10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2001

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: ________________ to _______________

Commission file number: 0-5958

MERIDIAN MEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Delaware	52-0898764
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
10240 Old Columbia Road, Columbia, Maryland	21046
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code:	410-309-6830

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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of November 30, 2001
Common Stock, $.10 par value	3,637,133 Shares

MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

	Page No.
PART I. FINANCIAL INFORMATION
ITEM 1.  Consolidated Financial Statements
Consolidated Balance Sheets as of October 31, 2001 and July 31, 2001	4
Consolidated Statements of Income for the Three Months Ended October 31, 2001 and 2000	5
Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2001 and 2000	6
Notes to Consolidated Financial Statements	7
ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk	12
PART II. OTHER INFORMATION
ITEM 2.  Changes in Securities and Use of Proceeds	13
ITEM 6.  Exhibits and Reports on Form 8-K	13
SIGNATURES	14

2

MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

INTRODUCTION

Meridian Medical Technologies, Inc. (hereinafter referred to as “Meridian” or “MMT” or the “Company”), a publicly-traded company (NASDAQ: “MTEC”), operates its business in two segments: Pharmaceutical Systems and Cardiopulmonary Systems. The Company is a leading producer of auto-injector drug delivery devices, which are used for the self-administration of injectable drugs. Meridian has developed, and upon receipt of FDA approval, expects to market in the U.S., a proprietary electrocardiac mapping system technology, the PRIME ECG.

Meridian’s auto-injector business is part of its core Pharmaceutical Systems business. The Pharmaceutical Systems business generated $55.3 million in revenue in its fiscal year ended July 31, 2001, accounting for 95% of Meridian’s total revenues. Meridian sells its auto-injector products to both commercial and government markets. The principal source of revenues in the commercial market comes from its EpiPen family of auto-injectors, which are prescribed primarily for severe allergic reactions. Government revenues are principally generated from nerve agent antidotes and other emergency medicine auto-injector products and services marketed to the U.S. Department of Defense (“DoD”) and other federal, state and local agencies, particularly those involved in homeland security, as well as foreign governments.

The Cardiopulmonary Systems segment, which accounted for 5% of Meridian’s revenues in its fiscal year ended July 31, 2001, includes the PRIME ECG and its telemedicine business. The telemedicine business is currently the principal source of revenues in the Cardiopulmonary Systems segment. The Company’s new PRIME ECG product targets a $6 billion annual market and, if successfully introduced, could generate significant revenues and profits over time. The Company’s goal is to establish PRIME ECG as the standard of care in the diagnosis, treatment and monitoring of heart disease. Based upon results from its multi-center clinical trial completed in May 2001, Meridian filed a 510(k) application with the United States Food and Drug Administration (“FDA”) in July 2001 for clearance to market PRIME ECG in the U.S. FDA clearance is anticipated to be received early in calendar 2002, with marketing to commence immediately afterwards. The Company introduced PRIME ECG in certain countries outside the United States in 2000, having received CE mark approval in Europe.

FORWARD LOOKING STATEMENTS

This report and other written and oral statements made by the Company may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to financial performance and other financial and business matters. Forward-looking statements are typically identified by future or conditional verbs or similar expressions regarding events that have yet to occur. These forward-looking statements are based on the Company’s current expectations and are subject to numerous assumptions, risks and uncertainties. The following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: political, economic and competitive conditions; capital availability or costs; fluctuations in demand for the Company’s products; government procurement timing and policies; technological challenges associated with the development and manufacture of the Company’s products; commercial acceptance of the Company’s products; delays, costs and uncertainties associated with clinical testing and government approvals required to market new drugs and medical devices; availability and quality of raw materials; success and timing of efficiency, cost reduction and quality enhancement programs; regulatory and contract compliance; relationships with significant customers; adequacy of product liability insurance; ability to obtain, timing and success of marketing representatives and strategic alliances; and adequacy of intellectual property protection. Meridian assumes no duty to update forward-looking statements.

