. If any Stockholder shall not furnish the Corporation with his address, his address shall be presumed to be at the registered office of the Corporation, in its care. - 13 - ARTICLE 6. GENERAL PROVISIONS DIVIDENDS 6.1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. 6.2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interest of the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. FISCAL YEAR 6.3. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. CORPORATE SEAL 6.4. The corporate seal shall be in such form as the Board of Directors may prescribe. VOTING OF STOCK IN OTHER CORPORATIONS 6.5. Any shares of stock or other securities in any other corporation or organization, with respect to which the Corporation may from time to time have the right to vote or to give approvals, ratifications or consents may be represented and voted at any meeting of security holders of such other corporation or organization, or approvals, ratifications or consents may be given with respect thereto, by the Chief Executive Officer of the Corporation or by the proxy or proxies appointed by the Chief Executive Officer, or by any other person appointed by resolution of the Board of Directors, of which resolution a certified copy under the seal of the Corporation shall be conclusive evidence. - 14 - POSITION WITH CORPORATION NOT TO IMPOSE DUTY TO REFRAIN FROM EXERCISING RIGHTS 6.6. No person who is an officer, Director or controlling Stockholder of the Corporation shall be deemed to be under any disability, by reason of his status as such officer, Director or controlling Stockholder, from exercising as against the Corporation any rights or privileges whatsoever which he may enjoy under the terms of any provision of any certificate of incorporation, by-law, resolution or contract, in his personal capacity (including his capacity as a fiduciary for another person or persons); and any such officer, Director or controlling Stockholder may exercise any such rights or privileges as fully as if such person were no such officer, Director or controlling Stockholder. ARTICLE 7. AMENDMENTS 7.1. These By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the Stockholders or by the whole Board of Directors at any regular meeting of the Stockholders or of the whole Board of Directors, or at any special meeting of the Stockholders or of the whole Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting. By-Laws adopted by the Stockholders may be altered, amended or repealed by the whole Board of Directors unless the By-Laws so adopted by the Stockholders expressly provide to the contrary. EX-10.2-1 3 EXHIBIT 10.2.1 EXHIBIT 10.2.1 Merrill Lynch 33 West Monroe Street Chicago, Illinois 60603 312/845-1020 FAX 312/845-9093 August 15, 1996 Mr. Jeffrey W. Church Jeremy M. Dhein Chief Financial Officer Credit Services Account Survival Technology, Inc. Manager 2275 Research Boulevard Rockville, MD 20850 RE: Extension of WORKING CAPITAL MANAGEMENT ACCOUNT ("WCMA") No. 749-07E53 ---------------------------------------------------------------------- Dear Mr. Church, It is our pleasure to inform you that we have approved an extension of the above-numbered WCMA Line of Credit. for Survival Technology, Inc. As extended, the new Maturity Date for your WCMA Line of Credit will be December 31, 1996, with all other terms and conditions remaining unchanged. In connection with this extension, a $6,250.00 fee will be charged to the WCMA Account. With so many institutions offering financial services today, we realize that you have a choice and we thank you for choosing Merrill Lynch. You are a very important client to us and we hope that the WCMA Line of Credit has provided better control of your working capital and helped enhance your company's bottom line. In addition to the WCMA Line of Credit, Merrill Lynch offers a broad range of products and services to our business clients including: Term Financing for equipment purchases and other fixed asset acquisitions and ESOP financing. Business Advisory Services including business valuations, advisory services in connection with ESOP's and the acquisition or sale of a business, and our exclusive "Business Financial Planner". Business Investment Services, including strategies for short-term and intermediate-term investments. Once again, we are pleased to provide you with an extension of your WCMA Line of Credit. Should you have any questions, please contact Pack Fancher at (202) 659-6077. Very truly yours, Merrill Lynch Business Financial Services Inc. By:/S/ Jeremy M. Dhein --------------------------------- Credit Services Account Manager cc: K. Pack Fanchor - MLPF&S - Washington, DC Paul Conroy - MLBFS - Washington, DC Cristina D'Erasmo - Survival Technology, Inc. EX-10.6 4 EXHIBIT 10.6 EXHIBIT No. 10.6 - ------------------------------------------------------------------------------------------------------------------------------------ AWARD/CONTRACT 1. THIS CONTRACT IS A RATED ORDER RATING PAGE OF PAGES UNDER DPAS (15 cfr 350) DO-C9 1 8 - ------------------------------------------------------------------------------------------------------------------------------------ 2. CONTRACT (Proc. Inst. Ident)NO 3. EFFECTIVE