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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 2)
[x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for fiscal year ended November 30, 1995; or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from________________________to_______________________.
Commission file number: 0-20346
MICROTEK MEDICAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 64-0700671
(State of (IRS employment
incorporation) identification no.)
512 LEHMBERG ROAD 39702
COLUMBUS, MISSISSIPPI (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(601) 327-1863
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 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 amendments to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant on April 30, 1996, was approximately $63,269,400.
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of April 30, 1996 was 4,664,546 shares.
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ITEM 1. BUSINESS
GENERAL
Microtek designs, manufactures and sells a broad range of surgical and
medical supplies for use in targeted niche markets of the health care industry.
The Company's principal product lines are:
INFECTION CONTROL PRODUCTS-specially designed disposable drapes for covering
operating room equipment (such as microscopes, cameras, probes, lasers and
light fixtures) during surgical procedures both to protect patients from
contracting infectious diseases in the operating room environment and to reduce
the risk of contamination between procedures; and
FLUID CONTROL PRODUCTS-specially designed disposable pouches typically
attached to surgical patient drapes to safely control, collect and contain
patient blood and other fluids both to protect health care personnel from
contracting infectious diseases and to reduce operating room clean-up time.
Microtek markets its products throughout the United States to hospitals,
outpatient facilities, physicians' offices, operating room equipment
manufacturers and custom kit companies through direct sales personnel and a
network of independent dealers. The Company also has a direct sales force in
the United Kingdom and distributes its products to Europe and the Middle East
from its European distribution center located in Central England. The
Company sells its products in over 60 countries, in addition to the United
States.
RECENT ACQUISITIONS
In March, 1995, the Company acquired the urological drape product line
of Armatec Medical (a division of Little Rapids Corporation, Green Bay,
Wisconsin) for a purchase price of $165,000 in cash.
On June 30, 1995, the Company exchanged its otology products line and
$2,650,000 in cash and notes for the medical drape product line of Xomed,
Inc., a private company based in Jacksonville, Florida. As of that date,
Microtek no longer manufactured otology products, referred to herein as the
Company's "Specialty Products."
On November 30, 1995, the Company purchased the assets and assumed
certain liabilities of Medi-Plast International, Inc. ("Medi-Plast"),
headquartered in Alpharetta, Georgia, for approximately $10.6 million in cash
and notes. Medi-Plast manufactured and sold disposable surgical supplies for
use in operating rooms.
Also on November 30, 1995, Microtek purchased the medical drape line of
Surgical Technologies, Inc., a Salt Lake City company, for a purchase price
of $375,000 in cash.
On March 22, 1996, the Company purchased the anti-microbial incise drape
and scrub-and-prep brush product lines of Phoenix Medical Technology, Inc.
The purchase price was approximately $1.155 million in cash, plus a
contingent payment (not to exceed $1.825 million) based upon future sales of
these products.
On April 27, 1996, the Company purchased the Venodyne division of
Advanced Instruments, Inc. ("Venodyne"). Venodyne manufactures and markets
pneumatic pumps and disposable compression sleeves for use in reducing deep
vein thrombosis. The purchase price was $5.75 million in cash and notes, plus
a contingent payment (not to exceed $1.0 million) based upon future gross margin
from the sale of the Venodyne products.
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PROPOSED MERGER WITH ISOLYSER
On March 15, 1996, the Company entered into an Agreement and Plan of
Merger with Isolyser Company, Inc. ("Isolyser"), pursuant to which the
Company would become a wholly-owned subsidiary of Isolyser and each share of
the Company's common stock would be converted into the right to receive such
number of shares of Isolyser common stock as is equal to $16.50 divided by
the average closing price of Isolyser common stock (but not less than $14.50
nor greater than $18.50) for a specified period prior to the merger.
The proposed merger is subject to certain conditions, including approval
by the stockholders of Microtek, regulatory filings and the absence of
material adverse changes to the business of Microtek and Isolyser. If such
conditions are satisfied, the merger is expected to become effective on or about
June 30, 1996.
It is a condition to the proposed merger that it be accounted for as a
pooling-of-interests.
GROWTH STRATEGY
The Company seeks to increase its sales and earnings from operations by
enhancing marketing and distribution efforts both domestically and
internationally, introducing new products, increasing direct sales
representation, employing tele-sales agents for added sales coverage, and
capitalizing on low-cost manufacturing opportunities in the Dominican
Republic and Mexico.
INCREASED MARKETING. The Company is in the process of increasing direct
sales representation. In addition, two regional sales managers are engaged in
developing marketing and sales programs for independent sales representatives
and creating new distribution channels for the Company's products.
INCREASED MARKET PENETRATION. Management believes that sales can be
increased through greater penetration in both hospitals and other health care
facilities. In order to increase customer contacts, the Company anticipates
adding additional sales personnel to complement the independent sales
representatives, as well as supplementing all sales territories with tele-sales
representatives.
LOW-COST MANUFACTURING. Microtek began manufacturing in the Dominican
Republic in July 1991, and has increased its manufacturing capabilities in
the Dominican Republic through facilities expansions in 1993 and 1995. These
facilities give Microtek added manufacturing flexibility. When the unit
volume on a given product reaches certain levels, the Company is able to
shift production to the Dominican Republic and maintain its margins while
offering competitive prices. In addition, the Company has leased a 32,000
square foot manufacturing facility in Empalme', Mexico to provide similar
manufacturing to the Company's facilities in the Dominican Republic.
INTERNATIONAL GROWTH. Microtek, implementing its plan for European
growth, expanded its distribution facilities in the United Kingdom in 1994.
Non-sterile products are now received directly from the Company's Dominican
Republic facilities and are processed and shipped to European distributors.
International sales totaled $7.3 million in 1995 as compared to $5.7 million
in 1994.
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RISK FACTORS
The following risk factors should be carefully considered in evaluating
the Company and its business:
DEPENDENCE ON KEY PERSONNEL. The Company believes that its continued
success will depend to a significant extent upon its senior management and
key employees. The loss of the services of a significant number of these key
personnel within a short period of time could have a material adverse effect
upon the Company.
GOVERNMENT REGULATION. Microtek is suject to regulation and periodic
inspection of its facilities by the U. S. Food and Drug Administration
("FDA"). Some state and foreign governmental authorities also regulate
Microtek and its products. There can be no assurance that the Company will
not be adversely affected by any future changes in applicable laws and
regulations.
HEALTH CARE REFORM. The federal government and the public have recently
focused considerable attention on reforming the health care system in the
United States. The Company cannot predict the health care reforms that
ultimately may be enacted nor the effect any such reforms will have on its
business. No assurance can be given that any such reforms will not have a
material adverse effect on the Company.
NO ASSURANCE OF FUTURE GROWTH. There can be no assurance that the
Company will successfully implement its growth strategy. Further, to the
extent that its growth strategy depends upon the acquisition of other
businesses or new product lines, there can be no assurance that these
acquisitions will be successfully integrated into the operations of the
Company.
QUARTERLY FLUCTUATIONS. The Company's quarterly results of operations
may fluctuate as a result of a number of factors, including the timing of
purchase orders from customers. Therefore, quarterly comparison of results of
operations may be impacted by such factors.
COMPETITION. The medical products market in which the Company competes
is highly competitve. Some of the Company's competitors have greater financial
and other resources than the Company.
PRODUCTS
The Company's product lines consist of infection control and fluid control
products. Prior to July 1995, the Company was also engaged in the sale of
specialty otology products. Set forth below is certain information with respect
to the amount (dollars in thousands) and percentage of revenue attributable to
these product categories, for each of the last three fiscal years:
YEAR ENDED NOVEMBER 30,
-----------------------
1995 1994 1993
---- ---- ----
SALES PERCENT SALES PERCENT SALES PERCENT
Infection Control $23,427 78% $17,719 66% $16,537 61%
Fluid Control 4,089 14 5,040 19 6,432 24
Specialty Products 2,543 8 4,135 15 3,970 15
------- ---- ------- ---- ------- ----
$30,059 100% $26,894 100% $26,939 100%
------- ---- ------- ---- ------- ----
------- ---- ------- ---- ------- ----
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INFECTION CONTROL PRODUCTS
Microtek's infection control product line consists of more than 1,500
different products for use in draping operating room equipment during surgical
procedures. This equipment includes microscopes, ultrasound probes, endoscopic
video cameras, x-ray cassettes, imaging equipment, lasers and handles attached
to surgical lights. In addition to reducing the risk of infectious disease
transmission, these products increase operating room efficiency by reducing the
need to sterilize the equipment between procedures. These disposable sterile
products are generally made of plastics containing features designed for the
operating room environment, such as low glare and anti-static features.
Many of the Company's infection control products are designed for a
specific brand and model of operating room equipment. Microscope drapes, for
example, have custom molded housings to fit a specific equipment manufacturer's
microscope lens and have adjustable tabs to fit different microscope
attachments.
FLUID CONTROL PRODUCTS
Fluid control products are attached to a surgical patient drape (the
"substrate"), which is placed around the operative site. For instance,
Microtek manufactures a specialty pouch for knee arthroscopy. This pouch
captures not only the bodily fluids that are discharged from the knee but
also the sterile saline that is infused into the operative site during the
arthroscopic procedure. Although Microtek markets products with attached
substrates, its fluid control product line primarily consists of more than
200 different plastic disposable fluid collection pouches. Microtek's fluid
collection pouches vary according to size, type of adhesive bonding, drainage
and filtration features. These pouches are compatible for use with the
leading disposable and reusable substrates.
Microtek also manufacturers a closed-wound drainage system. This device
is used by implanting, during surgery, a catheter with a series of drainage
ports. A spring-activated drainage device is attached externally for use by
attending physicians and nurses to drain fluids post-operatively from the
surgical wound.
PRODUCT DEVELOPMENT
Consistent with its niche market strategy, Microtek is actively engaged
in the development of new products and the refinement of its existing
products to respond to the needs of its customers and the changing technology
of the medical products industry. Many of the Company's product innovations
have been generated from requests by the Company's customers and health care
professionals for products to be custom designed to address specified
problems in the operating room environment. The Company also monitors trends
in the health care industry and performs market research in order to evaluate
new product ideas.
A key element of the Microtek product development effort is its close
relationship with manufacturers of operating room equipment. The Company's
product development staff has over 40 years of experience developing
disposable surgical drape products. This experience, combined with the
Company's responsiveness in developing products that are compatible with
operating room equipment, has allowed Microtek to build strong relationships
with equipment manufacturers. Microtek pursues these relationships in order
to obtain an opportunity to design a drape for a specific piece of equipment
prior to its competitors and before the equipment is introduced to the market.
No assurance can be given that any new product will be successfully
developed or that any newly developed product will achieve or sustain market
acceptance.
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MARKETING AND CUSTOMERS
In the United States, the Company markets its products primarily through
direct and independent sales representatives. During fiscal 1995, the Company
utilized 7 direct sales representatives and approximately 100 independent
sales representatives. These sales representatives, as well as Specialty
Products representatives prior to June 30, 1995, sold Microtek products to
approximately 3,200 hospitals and 650 outpatient clinics or physicians' offices
during fiscal 1995. Microtek's target customer is the health care provider who
oversees and equips operating rooms and outpatient clinics, such as the
operating room nurse. Management anticipates adding additional direct sales
personnel to strengthen sales representation.
Outside the United States, the Company marketed its products principally
to a network of approximately 70 different dealers during fiscal 1995. The
Company anticipates possible increasing international demand for its products
due to the growing need for disposable infection control products and the
heightened awareness of the benefits of minimally invasive procedures;
however, no assurance can be made that increased sales will be realized. In
order to expand its European presence and to capitalize on these market
trends, the Company is engaged in direct selling in the United Kingdom. The
Company's international net sales were $5.1 million, $5.9 million and $7.3
million in fiscal 1993, 1994 and 1995, respectively.
Microtek's contracts with sales representatives and dealers are
generally for a one-year term but are terminable by the representative or
dealer upon 30 days' notice. The contracts also permit Microtek to cancel
the contract if the representative or dealer fails to meet minimum sales
standards. Dealers and sales representatives are generally granted exclusive
territories, although Microtek reserves the right to negotiate with national
accounts within a sales representative's territory.
During fiscal 1995, Microtek also sold its products through custom kit
companies, which package Microtek products together with complementary products
from other manufacturers to deliver a relatively complete set of supplies for a
specific surgical procedure to a medical facility. These kits are used by
medical facilities in order to reduce inventory costs. In 1995, Microtek sold
in the aggregate $4.0 million of its products to kit companies, comprising
approximately 13% of its net sales.
Microtek also markets products to other manufacturers on a "non-branded"
basis. It sells its fluid collection pouches to manufacturers of substrates
and sells equipment drapes to manufacturers of the equipment for which the
drape is designed. In selling their products, the manufacturers generally do
not identify the components supplied by the Company. In fiscal 1995, these
"non-branded" sales were approximately $5.5 million or 18% of net sales.
The Company typically sells its products pursuant to written purchase
orders which generally may be canceled without penalty prior to shipment of the
product. Accordingly, the Company does not believe that the level of backlog
of orders at any date is either material or indicative of future results.
No one customer accounted for more than 10% of the Company's net sales
in fiscal 1995.
MANUFACTURING AND SUPPLIES
Most of the Company's disposable drapes and fluid collection pouches are
designed at its Columbus, Mississippi headquarters. As a result of the
November 1995 acquisition of Medi-Plast, the Company also designs products at
the Alpharetta, Georgia facilities acquired from Medi-Plast. Depending on
volumes and labor requirements, the drapes and pouches are manufactured
either in Columbus, (or, since November 1995, Alpharetta) or the Dominican
Republic. Since 1991, the Company has operated a manufacturing facility in
the Dominican Republic to produce products which are more labor intensive and
products which are higher volume than Microtek's other products. The lower
operating costs in the Company's Dominican Republic facility allow the
Company to sell these products at competitive prices and still maintain its
gross margins.
Microtek's manufacturing operations utilize several different
technologies, including injection molding, thermosealing, radio frequency
sealing and embossing, and non-woven gluing. Most of Microtek's products are
sterilized by third-party vendors utilizing a cobalt-60 gamma irradiator.
Substantially all supplies and
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equipment utilized in the manufacturing process are presently available from
two or more suppliers. The Company is currently not experiencing any delays
or shortages of necessary equipment or supplies.
COMPETITION
Microtek faces significant competition from other companies in the
medical products industry, some of which have access to greater financial
resources, such as 3M Corporation, Baxter International, Johnson & Johnson
Medical, Inc. and Kimberly Clark. Many smaller companies, both in the United
States and internationally, also manufacture and sell products which compete
with those of the Company.
The Company believes that the principal competitive factors in the
markets in which it competes include product quality, specialized design
features, customer service, customer relationships, name recognition,
distribution channels and price.
GOVERNMENT REGULATION
The Company is subject to regulation and periodic inspection of its
facilities by the FDA. Some state and foreign governmental authorities also
regulate Microtek and its products. Some of these regulations are more
restrictive than FDA regulations.
FDA regulations classify most medical devices into one of three classes,
each involving a different degree of regulatory control. All of the medical
devices that Microtek manufactures and sells are Class I or Class II. Medical
devices in these categories are subject to regulations which require compliance
with manufacturing practices and adherence to labeling, recordkeeping,
registration and premarket notification requirements; however, some medical
devices in the Class I category do not require premarket approval. Class II
devices must comply with any performance standards for the particular type of
device that the FDA promulgates with respect to construction, components,
testing, performance measurement, sales, distribution and labeling. The FDA
has not promulgated performance standards governing any Class II products that
Microtek manufactures, other than normal "good manufacturing practice"
requirements.
Microtek may manufacture products in the future that would be classified
as Class III devices, which would require Microtek to obtain either 510(k) or
premarket approval from the FDA.
The FDA's regulatory powers with respect to medical devices were expanded
with passage of the Safe Medical Devices Act of 1990. Among other things, this
statute authorizes the FDA to impose additional recordkeeping and reporting
obligations on manufacturers and users of certain medical devices, requires
additional device tracking and post-market surveillance for certain categories
of devices and empowers the FDA to order recalls of devices under specified
circumstances. Significant changes in such regulations or their interpretation
could have a material adverse impact on the Company.
PATENTS AND TRADEMARKS
Most of Microtek's products are sold under the Microtek trade name, and
several are sold under various additional trademarks and trade names. These
include its Vista Clear Lens-TM-, its clear Microshield-TM- poly material, and
Ocu-Lok Closure-TM- trade names for microscope drapes, the Heritage Wound
Evac-TM-, trade name for closed wound drainage systems, Premier Neurosurgical
Products-TM-, trade name for neurosurgical fluid control products, and
Transfer Ease-TM- (patient transfer sheets). Some products are sold under the
newly acquired trademarks of Insight-TM-, a transparent anesthesia screen, and
Micro-Gard-TM- and Econo Drape-TM-, trademarks acquired from Xomed, Inc.
Microtek believes that many of its trademarks and trade names are recognized
within its principal markets and has taken customary steps to register or
otherwise protect its rights in its trademarks and trade names.
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Microtek has applied for and received certain United States patents
covering inventions and designs of its products, which patents have expiration
dates ranging from 2001 to 2013. The Company does not believe that the
protection afforded by these intellectual property rights is material to the
product success. The Company does not believe the loss of any intellectual
property right would have a material adverse effect upon the Company.
EMPLOYEES
As of January, 1996, Microtek had approximately 860 employees, 350 of
whom were employed in the United States, 500 of whom were employed in the
Dominican Republic, and 10 of whom were employed in the United Kingdom. Of such
employees, approximately 720 were in manufacturing and operations (including
research, product design and quality assurance), approximately 40 were in
marketing and sales management and approximately 100 were in management and
administration. None of the Company's employees are represented by a union or
covered by a collective bargaining agreement. Microtek believes that its
relations with its employees are good.
PRODUCT LIABILITY INSURANCE
The manufacturing and marketing of Microtek's products involve risks of
product liability. Although no product liability claims have been asserted
against Microtek to date, there can be no assurance that product liability
claims will not be asserted successfully against Microtek in the future.
Microtek currently maintains liability insurance coverage of $1 million per
incident, subject to an aggregate of $2 million per year, and "umbrella"
coverage for claims up to $15 million. There can be no assurance that insurance
will continue to be available to the Company on acceptable terms or that the
amount and scope of insurance coverage will be adequate to protect Microtek
against product liability claims which could be successfully asserted in the
future.
ITEM 2. PROPERTIES
Microtek's corporate headquarters and certain of its U. S. manufacturing
facilities are located in Columbus, Mississippi on approximately nine acres.
The Company owns two manufacturing buildings totaling approximately 80,000
square feet. The Company leases from a local economic development authority
a 13,300 square foot administration building adjacent to the manufacturing
buildings. Additionally in Columbus, the Company leases a 20,000 square foot
building to store raw materials, as well as another 20,000 square foot
building to store finished products. The Company has granted a security
interest in the properties it owns to its senior lender. The Company's
manufacturing facilities in Columbus manufacture products for each of the
Company's two product groups.
The Company leases three manufacturing facilities totaling 62,000 square
feet in the Dominican Republic (where certain of the Company's infection
control and fluid control products are manufactured). When the unit volume
on a given product reaches certain levels, the Company has generally shifted
the manufacturing of such product to the Dominican Republic.
The Company also leases a facility in Jacksonville, Florida, that
comprises approximately 45,000 square feet and serves as a shipping facility.
This facility will ultimately serve as a staging facility for raw materials
and facilitate shipments to and from our contract sterilizer.
Microtek leases approximately 9,000 square feet in the United Kingdom,
approximately 7,000 of which is used for warehousing and 2,000 used as office
space.
By virtue of the Medi-Plast acquisition on November 30, 1995, the Company
also leases a 20,000 square foot manufacturing building, as well as a 12,000
square foot warehouse in Alpharetta, Georgia.