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MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements

MERIDIAN MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

					October 31,			July 31,
Assets					2001			2001
					(unaudited)
Current assets:
	Cash and cash equivalents				$	3,633		$	2,167
	Restricted cash					291			291
	Receivables, less allowances of $77 and $68, respectively					7,239			6,834
	Inventories					8,409			6,787
	Deferred income taxes					1,829			1,829
	Other current assets					641			705
			Total current assets			22,042			18,613
	Property, plant and equipment					26,795			26,091
			Less – Accumulated depreciation			(10,328	)		(9,627	)
			Net property, plant and equipment			16,467			16,464
	Deferred financing fees					457			490
	Capitalized software costs, net					1,256			1,331
	Excess of cost over net assets acquired, less amortization of $6,096 and $6,096, respectively					5,266			5,266
	Other intangible assets, less amortization of $1,975 and $1,911, respectively					1,270			1,334
			Total assets		$	46,758		$	43,498
Liabilities and Shareholders’ Equity
Current assets:
		Accounts payable and other accrued liabilities			$	7,615		$	5,518
		Note payable to bank				76			71
		Customer deposits				50			75
		Current portion of long-term debt				1,500			1,250
				Total current liabilities		9,241			6,914
		Long-term debt — notes payable, net of discount				15,374			15,813
		Deferred income taxes				1,775			1,775
		Other non-current liabilities				1,261			1,250
				Total liabilities		27,651			25,752
Shareholders’ equity:
		Common stock (voting and non-voting) Par value $.10 per share; 18,000,000 shares authorized; 3,374,439 and 3,197,088 shares issued				337			320
		Additional capital				33,296			33,156
		Accumulated other comprehensive loss – cumulative translation adjustment				(181	)		(227	)
		Accumulated deficit				(14,132	)		(15,290	)
		Treasury stock, 30,176 shares at cost				(213	)		(213	)
				Total shareholders’ equity		19,107			17,746
		Total liabilities and shareholders’ equity			$	46,758		$	43,498

The accompanying notes are an integral part of these consolidated financial statements.

4

MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

MERIDIAN MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)

			Three Months Ended
			October 31,
			2001		2000
Net sales			$	14,777	$	12,986
Cost of sales				8,081		7,848
Gross profit				6,696		5,138
Selling, general, and administrative expenses				2,240		1,967
Research and development expenses				990		783
Depreciation and amortization				754		871
				3,984		3,621
Operating income				2,712		1,517
Other expense:
	Interest expense			611		701
	Other expense			66		1
				677		702
Income before income taxes				2,035		815
Provision for income taxes				877		390
Net income			$	1,158	$	425
Net income per share:
		Basic	$	.36	$	.14
		Diluted	$	.32	$	.12
Weighted average shares:
		Basic		3,205		3,010
		Diluted		3,665		3,616

The accompanying notes are an integral part of these consolidated financial statements.

5

MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

MERIDIAN MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

					Three Months Ended
					October 31,
					2001			2000
OPERATING ACTIVITIES:
	Net income				$	1,158		$	425
	Adjustments to reconcile net income to net cash provided by (used for) operating activities:
			Depreciation and amortization			754			871
			Amortization of capitalized software costs			80			79
			Amortization of notes payable discount and deferred financing fees			94			102
	Changes in assets and liabilities
				Receivables		(405	)		1,190
				Inventories		(1,622	)		(1,213	)
				Other current assets		64			445
				Accounts payable and other liabilities		2,072			(2,367	)
	Other					63			(31	)
Net cash provided by (used for) operating activities						2,258			(499	)
INVESTING ACTIVITIES
		Purchase of fixed assets				(704	)		(275	)
		Increase in restricted cash				—			(1	)
Net cash used for investing activities						(704	)		(276	)
FINANCING ACTIVITIES
		Net proceeds on lines of credit				5			756
		Payment on long-term debt				(250	)		(276	)
		Proceeds from issuance of common stock				157			252
Net cash (used for) provided by financing activities						(88	)		732
Net increase (decrease) in cash						1,466			(43	)
Cash and cash equivalents at beginning of period						2,167			79
Cash and cash equivalents at end of period					$	3,633		$	36

The accompanying notes are an integral part of these consolidated financial statements.