DATE 4. REQUISITION (PURCHASE REQUEST/PROJECT NO. SP0200-96-D-0001 95 Oct 27 DD#50018 - ------------------------------------------------------------------------------------------------------------------------------------ ISSUED BY CODE SP0200 a. ADMINISTERED BY (if other than 5) CODE S2101A DEFENSE PERSONNEL SUPPORT CENTER DCMAO BALTIMORE 2800 SOUTH 20TH STREET 200 TOWSONTOWN BLVD., WEST PHILADELPHIA, PA 19145 TOWSON, MD 21204-5299 BUYER/SYMBOL: ANNA PODLAS (DPSC-MGAA-PGC TELEPHONE: (215)737-5768 CD: C PAS: NONE - ------------------------------------------------------------------------------------------------------------------------------------ 7. NAME AND ADDRESS OF CONTRACTOR (Na, st., city, State & ZIP Code a. DELIVERY SURVIVAL TECHNOLOGY INC. x FOR ORIGIN / / OTHER (See below) 2275 RESEARCH BOULEVARD 9. DISCOUNT FOR PROMPT PAYMENT ROCKVILLE, MD 20850 N-30 ATT: MR. DENNIS FORRER 10. SUBMIT INVOICES ITEM CODE 54452 FACILITY CODE (4 copies unless otherwise specified) TO THE ADDRESS SHOWN IN: 12 - ------------------------------------------------------------------------------------------------------------------------------------ 11. SHIP TO/MARK FOR CODE_____________ 12. PAYMENT WILL BE MADE BY CODE SC 1034 DEFS-COLUMBUS CENTER DFAS-CO-JSC/CAPITOL DIVISION P. BO. BOX #182263 SEE INDIVIDUAL DELIVERY ORDER COLUMBUS, OH 43218-2263 - ------------------------------------------------------------------------------------------------------------------------------------ 13. AUTHORITY FOR USING OTHER THAN FULL 7 OPEN COMPETITION: 14. ACCOUNTING & APPROPRIATION DATA MG 97X4930 5CMO 01 25.0 S33150 X 10 USC 2304(c) ( 3 ) / / 41 USC 253(c) ( ) MG 97X4930 5CMO 01 26.0 S33150 - ------------------------------------------------------------------------------------------------------------------------------------ 15A. ITEM NO. 15B. SUPPLIES/SERVICES 15C. QUANTITY 15D. UNIT 15E. UNIT PRICE 15F. AMOUNT - ------------------------------------------------------------------------------------------------------------------------------------ TERM OF CONTRACT: PURSUANT TO CLAUSE 52216-8, ORDERING, DELIVERY ORDERS FOR ANY SUPPLIES TO BE ISSUED UNDER THIS CONTRACT MAY BE ISSUED FROM 27 OCT. 95 THROUGH 30 SEP 96 - ------------------------------------------------------------------------------------------------------------------------------------ SEE PAGE 2. 15G. TOTAL AMOUNT OF CONTRACT $ - ------------------------------------------------------------------------------------------------------------------------------------ 18. TABLE OF CONTENTS - ------------------------------------------------------------------------------------------------------------------------------------ x SEC. DESCRIPTION PAGES(S) X SEC. DESCRIPTION PAGE(S) - ------------------------------------------------------------------------------------------------------------------------------------ x A SOLICITATION/CONTRACT FORM I CONTRACT CLAUSES - ------------------------------------------------------------------------------------------------------------------------------------ X B SUPPLIES OR SERVICES AND PRICES/COST PART III - LIST OF DOCUMENTS, EXHIBITS & OTHER ATTACH. - ------------------------------------------------------------------------------------------------------------------------------------ C DESCRIPTION/SPEC./WORK STATEMENT J LIST OF ATTACHMENTS - ------------------------------------------------------------------------------------------------------------------------------------ D PACKAGING AND MARKING PART IV - REPRESENTATIONS AND INSTRUCTIONS - ------------------------------------------------------------------------------------------------------------------------------------ E INSPECTION AND ACCEPTANCE K REPRESENTATIONS, CERTIFICATIONS AND F DELIVERIES OF PERFORMANCE OTHER STATEMENTS OF OFFERORS - ------------------------------------------------------------------------------------------------------------------------------------ G CONTRACT ADMINISTRATION DATA L INSTRS., CONDS., AND NOTICES TO OFFERORS - ------------------------------------------------------------------------------------------------------------------------------------ H SPECIAL CONTRACT REQUIREMENTS M EVALUATION FACTORS FOR AWARD - ------------------------------------------------------------------------------------------------------------------------------------ CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE - ------------------------------------------------------------------------------------------------------------------------------------ 17. / / CONTRACTOR'S NEGOTIATED AGREEMENT (Contractor is required 18. X AWARD (Contractor is not required to to sign this document and return ______ copies to issuing office.) sign this document.) Your offer on Solicitation Number Contractor agrees to furnish and deliver all items or perform all SP0200-95-R-1005 & SEE PAGE 6 including the additions or the services set forth or otherwise identified above and on any changes made by you which additions or changes are set continuation sheets for the consideration stated herein. forth in full above, is hereby accepted as to the items The rights and obligations of the parties to this contract listed above and on any