In addition, the Company has leased a 32,000 square foot facility in
Empalme', Mexico for manufacturing purposes.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in lawsuits in the ordinary
course of business. Such lawsuits have not resulted in any material losses
to date, and the Company does not believe that the outcome of any existing
lawsuits will have a material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock began trading over-the-counter on the NASDAQ
National Market System under the symbol "MTMI" on October 6, 1992. The
following table shows the high and low closing sale prices as reported by
NASDAQ by quarter for each of the last two fiscal years:
FISCAL 1995 FISCAL 1994
----------- -----------
High Low High Low
---- --- ---- ---
First Quarter 6.00 4.13 6.75 5.25
Second Quarter 5.75 4.50 6.50 5.50
Third Quarter 6.50 4.50 7.75 5.50
Fourth Quarter 7.50 5.75 7.50 4.25
As of April 30, 1996, the approximate number of common stock shareholders of
record was 135, and the Company believes that the approximate number of
beneficial owners as of that date was 2,500.
The Company has not previously paid cash dividends on its Common Stock.
It intends to retain earnings for use in its business and therefore does not
anticipate paying any cash dividends in the foreseeable future. Financing
agreements to which the Company is a party prohibit the payment of cash
dividends on its Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED NOVEMBER 30,
(dollars in thousands)
Statement of Operations Data:
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Net sales $30,059 $26,894 $26,939 $25,753 $20,416
Gross profit 13,783 11,947 13,072 13,442 10,398
Earnings from operations 4,385 1,402 2,108 3,704 1,171
Net earnings (loss) 2,308 580 1,031 775 (1,472)
Net earnings (loss) per
common share (1) $ .47 $ .11 $ .20 $ .15 $ (.87)
Weighted average shares
outstanding 4,927 5,058 5,059 3,827 2,016
Balance Sheet Data:
Working capital $10,283 $ 7,784 $10,784 $ 7,829 $ 4,335
Total assets 45,227 26,988 27,084 23,114 22,634
Long-term debt 16,591 47 4,436 2,958 14,044
Redeemable convertible
preferred stock - - - - 2,279
Total stockholders'
equity 21,119 19,883 19,117 17,749 2,580
(1) No cash dividends on shares of Common Stock were declared or paid during any
of the periods presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FISCAL YEAR ENDED NOVEMBER 30, 1995 COMPARED
TO FISCAL YEAR ENDED NOVEMBER 30, 1994.
Net sales for fiscal 1995 were $30.1 million as compared to $26.9
million for fiscal 1994, an increase of 12%. During the third quarter of
fiscal 1995, the Company exchanged its specialty products line for
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Xomed, Inc.'s ("Xomed") infection control product line. The Company believes
the asset exchange will result in additional economies of scale and product
line focus. Primarily as a result of the exchange, sales of infection control
products increased 32% for fiscal 1995 as compared to fiscal 1994. The
increase in sales of infection control products was also attributable to
increased market penetration to private label and kitpacker customers. Sales
of fluid control products decreased 19% for fiscal 1995 as compared to fiscal
1994. These lower sales, principally relating to wound care products, resulted
from lower prices and the timing of certain sales contracts. Based upon current
orders, sales of wound care products are expected to improve in fiscal 1996.
Gross profit increased to $13.8 million in fiscal 1995 from $11.9 million
in fiscal 1994, an increase of 16%. As a percentage of net sales, gross profit
for fiscal 1995 was 46% as compared to 44% for fiscal 1994. The increase in
gross profit as a percentage of net sales and in absolute dollars can be
attributed to both increased sales and lower costs associated with the movement
of certain product lines to the Company's Dominican Republic manufacturing
facility. The Company anticipates continued improvement in gross profit for
fiscal 1996 as compared to fiscal 1995 due to improved efficiencies in its
Dominican Republic manufacturing facility; however, there is no assurance that
these improvements will continue to be realized.
Selling, general, and administrative expenses decreased to $9.0 million
in fiscal 1995 as compared to $10.0 million in fiscal 1994, a decrease of
10%. The decrease can be attributed to management's focus on the cost
control plan which was implemented in fiscal 1994. This decrease was
associated primarily with marketing cost, supplemented by decreases in
advertising, travel and entertainment, and consulting expenses. The balance
of the decrease was associated with lower commissions. The lower commissions
can be attributed to a change in the commission structure and sales mix. The
Company anticipates that selling, general and administrative costs will
remain stable as a percent of net sales for fiscal 1996; however, no
assurance can be provided in this regard.
As a result of increased sales, increased gross profit, and lower
selling, general, and administrative expenses, earnings from operations
increased to $4.4 million in fiscal 1995 from $1.4 million in fiscal 1994, an
increase of 214%, and net earnings increased to $2.3 million in fiscal 1995
as compared to $.6 million in fiscal 1994.
FISCAL YEAR ENDED NOVEMBER 30, 1994 COMPARED
TO FISCAL YEAR ENDED NOVEMBER 30, 1993
Net sales for both fiscal 1994 and fiscal 1993 were $26.9 million.
Although sales remained unchanged for the two year period, two of the
Company's three niche markets showed growth over the previous year. Sales of
infection control products increased to $17.7 million in fiscal 1994 as
compared to $16.5 million in fiscal 1993, an increase of 7%. Sales of
specialty products increased to $4.1 million in fiscal 1994 as compared to
$3.9 million in fiscal 1993. The increase in sales of infection control
products is due to market penetration. The increase in sales of specialty
products is due to both market penetration and slight price increases. Sales
in fluid control products decreased to $5.0 million in fiscal 1994 as
compared to $6.4 million in fiscal 1993, a decrease of 22%. This decrease is
related to the effects of one of the Company's largest customers now
manufacturing in house certain products which were previously purchased from
the Company. Adjusted to exclude sales to this customer, sales of fluid
control products increased from $4.5 million in fiscal 1993 to $4.7 million
in fiscal 1995, an increase of 4%. The in house manufacturing by this
customer began in 1993. Sales to this customer in fiscal 1994 were $.3
million as compared to $1.9 million in fiscal 1993. There were no
significant price increases during fiscal 1994 for infection control and
fluid control products.
Gross profit decreased to $11.9 million in fiscal 1994 from $13.1
million in fiscal 1993, a decrease of 9%. As a percentage of net sales,
gross profit was 44% and 49% for 1994 and 1993, respectively. The overall
decrease in gross profit can be associated with pricing pressure both
domestically and internationally, the general inefficiencies and adjustments
associated with moving the manufacturing of major product
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categories to the Company's Dominican Republic manufacturing facilities,
refinements of management estimates related to inventory valuations, and
increased costs associated with quality control and assurance.
Selling, general, and administrative expenses increased to $10.0 million
in fiscal 1994 as compared to $9.9 million in fiscal 1993. As a percentage
of net sales, these expenses were 37% for both 1994 and 1993. Variable
selling costs (i.e. freight, samples, travel and entertainment, advertising,
and conventions) decreased $.3 million for fiscal 1994. This decrease was
offset by increases in administrative salaries, property taxes, professional
fees and investor relations costs. The Company also had a restructuring
charge of $.14 million in connection with its movement to the Dominican
Republic.
As a result of flat sales, lower gross margins, slightly increased
selling, general and administrative cost, the restructuring charge, offset by
a decrease in amortization expense of $.7 million, earnings from operations
decreased to $1.4 million in fiscal 1994 as compared to $2.1 million in
fiscal 1993 and net earnings decreased to $.6 million in fiscal 1994 as
compared to $1.0 million in fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1995 the Company had a $9.0 million revolving credit
facility, of which $5.8 million of borrowings thereunder were outstanding.
The credit facility is secured by substantially all of the Company's assets
and currently bears interest at LIBOR plus 1.5% or the lenders base rate plus
.5%. At November 30, 1995, the interest on $4 million of the outstanding
revolver was tied to the LIBOR rate. In addition to the revolving credit
facility, the Company also had outstanding at November 30, 1995 a term loan
in the amount of $8.0 million and $5.1 million in unsecured acquisition notes
payable. The term loan is secured by the Company's property, plant, and
equipment, and bears interest at LIBOR plus 1.75% and is payable in twenty
quarterly installments of $400,000, plus interest, through November 2000. In
April 1996, the term note lender provided an additional term loan of $5.175
million to the Company primarily in order to fund the Venodyne acquisition.
This new term note is payable in 17 quarterly installments of $258,750, plus
accrued interest, through November 2000.
Net working capital at November 30, 1995 was $10.3 million. The
Company's current ratio at November 30, 1995 was 2.4 as compared to 2.1 at
November 30, 1994.
The increase in cash provided by operating activities in fiscal 1995 was
primarily due to increased earnings and a net increase in other components of
working capital. The increases in accounts receivable was primarily due to
increased sales. Excluding the $.6 million increase in accounts receivable
from an acquisition on November 30, 1995, accounts receivable turnover
remained stable in fiscal 1995 with accounts over ninety days dropping by one
half as a percent of total accounts receivable. Inventory turnover improved
during the year excluding the $1.0 million increase in inventory from the
acquisition on November 30, 1995.
The increase in cash used by investing activities in fiscal 1995 was
primarily due to the asset exchange with Xomed, which occurred during the
third fiscal quarter of fiscal 1995 and the acquisition of Medi-Plast which
occurred on November 30, 1995 and were financed by cash flow from operations
and long-term debt. In addition to these transactions, the Company had an
increase in capital expenditures for fiscal 1995 as compared to fiscal 1994.
These increases were primarily associated with the cost of increasing
manufacturing capacity in the Dominican Republic by approximately 30,000 sq.
ft. and increasing warehousing capacity in Columbus, Mississippi. The
Company plans to use its existing credit facility to finance any future
capital requirements.
In the second quarter of fiscal 1995, the Company announced plans for
the repurchase of up to 300,000 shares of common stock in open market
transactions. The Company purchased 232,398 shares during fiscal 1995. These
purchases were financed by cash flow from operations.
12
<PAGE>
The Company anticipates that funds generated from operations, together
with its bank line of credit, will be sufficient to fund capital expenditures
and normal cash needs throughout fiscal 1996.
EFFECTS OF INFLATION AND CURRENCY EXCHANGE RATES
The Company does not believe its operations have been materially
affected by inflation.
The Company currently purchases all materials used in its products in U.S.
dollars. The majority of the Company's export sales are denominated in
dollars. Export sales as a percentage of net sales were 24% in 1995. The
Company anticipates an increase in sales denominated in pounds for fiscal 1996.
The Company's export sales could be affected by the relationship of the
U. S. dollar to other foreign currencies.
NEW ACCOUNTING PRONOUNCEMENTS In December 1991 and October 1994,
respectively, the FASB issued SFAS No 107, "Disclosures about Fair Value of
Financial Instruments" and SFAS 119, "Disclosures about Derivative Financial
Instruments and Fair Value of Financial Instruments," which amended SFAS 107.
Statements 107 and 119 require the disclosure of fair value of financial
instruments (both on- and off-balance sheet) for which it is practicable to
estimate that value, the methods and significant assumptions used to estimate
fair value, and the credit risk, market risk, cash requirements and
accounting policies for such instrument. In addition SFAS 119 encourages but
does not require the disclosure of quantitative information about interest
rate, foreign exchange, commodity price, or other market risks of derivative
financial instruments that is consistent with the way an entity manages or
adjusts those risks and that is useful for comparing the results of applying
an entity's strategies to is objective for holding or issuing the derivative
financial instruments. The Company adopted these statements on December 1,
1995. Their adoption will require additional disclosures about fair values of
financial instruments but are not expected to affect the results of
operations of the Company.
On December 30, 1994 the AICPA published Statement of Position 94-6
"Disclosure of Certain Risk and Uncertainties." This statement was adopted by
the Company on December 1, 1995 and will require additional disclosures about
the use of estimates in preparation of the Company's financial statements and
risks resulting from concentrations of customers, suppliers, labor, markets,
geographic areas, etc.
In March 1995, the FASB issued SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less that the assets
carrying amount. SFAS No. 121 is effective for the Company's fiscal year
beginning December 1, 1996. The adoption of this statement is not expected
to have a material impact on the Company's consolidated financial statements.
In October 1995, the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation". This statement establishes financial accounting
and reporting standards for stock-based employee compensation plans and is
effective for the Company's fiscal year beginning December 1, 1996. The
adoption of this statement will require additional disclosure regarding stock
based compensation, but is not expected to have a material impact on the
results of operations of the Company.
There are presently no other recent pronouncements that will have a
material impact on the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a).
13
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A brief description of each director and executive officer of the
Company as of March 31, 1996, is provided below. Directors hold office
until the next annual meeting of the stockholders or until their successors
are elected and qualified. All officers serve at the discretion of the Board
of Directors, except as provided below.
Kimber L. Vought, 45, has served as the President, Chief Executive
Officer of the Company and a director since 1985. From 1977 to 1984, he
served in various capacities (including chief operating officer) of Teknamed
Corporation, a medical products company which prior to 1984 was the parent
corporation of Microtek.
Dan R. Lee, 47, has served as the Vice President-Chief Operating and
Financial Officer of the Company since 1987. From 1972 to 1987, he was
engaged in public accounting practice, including more than five years with
KPMG Peat Marwick.
Lester J. Berry, 62, has served as a director and as the Executive Vice
President for New Business Opportunities for the Company since January 1994.
From 1987 to December 1993, Mr. Berry served in various capacities at 3M
Corporation, a manufacturing company, including as the National Sales and
Marketing Manager, Medical Specialties, and as the National Sales Manager,
Health Care Specialties.
James V. O'Donnell, 45, a director of the Company since 1991 and
Chairman of the Board since April 1992, is the President of the general
partner of Micro Partners, L.P., a major stockholder of the Company. Micro
Partners, L.P. is a holding company, the principal asset of which is its
equity interest in the Company. Since 1988, Mr. O'Donnell has been the
President of Bush-O'Donnell & Company, a merchant banking and investment firm.
W. Lynton Edwards, III, 46, a director of the Company since 1993, has
served since April 1990 as the President of The Benjamin Ansehl Company, a
manufacturer of private label and beauty care products and gift toiletries.
Jonathan C. Stearns, 37, a director of the Company since 1991, has
served since 1989 as a Vice President of Kleinwort Benson Limited, an English
merchant banking firm.
Walter H. Wilkinson, Jr., 50, a director of the Company since 1990, has
been the general partner of Kitty Hawk Capital, a venture capital firm, and
its affiliates since 1980.
Thomas W. Wright, 45, a director of the Company since 1985, is engaged
in the merchant banking and venture capital industries. From 1985 to 1991,
he served as a general partner of the Sunwestern Investment Group, a venture
capital firm, and has continued to serve as a general partner of Sunwestern
Investment Fund, a venture capital firm. He is also a director of MaxServ,
Inc., an information sciences company.
Effective April 30, 1996, Messrs. O'Donnell, Edwards, Stearns and Wright
resigned from the Board of Directors, coincident with the distribution by Micro
Partners, L.P. to its partners of all the shares of Company Common Stock owned
by Micro Partners, L.P.
Mr. Lee and Bruce H. Hallett were elected to fill two of the vacancies
resulting from these resignations. Mr. Hallett, 44, has been engaged in private
law practice in Dallas, Texas since 1980.
14
<PAGE>
CERTAIN FILINGS BY EXECUTIVE OFFICERS AND DIRECTORS
Under securities laws of the United States, the Company's directors,
executive officers and persons who own more than 10% of the Company's common
stock are required to report their initial ownership of the Company's common
stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates have been established for these
reports, and the Company is required to disclose in this proxy statement any
failure to file by these dates. All of these filing requirements were
satisfied, except that Micro Partners, L. P. and Mr. O'Donnell did not timely
file a Form 4 reflecting the sale of 8,000 shares of the Company's common
stock on January 25, 1996.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table sets forth information concerning cash compensation
paid or accrued by the Company during the three-year period ended November
30, 1995 to or for the Company's Chief Executive Officer and the two other
highest compensated executive officers of the Company whose total salary and
bonus exceeded $100,000.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
SECURITIES
NAME AND RESTRICTED UNDERLYING ALL
PRINCIPAL STOCK OPTIONS/ OTHER
POSITION YEAR SALARY BONUS AWARDS SAR'S COMPENSATION (1)
- --------- ---- ------ ----- ---------- ---------- ----------------
Mr. Vought 1995 $175,000 116,000 -- 65,000 --
CEO 1994 157,500 -- -- -- --
1993 157,500 -- -- -- --
Mr. Lee 1995 150,000 100,000 -- 25,000 3,057
COO 1994 112,500 -- -- -- 2,207
1993 112,500 -- -- -- --
Mr. Berry(2) 1995 150,000 74,000 -- 10,000 1,269
Exec. VP 1994 137,500 -- -- 40,000 --
(1) Amount indicated represents the Company's contribution to its 401(k)
retirement plan for the account of the executive officer.
(2) Mr. Berry was not an executive officer of the Company prior to fiscal 1994.
15
<PAGE>
None of the named executive offices received perquisites and other personal
benefits, securities or property in excess of the lesser of $50,000 or 10% of
such officer's total annual salary and bonus.
STOCK OPTIONS
The following table sets forth certain information with respect to the
options granted during fiscal 1995 to the executive officers named in the
above compensation table:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
- --------------------------------------------------------- ---------------------
PERCENT OF
TOTAL
OPTIONS
OPTIONS/ GRANTED TO EXERCISE
SARS EMPLOYEES OR BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
- ---- ------- -------- ------ ---------- ----- ------
Mr. Vought 40,000 25.8% 5.75 11/21/05 242,379 522,185
25,000 16.13% 5.75 11/21/05 151,487 326,366
Mr. Lee 25,000 16.13% 5.75 11/21/05 151,487 326,366
Mr. Berry 10,000 6.45% 4.50 1/25/05 73,095 143,046
____________
(1) The assumed annual appreciation rates are disclosed pursuant to the rules
of the Securities and Exchange Commission and are not intended to forecast
future appreciation of the Company's Common Stock.
The following table sets forth certain information with respect to the
options exercised by the executive officers named in the above compensation
table during fiscal 1995 or held by such persons at November 30, 1995:
16
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR END OPTION/SAR VALUES
--------------------------------------------------
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTION AT
SHARES NOVEMBER 30, NOVEMBER 30,
ACQUIRED 1995 1995 (1)
ON VALUE ----------- -----------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Vought -- -- 104,005 65,000 612,173 97,500
Mr. Lee 6,000 35,316 177,300 25,000 1,043,588 37,500
Mr. Berry -- -- 10,000 40,000 20,000 87,500
</TABLE>
________________
(1) Based upon the closing price of the Common Stock of the Company on
November 30, 1995, which price was $7.25 per share.
Director Compensation. During fiscal 1995, non-employee directors of the
Company received an annual retainer of $10,000 and were reimbursed upon
request for their reasonable expenses incurred in attending Board of
Directors or committee meetings. Employee directors do not receive any
separate fees for serving as directors.
Employment Agreement. Mr. Berry is a party to an employment agreement
which specifies the minimum salary and benefits payable to him during the
term of the employment agreement and, in consideration therefor, contains
certain provisions restricting his ability to compete against the Company
after termination of the agreement or to use (or disclose) confidential
information. In consideration of Mr. Berry's agreement to delete certain
provisions in his employment agreement providing for certain cash payments
upon a change of control, Mr. Berry's employment agreement was amended in
January 1994 to provide that the Company would pay to Mr. Berry a bonus to
the extent he did not receive a profit of $300,000 before taxes on his stock
options to purchase 40,000 shares of Common Stock of the Company at an
exercise price of $5.25 per share in the event of the consummation of certain
defined change of control transactions which would include the merger with
Isolyser. Accordingly, it would be anticipated that Mr. Berry would realize
in excess of $300,000 of profit before taxes if he were able to liquidate his
stock options concurrently with the consummation of the merger with Isolyser.
Mr. Berry has agreed that the relevant time to calculate his profit on his
stock options for the purpose of said provisions of his employment agreement
is the date of closing of the merger with Isolyser, regardless of when he
liquidates his options.
Compensation Committee Interlocks and Insider Participation. No executive
officer of the Company served as a member of the Compensation Committee (or
other board committee performing similar functions or, in the absence of any
such committee, the entire board of directors) of another corporation, one of
whose executive officers served on the Compensation Committee. No executive
officer of the Company served as a director of another corporation, one of
whose executive officers served on the Compensation Committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another corporation, or one of
whose executive officers served as a director of the Company.