6

MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting standards (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of October 31, 2001 and July 31, 2001, the results of its operations for the three-month periods ended October 31, 2001 and 2000, and its cash flows for the three-month periods ended October 31, 2001 and 2000. The results of operations for the three-month period ended October 31, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2002. Certain prior period amounts have been reclassified to conform to current period presentation. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis and financial statements and notes thereto included in the Meridian Medical Technologies, Inc. 2001 Form 10-K filed with the Securities and Exchange Commission.
2.	The Company considers all investments with a maturity of three months or less on their acquisition date to be cash equivalents. Restricted cash consists of cash pledged as collateral on an outstanding letter of credit supporting the working capital line of credit at the Company’s Belfast subsidiary.
3.	Inventories as of October 31, 2001 and July 31, 2001 consisted of the following (in thousands):

	October 31, 2001			July 31, 2001
Components and subassemblies	$	5,157		$	4,750
Work in process		3,699			2,378
Finished goods		533			497
		9,389			7,625
Less: inventory valuation allowance		(980	)		(838	)
	$	8,409		$	6,787

4. A reconciliation of net income to comprehensive income is as follows (in thousands):

	Three Months Ended
	October 31,
	2001		2000
Net income	$	1,158	$	425
Foreign exchange translation adjustment		46		(38	)
Comprehensive income	$	1,204	$	387

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MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

5.

In accordance with Statement of Financial Accounting Standards No. 86, the Company began amortizing the $1,588,000 of software costs incurred during fiscal 1999 and 1998 relating to its PRIME ECG product during the third quarter of fiscal 2000, as it was available for sale. Amortization, which is being provided on a 5 year, straight-line basis, totaled $80,000 for the three months ended October 31, 2001 and is included in cost of sales. The Company capitalized $219,000 of additional software costs relating to enhancements made to its PRIME ECG during the fourth quarter of fiscal 2001. Amortization of these costs will begin when the enhancements are available for sale.

6.

Segment information is as follows (in thousands, except percentage information):

			Three Months Ended
			October 31,
			2001			2000
Revenues:
	Pharmaceutical systems		$	14,088		$	12,526
	Cardiopulmonary systems			689			460
		Total revenues	$	14,777		$	12,986
Operating income (loss):
	Pharmaceutical systems		$	3,450		$	2,376
	Cardiopulmonary systems			(738	)		(859	)
		Total operating income	$	2,712		$	1,517
Operating income (loss) %:
	Pharmaceutical systems			24.5	%		19.0	%
	Cardiopulmonary systems			(107.1	%)		(186.7	%)
		Total operating income %		18.4	%		11.7	%

7.

Effective August 1, 2001, the Company early adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Intangible Assets” (SFAS No. 142) which resulted in discontinuing the amortization of goodwill. Under the Statement, goodwill will be carried at its book value as of August 1, 2001 and any future impairment of goodwill will be recognized as either a change in accounting principle (with respect to the transitional impairment test conducted within six months of adoption) or as an operating expense in the period of impairment. However, under the terms of the Statement, identifiable intangibles with identifiable lives will continue to be amortized. Amortization expense for the three months ended October 31, 2001 was $64,000, which represented the amortization relating to the identified intangible assets still required to be amortized under SFAS No. 142. For each of the next five years, intangible amortization expense relating to these identified intangibles will be approximately $256,000.

The Company is required to complete its transitional impairment test of its goodwill (excess of cost over net assets) balance by January 31, 2002. As of the date hereof, the Company does not expect any impairment loss as a result of such test. The Company will be required to test the value of its goodwill at least annually.

8

MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

As required by SFAS No. 142 the results for the prior year’s quarter have not been restated. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect follows (in thousands, except per share data):

			Three Months Ended
			October 31,
			2001		2000
Reported net income			$	1,158	$	425
Add back goodwill amortization, net of tax				—		284
		Adjusted net income	$	1,158	$	709
Basic earnings per share:
	As reported		$	0.36	$	0.14
	Goodwill amortization, net of tax			—		0.09
		Adjusted basic earnings per share	$	0.36	$	0.23
Diluted earnings per share:
	As reported		$	0.32	$	0.12
	Goodwill amortization, net of tax			—		0.08
		Adjusted diluted earnings per share	$	0.32	$	0.20

ITEM 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Quarter in Review

MMT’s net income increased 63.3% for the quarter ended October 31, 2001 from the adjusted first quarter of the prior year on revenues of $14.8 million. Net income was $1,158,000 ($0.36 basic and $0.32 diluted earnings per share) as compared to reported net income of $425,000 ($0.14 basic and $0.12 diluted earnings per share) for the first quarter last year. For comparative purposes, an adjustment was calculated to last year’s reported net income for the adoption of SFAS No. 142. The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” effective August 1, 2001. This allowed the Company to stop amortizing its excess of cost over net assets acquired. The adoption of this standard in the first quarter of fiscal 2002 had the impact of reducing amortization expense by approximately $284,000 (or approximately $0.08 per diluted share). Net income increased more than earnings per share, on a percentage basis, due to higher weighted average diluted shares outstanding at October 31, 2001.