continuation sheets. This award shall be subject to and governed by the following document: consummates the contract which consists of the (a) this award/contract, (b) the solicitation, if any, and following documents: (a) the Government's solicitation and (c) such provisions, representations, certifications, and your offer and (b) this award/contract. No further specifications, as are attached or incorporated by reference contractual document is necessary. herein. (Attachments are listed herein.) - ------------------------------------------------------------------------------------------------------------------------------------ 18A. NAME AND TITLE OF SIGNER (Type or print) 20A. NAME OF CONTRACTING OFFICER Anna Podlas - ------------------------------------------------------------------------------------------------------------------------------------ 19B. NAME OF CONTRACTOR 19C. DATE SIGNED 20B. UNITED STATES OF AMERICA 20C. DATE SIGNED BY BY s/s Anna Podlas 10-27-95 --------------------------------------- ---------------------------------- (Signature of person authorized to sign) (Signature of Contracting Officer) - ------------------------------------------------------------------------------------------------------------------------------------
CONTINUATION SHEET SP0200-96D-001 2 8 PAGES - -------------------------------------------------------------------------------- NAME OF OFFEROR OR CONTRACTOR STI - -------------------------------------------------------------------------------- SECTION B 0001 BASE MAINTENANCE/SERVICE To provide labor, services and incremental production as directed by the Government in accordance with statement of work. 0002 LOGISTICS MAINTENANCE To provide segregation of goods, disassembly into components, shelf life extension program, and storage in accordance with statement of work. 003 DIVISION-READY BRIGADE SET PROGRAM To provide on-site support for the storage, assembly, and shipment of Division-Ready Brigade Sets in accordance with statement of work. 0004 BASE MAINTENANCE/MATERIAL To provide completely assembled Mark I Kits, Atropine, Pralidoxime, Diazepam, and Training Kits using refurbished and/or new components in accordance with statement of work. 0005 MOBILIZATION SURGE OPTION To provide material in the event of a mobilization surge contingency or other Government need. The contractor will ship to those locations identified by the Contracting Officer up the maximum quantities indicated. 0006 CAPITAL INVESTMENT OPTION To provide for production automation and product re-design for the Atropine Auto-Injector and production re-design for the Pralidoxime Auto-Injector and production re-design for the Pralidoxime Auto- Injector as proposed by STI in 9 June 1995 offer. This unevaluated option will be exercised if it is determined to be in the best interest of the Government once funds become available. CONTINUATION SHEET SP0200-96D-0001 3 8 PAGES
NAME OF OFFEROR OR CONTRACTOR STI - ------------------------------------------------------------------------------------------------------------------------------------ ITEM NO. SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT 001 BASE MAINTENANCE/SERVICE
001AA BASE YEAR $________ $5,463,272 001AB OPTION YEAR ONE $________ $5,632,633 001AC OPTION YEAR TWO $________ $5,812,878 0002 LOGISTICS MAINTENANCE $________ $798,180 0002AA BASE YEAR $________ $656,496 0002AB BASE YEAR ONE $________ $694,195 0002AC BASE YEAR TWO $________ No Charge 0003 DIVISION-READY BRIGADE SET PROGRAM $________ No Charge 0003AA BASE YEAR $________ No Charge 0003AB OPTION YEAR ONE 0003AC OPTION YEAR TWO 0004 BASE MAINTENANCE/MATERIAL ANNUAL ESTIMATE 0004AA BASE YEAR MARK I (6505-01-174-9919) 390,164 EA $7.73 $3,015,968 ATROPINE (6505-00-926-9083) 465,480 EA $2.69 $1,252,141 PRALIDOXIME (6505-01-125-3248) 231,694 EA $6.42 $1,487,475 DIAZEPAM (6505-01-274-0951) 417,015 EA $6.57* $2,739,789 0004AB OPTION YEAR ONE MARK I (6505-01-274-0951) 390,164 EA $7.97 $3,109,607 ATROPINE (6505-00-926-9083) 465,480 EA $2.77 $1,289,380 PRALIDOXIME (6505-01-125-3248) 231,694 EA $6.62 $1,533,814 DIAZEPAM (6505-01-274-0951) 417,015 EA $6.62 $2,760,639 0004AC OPTION YEAR TWO MARK I (6505-01-174-9919) 390,164 EA $8.22 $3,207,148 ATROPINE (6505-00-926-9083) 465,480 EA $2.86 $1,331,273 PRALIDOZIME (6505-01-125-3248) 231,694 EA $6.83 $1,582,470 DIAZEPAM (6505-01-274-0951) 417,015 EA $6.83 $2848,212 0005 MOBILIZATION SURGE OPTION MAXIMUM 0005AA BASE YEAR MARK I (6505-01-174-9919) 1,270,946 EA $10.24 $13,014,487 ATROPINE (6505-00-926-9083) 3,721,997 EA $3.30 $12,282,590 PRALIDOXIME (6505-01-125=3248) 1,011,599 EA $6.57 $6,646,205 DIAZEPAM (6505-01-274-0951) 1,861,137 EA $6.57 $12,227,670 0005AB OPTION YEAR ONE MARK I (6505-01-174-9919) 1,270,946 EA $10.56 $13,421.190 ATROPINE (6505-00-926-9083) 3,721,997 EA $3.40 $12,654,790 PRALIDOXIME (6505-01-125-3248) 1,011,599 EA $6.77 $6,848.525 DIAZEPAM (6505-01-274-0951) 1,861,137 EA $6.77 $12,599,897 005AC OPTION YEAR TWO MARK I (6505-01-174-9919) 1,270,946 $10.90 $13,853,311 ATROPINE (6505-00-926-9083) 3,721,997 $3.51 $13,064,209 PRALIDOXIME (6505-01-125-3248) 1,011,599 $6,99 $7,071,077 DIAZEPAM (6505-01-274-0951) 1,861,137 $6.99 $13,009,348 0006 CAPITAL INVESTMENT OPTION Unevaluated * $6.42 for quantities above 417,015 EA option