17
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as of April 30, 1996 for
(i) each person who is known by the Company to own beneficially more than 5%
of the outstanding shares of common stock, (ii) each director of the Company as
of such date, (iii) each of the named executive officers, and (iv) all of the
directors and officers of the Company as a group. Except pursuant to
applicable community property laws and except as otherwise indicated, each
stockholder identified in the table possesses sole voting and investment power
with respect to its or his shares.
SHARES BENEFICIALLY OWNED(1)
----------------------------
NAME NUMBER PERCENT
- ---- ------ -------
Isolyser Company, Inc.(2) 2,159,191 46.3%
Pat M. Murphy(3) 434,926 9.3
Windsor Capital, Inc.(4) 305,683 6.6
KB Mezzanine Fund, L.P.(5) 305,683 6.6
Kimber L. Vought(6) 208,389 4.4
Kitty Hawk Capital Limited
Partnership, II(7) 281,388 6.0
Walter H. Wilkinson, Jr.
NationsBanc Capital Corp.(8) 278,330 6.0
Dan R. Lee 173,400 3.8
Lester J. Berry 47,030 1.0
Bruce H. Hallett -- --
All directors and executive
officers as a group
(5 persons) 710,207 14.3%
_______________
* Less than one percent.
(1) Includes shares issuable upon exercise of stock options which vest
prior to June 1, 1996.
(2) Certain stockholders of the Company have granted Isolyser Company, Inc.
("Isolyser") a proxy to vote all of their shares of Common Stock in favor
of the proposed merger of the Company with a subsidiary of Isolyser. See
"Business -- Proposed Merger with Isolyser." The address of Isolyser is
4320 International Boulevard, N.W., Norcross, Georgia 30093.
(3) Based on Schedule 13D dated May 10, 1996. The address of Mr. Murphy is
P.O. Box 3368, Bartlesville, Oklahoma 74006.
(4) Based on Schedule 13D dated May 10, 1996. The address of Windsor Capital,
Inc. is 7711 Bonhomme Avenue, St. Louis, Missouri 63105.
(5) Based on Schedule 13D dated May 10, 1996. The addresss of KB Mezzanine Fund,
L.P. is 200 Park Avenue, 25th Floor, New York, New York 10166.
(6) Mr. Vought's address is P.O. Box 2487, Columbus, Mississippi 39704.
(7) Shares are owned of record by Kitty Hawk Capital Limited Partnership, II
("Kitty Hawk"). Mr. Wilkinson is a general partner of Kitty Hawk's
general partner. Mr. Wilkinson owns no shares of record but may be deemed
to share voting and investment power with respect to the shares owned by
Kitty Hawk. The address of Kitty Hawk Capital Limited Partnership is
2101 Rexford Road, Suite 203E, Charlotte, North Carolina 28211.
(8) The address of NationsBanc Capital Corp. is 1401 Elm Street, Suite 4764,
Dallas, Texas 75202.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended November 30, 1995, the Company paid to Crouch &
Hallett (of which Bruce H. Hallett, a director of the Company, is a partner)
approximately $50,000 for legal services rendered.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
Reference is made to the listing on page F-1 of all financial
statements and schedules filed as a part of this report.
(a) (3) Exhibits
18
<PAGE>
Reference is made to the Exhibit Index on page E-1 for a list of all
exhibits filed as a part of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
fiscal 1995. However, a report on Form 8-K was filed on December 8,
1995, regarding the acquisition of the assets of Medi-Plast
International, Inc. The required financial statements of
Medi-Plast International, Inc. were included in an amendment to
such report on Form 8-K/A filed on February 13, 1996 and are also
included herein.
19
<PAGE>
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.
MICROTEK MEDICAL, INC.
BY: /s/ Kimber L. Vought
------------------------------------
Kimber L. Vought, President and
Chief Executive Officer
Dated: May 23, 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 indicated on May 23, 1996.
NAME TITLE
/s/ Kimber L. Vought President, Chief Executive
- --------------------------------- Officer and Director (Principal
Kimber L. Vought Executive Officer)
/s/ Dan R. Lee Vice President, Chief Operating
- --------------------------------- and Financial Officer and Director
Dan R. Lee (Principal Financial and
Accounting Officer)
/s/ Lester J. Berry
- --------------------------------- Director
Lester J. Berry
/s/ Bruce H. Hallett
- --------------------------------- Director
Bruce H. Hallett
- --------------------------------- Director
Walter H. Wilkinson, Jr.
20
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
MICROTEK MEDICAL, INC.
Independent Auditors' Report F-2
Consolidated Balance Sheets:
November 30, 1995 F-3
November 30, 1994
Consolidated Statements of Earnings:
Year ended November 30, 1995 F-4
Year ended November 30, 1994
Year ended November 30, 1993
Consolidated Statements of Stockholders' Equity:
Year ended November 30, 1995 F-5
Year ended November 30, 1994
Year ended November 30, 1993
Consolidated Statements of Cash Flows:
Year ended November 30, 1995 F-6 to F-7
Year ended November 30, 1994
Year ended November 30, 1993
Notes to consolidated financial statements F-8 to F-23
MEDI-PLAST INTERNATIONAL INC.
Independent Auditors' Report F-24
Balance Sheets: F-25
December 31, 1994
December 31, 1993
Statement of Operations and Retained Earnings F-26
December 31, 1994
December 31, 1993
Statements of Cash Flows: F-27
December 31, 1994
December 31, 1993
Notes to consolidated financial statements F-28 to F-33
VENODYNE
Independent Auditors' Report F-34
Balance Sheet: F-35
February 24, 1996
Statement of Divisional Income: F-36
Eleven months ended February 24, 1996
Statement of Divisional Cash Flows: F-37
Eleven months ended February 24, 1996
Notes to consolidated financial statements F-38 to F-43
PRO FORMA COMBINED FINANCIAL INFORMATION
Balance Sheet: F-45
February 29, 1996
Statement of Earnings: F-46
Twelve months ended November 30, 1995
Statement of Earnings: F-47
Three months ended February 29, 1996
Notes to pro forma combined financial information F-48
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Microtek Medical, Inc.:
We have audited the consolidated financial statements of Microtek Medical, Inc.
and subsidiaries as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Microtek
Medical, Inc. and subsidiaries as of November 30, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended November 30, 1995, in conformity with generally
accepted accounting principles.
As discussed in notes 2 and 9 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, as of December 1, 1993.
Jackson, Mississippi KPMG PEAT MARWICK LLP
January 17, 1996
F-2
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
------- ---- ----
<S> <C> <C>
Current assets:
Cash $ 307,524 232,787
Accounts receivable - trade, net of allowance of
$140,000 in 1995 and $125,000 in 1994 (notes 6 and 11) 5,591,792 3,768,425
Refundable Federal and state income taxes (note 9) 110,000 48,765
Due from ESOP (note 10) - 79,392
Other receivables 51,896 96,854
Inventories (notes 3 and 6) 10,868,116 9,902,687
Prepaid expenses 371,180 179,174
Deferred tax asset (note 9) 208,000 215,000
Other current assets 59,818 63,718
------------ -----------
Total current assets 17,568,326 14,586,802
------------ -----------
Property, plant and equipment (notes 4 and 6) 8,714,326 6,422,815
Less accumulated depreciation (3,262,877) (2,676,885)
------------ -----------
Net property, plant and equipment 5,451,449 3,745,930
------------ -----------
Goodwill and other assets, at cost less applicable
amortization (notes 6 and 8) 21,905,788 8,200,069
Due from related parties (note 14) 138,361 144,207
Investment in and advances to joint venture (note 17) 162,639 311,075
------------ -----------
$ 45,226,563 26,988,083
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current instalments of long-term debt (note 6) $ 2,476,393 4,699,036
Accounts payable 2,185,515 637,016
Accrued expenses (note 5) 2,006,605 1,394,492
Income taxes currently payable (note 9):
Federal and state 226,854 15,679
Foreign 389,994 57,000
------------ -----------
Total current liabilities 7,285,361 6,803,223
------------ -----------
Long-term debt, excluding current instalments (note 6) 16,591,075 47,071
Deferred tax liability (note 9) 231,000 255,000
------------ -----------
Total liabilities 24,107,436 7,105,294
------------ -----------
Stockholders' equity (notes 6, 12 and 13):
Common stock, $.01 par value. Authorized 15,000,000
shares; issued 4,829,284 shares at November 30, 1995
and 4,768,294 shares at November 30, 1994 48,293 47,683
Additional paid-in capital 20,208,551 20,024,890
Retained earnings 2,595,303 321,377
Unearned shares restricted to employee stock
ownership plan (note 10) (420,000) (480,000)
------------ -----------
22,432,147 19,913,950
Treasury stock, 236,064 shares at November 30, 1995
and 3,666 shares at November 30, 1994, at cost (1,313,020) (31,161)
------------ -----------
Total stockholders' equity 21,119,127 19,882,789
------------ -----------
Commitments and contingencies (notes 7, 10 and 15)
$ 45,226,563 26,988,083
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales (note 11) $ 30,058,999 26,893,875 26,938,723
Cost of sales 16,276,053 14,947,238 13,866,475
------------ ---------- ----------
Gross profit 13,782,946 11,946,637 13,072,248
------------ ---------- ----------
Selling, general and administrative expenses 8,964,920 10,003,198 9,897,466
Amortization of goodwill and other assets (note 8) 433,383 401,545 1,066,313
Restructuring charges - 140,000 -
------------ ---------- ----------
Total operating expenses 9,398,303 10,544,743 10,963,779
------------ ---------- ----------
Earnings from operations 4,384,643 1,401,894 2,108,469
------------ ---------- ----------
Other expenses (income):
Interest expense and amortization of debt
discount and deferred loan costs 549,168 373,476 348,118
Miscellaneous 82,790 (435) (21,307)
------------ ---------- ----------
631,958 373,041 326,811
------------ ---------- ----------
Earnings before income taxes,
extraordinary item and
cumulative effect of a change
in accounting principle 3,752,685 1,028,853 1,781,658
Income tax expense (note 9) 1,445,000 444,000 775,000
------------ ---------- ----------
Earnings before extraordinary item
and cumulative effect of a change
in accounting principle 2,307,685 584,853 1,006,658
------------ ---------- ----------
Extraordinary item - income tax benefit of utilization
of net operating loss carryforward - - 24,000
------------ ---------- ----------
Cumulative effect at December 1, 1993 of change
in accounting for income taxes (notes 2 and 9) - (5,000) -
------------ ---------- ----------
Net earnings $ 2,307,685 579,853 1,030,658
------------ ---------- ----------
------------ ---------- ----------
Earnings per common share (note 1):
Before extraordinary item $ .47 .11 .20
Extraordinary item - - -
Cumulative effect of accounting change - - -
------------ ---------- ----------
$ .47 .11 .20
------------ ---------- ----------
------------ ---------- ----------
Weighted average common shares outstanding 4,926,678 5,058,272 5,059,470
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended November 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
ADDITIONAL RETAINED SHARES
COMMON PAID-IN EARNINGS RESERVED TREASURY
STOCK CAPITAL (DEFICIT) FOR ESOP STOCK TOTAL
------- ---------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance (deficit) at November 30, 1992 $45,138 18,984,773 (1,280,549) - - 17,749,362
Repurchase of 3,666 shares of common stock - - - - (31,161) (31,161)
Common stock reserved for the ESOP, 90,000 shares (note 10) 900 539,100 - (540,000) - -
Exercise of options into 110,825 shares of common
stock (note 12) 1,108 149,770 - - - 150,878
Tax benefit of options exercised - 217,183 - - - 217,183
Currency translation loss - - (66) - - (66)
Net earnings for the year ended November 30, 1993 - - 1,030,658 - - 1,030,658
------- ---------- --------- -------- ---------- ----------
Balance (deficit) at November 30, 1993 47,146 19,890,826 (249,957) (540,000) (31,161) 19,116,854
Exercise of options into 43,686 shares of common
stock (note 12) 437 59,149 - - - 59,586
Contribution of 10,000 shares to the ESOP (note 10) 100 59,900 - - - 60,000
Release of 10,000 shares reserved for the ESOP (note 10) - (8,750) - 60,000 - 51,250
Tax benefit of options exercised - 23,765 - - - 23,765
Currency translation loss - - (8,519) - - (8,519)
Net earnings for the year ended November 30, 1994 - - 579,853 - - 579,853
------- ---------- --------- -------- ---------- ----------
Balance at November 30, 1994 47,683 20,024,890 321,377 (480,000) (31,161) 19,882,789
Exercise of options into 60,990 shares of common
stock (note 12) 610 82,574 - - - 83,184
Currency translation loss - - (33,759) - - (33,759)
Repurchase of 232,398 shares of common stock - - - - (1,281,859) (1,281,859)
Release of 10,000 shares reserved for the ESOP (note 10) - 11,125 - 60,000 - 71,125
Tax benefit of options exercised - 89,962 - - - 89,962
Net earnings for the year ended November 30, 1995 - - 2,307,685 - - 2,307,685
------- ---------- --------- -------- ---------- ----------
Balance at November 30, 1995 $48,293 20,208,551 2,595,303 (420,000) (1,313,020) 21,119,127
------- ---------- --------- -------- ---------- ----------
------- ---------- --------- -------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended November 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,307,685 579,853 1,030,658
Adjustments to reconcile net earnings to cash
provided (used) by operating activities:
Depreciation and amortization 1,281,622 1,095,984 1,718,851
Loss on disposal of equipment 15,132 1,783 -
Equity in net loss of joint venture 91,426 - -
Deferred income taxes, including cumulative
effect of change in accounting principle (17,000) 81,022 (73,202)
Contribution of stock to ESOP 71,125 111,250 -
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (797,767) 706,374 (1,026,185)
Inventories (63,247) (514,257) (3,054,342)
Refundable income taxes (61,235) (48,765) 47,000
Prepaid expenses and other current assets (160,514) 80,855 (158,029)
Due from ESOP 79,392 (79,392) -
Other receivables 44,958 (96,854) -
Accounts payable 625,115 179,024 (502,221)
Accrued expenses 538,864 51,996 (66,750)
Income taxes currently payable 544,169 (144,733) 217,412
------------ -------- ----------
Net cash provided (used) by
operating activities 4,499,725 2,004,140 (1,866,808)
------------ -------- ----------
Cash flows from investing activities:
Acquisitions, net of cash acquired (9,069,273) - -
Additions to property, plant and equipment,
excluding acquisitions (2,075,419) (600,666) (790,039)
Proceeds from sale of property, plant and equipment 125,703 16,037 -
(Increase) in other assets (1,552,071) (195,631) (203,534)
(Increase) decrease in related party receivables 5,846 2,986 (4,131)
(Increase) decrease in investment in and
advances to joint venture 57,010 (1,613) (309,462)
------------ -------- ----------
Net cash used by investing activities (12,508,204) (778,887) (1,307,166)
------------ -------- ----------
</TABLE>
F-6 (Continued)
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
1995 1994 1993
------------ --------- ----------
<S> <C> <C> <C>
Cash flows from financing activities:
Net borrowings (repayments) under
revolving credit agreements 1,236,786 (1,187,530) 2,841,611
Proceeds from notes payable 8,177,688 85,065 -
Repayment of long-term debt (172,527) (65,678) (5,372)
Repayment of notes payable (50,018) (35,047) -
Proceeds from exercise of stock options 83,184 59,586 150,878
Tax benefit of options exercised 89,962 23,765 217,183
Purchase of treasury stock (1,281,859) - (31,161)
------------ -------- ----------
Net cash provided (used) by
financing activities 8,083,216 (1,119,839) 3,173,139
------------ -------- ----------
Net increase (decrease) in cash 74,737 105,414 (835)
Cash at beginning of year 232,787 127,373 128,208
------------ -------- ----------
Cash at end of year $ 307,524 232,787 127,373
------------ -------- ----------
------------ -------- ----------
</TABLE>
See notes 1, 6 and 9 for supplemental disclosures of non-cash activities.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1995, 1994 AND 1993
(1) ORGANIZATION AND ACQUISITIONS
Microtek Medical, Inc. (the Company), a Delaware corporation, was organized
on August 3, 1983. The Company designs, manufactures, and sells a broad
range of surgical and medical supplies. The Company owns 100% of the common
stock of Microtek Dominicana, S. A., Microtek U.K., and Microtek Medical
Foreign Sales Corporation, Inc.
On November 30, 1995 the Company purchased substantially all the assets and
assumed certain liabilities of Medi-Plast International, Inc. (Mediplast) a
Georgia corporation which produced and marketed disposable fluid collection
systems, transfer devices and patient procedural draping. The purchase price
of $11,119,000 consists of $7,519,000 in cash and $3,600,000 in seller
financing. The cash portion of the acquisition cost was financed by
long-term debt. The purchase price was allocated to the assets and liabilities
acquired based on their estimated fair values. The approximate balance sheet
effects at November 30, 1995 of this acquisition were as follows:
Increase in receivables, inventories and other current
assets, including cash of $91,000 $ 1,503,000
Increase in accounts payable and accrued expenses 474,000
Increase in property, plant and equipment 418,000
Increase in goodwill and other assets 9,672,000
Increase in long-term debt 11,119,000
On June 27, 1995 the Company acquired the infection control drape line of
business of Xomed, Inc. (Xomed) of Jacksonville, Florida in exchange for the
assets of the Company's otology product line of business, $1,316,000 in cash
and notes payable to Xomed in the amount of $1,313,000. The cash portion of
the transaction cost was financed by long-term debt. This transaction was
accounted for as an exchange of assets based on the recorded values of the
assets exchanged and the estimated fair values of the ass ets acquired, and
no gain or loss was recognized. The results of operations of the line of
business acquired from Xomed are included in the Company's financial
statements from the date of the exchange. The principal effects on the
Company's balance sheet at the acquisition date were a net increase in
goodwill and other assets of approximately $3,367,000 and an increase in
long-term debt of $2,934,000.
On November 30, 1995, the Company purchased certain assets of Surgical
Technologies, Inc. for $375,000. The purchase price was allocated primarily
to inventories and fixtures and equipment based on estimated fair values.
(Continued)
F-8
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma data are provided for comparative purposes
and are not necessarily indicative of actual results that would have been
achieved had the acquisition of Mediplast been consummated on December 1,
1993 and are not necessarily indicative of future results. Assuming that the
acquisition was consummated on December 1, 1993, unaudited pro forma net
sales, net earnings and earnings per share (for 1995), after giving effect to
certain adjustments, including amortization of goodwill and other assets,
increased interest expense on debt related to the acquisition, reduced
compensation and rental expenses based on new contractual arrangements, and
related income tax effects, for the years ended November 30, 1995 and 1994
follow:
YEAR ENDED NOVEMBER 30,
-----------------------
1995 1994
---- ----
Net sales $ 35,203,000 32,097,000
------------- ----------
------------- ----------
Earnings before extraordinary item $ 2,278,000 487,000
------------- ----------
------------- ----------
Earnings per common share before
extraordinary item $ .46
-------------
-------------
Information regarding operating expenses and net earnings of the drape line
acquired from Xomed is not available. Unaudited pro forma net sales for the
drape line acquired and the otology line exchanged are as follows:
PERIOD ENDED YEAR ENDED
JUNE 30, NOVEMBER 30,
1995 1994
------------ -----------
Net sales - Xomed drape line acquired $ 3,505,000 7,364,000
------------ -----------
------------ -----------
Net sales - Microtek otology line exchanged $ 2,095,000 4,135,000
------------ -----------
------------ -----------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(b) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(Continued)
F-9
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of
plant and equipment is calculated using the straight-line method over
the estimated useful lives of the assets.
(d) INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Statement 109 required the Company to change from the
deferred method of accounting for income taxes of APB Opinion 11 to
the asset and liability method. Under the asset and liability method
of Statement 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective December 1, 1993, the Company adopted Statement 109 and has reported
the cumulative effect of this change in method of accounting for income taxes
in the consolidated statement of earnings for the year ended November 30, 1994.
Pursuant to the deferred method under APB Opinion 11, which was applied prior
to the year ended November 30, 1994, deferred income taxes were recognized
for income and expense items reported in different years for financial reporting
and income tax purposes, using the tax rate applicable for the year of the
calculation. Under the deferred method, deferred taxes were not adjusted for
subsequent changes in tax rates.