9

MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

Revenues of MMT’s two business segments and total gross profit for the three-month periods ended October 31, 2001 and 2000 are as follows:

		Three Months Ended
		October 31,
($ in thousands)		2001			2000
Pharmaceutical Systems:
	Commercial Systems	$	9,003		$	7,850
	Government Systems		5,085			4,676
Total Pharmaceutical Systems			14,088			12,526
Cardiopulmonary Systems			689			460
Total Revenues			14,777			12,986
Gross Profit		$	6,696		$	5,138
Gross Profit %			45.3	%		39.6	%
EBITDA (1)		$	3,480		$	2,466

(1)     EBITDA represents operating income plus or minus other income (expense) and plus depreciation and amortization. EBITDA is not a measure of performance or financial condition under generally accepted accounting principles, but is presented to provide additional information related to operating results. EBITDA should not be considered in isolation or as a substitute for other measures of financial performance or liquidity under generally accepted accounting principles. While EBITDA is frequently used as a measure of operations and the ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies in the method of calculation.

Commercial Systems revenue for the quarter ended October 31, 2001 was $9.0 million, $1.2 million higher than in the comparable prior year period. The 14.7% increase in revenue resulted from 7.9% higher sales of EpiPens in the current quarter compared to the same quarter in the prior year, and an 86.0% increase in R&D revenue, which exceeded $1.3 million this quarter. Higher R&D revenue was driven by significant projects with certain key customers. R&D revenue is subject to fluctuations in the number and timing of projects, reflecting its variable nature from period to period.

Government Systems revenues were $5.1 million in the quarter ended October 31, 2001 compared to $4.7 million in the first quarter of fiscal 2001. Homeland Security sales were $475,000 for the three months ended October 31, 2001 versus $99,000 for the three month period ended October 31, 2000. This increase reflects shipments towards recently received orders of nerve agent antidotes by state and local first responders under the Metropolitan Medical Response System, and other non-military agencies. These orders were placed under an effort to enhance civilian defense against potential chemical agent terrorist attacks. Military revenues were $4.6 million for the quarter ended October 31, 2001, comparable to the same period last year. DoD revenues were lower, while foreign government revenues increased on a year over year basis for the quarter reflecting the timing of procurements by the military. Overall the Company expects military based revenues will increase this year as compared to fiscal 2001, based on heightened global military preparedness, and as a result of the Company’s foreign marketing efforts.

10

MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

Cardiopulmonary Systems revenues were $689,000 for the three months ended October 31, 2001 compared to $460,000 for the three months ended October 31, 2000. This increase was primarily due to stronger telemedicine sales during the quarter. MMT’s distributor of telemedicine products, SHL Telemedicine Ltd., is party to a joint venture with Philips Medical Systems to market cardiology telemedicine products and services in targeted markets in Europe. The increased telemedicine revenues include orders placed as a result of this initial market expansion. The Company continued to invest in the development of its PRIME ECG sales and marketing infrastructure in Europe during the quarter. A 510(k) application was submitted to the U.S. FDA in fiscal 2001 for clearance to market PRIME in the United States. The FDA review is on-going, and the Company expects to receive clearance in early calendar 2002.

Gross profits increased to 45.3% of revenues during the first quarter of 2002 totaling $6.7 million, compared to 39.6% for the same period of the prior year. The increased gross profit percentage is a result of product mix, with increased revenues from higher margin sales involving Homeland Security, R&D Services, and Foreign, as well as the Company’s successful efforts to control overhead production costs.

Operating costs were $4.0 million for the three months ended October 31, 2001 compared to $3.6 million incurred in the same period of last year. Adjusting the first quarter of last year for the adoption of SFAS No. 142, this represents a $647,000, or 19.4% increase. Selling, general and administrative expenses (SG&A) were 13.9% higher than the same quarter last year, due to the Company’s investment in the marketing infrastructure for PRIME ECG, and expenses relating to the building of a sales and marketing infrastructure for specialty pharmaceuticals. The Company also had increases in R&D expense and depreciation, reflecting new product development efforts and fixed asset additions, respectively.