CONTINUATION SHEET SP0200-96D-001 4 8 PAGES - ------------------------------------------------------------------------------ NAME OF OFFEROR OR CONTRACTOR STI - ------------------------------------------------------------------------------ VARIATION IN QUANTITY: Plus or Minus 2% INSPECTION AND ACCEPTANCE: Origin FOB: Origin MANUFACTURING AND PACKAGING/PACKING LOCATION: Survival Technology, Inc. 2555 Hermelin Drive St. Louis, MO 63144 SOURCE OF RAW MATERIALS: Atropine: Boeringer-Ingelheim, German Pralidoxime: Ayerst Lab, Rousse Point, NY Diazepam: SST Corp., Clifton, NJ PAYMENT ADDRESS: Survival Technology Inc. P. O. Box 7777-W8100 Philadelphia, PA 19175-8100 GUARANTEED MINIMUM: Delivery Order SP0200-96d-0001-8001 covering the base year annual services under lines 0001 and 0002 of the contract will be issued as a separate document concurrently with the issuance of this basic contract. The guaranteed minimum for line 0004 (2% of the estimated dollar value of line 0004: $169,907.46) will be issued during the base year. ANNUAL MAXIMUM ORDER QUANTITIES UNDER LINE ITEM 0004: NSN 6505-01-174-9919 Mark I Kit 2,340,984 EA NSN 6505-00-926-9083 Atropine Auto-Injector 2,461,124 EA NSN 6505-01-125-3248 Pralidoxime Auto-Injector 1,260,504 EA NSN 6505-01-274-0951 Diazepam Auto-Injector 1,251,045 EA REOPENER PROVISION: See attached provision. DELIVERY: For items with available pre-stocked components: 4 Weeks after award of delivery order. For items without available pre-stocked components: 16 Weeks after award of delivery order. OPTION PROVISION: Option Clause 52.217-9P12 is a part of this contract with two one-year option periods available at the unit prices stated on page 3. The contracting officer shall give the contractor a preliminary written notice of intent to extend at least 15 days before expiration of the contract. CONTINUATION SHEET SP0200-96D-001 5 8 PAGES - ------------------------------------------------------------------------------ NAME OF OFFEROR OR CONTRACTOR STI - ------------------------------------------------------------------------------ PRE-STOCKING OF COMPONENT PARTS: The Government may purchase component parts for each injector throughout the life of this contract as excess War Stopper funds become available. This material shall be purchased against line item 0004 and shall be stored and rotated by the contractor to fill given delivery orders. No additional costs for storage and rotation shall apply. GOVERNMENT FURNISHED MATERIAL: The following will be considered Government Furnished Material under this contract: 1) Expired or extended material shipped to STI for shelf life extension in accordance with line item 0002 and Logistics Maintenance/DRB Program Statement of Work. 2) Material purchased under line item 0004 specifically for the DRB Program to be stored at STI in accordance with line item 0003 and Logistics Maintenance/DRB Program Statement of Work. 3) Components purchased under line item 0004 identified as pre- stocking components. EFFECTIVE DATE: Effective date of Base Year shall be from 27 Oct 1995 through 30 Sep 1996. The contractor shall submit invoices on the 15th and 30th of each month during the base year. The payment schedule will be as follows for Line Items 0001 and 0002: Contract Value for Line Items 0001 and 0002 $6,261,452 Oct 27-31 $ 85,773 ---------- Balance $6,175,679 22 Payments $ 280,713 October 30, 1995 $ 85,773 Nov 15, 1995 $280,713 Nov 30, 1995 $280,713 Dec 15, 1995 $280,713 Dec 31, 1995 $280,713 Jan 15, 1996 $280,713 Jan 31, 1996 $280,713 Feb 15, 1996 $280,713 Feb 29, 1996 $280,713 Mar 15, 1996 $280,713 Mar 31, 1996 $280,713 Apr 15, 1996 $280,713 Apr 30, 1996 $280,713 May 15, 1996 $280,713 May 31, 1996 $280,713 Jun 15, 1996 $280,713 Jun 30, 1996 $280,713 Jul 15, 1996 $280,713 Jul 31, 1996 $280,713 Aug 15, 1996 $280,713 Aug 31, 1996 $280,713 Sep 15, 1996 $280,713 Sep 30, 1996 $280,713 Effective dates for Option Year One and Two, if exercised, shall be from 1 Oct 1996 through 30 Sep 1997 and 1 Oct 1997 through 30 Sep 1998, respectively. CONTINUATION SHEET SP0200-96D-001 6 8 PAGES - ------------------------------------------------------------------------------ NAME OF OFFEROR OR CONTRACTOR STI - ------------------------------------------------------------------------------ Invoices for Line Item 0004 will be submitted after issuance of each Delivery Order. The same shall apply for Line Items 0005 and 0006, if exercised. CONTINUATION FROM BLOCK 18 PAGE 1: Amendments 0001 through 0005 Contractor Correspondence dated: 9 Jun 1995 12 Jun 1995 20 Jun 1995 15 Aug 1995 11 Sep 1995 12 Sep 1995 22 Sep 1995 28 Sep 1995 2 Oct 1995 24 Oct 1995 25 Oct 1995 26 Oct 1995 27 Oct 1995 CONTINUATION SHEET SP0200-96D-001 7 8 PAGES - ------------------------------------------------------------------------------ NAME OF OFFEROR OR CONTRACTOR STI - ------------------------------------------------------------------------------ REOPENER CLAUSE (OCT 1995) (a) This clause applies only to Items 0004 Base Maintenance/Material and 0005 Mobilization Surge Option as listed in Section B, Schedule of Supplies and Services. Only downward price adjustments shall apply. (b) The negotiated prices for all items were based on the most current, accurate and complete information available at the time of negotiations regarding the contractor's estimated production forecast, business volume, and indirect cost structure. The contractor's practices comply with the Generally Accepted Accounting Principles and appropriate Defense Contract Audit Agency guideline in connection with the proposed statement of work upon which these prices were negotiated. (c) The prices negotiated for items 0004 and 0005 shall be firm-fixed priced for the respective contract and option periods unless any of the following circumstances described below occur. 