(e) GOODWILL AND OTHER ASSETS
Goodwill is amortized using the straight-line method. Goodwill
related to the acquisition of Microtek is being amortized over forty
years, and goodwill related to subsequent acquisitions is being
amortized over twenty-five years.
(Continued)
F-10
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If facts and circumstances indicate that goodwill may be impaired, an
assessment is made by the Company to determine if a writedown is required or
if its estimated useful life should be revised. The assessment is based
primarily on forecasted operating income, including interest expense,
depreciation and amortization other than goodwill; supplemented if necessary
by an independent appraisal of fair value. At November 30, 1995 and 1994,
the Company believes that no impairment of goodwill has occurred and t hat no
revision of its estimated useful life is required.
Deferred loan costs are being amortized over five years, the actual term of
the related term loan, using the straight-line method which does not differ
materially from the interest method.
The cost of patents and license agreements is being amortized over the lesser
of their legal or estimated useful lives.
The cost of customer lists are amortized over five years using the straight-line
method.
(f) EARNINGS PER COMMON SHARE
Earnings per share calculations are based on the weighted average
number of common shares and dilutive common share equivalents
outstanding during each period. Common share equivalents are
determined using the treasury stock method. Any ESOP shares committed
to be released are also included in the computation of weighted
average shares outstanding.
(g) RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to expense as
incurred and are included in selling, general and administrative
expenses. Research and development expenses were approximately
$168,000 for the year ended November 30, 1995, $201,000 for the year
ended November 30, 1994 and $333,000 for the year ended November 30,
1993.
(h) STOCK OPTIONS
All stock options are nonqualified or incentive stock options. The
options are granted at the market price of the shares on the date of
the grants, and therefore require no charges against income upon grant
or exercise. The Company receives a tax benefit from dispositions
that result in ordinary income to option recipients.
(Continued)
F-11
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(i) REVENUE RECOGNITION
Revenue is recognized when goods are shipped and title and risk of
ownership have passed. The Company allows goods to be returned if
they do not meet the customer's specifications. An allowance is
recorded for such returns.
(j) RECLASSIFICATIONS
Certain reclassifications have been made in the 1994 and 1993
financial statements to conform to the 1995 presentation.
(3) INVENTORIES
A summary of inventories follows:
NOVEMBER 30,
----------------
1995 1994
---- ----
Raw materials $ 2,260,969 2,880,336
Work-in-process 1,388,906 2,221,989
Finished goods, net of $175,000 allowance for
possible obsolescence at November 30, 1995
and $185,000 at November 30, 1994 7,218,241 4,800,362
------------ ----------
$ 10,868,116 9,902,687
------------ ----------
------------ ----------
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
NOVEMBER 30,
ESTIMATED -----------------------
USEFUL LIVES 1995 1994
------------ ---- ----
Land - $ 244,453 239,765
Buildings 20 years 1,480,538 1,157,823
Machinery and equipment 7 - 10 years 3,784,297 2,799,905
Furniture, fixtures and equipment 3 - 5 years 1,933,336 1,557,861
Leasehold improvements 8 years 1,271,702 629,754
Construction in progress - - 37,707
----------- ----------
$ 8,714,326 6,422,815
----------- ----------
----------- ----------
(Continued)
F-12
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) ACCRUED EXPENSES
A summary of accrued expenses follows:
NOVEMBER 30,
-----------------------
1995 1994
---- ----
Commissions $ 170,125 257,444
Bonuses 639,487 275,900
Salaries and wages 326,594 124,534
Other 870,399 736,614
---------- ---------
2,006,605 1,394,492
---------- ---------
---------- ---------
(6) NOTES PAYABLE AND LONG-TERM DEBT
A summary of notes payable and long-term debt follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------
1995 1994
---- ----
<S> <C> <C>
Borrowings under credit agreement:
- $9,000,000 revolving credit line available
until November 30, 2000 (1) $ 5,789,311 4,552,525
- Term loan (1) 8,000,000 -
------------ ---------
13,789,311 4,552,525
7.0% unsecured acquisition note payable in 59
monthly installments of $41,799, including
interest, with the remainder due November, 2000 3,600,000 -
9.5% unsecured acquisition note payable in three
annual principal installments of $375,000, plus
interest payable quarterly, final installment
due June 30, 1998 1,125,000 -
$200,000 of unsecured non-interest bearing
acquisition notes, discounted to yield 9.5%, due
in monthly instalments ranging from $16,667 to
$5,556, with final payment due June, 1997.
Unamortized discount on the notes is $8,704 at
November 30, 1995 188,637 -
</TABLE>
(Continued)
F-13
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Continued
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------
1995 1994
---- ----
<S> <C> <C>
$250,000 unsecured non-interest bearing acquisition
note, discounted to bear interest at 9.5%, due
in 24 monthly installments beginning June 30,
1995, of $8,333, followed by 12 monthly
installments of $4,168, final instalment due
June, 1998. Unamortized discount is $20,185 at
November 30, 1995. 187,372 -
Note payable to bank secured by real estate, payable
in monthly instalments of $1,912 with remainder
due October 2000, interest at prime plus .5% 177,148 53,564
Account payable to officer, final payment due in
September 1995, (2) - 90,000
Other - 50,018
------------ ---------
Total long-term debt 19,067,468 4,746,107
Less current instalments 2,476,393 4,699,036
------------ ---------
Long-term debt, excluding
current instalments $ 16,591,075 47,071
------------ ---------
------------ ---------
</TABLE>
(1) The $9,000,000 revolving credit line is secured by receivables and
inventories and bears interest at LIBOR plus 1.5% or an alternative base
rate plus .5%. The Company has discretion as to the mix of Eurodollar
loans. The Company is required to pay an administration fee of $20,000
per year, plus a commitment fee of .5% on the average daily unused amount
of the revolving credit line each quarter. At November 30, 1995, the
interest rate on the line of credit was approximately 9.2%. Under the
terms of the credit agreement, if the revolving credit commitment is
permanently reduced or terminated, a penalty is due in the amount of 3%
through November 30, 1996, 2% from December 1, 1996 to November 30, 1997
and 1% thereafter. The amount of credit available at any time is limited
by a borrowing base calculation based on 85% of eligible receivables and
50% of eligible inventories. At November 30, 1995, the amount of credit
available was approximately $1,650,000.
The $8,000,000 term loan is secured by property, plant and equipment,
bears interest at LIBOR plus 1.75% and is payable in twenty quarterly
installments of $400,000, plus interest, through November, 2000. If the
term loan is prepaid, a prepayment penalty is due in the same amounts
as described above.
F-14
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The credit agreement contains certain covenants which, among other
things, require that the Company maintain certain operating ratios, stated
levels of tangible net worth and earnings, a stated debt service ratio, and a
stated ratio of unsubordinated liabilities to net worth. The convenants also
limit rental obligations, capital expenditures, sales of assets and
additional indebtedness (other than that under the agreements) and prohibit
the payment of dividends or other distributions to stockholders.
(2) This account originated as a result of an acquisition in the United
Kingdom. The payee became an officer of the Company after the acquisition.
The effects of the acquisition on the Company's financial statements were
insignificant.
Total interest paid by the Company approximated $498,000, $384,000 and
$350,000 for the years ended November 30, 1995, 1994 and 1993, respectively.
A summary of the future maturities of long-term debt follows:
YEAR ENDING
NOVEMBER 30,
------------
1996 $ 2,476,393
1997 2,369,776
1998 2,307,824
1999 1,926,774
2000 9,986,701
-----------
$19,067,468
-----------
-----------
(7) LEASES
A summary follows of the future minimum lease payments under operating
leases that have initial or remaining noncancelable terms in excess of one
year as of November 30, 1995:
1996 $ 687,898
1997 651,757
1998 466,129
1999 335,015
2000 339,744
Thereafter 228,400
----------
$2,708,943
----------
----------
(Continued)
F-15
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Rental expense was approximately $544,000,$323,000 and $404,000 for the
years ended November 30, 1995, 1994 and 1993, respectively.
Subsequent to November 30, 1995, the Company entered into a lease for a
building in Empalme, Mexico. The lease expires in February 1997. Including
the lease on the Mexico building, the future minimum lease payments under
operating leases that have initial or remaining non-cancelable terms in
excess of one year are as follows:
1996 $ 837,969
1997 665,399
1998 466,129
1999 335,015
2000 339,744
Thereafter 228,400
----------
$2,872,656
----------
----------
(8) GOODWILL AND OTHER ASSETS
A summary of goodwill and other assets follows:
NOVEMBER 30,
------------------------
1995 1994
----------- ---------
Goodwill $21,073,736 8,272,711
Patent and license agreements 1,880,451 1,191,197
Deferred financing costs 370,194 -
Other 754,898 462,275
----------- ---------
24,079,279 9,926,183
Less accumulated amortization 2,173,491 1,726,114
----------- ---------
$21,905,788 8,200,069
----------- ---------
----------- ---------
(9) INCOME TAXES
As discussed in note 2, the Company adopted Statement 109 as of December
1, 1993. The cumulative effect, totaling $5,000, of this change in
accounting for income taxes was determined as of December 1, 1993 and is
reported separately in the consolidated statement of earnings for the year
ended November 30, 1994. Financial statements of prior years have not been
restated to apply the provisions of Statement 109 and the pro-forma effect of
the change in accounting for income taxes on prior years has not been shown
because the effect is not material.
(Continued)
F-16
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income tax expense (benefit) consists of:
CURRENT DEFERRED TOTAL
---------- -------- ---------
November 30, 1995:
Federal $ 942,000 3,000 945,000
State 140,000 (20,000) 120,000
Foreign 380,000 - 380,000
---------- ------- ---------
$1,462,000 (17,000) 1,445,000
---------- ------- ---------
---------- ------- ---------
November 30, 1994:
Federal $ 273,000 69,000 342,000
State 38,000 7,000 45,000
Foreign 57,000 - 57,000
---------- ------- ---------
$ 368,000 76,000 444,000
---------- ------- ---------
---------- ------- ---------
November 30, 1993:
Federal $ 724,000 (67,000) 657,000
State 67,000 (6,000) 61,000
Foreign 33,000 - 33,000
---------- ------- ---------
$ 824,000 (73,000) 751,000
---------- ------- ---------
---------- ------- ---------
Such income taxes (benefit) are included in the consolidated statements
of operations as follows:
YEAR ENDED NOVEMBER 30,
--------------------------------
1995 1994 1993
---------- ------- -------
Continuing operations $1,445,000 444,000 775,000
Extraordinary items - - (24,000)
---------- ------- -------
$1,445,000 444,000 751,000
---------- ------- -------
---------- ------- -------
(Continued)
F-17
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Actual income tax expense differs from the expected tax expense
(computed by applying the Federal corporate tax rate of 34% to earnings
before income taxes) as follows:
YEAR ENDED NOVEMBER 30,
------------------------------
1995 1994 1993
---------- ------- -------
Computed expected tax expense $1,276,000 350,000 606,000
Difference resulting from:
State income taxes, net of
Federal income tax benefit 124,000 34,000 59,000
Amortization of goodwill 66,000 69,000 69,000
Foreign sales corporation benefit (51,000) (16,000) (12,000)
Effect of net operating loss carryforward - - (24,000)
Other 30,000 7,000 53,000
---------- ------- -------
$1,445,000 444,000 751,000
---------- ------- -------
---------- ------- -------
The tax effects of temporary differences that give rise to the deferred
tax assets and deferred tax liabilities at November 30, 1995 and 1994 are
presented below:
1995 1994
--------- ------
Deferred tax assets:
Accounts receivable, due to allowances for doubtful
accounts and sales returns $ 55,000 49,000
Inventories, principally due to allowances for obsolete
inventory, and additional costs inventoried for tax
purposes pursuant to the Tax Reform Act of 1986 126,000 123,000
Self-funded insurance program reserves 35,000 41,000
Compensated absences, principally due to accrual for
financial reporting purposes 24,000 29,000
Deferred organization costs 2,000 3,000
--------- --------
Total gross deferred tax asset 242,000 245,000
--------- --------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation (213,000) (260,000)
Prepaid assets which are deducted for tax purposes (32,000) (25,000)
Goodwill, due to different amortization periods (20,000) -
--------- --------
Total gross deferred tax liabilities (265,000) (285,000)
--------- --------
Net deferred tax liability $ (23,000) (40,000)
--------- --------
--------- --------
(Continued)
F-18
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has determined, based on profitable earnings in the past
several years and expectations for the future, that the deferred tax assets
will more likely than not be fully realized and that no valuation allowance
is necessary at November 30, 1995.
Taxes paid for the years ended November 30, 1995, 1994 and 1993 were
$874,000, $539,000 and $367,000 respectively.
(10) EMPLOYEE BENEFIT PLANS
The Company has a defined contribution profit sharing plan covering all
full-time employees who have completed one year of employment and are age
twenty-one or older. Eligible employees may contribute an amount from 1% of
compensation up to 20%. The Company makes matching contributions to the plan
in an amount determined by the Board of Directors. The Company may also
elect to make additional discretionary contributions. Contributions by the
Company to the plan were approximately $87,000, $67,000 and $55,000 for the
years ended November 30, 1995, 1994 and 1993, respectively.
The Company sponsors a self-funded group medical insurance plan for its
employees which is administered through a third party administrator. The
Company has obtained stop-loss insurance coverage which limits its liability
to $50,000 per employee. The Company also has aggregate stop-loss coverage
which is determined by a formula based upon the number of active employees.
Claims expense under this plan was approximately $448,000, $544,000 and
$608,000 for the years ended November 30, 1995, 1994 and 1993, respectively.
Effective December 1, 1992, the Company adopted an employee stock
ownership plan (ESOP) to which the Company has the option to contribute cash
or shares of Company stock. The Company reserved 90,000 shares of common
stock at $6.00 per share for issuance to the ESOP. The ESOP executed a
$540,000 share purchase loan agreement (the ESOP Loan) with the Company on
November 29, 1993, to purchase the 90,000 shares reserved by the Company.
The ESOP Loan is scheduled to be paid in nine annual instalments of $79,392,
including interest at 6%, beginning November 29, 1994, with the remaining
principal and interest due on November 29, 2002. During each of the years
ended November 30, 1995 and 1994, 10,000 shares were committed to be
released, which resulted in compensation cost to the Company of $71,250 and
$51,250, respectively. At November 30, 1995, 20,000 shares were committed to
be released, 10,000 shares had been allocated and 70,000 shares with a fair
value of $499,000 remained unearned.
(Continued)
F-19
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company's contributions to the ESOP each plan year will be
determined by the Board of Directors of the Company, provided that, for any
plan year in which the ESOP Loan remains outstanding the contributions by the
Company may not be less than the amount needed to provide the ESOP with
sufficient cash to pay any current maturing obligations under the ESOP Loan.
The Company contributed approximately $79,000 to the ESOP plan during fiscal
1995.
The unearned shares restricted to the ESOP are accounted for as a
reduction of stockholders' equity. The ESOP Loan is not included in the
Company's financial statements.
(11) BUSINESS AND CREDIT CONCENTRATIONS
The Company's trade receivables are primarily concentrated with both
domestic hospitals and international dealers. The Company performs on-going
credit evaluations of its customers and generally does not require collateral
on trade receivables. The Company believes that consolidated trade
receivables are well diversified, thereby reducing potential credit risk, and
that adequate allowances are maintained for any uncollectible trade
receivables. No single customer accounted for more than 10% of total sales
during 1995, 1994 and 1993.
The Company had export sales to customers in over 60 countries in the
approximate amounts of $7,290,000, $5,918,000 and $5,083,000 for the years
ended November 30, 1995, 1994 and 1993, respectively. Assets related to the
Company's foreign operations and gains or losses on foreign currency
translation are not significant.
Export sales classified by geographic area are as follows:
YEAR ENDED NOVEMBER 30,
------------------------------------
1995 1994 1993
---------- --------- ---------
United Kingdom $3,883,000 1,583,000 936,000
Other European countries 1,389,000 2,589,000 2,322,000
Canada 581,000 472,000 379,000
Pacific Rim 832,000 656,000 565,000
Other 605,000 618,000 881,000
---------- --------- ---------
$7,290,000 5,918,000 5,083,000
---------- --------- ---------
---------- --------- ---------
(Continued)
F-20
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) COMMON STOCK OPTIONS AND WARRANTS
The Company has granted common stock options to certain officers and
employees. A summary of these options and related option transactions,
adjusted for stock splits follows:
YEAR ENDED NOVEMBER 30,
-----------------------------
1995 1994 1993
------- ------- -------
Outstanding, beginning of year 595,836 587,522 670,044
Granted 155,000 52,000 39,241
Exercised (60,990) (43,686) (110,825)
Expired or rescinded - - (10,938)
------- ------- --------
Outstanding, end of year 689,846 595,836 587,522
------- ------- --------
------- ------- --------
AT NOVEMBER 30,
---------------------------------------
1995 1994 1993
---- ---- ----
Options vested 479,845 501,505 506,993
------- ------- -------
------- ------- -------
Options exercisable 479,845 501,505 506,993
------- ------- -------
------- ------- -------
Exercise price $1.36 - $7.50 $1.36 - $5.75 $1.36 - $5.75
Expiration date of options August 10, 2000 - June 9, 2004
In 1995, 1994 and 1993, options were exercised for 60,990, 43,686 and
110,825 shares of common stock, respectively, and proceeds to the Company
were $83,190, $59,586 and $150,878, respectively.
(13) STOCK SPLIT
In April 1992 the Company declared a 1.833 for 1 stock split, approved a
change in the par value of common shares from $1.00 to $.01 per share and
authorized the issuance of 1,000,000 shares of preferred stock without par
value.
(14) RELATED PARTY TRANSACTIONS
Amounts due from related parties include 9% unsecured notes receivable
from officers. Although the notes are due on demand, the Company does not
ordinarily demand payment during the next fiscal year.
(Continued)
F-21
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) LITIGATION
The Company has pending claims incurred in the normal course of business
which, in the opinion of management, can be disposed of without material
effect on the accompanying financial statements.
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data follow (in thousands except per share
information):
QUARTERS ENDED
---------------------------------------------- YEAR ENDED
FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30 NOVEMBER 30
----------- ------ --------- ----------- -----------
1995:
Net sales $7,107 7,049 7,653 8,250 30,059
------ ----- ----- ----- ------
------ ----- ----- ----- ------
Gross profit $2,877 3,156 3,854 3,896 13,783
------ ----- ----- ----- ------
------ ----- ----- ----- ------
Net earnings $ 337 448 715 807 2,308
------ ----- ----- ----- ------
------ ----- ----- ----- ------
Earnings per share $ .07 .09 .15 .17 .47
------ ----- ----- ----- ------
------ ----- ----- ----- ------
QUARTERS ENDED
---------------------------------------------- YEAR ENDED
FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30 NOVEMBER 30
----------- ------ --------- ----------- -----------
1994:
Net sales $6,777 6,943 6,781 6,393 26,894
------ ----- ----- ----- ------
------ ----- ----- ----- ------
Gross profit $3,312 2,632 3,093 2,910 11,947
------ ----- ----- ----- ------
------ ----- ----- ----- ------
Net earnings (loss) $ 338 (113) 233 122 580
------ ----- ----- ----- ------
------ ----- ----- ----- ------
Earnings (loss)
per share $ .07 (.02) .05 .02 .11
------ ----- ----- ----- ------
------ ----- ----- ----- ------
(17) INVESTMENT IN JOINT VENTURE
The Company owns a 50% equity interest in Synergon Medical, LLC, in a
corporate joint venture which operates a manufacturing facility in the
Dominican Republic. Production began in March 1995. The investment is
accounted for using the equity method.
(Continued)
F-22
<PAGE>
MICROTEK MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) VALUATION ACCOUNTS
The changes in the Company's valuation accounts for the years ended
November 30, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
ADDITIONS-
BALANCE AT AMOUNTS DEDUCTIONS-
BEGINNING CHARGED TO AMOUNTS BALANCE AT
DESCRIPTION OF YEAR EXPENSES WRITTEN OFF END OF YEAR
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
AND SALES RETURNS
Year ended November 30, 1995 $125,000 33,386 18,336 140,000
Year ended November 30, 1994 225,000 3,011 103,011 125,000
Year ended November 30, 1993 125,000 102,770 2,770 225,000
ALLOWANCE FOR INVENTORY OBSOLESCENCE
Year ended November 30, 1995 $185,000 - 10,000 175,000
Year ended November 30, 1994 125,000 60,000 - 185,000
Year ended November 30, 1993 65,000 60,000 - 125,000
</TABLE>
F-23
<PAGE>
[OLIN J. HARRELL LETTERHEAD]
To the Board of Directors
Medi-Plast International, Inc.