Interest expense was $611,000 in the first quarter of fiscal 2002 compared to $701,000 for the same quarter last year. This represents a 12.8% decrease due to lower average debt balances and lower interest rates.

The provision for income taxes was $877,000 for the three months ended October 31, 2001, reflecting an estimated effective tax rate of 43.1% for the year. The Company takes no consolidated tax benefit from the foreign losses, which for the first quarter approximated $565,000. U.S. pre-tax income, taxed at the statutory rate, is higher than the consolidated pre-tax income, which inflates the effective rate. The effective rate has decreased as compared to fiscal 2001’s effective rate of 52.0% primarily due to the adoption of SFAS No. 142, which resulted in discontinuing the amortization of goodwill, thereby eliminating a permanent book-to-tax difference, and bringing the effective rate closer to the statutory rate.

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MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

Liquidity and Capital Resources

Total cash as of October 31, 2001 was $3.6 million, an increase of $1.5 million from July 31, 2001. The Company generated $2.3 million in cash from operations in the first three months of fiscal 2002 attributable mostly to net income, non-cash depreciation and amortization, and higher accounts payable and other liabilities, offset by higher accounts receivable and inventories. Investing activities in the first three months of fiscal 2001 used $0.7 million of cash for capital additions. Financing activities used $0.1 million, primarily from net payments on existing debt facilities, offset by the sale of stock through stock option and warrant exercises. The Company presently has a domestic working capital line of credit for $6.5 million, which was fully paid down and available at October 31, 2001. The Company is currently exploring capital opportunities in the area of debt refinancing and equity transactions.

During the quarter ended October 31, 2001, the Company issued 19,432 shares of common stock upon the exercise of certain stock options and warrants, generating proceeds to the Company of $157,132, and 157,999 shares of common stock pursuant to a net issue exercise (cashless exercise) provision upon the exercise of warrants. Subsequent to quarter end, the Company issued 262,694 shares of common stock upon the exercise of warrants, generating proceeds to the Company of $2,889,634. The proceeds from these transactions have been retained for general corporate purposes.

Working capital at October 31, 2001 was $12.8 million, up from $11.7 million at July 31, 2001. The increase was primarily attributable to higher cash ($1.5 million), higher accounts receivable ($0.4 million), and higher inventory ($1.6 million), offset by higher accounts payable and other accrued liabilities ($2.1 million). At October 31, 2001, accounts receivable were $7.2 million, representing 39 days-sales-outstanding, and inventories were $8.4 million representing a turn-over rate of 4.3 times per year.

ITEM 3.     Quantitative and Qualitative Disclosure About Market Risk

The Company’s earnings are affected by fluctuations in the value of the U.S. dollar, as compared to foreign currencies, as a result of transactions in foreign markets. At October 31, 2001, the result of a uniform 10% strengthening or weakening in the value of the dollar relative to the currencies in which the Company’s transactions are denominated would have resulted in a $57,000 increase or decrease, respectively, in operating income for the three months ended October 31, 2001. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, which change the dollar value of the resulting sales, changes in exchange rates also affect the volume of sales or the foreign currency sales price as competitors’ services become more or less attractive. The Company’s sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices.

The Company is exposed to changes in interest rates as a result of its outstanding debt. Total short-term and long-term debt outstanding at April 30, 2001 was $17.0 million, consisting of $2.4 million in variable rate borrowing and $14.5 million in fixed rate borrowing. At this level of variable rate borrowing, a hypothetical 10% increase in interest rates would have decreased pre-tax earnings by approximately $3,000 for the three months ended October 31, 2001. At October 31, 2001, the fair value of the Company’s fixed rate debt outstanding was estimated at $15.0 million. A hypothetical 10% change in interest rates would not result in a material change in the fair value of the Company’s fixed rate debt. The Company does not currently utilize any derivative financial instruments related to its interest rate exposure.