1. Commercial Production (dollars): The contractor's FY96, FY97, and FY98 commercial production volume varies significantly enough to cause the proposed commercial production costs for direct material and direct labor to exceed $4,150,788 per annual contract term (i.e. 110% of $3,773,444, the proposed estimated commercial production costs in the contractor's SF1411, Schedules D-1 and D-2). 2. Government Sales (unit) (Government sales are defined as sales to the Department of Defense): The total volume of Government Sales per annual contract term exceeds 1) 1,200,000 units of Atropine and 2) 1,200,000 units of any combination of sales of Pralidoxime and Diazapam. Each Mark I Kit sold shall be converted to one Atropine and one Pralidoxime injector for the purpose of determining sales under this clause. (d) When any of the above occurs, DPSC may reopen the contract to renegotiate the appropriate cost elements cited in the table in paragraph (h) for the base and option years. The purpose is to make a downward adjustment in contract price to equitably share in lower unit costs that may be realized by the contractor as a result of increased commercial and/or Government business unforeseen at the time of contract award. (e) The negotiated General & Administrative rate of 24.48% will be applied to renegotiated costs in the base and option terms in a method consistent with the methodology negotiated prior to contract award. CONTINUATION SHEET SP0200-96D-001 8 8 PAGES - ------------------------------------------------------------------------------ NAME OF OFFEROR OR CONTRACTOR STI - ------------------------------------------------------------------------------ REOPENER CLAUSE (OCT 1995) (f) In order to ensure timely definitization of any adjustment that may be required under this clause, the Government has the option to conduct cost/financial reviews AT ANY TIME during the course of the contract term to determine whether a price reduction is authorized. The Contracting Officer may request ANY information (e.g., sales data) and cost data (including certified cost or pricing data) she deems necessary to make this determination. (If necessary, the Contracting Officer and/or authorized representative may conduct reviews at the contractor's plant and have access to the contractor's financial and production records.) The Contractor shall provide this information within 30 days of any such request. (Reviews are tentatively scheduled for 1 November 1996, 1 November 1997, and 1 November 1998). (i) Once negotiations are completed, the Contracting Officer shall promptly issue a modification reducing the unit prices for items 0004 and 0005 for the applicable contract term and recoup any money for units actually delivered by the same term. (ii) Should the Contractor fail to submit the information in paragraph (f), or should there be no agreement as to the amount of the price adjustment, the Contracting Officer may make a unilateral determination and modify the contract accordingly. Failure to agree with such change in the contract price shall be resolved in accordance with the Disputes clause of the contract. (g) For the propose of this clause, the elements of cost subject to adjustment in accordance with this clause are limited to reduction in Government cost only. Each element of cost to be examined shall stand alone and increases in one element will not be allowed to offset decreases in another r(i.e., higher material handling overhead will not offset lower manufacturing overhead); however, the above will not preclude the contracting Officer, solely at her discretion, from weighing the individual circumstances of such a scenario and determining to allow just such an offset on a case by case basis if such actio is in the best interest of the Government. (h) The following cost elements only shall be considered for renegotiation if authorized under this clause: CAUSE FOR REOPENING ELEMENTS SUBJECT TO REOPENING Commercial Production (dollars) 1. St. Louis Plant Overhead (O/H) Paragraph (c)1 2. Additional St. Louis Plant O/H Government Sales (units) 1. St. Louis Plant O/H Paragraph (c)2 2. Additional St. Louis Plant O/H 3. Manufacturing Costs 4. Manufacturing Material O/H Cost (End of Clause) EX-10.6-1 5 EXHIBIT 10.6.1 EXHIBIT 10.6.1 - ------------------------------------------------------------------------------------------------------------------------------------ AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT CONTRACT ID CODE PAGE OF PAGE #50018 1 2 - ------------------------------------------------------------------------------------------------------------------------------------ 2. AMENDMENT/MODIFICATION NO. 3.EFFECTIVE DATE 4.REQUISITION/PURCHASE REQ.NO. 5.PROJECT NO. (if applicable) P00005 6 SEPTEMBER 1996 - ------------------------------------------------------------------------------------------------------------------------------------ 6. ISSUED BY CODE SP0200 7.ADMINISTERED BY (if other than item 6) CODE S2101A DEFENSE PERSONNEL SUPPORT DCMAO BALTIMORE 2800 SOUTH 20TH STREET 200 TOWNSONTOWN BLVD., WEST PHILA., PA 19145 TOWSON, MD 21204-5299 BUYERS/SYMBOL: ANNA PODLAS/DPSC-MGAA-PGC PHONE: (215) 737-5768 - ------------------------------------------------------------------------------------------------------------------------------------ 8. NAME AND ADDRESS OF CONTRACTOR (NO., STREET, COUNTY, STATE AND ZIP CODE) 9A.AMENDMENT OF SOLICITATION NO. SURVIVAL TECHNOLOGY INC. ___________________________________________________________ 2275 RESEARCH BLVD. 9B.DATED (SEE ITEM 11) ROCKVILLE, MD. 20850 __________________________________________________ 10A.MODIFICATION OF CONTRACT/ORDER NO. X SP0200-96D-001 ---------------------------- 10B.DATED (SEE ITEM 13) _______________________________________________________ CODE 54452 FACILITY CODE 10/01/95 - ------------------------------------------------------------------------------------------------------------------------------------ 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS - ------------------------------------------------------------------------------------------------------------------------------------ / / The above numbered solicitation is amended as set forth in Item 14. The hour and data specified for receipt of Offers / / is extended, / / is not extended. Offer must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) BY COMPLETING ITEMS 8 AND 15 AND RETURNING _____ COPIES OF THE AMENDMENT; (B) BY ACKNOWLEDGING RECEIPT OF THIS AMENDMENT ON EACH COPY OF THE OFFER SUBMITTED; OR (C) BY SEPARATE LETTER OR TELEGRAM WHICH INCLUDES A REFERENCE TO THE SOLICITATION AND AMENDMENT NUMBERS. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. IF BY VIRTUE OF THIS AMENDMENT YOU DESIRE TO CHANGE AN OFFER ALREADY SUBMITTED, SUCH CHANGE MAY BE MADE BY TELEGRAM OR LETTER, PROVIDED EACH TELEGRAM OR LETTER MAKES REFERENCE TO THE SOLICITATION AND THIS AMENDMENT, AND IS RECEIVED PRIOR TO THE OPENING HOUR AND DATA SPECIFIED. - ------------------------------------------------------------------------------------------------------------------------------------ 12. ACCOUNTING AND APPROPRIATION DATA (IF REQUIRED) - ------------------------------------------------------------------------------------------------------------------------------------ 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14. - ------------------------------------------------------------------------------------------------ A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (SPECIFY AUTHORITY)THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT - --- ORDER NO. IN ITEM 10A. - ------------------------------------------------------------------------------------------------------------------------------------ B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (SUCH AS CHANGES IN PAYING OFFICE, - --- APPROPRIATION DATE, ETC.)SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(B) - ------------------------------------------------------------------------------------------------------------------------------------ X C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: - --- - ------------------------------------------------------------------------------------------------------------------------------------ D. OTHER (SPECIFY TYPE OF MODIFICATION AND AUTHORITY) - --- - ------------------------------------------------------------------------------------------------------------------------------------ E. IMPORTANT: CONTRACTOR / /IS NOT / / IS REQUIRED TO SIGN THIS DOCUMENT AND RETURN ONE COPIES TO THE ISSUING OFFICE. - --- - ------------------------------------------------------------------------------------------------------------------------------------ 14. DESCRIPTION OF AMENDMENT/MODIFICATION (ORGANIZED BY UCF SECTION HEADINGS, INCLUDING SOLICITATION/CONTRACT SUBJECT MATTER WHERE FEASIBLE) REFERENCED CONTRACT IS MODIFIED AS SPECIFIED ON ATTACHED PAGE 2. EXCEPT AS PROVIDED HEREIN, ALL TERMS AND CONDITIONS OF THE DOCUMENT REFERENCED IN ITEM 9A OR 10A, AS HERETOFORE CHANGED, REMAINS UNCHANGED AND IN FULL FORCE AND EFFECT. - ------------------------------------------------------------------------------------------------------------------------------------ 15A. NAME AND TITLE OF SIGNER (TYPE OR PRINT) 16A. NAME AND TITLE OF CONTRACTING OFFICER (TYPE OR PRINT) JEFFREY W. CHURCH SR. V.P. FINANCE & CFO MARY E. LEE - ------------------------------------------------------------------------------------------------------------------------------------ 15B. CONTRACTOR/OFFEROR 15C. DATED SIGNED 16B. UNITED STATES OF AMERICA 16C. DATE SIGNED _______________________ 9/4/96 BY:_____________________ 6 SEPTEMBER 1996 (SIGNATURE OF PERSON AUTHORIZED TO SIGN) (SIGNATURE OF CONTRACTING OFFICER) - ------------------------------------------------------------------------------------------------------------------------------------ NSN 7540-01-152-9070 CREATED USING PERFORM PRO SOFTWARE STANDARD FORM 30 (REV. 10-83) PREVIOUS EDITION UNUSABLE PRESCRIBED BY GSAFAR (48 CFR) 53.243)