I have audited the accompanying balance sheets of Medi-Plast International,
Inc. (a Georgia corporation) as of December 31, 1994 and December 31, 1993
and the related statements of operations and retained earnings, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medi-Plast International,
Inc. as of December 31, 1994 and December 31, 1993 and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
As discussed in the accompanying notes to the financial statements, the
Company is involved in a dispute with its former landlord, the outcome of
which is not certain at this time. Accordingly, no provision for any
liability that may result has been made in the accompanying financial
statements.
/s/ OLIN HARRELL, CPA
----------------------
Olin Harrell, CPA
March 31, 1995
Atlanta, Georgia
F-24
<PAGE>
MEDI-PLAST INTERNATIONAL, INC.
Balance Sheets
December 31, 1994 and 1993
ASSETS 1994 1993
------ ---------- ---------
Current assets:
Accounts receivable, net of allowance of
$5,000 in 1994 and 1993 $ 525,780 438,141
Accounts receivable from related parties 13,348 12,984
Inventories 463,126 549,085
Prepaid expenses 17,134 5,315
---------- ---------
Total current assets 1,019,388 1,005,525
Property and equipment, net 285,392 342,855
Other assets 13,017 13,017
---------- ---------
$1,317,797 1,361,397
---------- ---------
---------- ---------
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Note payable to bank $ 501,062 507,980
Current installment of long-term debt 66,666 74,581
Accounts payable 207,519 284,184
Accrued liabilities 81,605 66,601
---------- ---------
Total current liabilities 856,852 933,346
---------- ---------
Long-term debt, excluding current installment 7,004 87,520
---------- ---------
Stockholders' equity:
Common stock, $.01 par value, 240,000 shares
issued and outstanding 2,400 2,400
Additional paid-in capital 176,972 176,972
Treasury stock, 24,000 shares, at cost (143,513) (143,513)
Retained earnings 418,082 304,672
---------- ---------
Total stockholders' equity 453,941 340,531
---------- ---------
Commitments and contingencies
$1,317,797 1,361,397
---------- ---------
---------- ---------
See accompanying notes to financial statements.
F-25
<PAGE>
MEDI-PLAST INTERNATIONAL, INC.
Statements of Operations and Retained Earnings
Years ended December 31, 1994 and 1993
1994 1993
---------- ---------
Net sales $5,203,333 4,444,618
Cost of sales 2,791,030 2,204,801
---------- ---------
Gross profit 2,412,303 2,239,817
Selling, general and administrative expenses 2,298,893 2,352,080
---------- ---------
Net income (loss) 113,410 (112,263)
Retained earnings - beginning of year 304,672 416,935
---------- ---------
Retained earnings - end of year $ 418,082 304,672
---------- ---------
---------- ---------
See accompanying notes to financial statements.
F-26
<PAGE>
MEDI-PLAST INTERNATIONAL, INC.
Statements of Cash Flows
Years ended December 31, 1994 and 1993
1994 1993
-------- --------
Cash flows form operating activities:
Net income (loss) $113,410 (112,263)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 144,807 113,857
Bad debt expense 10,638 19,010
Changes in operating assets and liabilities:
Accounts receivable (98,640) 28,099
Inventories 85,959 (48,264)
Prepaid expenses (11,819) (1,204)
Accounts payable (76,664) 77,881
Accrued expenses 15,005 10,010
-------- --------
Net cash provided by operating activities 182,696 87,126
-------- --------
Cash flows from investing activities - additions
to property and equipment (87,347) (182,113)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in revolving line of credit 88,488 (148,370)
Proceeds from long-term debt - 225,000
Repayments of long-term debt (88,431) (62,899)
-------- --------
Net cash provided by financing activities 57 13,731
-------- --------
Net increase (decrease) in cash $ 95,406 (81,256)
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 57,622 47,044
-------- --------
-------- --------
See accompanying notes to financial statements.
F-27
<PAGE>
MEDI-PLAST INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1994 and 1993
(1) ORGANIZATION
Medi-Plast International, Inc. (the Company), a Georgia corporation, was
organized on November 12, 1980. The Company produces and markets disposable
fluid collection systems, transfer devices and patient procedural draping for
use primarily in hospitals. The Company's primary market area is the
continental United States.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) INVENTORIES
Inventories are valued at the lower of cost or market with cost
determined on a first-in, first-out (FIFO) basis.
(b) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation of property
and equipment is calculated using both straight-line and
accelerated methods over the estimated useful lives of the assets.
(c) REVENUE RECOGNITION
Revenue is recognized when goods are shipped and title and risk of
ownership have passed. The Company allows goods to be returned if
they do not meet the customer's specifications.
(d) INCOME TAXES
The Company has elected for its earnings or losses to be taxed
directly to its stockholders under the S Corporation provisions of
the Internal Revenue Code and similar provisions of Georgia laws
and regulations.
(Continued)
F-28
<PAGE>
MEDI-PLAST INTERNATIONAL, INC.
Notes to Financial Statements
(3) INVENTORIES
A summary of inventories follows:
DECEMBER 31,
--------------------
1994 1993
-------- -------
Raw materials $177,664 186,788
Work in process 68,796 71,894
Finished goods 216,666 290,403
-------- -------
$463,126 549,085
-------- -------
-------- -------
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
DECEMBER 31,
ESTIMATED ----------------------
USEFUL LIFE 1994 1993
----------- ---------- -------
Molds 5 years $ 203,563 185,063
Machinery and equipment 5 years 503,561 477,270
Furniture, fixtures and software 5 years 145,405 127,291
Leasehold improvements 31.5 years 149,442 125,001
---------- -------
1,001,971 914,625
Less accumulated depreciation 716,579 571,770
---------- -------
$ 285,392 342,855
---------- -------
---------- -------
(5) NOTES PAYABLE
The Company's notes payable consist of the following:
DECEMBER 31,
--------------------
1994 1993
-------- -------
Secured line of credit, SouthTrust Bank, base rate
plus 1%, maximum credit limit $500,000 $490,118 401,630
Term loan, SouthTrust Bank, 8% fixed rate, payable
in monthly installments of $7,051 each 73,670 162,101
-------- -------
$563,788 563,731
-------- -------
-------- -------
(Continued)
F-29
<PAGE>
MEDI-PLAST INTERNATIONAL, INC.
Notes to Financial Statements
The revolving line of credit with SouthTrust Bank was established in
January, 1993 and matures on April 30, 1995. Available credit is
determined as a percentage of eligible accounts receivable and
inventories up to a maximum of $500,000. The loan is personally
guaranteed by the Company's shareholders.
The three year term loan, with a final maturity in January, 1996, is
collateralized by the Company's machinery and equipment and is also
guaranteed by the Company's shareholders. The interest rate is
fixed at 8%.
(6) RELATED PARTY TRANSACTIONS
(a) LEASES
The Company leases office and warehouse space, injection molds,
vehicles and other equipment from JP Leasing Company, a partnership
which is owned by the Company's two principal officers. The cost
of these leases to the Corporation in 1994 and 1993 amounted to
$458,689 and $361,020 respectively.
(b) ADVANCES TO SHAREHOLDERS
As of December 31, 1994 and 1993 advances to the Company's two
principal officers totaled $13,348 and $12,984 respectively.
(7) RENTAL EXPENSE AND LEASE COMMITMENTS
Rentals of space, injection molds, vehicles, and equipment under operating
leases amounted to approximately $458,689 in 1994 and $361,020 in 1993.
With the exception of the lease for office and warehouse space, all
operating leases are for a period of one year from December 31, 1994.
The approximate future minimum rental payments required under the terms of
the noncancelable lease for office and warehouse space are:
1995 $ 141,850
1996 141,850
1997 141,850
1998 141,850
1999 141,850
Thereafter 1,257,231
----------
$1,966,481
----------
----------
(Continued)
F-30
<PAGE>
MEDI-PLAST INTERNATIONAL, INC.
Notes to Financial Statements
The Company is not obligated under any capital leases.
(8) PENDING LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position of the Company.
(9) CONTINGENT LIABILITIES
(a) TERMINATION OF LEASE
On September 12, 1986, the Company entered into a lease agreement
with Northfield Building One Associates, Ltd. for office and
manufacturing facilities. On June 20, 1989 the lease was amended
to reduce the leased space and monthly payments as well as to
shorten the lease term. The term of the amended lease commenced
February 25, 1987, and expired January 31, 1993. Beginning May 1,
1989, monthly lease payments were reduced to $14,133.
On October 31, 1990, the Company terminated its lease with Northfield
Building One Associates, Ltd. (the landlord). Company management
believed this termination was necessary because of the landlord's
use of an area in the office park as a storage yard for over one
hundred school buses. The buses and county employees were routed
directly behind Medi-Plast's premises and over the access pad to the
Company's warehouse several times daily. Because neither the bus
storage area nor the access road to the storage area was paved, dust
clouds and other contamination resulted.
These adverse circumstances threatened Medi-Plast's ability to
continue to produce, package and ship medical supplies and products
in a condition acceptable to its customers and as required by the
Food and Drug Administration. The bus traffic over the loading pad
also prevented and interfered with scheduled deliveries and shipping
form the Company's warehouse space.
(Continued)
F-31
<PAGE>
MEDI-PLAST INTERNATIONAL, INC.
Notes to Financial Statements
The landlord was notified to correct the above described conditions
but took no action; therefore, Medi-Plast elected to terminate
the lease. The Company contends that Northfield Building One
Associates, Ltd. is responsible for the cost of its direct
moving expenses, production and sales losses due to the move as
well as other damages resulting from unreasonable use of the
office park. The landlord contends that it is owed monthly rent
from Medi-Plast and denies that it is liable to the Company for
damages due to any beach of the lease agreement.
The Company has determined, after consultation with counsel, that it
is not possible at this time to estimate the amounts, if any, of
damages that it might eventually by able to recover or whether
Medi-Plast may be held liable to the landlord under the terms of
the lease. No provision for any liability has been made in the
accompanying financial statements relative to this dispute.
(b) POSSIBLE CLAIM ON NOTE PAYABLE
As previously discussed above, on June 20, 1989, the Company entered
into a second amendment to the lease for premises at Northfield
Building One, reducing the leaseable area from 41,000 square
feet to 19,860 square feet and revising the term for an
expiration of January 31, 1993. As part of the consideration
Medi-Plast executed a note for $100,000 payable to Northfield
Building One Associates, Ltd., the landlord at the time. The
note has no specified due date, instead being due only in the
event of a default by Medi-Plast, and then only after notice and
a failure to cure under the Northfield lease, as amended. As of
March 22, 1994, no demand has been made under the note.
In connection with this note, it is the position of Medi-Plast that
the Company has not defaulted under the lease and, because the
lease has been terminated by Medi-Plast effective October 31,
1990 due to a default by the current landlord (as above
described), Medi-Plast is not and cannot be in default under the
lease or the note in the future. As a result, Medi-Plast's
position is that the note is not and cannot become due and
Medi-Plast has no obligation to anyone under the note. Company
management intends to vigorously defend any attempt by a holder
of the note to enforce it.
As of December 31, 1992 management elected to eliminate this note from
its financial statements for the reasons set forth above. The
income credit resulting from the elimination of this note was
reported in the statement of income for the year ended December
31, 1992 as an extraordinary item.
(Continued)
F-32
<PAGE>
MEDI-PLAST INTERNATIONAL, INC.
Notes to Financial Statements
(10) BUSINESS AND CREDIT CONCENTRATIONS
The Company's trade receivables are primarily concentrated with hospitals
in the continental United States. The Company performs on-going
credit evaluations of its customers and generally does not require
collateral on trade receivables. The Company believes that trade
receivables are well diversified, thereby reducing potential credit
risk, and that adequate allowances are made for any uncollectible
trade receivables.
(11) VALUATION ACCOUNTS
The Company's valuation accounts changed during the years ended December
31, 1994 and 1993 as follows:
<TABLE>
BALANCE AT
BEGINNING PROVISION BALANCE AT
OF YEAR CHARGE-OFFS FOR BAD DEBTS END OF YEAR
---------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
1994:
Allowance for doubtful accounts $5,000 10,638 10,638 5,000
1993:
Allowance for doubtful accounts $5,000 19,010 19,010 5,000
</TABLE>
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Advanced Instruments, Inc.
We have audited the accompanying statement of divisional assets, liabilities
and parent's equity of Venodyne, a division of Advanced Instruments, Inc. as
of February 24, 1996, and the related statements of divisional income and
cash flows for the eleven month period then ended. These financial statements
are the responsibility of the Division's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Venodyne, a division of
Advanced Instruments, Inc. as of February 24, 1996, and the results of its
operations and its cash flows for the eleven month period then ended, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Division has been
operated as an integral part of its Parent's operations and is significantly
dependent on the parent corporation. Hence, the financial statements
presented may not be indicative of the results of operations that would have
been obtained if the Division had been operated as an independent entity.
WOLF & COMPANY, P.C.
Boston, Massachusetts
April 5, 1996
F-34
<PAGE>
VENODYNE,
A DIVISION OF ADVANCED INSTRUMENTS, INC.
STATEMENT OF DIVISIONAL ASSETS, LIABILITIES AND PARENT'S EQUITY
FEBRUARY 24, 1996
(NOTE 11)
ASSETS
<TABLE>
<S> <C>
Current assets:
Accounts receivable, less allowance for doubtful
accounts of $35,115 $ 739,462
Contract sales receivable - current, less allowance for doubtful
accounts of $30,619 (Note 3) 213,415
Inventories (Note 4) 310,087
Other current assets 22,209
-----------
Total current assets 1,285,173
-----------
Equipment, at cost:
Machinery and equipment 10,290
Furniture and office equipment 17,272
TLDC and rental equipment 269,072
-----------
296,634
Less accumulated depreciation and amortization (109,813)
-----------
Net equipment 186,821
-----------
Contract sales receivable (Note 3) 180,285
-----------
$ 1,652,279
-----------
-----------
LIABILITIES AND PARENT'S EQUITY
Current liabilities:
Accounts payable $ 140,158
Accrued expenses 59,969
-----------
Total current liabilities 200,127
Commitments and contingencies (Notes 5, 6 and 7)
Parent's equity in division (Note 8) 1,452,152
-----------
$ 1,652,279
-----------
-----------
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-35
<PAGE>
VENODYNE,
A DIVISION OF ADVANCED INSTRUMENTS, INC.
STATEMENT OF DIVISIONAL INCOME
For the Eleven Month Period Ended February 24, 1996
(Note 11)
Net sales $3,740,596
Rental income 27,575
----------
Total net revenues 3,768,171
Cost of sales and rentals 1,481,410
----------
Gross profit 2,286,761
----------
Operating expenses:
Selling expense 1,142,906
General and administrative expense 417,354
Marketing expense 148,138
Engineering expense 132,652
Service department expense, net 7,625
----------
Total operating expenses 1,848,675
----------
Operating income 438,086
----------
Other expenses (income):
Commission expense (Note 5) 213,457
Bad debt expense 132,969
Interest income (10,354)
----------
Total other expenses 336,072
----------
Divisional income $ 102,014
----------
----------
Pro Forma (Note 10):
Historical divisional income before taxes $ 102,014
Pro forma taxes on divisional income 32,425
----------
Pro forma divisional income after income taxes $ 69,589
----------
----------
See independent auditors' report and accompanying notes to financial statements.
F-36
<PAGE>
VENODYNE,
A DIVISION OF ADVANCED INSTRUMENTS, INC.
STATEMENT OF DIVISIONAL CASH FLOWS
For the Eleven Month Period Ended February 24, 1996
(Note 11)
Cash flows from operating activities:
Divisional income $ 102,014
Adjustments to reconcile net income to net cash
provided by operating activities:
Allocation of corporate expenses to division 1,024,330
Depreciation 61,093
Bad debt expense 132,969
Change in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable (174,456)
Contract sales receivable (205,084)
Inventory 176,424
Other current assets 6,334
Increase (decrease) in:
Accounts payable 113,852
Accrued expenses (10,994)
-----------
Net cash provided by operating activities 1,226,482
-----------
Cash flows from investing activities -
-----------
Cash flows from financing activities:
Cash collected by parent on behalf of division (3,398,985)
Cash payments made by parent on behalf of division 2,172,503
-----------
Net cash used by financing activities (1,226,482)
-----------
Net effect on cash from divisional activity $ -
-----------
-----------
Summary of non-cash investing activity:
Inventory transferred to equipment $ 76,792
See independent auditors' report and accompanying notes to financial statements.
F-37
<PAGE>
VENODYNE,
A DIVISION OF ADVANCED INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Eleven Month Period Ended February 24, 1996
1. NATURE OF OPERATIONS
The Venodyne Division of Advanced Instruments, Inc. (Venodyne) designs,
manufacturers and sells intermittent compression systems designed to
prevent Deep Vein Thrombosis and Pulmonary Embolism. Venodyne's customers
are primarily healthcare providers; however, the initial purchase decision,
and the volume and usage of consumables are influenced by surgeons, medical
doctors, nurses and hospital administrators. Sales are made through a
combination of a direct sales force and dealers. Sales are concentrated in
New England and the Northeast.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying statements of divisional assets, liabilities and parent's
equity, divisional income and cash flows have been prepared from the books
and records maintained by the Venodyne Division and its parent, Advanced
Instruments, Inc. (Parent). The statement of divisional income and cash
flows may not necessarily be indicative of the results of operations that
would have been obtained if Venodyne had been operated as an independent
entity. The statement of divisional income includes allocation of certain
expenses which are material in amount. Such expenses are allocations for
corporate services and overhead. (Refer to Note 8).
The Parent has elected to be taxed in accordance with Subchapter S of
the Internal Revenue Code. Accordingly, no provision for federal income
taxes for the eleven month period ended February 24, 1996 has been provided
in the Parent's financial statements as the income will be reported on the
federal income tax returns of the its shareholders. Accordingly, there is
no federal income tax provision allocated in the financial statements of
Venodyne. Pro forma information reflecting an adjustment for federal and
state income taxes is presented on the historical Venodyne income
statement. (Refer to Note 10.)
The Parent controls all cash balances and no separate cash balances are
maintained by Venodyne. Venodyne does not have any formal financing
arrangements with its Parent. However, cash needs are met by funds provided
by the Parent, essentially on a demand basis, to the extent funds are
required by Venodyne.
The Parent has a line of credit agreement with a bank expiring on
September 30, 1996 which is used, when necessary, to meet its financing
requirements, including those of Venodyne. The Parent does not allocate
any interest charges to Venodyne.
See independent auditors' report.
F-38
<PAGE>
VENODYNE,
A DIVISION OF ADVANCED INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONCLUDED)
The Parent's line-of-credit is secured by its assets, including those
assets utilized by Venodyne.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates and assumptions involve the
areas of allowance for bad debts, inventory valuation, cost allocations and
certain accruals. Actual results could differ from those estimates.
SALES
Sales are generally recorded when goods are shipped and profit is
recognized at that time. However, in connection with certain sales
contracts (Refer to Note 3), Venodyne collects the related receivables over
extended periods of time. The customer is charged interest based on the
selling price of the product and the term of the contract.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis)
or market.
EQUIPMENT
The cost of equipment is depreciated over the estimated useful lives of
the related assets using the straight-line method. TLDC represents
instruments used as Trials, Loaners, Demonstrator or Consignment.
A summary of the estimated useful lives of the assets follows:
Machinery and equipment 3-7 years
Furniture and office equipment 3-7 years
TLDC and rental equipment 2-3 years
Maintenance and repairs expenses are charged to operations when incurred.
Betterments and major renewals are capitalized.
See independent auditors' report.