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MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

PART II – OTHER INFORMATION

ITEM 2.     Changes in Securities and Use of Proceeds

During the period beginning May 1, 2001 and ending November 20, 2001, the Company issued an aggregate of 508,757 shares of its common stock upon the exercise of warrants. 267,822 of the shares were issued at an exercise price of $11.00, for which the Company received aggregate proceeds of $2,946,042. 82,936 and 157,999 shares were issued to ING (U.S.) Investment Corporation (“ING”) and Nomura Holding America Inc. (“Nomura”), respectively, pursuant to a net issue exercise (cashless exercise) provision included in warrants held by ING and Nomura. These shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933.

ITEM 6.     Exhibits and Reports on Form 8-K:

(a)	Exhibits
	10.36	Form of Change of Control Agreement between the Company and Dr. Gerald L. Wannarka, Mr. Peter A Garbis, Mr. Dennis P. O’Brien, and Mr. Robert J. Kilgore dated October 9, 2001. Filed herewith.*
* Management contract, compensatory plan or arrangement
(b)	Reports on Form 8-K
	No reports on Form 8-K were filed during the three months ended October 31, 2001.

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MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MERIDIAN MEDICAL TECHNOLOGIES, INC.
		Registrant
November 30, 2001 Date		By:    /S/ JAMES H. MILLER James H. Miller President and Chief Executive Officer (Principal Executive Officer)
November 30, 2001 Date		By:    /S/ DENNIS P. O’BRIEN Dennis P. O’Brien Vice President-Finance and Chief Financial Officer (Principal Financial and Accounting Officer)

14 EX-10.36 3 w55399ex10-36.htm FORM OF CHANGE OF CONTROL AGREEMENT

Exhibit 10.36

CHANGE OF CONTROL AGREEMENT

     AGREEMENT made as of this ninth day of October, 2001, between Meridian Medical Technologies, Inc., a Delaware corporation (hereinafter “Company”), and ____________ (hereinafter “the Executive”).

     WHEREAS, the Company wishes to assure the continued availability of the Executive’s services and to create an environment which will promote the Executive’s giving impartial and objective advice in circumstances resulting from the possibility of a Change of Control (as herein defined) of the Company; and

     WHEREAS, the Company and the Executive wish to provide the Executive with financial protection in the event significant changes in the Executive’s employment status occur following a Change of Control of the Company.

     NOW, THEREFORE, the Company and the Executive, in consideration of the terms and conditions set forth herein and other valuable consideration, receipt and sufficiency of which are hereby acknowledged, mutually covenant and agree as follows:

1. Term.

     The term of this Agreement shall commence on the date hereof and terminate on October 9, 2004 unless the Executive’s employment with the Company or a subsidiary is sooner terminated prior to a Change of Control in which case it will terminate upon the termination of the Executive’s employment (the “Term”), provided, however, if a Change of Control occurs prior to October 9, 2004, then this Agreement will terminate on the second anniversary of the Change of Control.

2. Payments Upon Change of Control and Termination Event.

     The Company shall make payments to the Executive as provided for in paragraph 4 hereof upon the occurrence of both a Change of Control of the Company and a Termination Event, as such terms are defined in paragraph 3.

3. Definitions.

     (a)      “Annual Bonus” shall mean the greater of (a) the annual bonus paid or payable by the Company to the Executive for the fiscal year immediately preceding the Date of Termination and (b) the average of the bonuses paid or payable to the Executive in the three (3) fiscal years immediately preceding the fiscal year in which the Change of Control falls.

     (b)      “Base Salary” shall mean an amount equal to the Executive’s highest annual base salary after the date hereof and preceding a Termination Event.

     (c)      “Cause” means (i) the Executive’s failure or refusal to perform satisfactorily any duties reasonably required of the Executive by the Company (other than

by reason of disability), after reasonable demand for substantial performance is delivered by the Company specifically identifying the manner in which the Company believes the Executive has not performed his duties; (ii) the commission by the Executive of a felony or the perpetration by the Executive of a dishonest act against or breach of fiduciary duty toward the Company or any of its customers, employees, or vendors; or (iii) any willful act or omission by the Executive which is injurious in any material respect to the financial condition or business reputation of the Company. For purposes of this definition, no act, or failure to act, on the Executive’s part shall be considered “willful” unless done, or omitted to be done, by him not in good faith and without reasonable belief that his act or omission was in the best interests of the Company.