PAGE 2 MODIFICATION: P00005 SP0200-96D-0001 The referenced contract is modified as follows: The term of this contract is hereby extended by two months from 30 Sep 1996 to 30 Nov 1996. Block 15a of the contract is revised to read "may be issued from 1 Oct 1995 through 30, Nov 1996." Effective date of award found on page 5 is revised to read: Effective date of Base Year shall be from 1 Oct 1995 through 30 Nov 1996. Effective date for Option Year One and Two, if exercised, shall be from 1 Dec 1996 through 30 Nov 1997 and 1 Dec 1997 through 30 Nov 1998, respectively. Contract Value for Line Items 0001 and 0002 (Base Year) $6,261,452 Value per month $521,878.66 4 payments of $260,893.83 The contractor shall submit invoices on the 15th and 30th of each month during the base year. The payment schedule for the additional two month extension is as follows: Oct 15, 1996 $260.893.83 Oct 30, 1996 $260,893.83 Nov 15, 1996 $260,893.83 Nov. 30, 1996 $260,898,83 Prices for Line Items 0003, 0004, 0005 and 0006 for the two month extension remain the same as the Base Year prices. EX-10.12-3 6 EXHIBIT 10.12.3 EXHIBIT 10.12.3 EXECUTION COPY CHANGE OF CONTROL AGREEMENT This AGREEMENT, dated January 10, 1996, is made by and between Mark D. Ruby ("Ruby") and SURVIVAL TECHNOLOGY, INC., ("STI") a Delaware corporation. In order to induce Ruby to remain in the employ of STI and to induce Ruby to give continued attention and dedication to his assigned duties in the event of a Change of Control of STI, STI desires to provide Ruby with certain benefits and inducements, as set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, STI and Ruby do hereby agree as follows: DEFINITIONS Whenever the following terms are used below in this Agreement, they shall have the meaning specified below, and no other. SECTION 1.1 - CAUSE. "Cause" shall mean termination of employment with STI because of (i) Ruby failure or refusal to satisfactorily perform any duties reasonably required of Ruby by STI; (ii) the commission of Ruby of a felony or the perpetration by Ruby of a dishonest act against or breach of fiduciary duty toward STI; or (iii) any act or omission by Ruby which is injurious in any material respect to the financial condition or business reputation of STI. SECTION 1.2 - CHANGE OF CONTROL. A "Change of Control" shall be deemed to have occurred if the Stanley J. Sarnoff Estate block of Company stock is sold and Ruby's employment with STI is terminated. The transfer of the beneficial ownership of securities of STI from the Estate of Stanley Sarnoff to the Sarnoff Endowment for Cardiovascular Research shall not be deemed to be a Change of Control. SECTION 1.3 - NOTICE OF TERMINATION. "Notice of Termination" shall mean a notice, in writing, to Ruby from STI, which indicates the specific termination provision enumerated in this Agreement which sets forth in reasonable detail the facts and circumstances alleged to provide a basis for termination of Ruby's employment by STI. TERM This Agreement shall be effective commencing on the date hereof and shall continue in effect through one year,provided, however, that commencing and on each thereafter, the term of this Agreement shall automatically be extended for one additional year unless no later than December 31 of the preceding year, the Company shall have given Ruby notice that it does not desire to extend the term of this Agreement: and provided, further, that if a Change of Control shall have ocurred during the term of this Agreement, then, notwithstanding such notice by the Company not to extend, this Agreement shall continue in effect for the lesser of i) a period of 36 months beyond the then scheduled expiration of this Agreement, or (ii) or a period ending on the date of the Retirement of Ruby. BENEFITS AND COMPENSATION SECTION 2.1 - WHEN BENEFITS PAYABLE. No benefits shall be payable under this Agreement and the provisions of this Agreement shall be of no force or effect unless there shall have been a Change of Control, and Ruby's employment with STI shall have been terminated because of and as part of that Change of Control during the term of this Agreement. If such a Change of Control has occurred and Ruby's employment with STI is terminated due to that Change of Control during the term of this Agreement, unless such termination is (i) because of the death of Ruby, or (ii) for Cause, Ruby shall be entitled to benefits enumerated in Section 2.3 of this Agreement. No benefits shall be paid to Ruby and this Agreement shall be of no force and effect if Ruby voluntarily resigns from his position or Ruby is terminated for no cause at a time when there has been no Change of Control. SECTION 2.2 - BENEFITS UPON TERMINATION FOR CAUSE. In the event that Ruby's employment with STI is terminated for Cause, Ruby shall receive Ruby's full base compensation as earned through the Date of Termination at the rate in