F-39
<PAGE>
VENODYNE,
A DIVISION OF ADVANCED INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. CONTRACT SALES RECEIVABLE
Venodyne offers its customers a sales contract whereby the the customer
may purchase instrument products at cost or at cost plus a small profit
margin. Under the contract, the customer commits to buy a certain
quantity of consumable products over a specified period that are priced
at normal selling prices plus a premium amount to cover the cost of the
instruments purchased.
When the instruments are shipped to the customer, Venodyne recognizes
the sale profit, if any, on the sale of the instruments. Venodyne
records a receivable for the sales price of the instrument and deferred
interest that will be earned on the contract, and paid from the
premium price included in the sales contract, as consumable products
are purchased over the term of the contract.
At February 24, 1996, Venodyne had the following balances in contract
sales receivable:
DEFERRED
CONTRACT INTEREST NET
RECEIVABLE INCOME RECEIVABLE
---------- -------- ----------
Current $270,865 $(26,831) $244,034
Non-current 218,852 (38,567) 180,285
-------- -------- --------
Total $489,717 $(65,398) $424,319
-------- -------- --------
-------- -------- --------
4. INVENTORIES
Inventories at February 24, 1996 consist of the following:
Raw material $184,720
Work-in-process 40,347
Finished goods 85,020
--------
$310,087
--------
--------
See independent auditors' report.
F-40
<PAGE>
VENODYNE,
A DIVISION OF ADVANCED INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COVENANT NOT TO COMPETE
Advanced Instruments, Inc. entered into an agreement in 1991 with one
of its Venodyne sales agents who resigned from his sales agent's
appointment. The agreement contains a covenant not to compete for a
period of six years ending December 31, 1997 and requires commission
payments to be made to the sales agent based on a declining percentage
of sales for the customers covered by the sales agent's appointment.
Venodyne incurred expenses of $213,457 under the agreement for the
eleven month period ended February 24, 1996. In March 1996, the Parent
entered into an agreement with Venodyne's former sales agent, whereby
the Parent would be released from its obligations under the 1991
agreement for a lump sum payment. The 1996 agreement was entered into
in contemplation of the Parent's intent to sell Venodyne to an
unrelated third party. (Refer to Note 11). The lump sum payment to the
former sales agent will be made from the proceeds received from the
sale of Venodyne.
6. COMMITMENTS
Venodyne is committed to purchase consumables and certain other raw
materials over the next several months at prevailing market prices at
the time the commitment was made. At February 24, 1996, these committed
purchases aggregated approximately $273,000.
Venodyne has agreed to sell a specified number of consumable products
to certain customers over the next three years at fixed prices which
includes a normal price for consumables plus a premium amount to cover
the cost of instruments purchased by the customer. (Refer to Note 3.)
7. CONTINGENCIES
The Parent has been named as a co-dependant in a certain legal action
brought against a doctor. The litigation involves allegations of an
alleged defect in a Venodyne instrument. Allegations against the
doctor are based upon medical malpractice. The litigation is in the
discovery stage and the Parent is vigorously defending the litigation.
In the opinion of management, the resolution of the aforementioned
litigation will not have a material impact on the financial position or
results of operations of the Parent.
See independent auditors' report.
F-41
<PAGE>
VENODYNE,
A DIVISION OF ADVANCED INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. PARENT'S EQUITY IN DIVISION
Activity in parent's equity in division includes amounts due to Parent
for disbursements made on behalf of Venodyne, amounts due from Parent for
cash collected on behalf of Venodyne, divisional income and costs allocated
to Venodyne by the Parent. The following is a summary of activity in
parent's equity in division during the eleven month period ended February
24, 1996.
Balance at beginning of period $ 1,552,290
Less:
Cash collected by Parent on behalf of the Venodyne (3,398,985)
Add:
Cash disbursements made by Parent on behalf of
Venodyne 2,172,503
Corporate costs allocated to Venodyne by Parent 1,024,330
Venodyne's contribution to income 102,014
-----------
Balance at end of period $ 1,452,152
-----------
-----------
Certain corporate costs incurred by the Parent are allocated to the various
divisions of the parent, including Venodyne. These costs are allocated
utilizing methods deemed reasonable and appropriate by management. The
following is a summary of cost and basis of allocation to Venodyne.
Cost Category Amount Basis of Allocation
------------- ---------- -------------------
Cost of sales and rentals $ 394,601 Proportional to sales volume
Engineering expense 132,652 Estimate of indirect divisional
activity
Selling expense 79,723 Proportional share of general
selling expense
General and administrative
expense 417,354 Proportional to total cost of sales
----------
$1,024,330
----------
----------
See independent auditors' report.
F-42
<PAGE>
VENODYNE,
A DIVISION OF ADVANCED INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
9. CONCENTRATIONS OF RISKS
SOURCES OF SUPPLY
The Venodyne Division currently buys its pumps, an important component
of its instrument product, from one supplier. In addition, the Division
buys all of its sleeves, an important consumable product, from one
supplier. Although there are a limited number of manufacturers for these
items, management believes that other suppliers could provide similar
items on comparable terms. However, a change in suppliers could cause a
delay in manufacturing and a possible loss of sales, which would affect
operating results adversely.
EXPORT SALES
Venodyne sells its products in Canada. Such sales were immaterial to
Venodyne's sales for the eleven month period ended February 24, 1996.
10. PRO FORMA ADJUSTMENT
Beginning April 1, 1987, Advanced Instruments, Inc. has been treated as
an S Corporation pursuant to the Internal Revenue Code. The objective of
the pro forma adjustment reflected on Venodyne's income statement is to
show the effect on the divisional income had the Parent company not been
treated as an S corporation for income tax purposes.
The pro forma adjustment reflects a provision for federal and state
income taxes at an effective rate of 31.7%.
11. SUBSEQUENT EVENT
Venodyne's Parent is in the process of negotiating a purchase and sale
agreement with a buyer, whereby the Parent will sell all of the assets
of Venodyne to the buyer.
See independent auditors' report.
F-43
<PAGE>
MICROTEK
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet as of February
29, 1996 gives effect to Microtek's April 27, 1996 acquisition of Venodyne
as if such acquisition had occurred on February 29, 1996. The following
unaudited pro forma combined statement of operations for the three months
February 29, 1996 gives effect to the acquisition of Venodyne as if such
acquisition had occurred on December 1, 1994, and the unaudited pro forma
condensed statement of operations for the year ended November 30, 1995
gives effect to such acquisition and to Microtek's acquisition of Medi-Plast
on November 30, 1995 as if such acquisitions had occurred on December 1,
1994. These acquisitions have been accounted for using the purchase method of
accounting.
The pro forma combined financial statements should be read in
conjunction with the historical consolidated financial statements of Microtek
and the historical financial statements of Medi-Plast and Venodyne included
elsewhere in this report.
The pro forma combined information is not necessarily indicative of the
results that would have been reported had such transactions occurred on the pro
forma dates specified, nor is it necessarily indicative of future results.
F-44
<PAGE>
MICROTEK
UNAUDITED COMBINED PRO FORMA BALANCE SHEET
FEBRUARY 29, 1996
ASSETS
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MICROTEK VENODYNE (1) ADJUSTMENTS (2) COMBINED
--------- ------------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash.................................................... $ 667 $ 667
Accounts receivable, net................................ 6,269 $ 953 7,222
Inventories, net........................................ 11,595 310 11,905
Deferred income taxes................................... 208 208
Prepaid expenses and other assets....................... 522 22 544
--------- ------------- -----------
Total current assets.................................. 19,261 1,285 20,546
--------- ------------- -----------
Property and equipment, net............................... 5,394 187 5,581
Intangible assets, net.................................... 21,904 180 $ 4,298 26,382
Investment in joint venture............................... 100 100
--------- ------------- ------- -----------
Total assets.......................................... $ 46,659 $ 1,652 $ 4,298 $ 52,609
--------- ------------- ------- -----------
--------- ------------- ------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 2,747 $ 140 $ 2,887
Accrued compensation.................................... 280 280
Other accrued liabilities............................... 830 60 890
Current portion of long term debt....................... 2,500 2,500
--------- ------------- -----------
Total current liabilities............................. 6,357 200 6,557
Long term debt............................................ 18,209 $ 5,750 23,959
Deferred income taxes..................................... 231 231
--------- ------------- ------- -----------
Total liabilities..................................... 24,797 200 5,750 30,747
Shareholders' equity:
Common stock............................................ 48 48
Additional paid in capital.............................. 20,214 20,214
Retained earnings....................................... 3,333 3,333
Unearned shares -- ESOP................................. (420) (420)
Parent's equity in division............................. 1,452 (1,452) 0
--------- ------------- ------- -----------
23,175 1,452 (1,452) 23,175
Less: shares held in treasury........................... (1,313) (1,313)
--------- ------------- ------- -----------
Total shareholders' equity............................ 21,862 1,452 (1,452) 21,862
--------- ------------- ------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $ 46,659 $ 1,652 $ 4,298 $ 52,609
--------- ------------- ------- -----------
--------- ------------- ------- -----------
</TABLE>
F-45
<PAGE>
MICROTEK
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA
MICROTEK MEDI-PLAST (1) VENODYNE (1) ADJUSTMENTS
----------- -------------- -------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.............................................. $ 30,059 $ 5,144 $ 3,961
Cost of goods sold..................................... 16,276 2,780 1,594 $ (383)(3)
----------- ------- ------- -----------
Gross profit......................................... 13,783 2,364 2,367 383
----------- ------- ------- -----------
Operating expenses:
Selling and marketing expenses....................... 5,471 1,377 1,611 (547)(4)
(250)(5)
General and administrative expenses.................. 3,326 807 629 (118)(3)
Research and development............................. 168 146
Amortization of intangibles.......................... 433 632(6)
----------- ------- ------- -----------
Total operating expenses........................... 9,398 2,184 2,386 (283)
----------- ------- ------- -----------
Income (loss) from operations.......................... 4,385 180 (19) 666
Interest income........................................ 10
Interest expense....................................... (549) (57) (998)(7)
Losses of joint venture................................ (91)
Other income........................................... 8
----------- ------- ------- -----------
Income (loss) before income tax provision (benefit).... 3,753 123 (9) (332)
Income tax provision (benefit)......................... 1,445 (3) (77)(8)
----------- ------- ------- -----------
Net income (loss)...................................... $ 2,308 $ 123 $ (6) $ (255)
----------- ------- ------- -----------
----------- ------- ------- -----------
Net income per common and common equivalent share...... $ 0.47
-----------
-----------
Weighted average number of common and common equivalent
shares outstanding.................................... 4,927
-----------
-----------
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C> <C>
Net sales.............................................. $ 39,164
Cost of goods sold..................................... 20,267
-----------
Gross profit......................................... 18,897
-----------
Operating expenses:
Selling and marketing expenses....................... 7,662
General and administrative expenses.................. 4,644
Research and development............................. 314
Amortization of intangibles.......................... 1,065
-----------
Total operating expenses........................... 13,685
-----------
Income (loss) from operations.......................... 5,212
Interest income........................................ 10
Interest expense....................................... (1,604 )
Losses of joint venture................................ (91 )
Other income........................................... 8
-----------
Income (loss) before income tax provision (benefit).... 3,535
Income tax provision (benefit)......................... 1,365
-----------
Net income (loss)...................................... $ 2,170
-----------
-----------
Net income per common and common equivalent share...... $ 0.44
-----------
-----------
Weighted average number of common and common equivalent
shares outstanding.................................... 4,927
-----------
-----------
</TABLE>
F-46
<PAGE>
MICROTEK
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED FEBRUARY 29, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MICROTEK VENODYNE (1) ADJUSTMENTS COMBINED
----------- -------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.............................................. $ 9,067 $ 1,132 $ 10,199
Cost of goods sold..................................... 4,715 456 5,171
----------- ------- -----------
Gross profit......................................... 4,352 676 5,028
----------- ------- -----------
Operating expenses:
Selling and marketing expenses....................... 1,460 469 $ (55)(5) 1,874
General and administrative expenses.................. 1,040 124 1,164
Research and development............................. 34 34
Amortization of intangibles.......................... 265 43(6) 308
----------- ------- ----------- -----------
Total operating expenses........................... 2,765 627 (12) 3,380
----------- ------- ----------- -----------
Income from operations................................. 1,587 49 12 1,648
Interest expense....................................... (316 ) (60)(7) (376 )
Losses of joint venture................................ (46 ) (46 )
----------- ------- ----------- -----------
Income (loss) before income tax provision.............. 1,225 49 (48) 1,226
Income tax provision (benefit)......................... 495 19 (18)(8) 496
----------- ------- ----------- -----------
Net income (loss)...................................... $ 730 $ 30 $ (30) $ 730
----------- ------- ----------- -----------
----------- ------- ----------- -----------
Net income per common and common equivalent share...... $ 0.15 $ 0.15
----------- -----------
----------- -----------
Weighted average number of common and common equivalent
shares outstanding.................................... 4,991 4,991
----------- -----------
----------- -----------
</TABLE>
F-47
<PAGE>
MICROTEK
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) Reflects the historical operating results of Medi-Plast for the twelve
months ended October 30, 1995, the historical balance sheet of Venodyne as
of February 24, 1996 and the historical operating results of Venodyne for
the year ended November 30, 1995 and the three months ended February 24,
1996.
(2) On April 27, 1996, Microtek purchased Venodyne through the issuance of a
$5.75 million note payable. The purchase price may be increased by a
contingent payment (not to exceed $1.0 million) based upon the future gross
margin from the Company's sale of Venodyne products. Goodwill of $4.3
million recorded in conjunction with the acquisition is being amortized
using the straight-line method over 25 years.
(3) Reflects a reduction in rent expense as a result of new contractual
arrangements for facilities leased from the previous owners of Medi-Plast.
(4) Reflects a reduction in compensation expense as a result of new employment
contracts entered into with certain Medi-Plast employees on November 30,
1995.
(5) Reflects the elimination of sales commissions associated with a sales
commission agreement which was terminated in conjunction with the Venodyne
acquisition.
(6) Reflects an increase in amortization expense as a result of the
acquisitions. Amortization of goodwill arising from the Medi-Plast and
Venodyne acquisitions is being amortized over 25 years.
(7) Reflects an increase in interest expense associated with debt issued in
conjunction with the acquisitions.
(8) Adjusts income tax expense to reflect the pro forma effect on income tax
expense resulting from the acquisitions, and to record income tax expense on
the pre-tax earnings of Medi-Plast. Prior to the acquisitions, Medi-Plast
was an S Corporation and accordingly was not subject to federal and state
income tax.
F-48
<PAGE>
INDEX TO EXHIBITS
3.1 Certificates of Incorporation of the Registrant (1)
3.2 By-Laws of the Registrant, as amended (2)
10.1 Credit Agreement among the Registrant, certain of its subsidiaries, the
guarantors named therein, the lenders named therein and Chemical Bank, as
agent, dated as of October 1, 1991, and amended and restated as of
November 30, 1995 (3)
10.2 Registration Rights Agreement between the Registrant, MicroPartners,
L.P., and Chemical Bank (4)
10.3 Form of employment agreement between the Registrant and certain
employees (1)
10.4 Form of Indemnification Agreement (1)
10.5 Incentive Stock Option Plan (1)
10.6 Asset Purchase Agreement dated November 30, 1995 among the Registrant,
Medi-Plast International, Inc. and certain affiliates of Medi-Plast
International, Inc. (5)
10.7 Asset Purchase Agreement dated April 27, 1996, between the Registrant
and Advanced Instruments, Inc. (6)
10.8 Agreement and Plan of Merger, dated March 15, 1996, among the
Registrant, Isolyser Company, Inc. and MMI Merger Corp. (4)
10.9 Asset Exchange Agreement, dated July 1995, between the Registrant and
Xomed, Inc. (4)
11.1 Computation of net income per share (3)
21 Subsidiaries of the Registrant (3)
23.1 Consent of KPMG Peat Marwick LLP (4)
23.2 Consent of Olin Harrell, CPA (4)
23.3 Consent of Wolf & Company, P.C. (4)
___________________
(1) Filed as exhibit to registration statement on Form S-1 (No. 33-47461)
and incorporated by reference herein.
(2) Filed as exhibit to Annual Report on Form 10-K filed with the Commission
for the year ended 11/30/92 and incorporated by reference herein.
(3) Previously filed.
(4) Filed herewith.
(5) Filed as Exhibit to Report on Form 8-K dated December 8, 1995.
(6) Filed as Exhibit to Report on Form 8-K dated May 15, 1996.
E-1
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made and entered
into as of January ___, 1996, by and between Microtek Medical, Inc. (the
"Company") and Chemical Bank (the "Holder").
For good and valuable consideration, the parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following capitalized
terms shall have the following meanings:
BOARD: The Board of Directors of the Company.
COMMON STOCK: The common stock of the Company.
MISSTATEMENT: An untrue statement of a material fact or an omission to
state a material fact required to be stated in a Registration Statement or
Prospectus or necessary to make the statements in a Registration Statement or
Prospectus not misleading.
PERSON: A natural person, partnership, corporation, business trust,
association, joint venture or other entity or a government or agency or
political subdivision thereof.
PROSPECTUS: The prospectus included in any Registration Statement, as
supplemented by any and all prospectus supplements and as amended by any and
all post-effective amendments and including all material incorporated by
reference in such prospectus.
REGISTRATION: A Demand Registration described in Section 2(a) and a
Piggyback Registration described in Section 2(b) hereof.
REGISTRATION EXPENSES: The out-of-pocket expenses of a Registration,
including:
(1) all registration and filing fees (including fees with respect
to filings required to be made with the National Association of Securities
Dealers, Inc.) and any securities exchange on which the Common Stock is
then listed;
(2) fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the Registrable
Securities);
(3) printing, messenger, telephone and delivery expenses;
<PAGE>
(4) reasonable fees and disbursements of counsel for the Company; and
(5) reasonable fees and disbursements of all independent certified
public accountants of the Company incurred specifically in connection with
such Registration.
REGISTRABLE SECURITIES: (a) The shares of Common Stock acquired by the
Holder or its assigns in connection with the exercise of remedies under that
certain Pledge Agreement, dated as of January , 1996, made by MicroPartners,
L.P. to Holder, (b) any securities issued or issuable with respect to such
Common Stock by way of a stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or
reorganization; PROVIDED that any such share or security shall be deemed to
be Registrable Securities only if and so long as it is a Transfer Restricted
Security.
REGISTRATION STATEMENT: Any registration statement which covers
Registrable Securities pursuant to the provisions of this Agreement,
including the Prospectus included in such registration statement, amendments
(including post-effective amendments) and supplements to such registration
statement, and all exhibits to and all material incorporated by reference in
such registration statement.
SECURITIES ACT: The Securities Act of 1933, as from time to time
amended.
SEC: The Securities and Exchange Commission.
TRANSFER RESTRICTED SECURITY: A security that has not been sold to or
through a broker, dealer or underwriter in a public distribution or other
public securities transaction or sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Rule 144(k) promulgated thereunder (or any successor rule other than Rule
144A). The foregoing notwithstanding, a security shall remain a Transfer
Restricted Security until (i) all stop transfer instructions or notations and
restrictive legends with respect to such security are eligible to be removed
and (ii) the holder of such security has received an opinion of counsel to
the Company, to the effect that such shares in such holder's hands are freely
transferable in any public or private transaction without registration under
the Securities Act (or such holder has waived receipt of such opinion).
UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: A registration in
which securities of the Company are sold to an underwriter for distribution
to the public.
2
<PAGE>
2. REGISTRATIONS.
(a) DEMAND REGISTRATION. If at any time (but only on one occasion) the
Company shall receive from the Holder a written request to register at least
25% of the Registrable Securities owned by the Holder, then the Company
shall, subject to the provisions of subsection (c) below, effect as soon
thereafter as practicable, and in any event within 60 days of the receipt of
such request, the Registration under the Securities Act of all Registrable
Securities which the Holder requests to be registered within 30 days of the
receipt of such notice by the Company. If the Holder initiating the
registration request hereunder intends to distribute the Registrable
Securities covered by their request by means of an Underwritten Offering, it
shall so advise the Company as a part of its request made pursuant to this
subsection. The underwriter shall be selected by the Holder, subject to the
approval (which shall not be unreasonably withheld) by the Company.