     (d)      A “Change of Control” shall be deemed to have occurred if any of the following have occurred prior to the expiration of the Term:

                (i)      any person or group of persons (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (“1934 Act”)) together with its affiliates, excluding employee benefit plans of the Company, is or becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 promulgated under the 1934 Act) of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities;

                (ii)      individuals who at the beginning of any two-year period during the Term constitute the Board of Directors of the Company (the “Board”), plus new Directors whose election or nomination for election by the Company’s shareholders is approved by a vote of at least two-thirds (2/3) of the Directors then still in office who were Directors at the beginning of such two-year period (including for this purpose any new director whose election or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the directors still in office who were directors at the beginning of such period), cease for any reason during such two-year period to constitute at least two-thirds (2/3) of the members of the Board;

                (iii)      the consummation of a merger or consolidation of the Company with any other corporation or entity regardless of which entity is the survivor, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

                (iv)      the shareholders of the Company approve a plan of complete liquidation or winding-up of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

                (v)      any other event which the Board determines should constitute a Change of Control.

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     (e)      A “Termination Event” shall be deemed to have occurred if, within the twenty-four (24) month period following a Change of Control, (i) the Executive’s employment with Company is terminated by the Company without Cause, other than by reason of death, retirement on or after the Executive attains the age of sixty-five (65) or disability that entitles the Executive to long-term disability benefits under the Company’s long-term disability plan or policy, or (ii) the Executive voluntarily terminates his employment with the Company within 30 days after the occurrence of any of the following events:

                (i)      the assignment to the Executive of any duties inconsistent in any material respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities immediately prior to the Change of Control, or any other action by the Company which results in a diminution in any material respect in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

                (ii)      a reduction by the Company in the Executive’s annual base salary as in effect on the date hereof, as the same may be increased from time to time;

                (iii)      the Company’s requiring the Executive to be based at any office or location that is more than fifty (50) miles from the Executive’s office or location immediately prior to the Change of Control;

                (iv)      the failure by the Company (i) to continue in effect any bonus, stock option, or other cash or equity-based incentive plan in which the Executive participates immediately prior to a Change in Control that is material to the Executive’s total compensation, unless an arrangement not materially less favorable to the Executive (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or (ii) to continue the Executive’s participation in such plan (or in such substitute or alternative plan) on a basis at least as favorable, both in terms of the amount of benefits provided and the level of the Executive’s participation relative to other participants, as existed immediately prior to the Change of Control; or

                (v)     the failure by the Company to continue to provide the Executive with benefits that in the aggregate are not materially less favorable to the Executive than those received by the Executive under the Company’s pension (including, but not limited to, tax-qualified plans), life insurance, health, accident, disability or other welfare plans in which the Executive was participating, at costs not materially greater than to those paid by the Executive, immediately prior to the Change of Control.

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4. Cash Payments.

     In the event of a Termination Event, the Company agrees to pay to the Executive the following amounts:

     (a)      the Executive’s full base compensation as earned through the date of the Termination Event at the rate in effect on the date the Termination Event occurs;

     (b)      any bonus to which the Executive has become entitled but which has not yet been paid to the Executive;

     (c)      a lump sum cash payment equal to the sum of: (i) the Executive’s combined base compensation for the twelve-month period immediately preceding the Notice of Termination, and (ii) the Executive’s Annual Bonus; and

     (d)      a lump sum cash payment equal to the product of:

                (i)      the higher of (A) the target bonus to which the Executive would have become entitled for the fiscal year in which the Termination Event falls, assuming that all applicable performance goals for the year of termination would have been satisfied, or (B) the Executive’s Annual Bonus; and

                (ii)      a fraction, the numerator of which is the number of days in the then-current fiscal year through the date of the Termination Event, and (B) the denominator of which is 365.

5. Death of Executive.

     If the Executive dies before receiving all payments payable to him under paragraph 4 of this Agreement, the Company shall continue to make payments pursuant to paragraph 4 hereof to the Executive’s spouse, or if the Executive leaves no spouse, to the estate of the Executive.