effect at the time Notice of Termination is given. Following payment of said amount, STI shall have no further obligations to Ruby under this Agreement. SECTION 2.3 - BENEFITS UPON TERMINATION OTHER THAN FOR CAUSE. In the event that the employment of Ruby shall be terminated during the term of this Agreement due to a Change of Control, and not for Cause, then (a) Ruby shall be entitled to receive: (I) a lump sum payment of a dollar amount equal to 100% of Ruby's annual base salary in effect at the time of the Change of Control; and (II) for a 24-month period after such termination, life, disability, and health insurance coverage substantially the same as that which Ruby received immediately prior to the Change of Control but increased to the extent that such benefits were increased following the Change of Control (less any withholding required pursuant to applicable law). (b) all options to purchase securities of the Company then held by Ruby shall be immediately exercisable, without regard to whether such options are exercisable at such time pursuant to the terms of the documents under which such options were granted; provided that if such Change of Control is to be accomplished through a tender offer or an exchange offer, such options shall be exercisable and a time that shall permit Ruby to tneder the shares received upon the exercise of the option in such tender or exchange offer; (c) any securities of the Company then held by Ruby that are subject to any restriction on transfer, other than restrictions imposed only by federal or state securities laws, shall lapse and be of no further force and effect with the result that Ruby shall be permitted to sell, transfer or otherwise dispose of such securities without regard to any such restrictions. SECTION 2.4 - NO MITIGATION. Ruby shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced or offset by any compensation earned by Ruby as a result of employment by another employer or by retirement benefits after the Date of Termination or otherwise. Benefits payable pursuant to Section 2.3(II) of this Agreement shall cease to the extent that Ruby is entitled to receive such benefits pursuant to the benefit plans of another employer. MISCELLANEOUS SECTION 3.1 - SUCCESSORS; BINDING AGREEMENT. STI will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of STI to expressly assume and agree to perform this Agreement in the same manner and to the same extent that STI would be required to perform it if no such succession had taken place. The failure of STI to obtain such assumption agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Ruby to compensation from STI in the same amount and on the same terms as Ruby would be entitled to hereunder if Ruby had terminated Ruby's employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. SECTION 3.2 - SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of, and be enforceable by, the personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees of Ruby. If Ruby should die after a Change of Control and during the term of this Agreement and while any amount would still be payable to Ruby hereunder if Ruby had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Ruby's devisee, legatee or other designee or if there is no such designee, Ruby's estate. SECTION 3.3 - INVALID PROVISION. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. SECTION 3.4 - Ruby's Employment by STI. Nothing contained in this Agreement (i) obligates STI or any subsidiary of STI to employ Ruby in any capacity whatsoever, or (ii) prohibits or restricts STI (or any such subsidiary) from terminating the employment, if any, of Ruby at any time or for any reason whatsoever, with or without cause. IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the date first set forth above. SURVIVAL TECHNOLOGY, INC., a Delaware Corporation By: s/s Doris Geier ------------------------------- Doris Geier Director, Human Resources and Corporate Secretary Address: 2275 Research Boulevard Rockville, Maryland 20850 s/s Mark D. Ruby ------------------------------- Mark D. Ruby --------------------------- Address: 11523 Glen Abbey Way Charlotte, NC 28277 EX-24 7 EXHIBIT 24 EXHIBIT 24 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File Nos. 33-46981, 33-34045, 33-26681 and 2-80908) of Survival Technology,Inc. of our report dated October 3, 1996 appearing on page 43 of this Form 10-K. PRICE WATERHOUSE LLP Washington, DC October 22, 1996 EX-27 8 EXHIBIT 27
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet and Consolidated Income Statement for the year ended July 31, 1996 and is qualified in its entirety by reference to such financial statements. 12-MOS JUL-31-1996 AUG-01-1995 JUL-31-1996 122,800 0 7,377,300 (45,000) 4,988,800 14,413,800 26,547,400 (11,732,400) 31,085,000 10,209,600 0 0 0 309,100 17,160,000 31,085,000 31,385,300 31,385,300 22,428,200 29,111,600 (87,600) 0 387,200 1,974,100 698,100 1,276,000 0 0 0 1,276,000 $0.41 $0.41 Includes a nonrecurring restructuring charge of $321,800. Includes a nonrecurring restructuring charge of $208,000, net of tax. Includes a nonrecurring restructuring charge of $0.07 per share.
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