(b) PIGGYBACK REGISTRATION. Each time the Company decides to file a
Registration Statement under the Securities Act (other than on Forms S-4 or
S-8 or any successor form for the registration of securities issued or to be
issued in connection with a merger or acquisition or employee benefit plan),
the Company shall give written notice thereof to the Holder. The Company
shall include in such Registration Statement such shares of Registrable
Securities for which it has received written requests to register such shares
within 30 days after such written notice has been given. If the Registration
Statement is to cover an Underwritten Offering for equity securities of the
Company, either (i) such Registrable Securities shall be included in the
underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters or (ii) the Holder shall agree to such
customary standstill provisions as the underwriters may request. If in the
good faith judgment of the managing underwriter in any Underwritten Offering,
the inclusion of all of the shares of Registrable Securities and any other
Common Stock requested to be registered by third parties holding similar
registration rights would interfere with the successful marketing of a
smaller number of such shares, then the number of shares of Registrable
Securities and other Common Stock to be included in the offering (except for
shares to be issued by the Company in an offering initiated by the Company)
shall be reduced to such smaller number, with the participation in such
offering by the holders of Registrable Securities to be on a prorata basis
(measured on the basis of the number of shares of Common Stock requested to
be so registered) with the participation by other holders of Common Stock.
(c) GENERAL. The Company may defer the filing of a Registration
Statement hereunder, or defer the use of a Registration Statement already
filed, for a period of up to 30 days based on the good faith judgment of its
Board of Directors that such delay is needed to avoid premature disclosure of
a matter the Board has determined
3
<PAGE>
should not, in the best interest of the Company, and need not be, currently
disclosed; PROVIDED, that the Company shall promptly notify the Holder in
writing of any such action and PROVIDED, FURTHER, that the Company shall bear
all expenses which would otherwise have been charged to the Holder in
connection with such withdrawn Registration Statement; and PROVIDED STILL
FURTHER that no request by the Holder pursuant to this Section 2 with respect
to such withdrawn Registration Statement shall be counted for purposes of the
limitation described above.
3. REGISTRATION PROCEDURES. If and whenever the Company is required to
register Registrable Securities, the Company will use its best efforts to
effect such registration to permit the sale of such Registrable Securities in
accordance with the intended plan of distribution thereof, and pursuant
thereto the Company will as expeditiously as possible:
(a) prepare and file with the SEC as soon as practicable a
Registration Statement with respect to such Registrable Securities and use
its best efforts to cause such Registration Statement to become effective
and remain effective until the Registrable Securities covered by such
Registration Statement have been sold;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement, and such supplements to the
Prospectus, as may be requested by the Holder, or any underwriter of
Registrable Securities or as may be required by the rules, regulations or
instructions applicable to the registration form used by the Company or by
the Securities Act or rules and regulations thereunder to keep the
Registration Statement effective until all Registrable Securities covered
by such Registration Statement are sold in accordance with the intended
plan of distribution set forth in such Registration Statement or supplement
to the Prospectus;
(c) deliver to the Holder and the underwriters, if any, without
charge, as many copies of each Prospectus (and each preliminary prospectus)
as such Persons may reasonably request (the Company hereby consenting to
the use of each such Prospectus (or preliminary prospectus) by the selling
Holder and the underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by such Prospectus (or
preliminary prospectus) and a reasonable number of copies of the then-
effective Registration Statement and any post-effective amendments thereto
and any supplements to the Prospectus, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference);
4
<PAGE>
(d) prior to any public offering of Registrable Securities, register
or qualify or cooperate with the Holder, the underwriters, if any, and
their respective counsel in connection with the registration or
qualification of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions as such selling Holder or
underwriters may designate in writing and do anything else necessary or
advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the Registration Statement; PROVIDED that
the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action
which would subject it to general service of process in any such
jurisdiction where it is not then so subject;
(e) cause all such Registrable Shares to be listed on each securities
exchange or automated quotation system on which similar securities issued
by the Company are then listed;
(f) provide a transfer agent and registrar for all such Registrable
Shares not later than the effective date of such Registration Statement;
(g) advise each seller of such Registrable Shares, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any
stop order by the SEC suspending the effectiveness of such Registration
Statement or the initiation or threatening of any proceeding for such
purpose and promptly use its reasonable best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order
should be issued;
(h) at least three days prior to the filing of any Registration
Statement or prospectus or any amendment or supplement to such Registration
Statement or prospectus or any document that is to be incorporated by
reference into such Registration Statement or prospectus, furnish a copy
thereof to each seller of such Registrable Shares;
(i) notify the Holder at any time when a prospectus relating to such
Registration Statement is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus
included in such Registration Statement, as then in effect, includes a
Misstatement, and then to correct such Misstatement as set forth in Section
7; and
(j) permit a representative of the Holder, the underwriters, if any,
and any attorney or accountant retained by such Holder or underwriter to
participate, at each such Person's own expense, in the preparation of the
Registration Statement, and cause the Company's officers, directors and
5
<PAGE>
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with the
Registration; provided, however, that such representatives, underwriters,
attorneys or accountants enter into a confidentiality agreement, in form
and substance reasonably satisfactory to the Company, prior to the release
or disclosure of any such information.
4. REGISTRATION EXPENSES. Except as other provided in paragraph 2(c)
above, the Registration Expenses of all Demand Registrations shall be borne
by the Holder. The Registration Expenses of all Piggyback Registrations
shall be borne by the Company, except that (i) any incremental expenses
associated with the inclusion of the Holder's shares shall be borne by the
Holder and (ii) the fees and disbursements of any counsel to the selling
security holders shall be paid by such holders if such security holders are
unwilling to be represented by counsel to the Company. It is acknowledged by
the Holder that the Holder will bear all incremental selling expenses
relating to the sale of the Registrable Securities, such as underwriters'
commissions and discounts, brokerage fees and underwriter marketing costs.
5. REQUIREMENTS FOR PARTICIPATION IN UNDERWRITTEN OFFERINGS. No person
may participate in any Underwritten Offering for equity securities of the
Company pursuant to a Registration initiated by the Company hereunder unless
such Person (a) agrees to sell such Person's securities on the basis provided
in any underwriting arrangements approved by the Company and (b) completes
and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements; PROVIDED, that the terms of such underwriting
arrangement in connection with the sale of Registrable Securities shall be no
less favorable than the terms afforded to any other holder of securities
participating in the Underwritten Offering.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify, to the extent permitted by law,
the holder of Registrable Shares, its officers and directors and each
Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses (including
attorneys' fees) caused by any untrue or alleged untrue statement of
material fact contained in any Registration Statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are caused by or contained in any information furnished
in writing to the Company by such holder expressly for use therein or by
such holder's failure to deliver a copy of
6
<PAGE>
the Registration Statement or prospectus or any amendments or supplements
thereto after the Company has furnished such holder with a sufficient
number of copies of the same. In connection with an Underwritten Offering,
the Company will indemnify such underwriters, their officers and directors
and each Person who controls such underwriters (within the meaning of the
Securities Act) to the same extent as provided above with respect to the
indemnification of the holder.
(b) In connection with any Registration Statement in which a holder
of Registrable Shares is participating, such holder will furnish to the
Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such Registration
Statement or prospectus and, to the extent permitted by law, will indemnify
the Company, its directors and officers and agents and each Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses (including without
limitation reasonable attorneys' fees) resulting from any untrue statement
of material fact contained in the Registration Statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or
any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that
such untrue statement or omission is contained in any information or
affidavit so furnished in writing by such holder expressly for use therein;
provided that the obligation to indemnify will be several, not joint and
several, among such holders of Registrable Shares, and the liability of
each such holder of Registrable Shares will be in proportion to and limited
to the net amount received by such holder from the sale or Registrable
Shares pursuant to such Registration Statement.
(c) Any person entitled to indemnification herein will (i) give
prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party will not be subject to any liability for
any settlement made by the indemnified party without its consent (but such
consent will not be unreasonably withheld). An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a
7
<PAGE>
conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling
person of such indemnified party and will survive the transfer of
securities. The Company also agrees to make such provisions as are
reasonably requested by any indemnified party for contribution to such
party in the event the Company's indemnification is unavailable for any
reason.
7. SUSPENSION OF SALES. Upon receipt of written notice from the
Company that a Registration Statement or Prospectus contains a Misstatement,
the holder shall forthwith discontinue disposition of Registrable Securities
until such holder has received copies of a supplemented or amended Prospectus
correcting the Misstatement (it being understood that the Company hereby
covenants to prepare and file such supplement or amendment as soon as
practicable after the time of such notice), or until such holder is advised
in writing by the Company that the use of the Prospectus may be resumed.
8. MISCELLANEOUS
(a) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier or air courier guaranteeing overnight
delivery: (i) if to a holder of Registrable Securities, at the most current
address set forth in the Company's stock transfer books and, if to the
Holder, at 633 Third Avenue, 7th Floor, New York, New York 10017 (attention:
Credit Deputy) and (ii) if to the Company, at 512 Lehmberg Road, Columbus,
Mississippi 39704. All such notices and communications shall be deemed to
have been duly given: at the time delivered by hand (including by telecopy),
if personally delivered; five business days after being deposited in the
mail, postage prepaid, if mailed; when answered back, if telexed; when
receipt acknowledged, if to an air courier guaranteeing overnight delivery.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of the Company. This
Agreement may not be assigned by the Holder without the prior written consent
of the Company (which shall not be withheld in the case of the sale or
transfer of substantially all of the Registrable Securities to not more than
one party).
(c) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when
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<PAGE>
so executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
(d) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Mississippi.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MICROTEK MEDICAL, INC.
By:
------------------------------------------------
Kimber L. Vought,
President
CHEMICAL BANK
By:
------------------------------------------------
Its:
------------------------------------------
9
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
ISOLYSER COMPANY, INC.
(A GEORGIA CORPORATION)
MMI MERGER CORP.
(A DELAWARE CORPORATION)
AND
MICROTEK MEDICAL, INC.
(A DELAWARE CORPORATION)
Dated: March 15, 1996
<PAGE>
This Agreement and Plan of Merger (the "Agreement") is made as of the 15th
day of March, 1996, among Isolyser Company, Inc., a Georgia corporation ("ICI");
MMI Merger Corp., a Delaware corporation (the "Merger Corp."), which is wholly
owned, directly or indirectly, by ICI; and Microtek Medical, Inc., a Delaware
corporation ("MMI").
In consideration of the mutual covenants and agreements contained herein,
the parties hereto covenant and agree as follows:
ARTICLE 1.
THE MERGER
1.1. MERGER. In accordance with the provisions of the business corporation
laws of the State of Delaware, at the Effective Date (as hereinafter defined),
Merger Corp. shall be merged (the "Merger") into MMI, and MMI shall be the
surviving corporation (the "Surviving Corporation") and as such shall continue
to be governed by the laws of the State of Delaware.
1.2. CONTINUING OF CORPORATE EXISTENCE. Except as may otherwise be set
forth herein, the corporate existence and identity of MMI, with all its
purposes, powers, franchises, privileges, rights and immunities, shall continue
unaffected and unimpaired by the Merger, and the corporate existence and
identity of Merger Corp., with all its purposes, powers, franchises, privileges,
rights and immunities, at the Effective Date shall be merged with and into that
of MMI, and the Surviving Corporation shall be vested fully therewith and the
separate corporate existence and identity of Merger Corp. shall thereafter cease
except to the extent continued by statute.
1.3. EFFECTIVE DATE. The Merger shall become effective upon the occurrence
of the filing of the certificate of merger (the "Effective Date") with the
Secretary of State of the State of Delaware on the Closing Date (as defined
herein) pursuant to the provisions of the Delaware General Corporation Law
("DGCL").
1.4. CORPORATE GOVERNMENT.
(a) The Certificate of Incorporation of Merger Corp, as in effect on the
Effective Date, shall continue in full force and effect and shall be the
Certificate of Incorporation of the Surviving Corporation.
(b) The Bylaws of Merger Corp., as in effect as of the Effective Date,
shall continue in full force and effect and shall be the Bylaws of the
Surviving Corporation.
(c) The members of the Board of Directors of the Surviving Corporation
shall be the persons holding such offices in Merger Corp. as of the
Effective Date, and the officers of the Surviving Corporation shall be the
persons holding such offices in MMI as of the Effective Date.
1.5. RIGHTS AND LIABILITIES OF THE SURVIVING CORPORATION. The Surviving
Corporation shall have the following rights and obligations:
(a) The Surviving Corporation shall have all the rights, privileges
immunities and powers and shall be subject to all the duties and liabilities
of a corporation organized under the laws of the State of Delaware.
(b) The Surviving Corporation shall possess all of the rights,
privileges immunities and franchises, of either a public or private nature,
of MMI and Merger Corp. and all property, real, personal and mixed, and all
debts due on whatever account, including subscription to shares, and all
other choses in action, and every other interest of or belonging or due to
MMI and Merger Corp. shall be taken and deemed to be transferred or invested
in the Surviving Corporation without further act or deed.
(c) At the Effective Date, the Surviving Corporation shall thenceforth
be responsible and liable for all liabilities and obligations of MMI and
Merger Corp. and any claim existing or action
A-1
<PAGE>
or proceeding pending by or against Merger Corp. or MMI may be prosecuted as
if the Merger had not occurred, or the Surviving Corporation may be
substituted in its place. Neither the rights of creditors nor any liens upon
the property of Merger Corp. or MMI shall be impaired by the Merger.
1.6. CLOSING. Consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Arnall Golden &
Gregory in Atlanta, Georgia, commencing at 10:00 a.m., local time, on the date
(i) on which the Special Meeting of MMI's stockholders described in Section 5.8
occurs or (ii) as soon as possible thereafter when each of the other conditions
set forth in Articles 6 and 7 have been satisfied or waived, and shall proceed
promptly to conclusion, or at such other place, time and date as shall be fixed
by mutual agreement between ICI and MMI. The day on which the Closing shall
occur is referred to herein as the "Closing Date." Each party will cause to be
prepared, executed and delivered the Certificate of Merger to be filed with the
Secretary of State of Delaware and all other appropriate and customary documents
as any party or its counsel may reasonably request for the purpose of
consummating the transactions contemplated by this Agreement. All actions taken
at the Closing shall be deemed to have been taken simultaneously at the time the
last of any such actions is taken or completed.
1.7. TAX CONSEQUENCES. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall
constitute a "plan of reorganization" for the purposes of Section 368 of the
Code.
1.8. POOLING OF INTERESTS. It is the intention of the parties hereto that
the Merger will be treated for financial reporting purposes as a pooling of
interests.
ARTICLE 2.
CONVERSION OF SHARES; TREATMENT OF OPTIONS
2.1. CONVERSION OF SHARES. The manner and basis of converting shares of
the common stock, $.01 par value, of MMI (the "MMI Common Stock") into Common
Stock, $.001 par value, of ICI ("ICI Common Stock"), shall be as follows:
(a) Except as provided in Section 2.3, each share of MMI Common Stock
which shall be outstanding immediately prior to the Effective Date shall at
the Effective Date, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive such
number of shares of ICI Common Stock (such number, computed to four decimal
places, being referred to herein as the "Exchange Ratio") as is equal to the
quotient obtained by dividing (i) $16.50 by (ii) the "Determination Price"
(as such term is defined hereinafter) of a share of ICI Common Stock. For
the purposes of this Agreement, the term "Determination Price" shall mean
the average per share closing price of ICI Common Stock as reported on The
Nasdaq Stock Market ("NMS") over the twenty (20) trading days immediately
preceding the second trading day prior to the Effective Date; provided,
however, that in the event that at the Effective Date the Determination
Price of a share of ICI Common Stock is less than $14.50 per share, then the
Determination Price shall be deemed to have been $14.50; and provided,
further, that in the event that at the Effective Date the Determination
Price of a share of ICI Common Stock is more than $18.50 per share, then the
Determination Price shall be deemed to be $18.50.
(b) Each share of MMI Common Stock held in the treasury of MMI and each
share of MMI Common Stock owned by ICI or any direct or indirect
wholly-owned subsidiary of ICI or of MMI shall automatically be canceled and
extinguished without any conversion thereof and no payment will be made with
respect thereto.
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<PAGE>
(c) Each share of Common Stock, $.001 par value, of Merger Corp. which
shall be outstanding immediately prior to the Effective Date shall at the
Effective Date, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into one share of newly issued MMI
Common Stock.
2.2. FRACTIONAL SHARES. No scrip or fractional shares of ICI Common Stock
shall be issued in the Merger, nor will any outstanding fractional share
interest entitle the owner thereof to vote, to receive dividends or to exercise
any other right of a stockholder of the Surviving Corporation. All fractional
shares of ICI Common Stock to which a holder of MMI Common Stock immediately
prior to the Effective Date would otherwise be entitled at the Effective Date
shall be aggregated. If a fractional share results from such aggregation, such
stockholder shall be entitled, after the later of (a) the Effective Date or (b)
the surrender of such stockholder's "Certificate" (as defined in Section 2.5) or
Certificates that represent such shares of MMI Common Stock, to receive from ICI
an amount in cash in lieu of such fractional share, equal to such fraction
multiplied by the Determination Price. ICI will make available to the "Exchange
Agent" (as defined in Section 2.5) the cash necessary for the purpose of paying
cash for fractional shares.
2.3. DISSENTING SHARES. To the extent that appraisal rights are available
under the DGCL, shares of MMI Common Stock that are issued and outstanding
immediately prior to the Effective Date and that have not been voted for
adoption of the Merger and with respect of which appraisal rights have been
properly demanded in accordance with the applicable provisions of the DGCL
("Dissenting Shares") shall not be converted into the right to receive the
consideration provided for in Sections 2.1 and 2.2 at or after the Effective
Date unless and until the holder of such shares withdraws his demand for such
appraisal (in accordance with the applicable provisions of the DGCL) or becomes
ineligible for such appraisal. If a holder of Dissenting Shares withdraws his
demand for such appraisal (in accordance with the applicable provisions of the
DGCL) or becomes ineligible for such appraisal, then, as of the Effective Date
or the occurrence of such event, whichever later occurs, such holder's
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the consideration provided for in
Sections 2.1 and 2.2. If any holder of MMI Common Stock shall assert the right
to be paid the fair value of such MMI Common Stock as described above, MMI shall
give ICI prompt written notice thereof and ICI shall have the right to
participate in and direct all negotiations and proceedings with respect to any
such demands. MMI shall not, except with the prior written consent of ICI,
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for payment. After the Effective Date, ICI will cause the Surviving
Corporation to pay its statutory obligations to holders of Dissenting Shares.
2.4. STOCK OPTIONS.
(a) At the Effective Date, all options (the "Options") then outstanding
under MMI's 1990 Incentive Stock Option Plan (the "MMI Stock Option Plan")
shall remain outstanding following the Effective Date. At the Effective
Date, subject to ICI having obtained all requisite shareholder approval,
such Options shall, by virtue of the Merger and without any further action
on the part of MMI or the holder of any such Option, be assumed by ICI in
accordance with their terms and conditions as in effect at the Effective
Date (and the terms and conditions of the MMI Stock Option Plan), except
that (i) each such Option shall be exercisable for that whole number of
shares of ICI Common Stock (to the nearest whole share) into which the
number of shares of MMI Common Stock subject to such Option immediately
prior to the Effective Date would be converted under Section 2.1; (ii) the
option price per share of the MMI Common Stock shall be an amount equal to
the option price per share of MMI Common Stock subject to such Option in
effect immediately prior to the Effective Date divided by the Exchange Ratio
(the price per share, as so determined, being rounded upward to the nearest
full cent); and (iii) all actions to be taken thereunder by the Board of
Directors of MMI or a committee thereof shall be taken by the Board of
Directors of ICI or a committee thereof. In the event that ICI shall not
have obtained all requisite shareholder approval, ICI shall nevertheless
assume the Options as set forth in the preceding sentence except that such
Options may, to the extent provided by the Code, cease to be
A-3
<PAGE>
incentive stock options under Section 422 of the Code. No payment shall be
made for fractional interests. From and after the date of this Agreement, no
additional options shall be granted by MMI under the MMI Stock Option Plan
or otherwise.