6. Health and Life Insurance Benefits.

     The Company agrees to maintain, for a period of twelve (12) months following the date of the occurrence of a Termination Event, the Executive’s eligibility for and participation in any health and life insurance plans in which the Executive was eligible to participate prior to the Termination Event and upon the same basis and cost as prior to the Termination Event, provided however, that if, for any reason, the Company is unable to continue the Executive’s participation in any such plan, the Company shall cause the Executive to be eligible to participate in a substantially equivalent arrangement upon substantially the same basis and cost (determined on an after-tax basis) as prior to the Termination Event. Notwithstanding any other provision of this Agreement to the contrary, if in connection with the termination of the Executive’s employment for any reason the Company is obligated by law or by contract (including any employment or severance agreement other than this Agreement) or by Company plan or policy to provide the Executive with life or health insurance after the Executive’s termination (or a cash

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payment in lieu thereof), then any health and life insurance required to be provided under this paragraph shall be reduced by the amount of any payments and similar benefits described above, as applicable.

7. No Duty to Seek Other Employment.

     Amounts payable to the Executive under this Agreement shall not be reduced by the amount of any compensation received by the Executive from any other employer or source, and the Executive shall not be under any obligation to seek other employment or gainful pursuit as a result of this Agreement.

8. Reduction of Payments.

     Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change of Control or the termination of the Executive’s employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement (all such payments and benefits, including the payments and benefits provided for hereunder, being hereinafter called “Total Payments”) would not be deductible (in whole or part), by the Company, an affiliate or other person or entity making such payment or providing such benefit as a result of Section 280G of the Internal Revenue Code of 1986, as amended, then, to the extent necessary to make such portion of the Total Payments deductible, (A) the cash payments provided for by paragraph 4 hereof shall first be reduced (if necessary, to zero), and (B) the benefits provided for by paragraph 6 hereof shall next be reduced. For purposes of this limitation, no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived by written notice to the Company prior to the date of payment shall be taken into account. All determinations required to be made under the provisions of this paragraph 8 hereof shall be made by tax counsel selected by the Company’s independent auditors and reasonably acceptable to the Executive.

9. Payment of Compensation to Termination Date.

     In addition to any other payments payable to the Executive hereunder, the Company shall pay the Executive full compensation and all other amounts and benefits to which the Executive is entitled through the termination of his employment.

10. No Right to Continued Employment.

     This Agreement shall not confer upon the Executive any right with respect to continuance of employment by the Company or any subsidiary, nor shall it interfere in any way with the right of his employer to terminate his employment at any time. No payments hereunder shall be required except upon the occurrence of both a Change of Control of the Company and a Termination Event. Thus, except as specifically provided herein, no payments hereunder shall be made on account of termination of the Executive’s employment (i) upon the Executive’s death, disability or retirement, (ii) by the Company with or without cause or (iii) upon the Executive’s voluntary termination.

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11. Waiver of Breach.

     Waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed as a waiver by such party of any subsequent breach hereof.

12. Invalidity.

     The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision, which shall remain in full force and effect.

13. Legal Fees and Expenses.

     The Company shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive as a result of a bona fide dispute regarding the application of any provision of this Agreement. Such payments shall be made within five (5) business days after delivery of the Executive’s respective written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.

14. Ratification of Previous Employment Agreement.

     The Executive ratifies and confirms the terms and obligations of the [Agreement] entered into between the Company and the Executive relating to, among other things, non-competition with the Company.

15. Entire Agreement; Written Modification; Termination.

     This Agreement contains the entire agreement between the parties concerning the matters covered hereby. No modification, amendment or waiver of any provision hereof shall be effective unless in writing specifically referring hereto and signed by the party against whom such provision as modified or amended or such waiver is sought to be enforced. This Agreement shall terminate as of the time the Company makes the final payment which it may be obligated to pay hereunder or provide the final benefit which it may be obligated to provide hereunder. This Agreement supersedes and replaces any earlier agreement on the subject matter hereof, including the Change of Control Agreement between the Executive and the Company, dated insert date.

16. Counterparts.

     This Agreement may be made and executed in counterparts, each of which may be considered an original for all purposes.

17. Successors.

     This agreement shall be binding upon the Company’s successors by reason of merger, consolidation or otherwise.

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18. Governing Law.

     This Agreement is governed by and is to be construed and enforced in accordance with the laws of the State of Delaware.

     IN WITNESS WHEREOF, the undersigned parties have executed or caused to be executed this Agreement as of the day and year first above written.

MERIDIAN MEDICAL TECHNOLOGIES, INC

By:__________________________________________

      James H. Miller
      Chairman, President and Chief Executive Officer

      “EXECUTIVE”

     _____________________________________

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EX-10.36

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