(b) It is intended that the assumed Options, as set forth herein, shall
not give to any holder thereof any benefits in addition to those which such
holder had prior to the assumption of the Option. ICI shall take all
necessary corporate action necessary to reserve for issuance a sufficient
number of shares of ICI Common Stock for delivery upon exercise of the
Options. As soon as practicable after the Effective Date, ICI shall file a
registration statement, or an amendment to an existing registration
statement, under the Securities Act of 1933, as amended (the "Securities
Act"), on Form S-8 (or other successor form) with respect to the shares of
ICI Common Stock subject to such Options and shall use its best efforts to
maintain the effectiveness of such registration statement for so long as ICI
shall be obligated to file reports under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). In addition, ICI will cause such
shares to be listed on the NMS.
(c) Approval by the stockholders of MMI of this Agreement shall
constitute authorization and approval of any and all of the actions
described in this Section 2.4.
2.5. EXCHANGE AGENT.
(a) ICI shall authorize SunTrust Bank, Atlanta, Georgia, to serve as
exchange agent hereunder (the "Exchange Agent"). Promptly after the
Effective Date, ICI shall deposit or shall cause to be deposited in trust
with the Exchange Agent certificates representing the number of whole shares
of ICI Common Stock to which the holders of MMI Common Stock (other than
holders of Dissenting Shares) are entitled pursuant to this Article 2,
together with cash sufficient to pay for fractional shares then known to ICI
(such cash amounts and certificates being hereinafter referred to as the
"Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions received from ICI, deliver the number of shares of ICI Common
Stock and pay the amounts of cash provided for in this Article 2 out of the
Exchange Fund. Additional amounts of cash, if any, needed from time to time
by the Exchange Agent to make payments for fractional shares shall be
provided by ICI and shall become part of the Exchange Fund. The Exchange
Fund shall not be used for any other purpose, except as provided in this
Agreement, or as otherwise agreed to by ICI, Merger Corp. and MMI prior to
the Effective Date.
(b) As soon as practicable after the Effective Date, the Exchange Agent
shall mail and otherwise make available to each record holder (other than
holders of Dissenting Shares) who, as of the Effective Date, was a holder of
an outstanding certificate or certificates which immediately prior to the
Effective Date represented shares of MMI Common Stock (the "Certificates"),
a form of letter of transmittal and instructions for use in effecting the
surrender of the Certificates for payment therefor and conversion thereof,
which letter of transmittal shall comply with all applicable rules of the
NMS. Delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent and the form of letter of transmittal shall so reflect.
Upon surrender to the Exchange Agent of a Certificate, together with such
letter of transmittal duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor (i) one or more certificates as
requested by the holder (properly issued, executed and countersigned, as
appropriate) representing that number of whole shares of ICI Common Stock to
which such holder of MMI Common Stock shall have become entitled pursuant to
the provisions of this Article 2, and (ii) as to any fractional share, a
check representing the cash consideration to which such holder shall have
become entitled pursuant to Section 2.2, and the Certificate so surrendered
shall forthwith be cancelled. No interest will be paid or accrued on the
cash payable upon surrender of the Certificates. ICI shall pay any transfer
or other taxes required by reason of the issuance of a certificate
representing shares of ICI Common Stock; provided, however, that such
certificate is issued in the name of the person in whose name the
Certificate surrendered in exchange therefor is registered; provided
further,
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<PAGE>
however, that ICI shall not pay any transfer or other tax if the obligation
to pay such tax under applicable law is solely that of the stockholder or if
payment of any such tax by ICI otherwise would cause the Merger to fail to
qualify as a tax free reorganization under the Code. If any portion of the
consideration to be received pursuant to this Article 2 upon exchange of a
Certificate (whether a certificate representing shares of ICI Common Stock
or a check representing cash for a fractional share) is to be issued or paid
to a person other than the person in whose name the Certificate surrendered
in exchange therefor is registered, it shall be a condition of such issuance
and payment that the Certificate so surrendered shall be properly endorsed
or otherwise in proper form for transfer as the Exchange Agent may require
and that the person requesting such exchange shall pay in advance any
transfer or other taxes required by reason of the issuance of a certificate
representing shares of ICI Common Stock or a check representing cash for a
fractional share to such other person, or establish to the satisfaction of
the Exchange Agent that such tax has been paid or that no such tax is
applicable. From the Effective Date until surrender in accordance with the
provisions of this Section 2.5, each Certificate (other than Certificates
representing treasury shares of MMI and Certificates representing Dissenting
Shares) shall represent for all purposes only the right to receive the
consideration provided in Sections 2.1 and 2.2. No dividends that are
otherwise payable on ICI Common Stock will be paid to persons entitled to
receive ICI Common Stock until such persons surrender their Certificates.
After such surrender, there shall be paid to the person in whose name ICI
Common Stock shall be issued any dividends on such ICI Common Stock that
shall have a record date on or after the Effective Date and prior to such
surrender. If the payment date for any such dividend is after the date of
such surrender, such payment shall be made on such payment date. In no event
shall the persons entitled to receive such dividends be entitled to receive
interest on such dividends. All payments in respect of shares of MMI Common
Stock that are made in accordance with the terms hereof shall be deemed to
have been made in full satisfaction of all rights pertaining to such
securities.
(c) In the case of any lost, mislaid, stolen or destroyed Certificates,
the holder thereof may be required, as a condition precedent to the delivery
to such holder of the consideration described in this Article 2, to deliver
to ICI a bond in such reasonable sum as ICI may direct as indemnity against
any claim that may be made against the Exchange Agent, ICI or the Surviving
Corporation with respect to the Certificate alleged to have been lost,
mislaid, stolen or destroyed.
(d) After the Effective Date, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of MMI Common
Stock that were outstanding immediately prior to the Effective Date. If,
after the Effective Date, Certificates are presented to the Surviving
Corporation for transfer, they shall be cancelled and exchanged for the
consideration described in this Article 2.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of MMI for six months after the Effective Date shall be
returned to ICI, upon demand, and any holder of MMI Common Stock who has not
theretofore complied with Section 2.5(b) shall thereafter look only to ICI
for issuance of the number of shares of ICI Common Stock and other
consideration to which such holder has become entitled pursuant to this
Article 2; provided, however, that neither the Exchange Agent nor any party
hereto shall be liable to a holder of shares of MMI Common Stock for any
amount required to be paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.6. ADJUSTMENT. If, between the date of this Agreement and the Closing
Date or the Effective Date, as the case may be, (i) the outstanding shares of
MMI Common Stock or ICI Common Stock shall have been changed into a different
number of shares or a different class by reason of any classification,
recapitalization, split-up, combination, exchange of shares, or readjustment or
a stock dividend thereon shall be declared with a record date within such period
or (ii) MMI shall have issued additional shares of MMI Common Stock (other than
upon the exercise of employee stock options granted prior to the date hereof) or
options or warrants to purchase the same, or securities convertible into the
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same, the number of shares of ICI Common Stock issued pursuant to the Merger
shall be adjusted to accurately reflect such change (it being acknowledged that
MMI elsewhere herein covenants not to take any of the actions described in (i)
or (ii) above).
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF MMI
Except as set forth on "MMI's Disclosure Schedule" (which term shall mean
the written information delivered by MMI to ICI prior to the execution of this
Agreement; provided, that information shall be deemed to be disclosed in
accordance with a given provision of this Agreement only to the extent that
specific written reference to such provision of this Agreement is made in
connection with the disclosure of such information at the time of such
delivery), MMI hereby represents and warrants to ICI and Merger Corp. as
follows:
3.1. ORGANIZATION AND GOOD STANDING OF MMI. Each of MMI and the "MMI
Subsidiaries" (as defined in Section 3.2) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. Accurate and complete copies of MMI's certificate of
incorporation and bylaws, in each case as in effect on the date hereof, have
heretofore been delivered to ICI.
3.2. CAPITAL STOCK OF MMI SUBSIDIARIES AND OTHER OWNERSHIP
INTERESTS. MMI's Disclosure Schedule sets forth a true and complete list of all
corporations, partnerships and other entities in which MMI owns any equity
interest (the "MMI Subsidiaries"), the jurisdiction in which each MMI Subsidiary
is incorporated or organized, and all shares of capital stock or other ownership
interests authorized, issued and outstanding of each MMI Subsidiary. The shares
of capital stock or other equity interests of each MMI Subsidiary have been duly
authorized and are validly issued, fully paid and nonassessable and free of any
preemptive right. All shares of capital stock or other equity interests of each
MMI Subsidiary owned by MMI or any of its subsidiaries are set forth on MMI's
Disclosure Schedule and are owned by MMI, either directly or indirectly as set
forth in MMI's Disclosure Schedule, free and clear of all liens, encumbrances,
equities or claims.
3.3. FOREIGN QUALIFICATION. MMI and each of the MMI Subsidiaries are duly
qualified or licensed to do business and are in good standing as a foreign
corporation in every jurisdiction where the failure so to qualify could have a
material adverse effect on (a) the business, operations, prospects, assets or
financial condition of MMI and the MMI Subsidiaries taken as a whole or (b) the
validity or enforceability of, or the ability of MMI to perform its obligations
under, this Agreement and the other documents contemplated hereby (an "MMI
Material Adverse Effect").
3.4. CORPORATE POWER AND AUTHORITY. Each of MMI and the MMI Subsidiaries
has the corporate power and authority and all licenses and permits required by
governmental authorities to own, lease and operate its properties and assets and
to carry on its business as currently being conducted. MMI has the corporate
power and authority to execute and deliver this Agreement and the agreements,
documents and instruments contemplated hereby and, subject to the approval of
this Agreement and the Merger by its stockholders, to perform its obligations
under this Agreement and the other documents executed or to be executed by MMI
in connection with this Agreement and to consummate the Merger. The execution,
delivery, and performance by MMI of this Agreement and the other documents
executed or to be executed by MMI in connection with this Agreement have been
duly authorized by all necessary corporate action.
3.5. BINDING EFFECT. This Agreement and the other documents executed or to
be executed by MMI in connection with this Agreement have been or will have been
duly executed and delivered by MMI and are or will be, when executed and
delivered, the legal, valid and binding obligations of MMI enforceable in
accordance with their terms except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
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(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of public
policy.
3.6. ABSENCE OF RESTRICTIONS AND CONFLICTS. Subject only to the approval
of the adoption of this Agreement and the Merger by MMI's stockholders as
described in Section 5.8 and the following sentence of this Section, the
execution, delivery and performance of this Agreement and the other documents
executed or to be executed by MMI in connection with this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement and the fulfillment of and compliance with the terms and conditions of
this Agreement do not and will not, with the passing of time or the giving of
notice or both, violate or conflict with, constitute a breach of or default
under, result in the loss of any material benefit under, permit or result in the
acceleration or termination of any obligation under, or result in the creation
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of MMI or any of the MMI Subsidiaries under, (i) any term or provision
of the Articles or Certificate of Incorporation or Bylaws of MMI or any MMI
Subsidiary, (ii) any "MMI Material Contract" (as defined in Section 3.13), (iii)
any judgment, decree, permit, concession, license, or order of any court or
governmental authority or agency to which MMI or any MMI Subsidiary is a party
or by which MMI, any MMI Subsidiary or any of their respective properties is
bound or (iv) any statute, law, regulation or rule applicable to MMI or any MMI
Subsidiary. Except for compliance with the applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the
Securities Act, the Exchange Act, and applicable state securities laws, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental agency or public or regulatory unit, agency, body
or authority is required in connection with the execution, delivery or
performance of this Agreement by MMI, the consummation by MMI of the
transactions contemplated hereby or the ownership and operation by MMI of its
business and properties after the Effective Date in substantially the same
manner as now owned and operated.
3.7. CAPITALIZATION OF MMI.
(a) The authorized capital stock of MMI consists of 15,000,000 shares of
common stock, $.01 par value, and 1,000,000 shares of preferred stock, no
par value. As of the date hereof, there were (i) 4,593,220 shares of MMI
Common Stock issued and outstanding (not including 236,064 shares held in
the treasury), (ii) no shares of preferred stock, and (iii) 711,429 shares
of MMI Common Stock reserved for issuance upon the exercise of outstanding
Options granted under the MMI Option Plan, the terms of which are summarized
in MMI's Disclosure Schedule. No subsidiary of MMI holds any shares of the
capital stock of MMI. Since February 29, 1996, MMI has not (i) issued any
shares of capital stock except pursuant to the exercise of then outstanding
Options in accordance with their terms or (ii) repurchased or redeemed any
shares of MMI capital stock.
(b) All of the issued and outstanding shares of MMI Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights.
(c) To MMI's knowledge, there are no voting trusts, stockholder
agreements or other voting arrangements by the stockholders of MMI.
(d) Except as set forth in subsection (a) above, there is no outstanding
subscription, contract, convertible or exchangeable security, option,
warrant, call or other right obligating MMI or any of MMI Subsidiaries to
issue, sell, exchange or otherwise dispose of, or to purchase, redeem or
otherwise acquire, shares of, or securities convertible into or exchangeable
for, capital stock of MMI or MMI Subsidiaries.
3.8 MMI SEC REPORTS. MMI has made available to ICI and Merger Corp. (i)
MMI's Annual Reports on Form 10-K, including all exhibits filed thereto and
items incorporated therein by reference, (ii) MMI's Quarterly Reports on Form
10-Q, including all exhibits thereto and items incorporated therein by
reference, (iii) proxy statements relating to MMI's meetings of stockholders and
(iv) all other reports or registration statements (as amended or supplemented
prior to the date
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hereof), filed by MMI with the Securities and Exchange Commission (the "SEC")
since December 31, 1993, including all exhibits thereto and items incorporated
therein by reference (items (i) through (iv) being referred to as the "MMI SEC
Reports"). As of their respective dates, the MMI SEC Reports did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Since December 31,
1993, MMI has filed all forms, reports and documents with the SEC required to be
filed by it pursuant to the federal securities laws and the SEC rules and
regulations thereunder, each of which complied as to form, at the time such
form, report or document was filed, in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the applicable rules
and regulations thereunder.
3.9. FINANCIAL STATEMENTS AND RECORDS OF MMI. MMI has made available to
ICI and Merger Corp. true, correct and complete copies of (i) the consolidated
balance sheets of MMI and the MMI Subsidiaries as of November 30, 1994 and 1995
and the consolidated statements of income, stockholders' equity and cash flows
for the fiscal years then ended, including the notes thereto, in each case
examined by and accompanied by the report of KPMG Peat Marwick L.L.P. and (ii)
the unaudited balance sheet of MMI and the MMI Subsidiaries as of February 29,
1996 and the related unaudited statements of income, stockholders' equity and
cash flows for the fiscal quarter then ended (collectively the "MMI Financial
Statements"). The MMI Financial Statements have been prepared from, and are in
accordance with, the books and records of MMI and the MMI Subsidiaries and
present fairly, in all material respects, the assets, liabilities and financial
position of MMI as of the dates thereof and the results of operations and
changes in financial position thereof for the periods then ended, in each case
in conformity with generally accepted accounting principles, consistently
applied, except as noted therein. Since February 29, 1996, there has been no
change in accounting principles applicable to, or methods of accounting utilized
by, MMI, except as noted in the MMI Financial Statements. The statements of
income and cash flow contained in the MMI Financial Statements do not contain
any material items of special or nonrecurring income, except as specifically
identified therein. On or before the 20th day of each calendar month following
the date of this Agreement, MMI shall deliver to ICI unaudited financial
statements (including a balance sheet and statements of income and cash flow) as
of the end of the previous month and for the year to date. The books and records
of MMI have been and are being maintained in accordance with good business
practice, reflect only valid transactions, are complete and correct in all
material respects, and present fairly in all material respects the basis for the
financial position and results of operations of MMI set forth in the MMI
Financial Statements.
3.10. ABSENCE OF CERTAIN CHANGES. Since February 29, 1996, MMI and the MMI
Subsidiaries have not, except as may result from the transactions contemplated
by this Agreement:
(a) suffered any change in the business, results of operations, working
capital, assets, liabilities or condition (financial or otherwise) or the
manner of conducting the business of MMI and MMI Subsidiaries taken as a
whole, except as reflected on the MMI Financial Statements and except for
such changes that would not have an MMI Material Adverse Effect;
(b) suffered any damage or destruction to or loss of the assets of MMI
or any MMI Subsidiary, whether or not covered by insurance, which property
or assets are material to the operations or business of MMI and MMI
Subsidiaries taken as a whole;
(c) forgiven, compromised, canceled, released, waived or permitted to
lapse any material rights or claims;
(d) entered into or terminated any material agreement, commitment or
transaction, or agreed or made any changes in material leases or agreements,
or suffered any of the foregoing to occur, other than renewals or extensions
thereof and leases, agreements, transactions and commitments entered into in
the ordinary course of business (excluding the pending asset acquisitions
described in the MMI Disclosure Schedule);
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(e) written up, written down or written off the book value of any
material amount of assets;
(f) declared, paid or set aside for payment any dividend or distribution
with respect to MMI's capital stock;
(g) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of MMI's capital stock or
securities (other than shares issued upon exercise of the Options) or any
rights to acquire such capital stock or securities, or agreed to changes in
the terms and conditions of any such rights outstanding as of the date of
this Agreement;
(h) increased the compensation of or paid any bonuses to any employees
or contributed to any employee benefit plan, other than in accordance with
established policies, practices or requirements and as provided in Section
5.1 hereof;
(i) entered into any employment, consulting, compensation or collective
bargaining agreement with any person or group, or experienced any
resignations of, or had any terminations or disputes involving the
employment or contract relationship with any of its employees or sales
representatives which could have a MMI Material Adverse Effect on the
Surviving Corporation;
(j) entered into, adopted or amended any employee benefit plan;
(k) entered into any transaction other than in the ordinary course of
business; or
(l) entered into any agreement to do any of the foregoing.
3.11. NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of MMI or the MMI Subsidiaries of any nature, whether absolute,
accrued, contingent or otherwise, other than the liabilities and obligations
that are fully reflected, accrued or reserved against in the MMI Financial
Statements, for which the reserves are appropriate and reasonable, or incurred
in the ordinary course of business and consistent with past practices since
February 29, 1996.
3.12. TAX RETURNS; TAXES. Each of MMI and the MMI Subsidiaries have duly
and timely filed all federal, state, county, local and foreign tax returns and
reports required to be filed by it, including those with respect to income,
payroll, property, withholding, social security, unemployment, franchise, excise
and sales taxes and all such returns and reports are true and correct in all
material respects; have either paid in full all taxes that have become due as
reflected on any return or report and any interest and penalties with respect
thereto or have fully accrued on its books or have established adequate reserves
for all taxes payable but not yet due; and have made cash deposits with
appropriate governmental authorities representing estimated payments of taxes,
including income taxes and employee withholding tax obligations. No extension or
waiver of any statute of limitations or time within which to file any return has
been granted to or requested by MMI or the MMI Subsidiaries with respect to any
tax. No unsatisfied deficiency, delinquency or default for any tax, assessment
or governmental charge has been claimed, proposed or assessed against MMI or the
MMI Subsidiaries, nor has MMI or the MMI Subsidiaries received notice of any
such deficiency, delinquency or default. There is no audit, examination,
deficiency or refund litigation or matter in controversy with respect to any
taxes. MMI and the MMI Subsidiaries have no material tax liabilities other than
those reflected on the MMI Financial Statements and those arising in the
ordinary course of business since February 29, 1996. MMI will make available to
ICI true, complete and correct copies of MMI's consolidated federal tax returns
for the last five years and make available such other tax returns requested by
ICI.
3.13. MATERIAL CONTRACTS. MMI will furnish or make available accurate and
complete copies of the MMI Material Contracts (as defined herein) applicable to
MMI or any of the MMI Subsidiaries to ICI. All of the MMI Material Contracts are
valid, binding and enforceable. There is not under any of the MMI Material
Contracts any existing breach, default or event of default by MMI or any of the
MMI Subsidiaries nor event that with notice or lapse of time or both would
constitute a breach, default or event of default by MMI or any of the MMI
Subsidiaries nor does MMI know of, and MMI has not received notice of, or made a
claim with respect to, any breach or default by any other party thereto
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which would, severally or in the aggregate, have an MMI Material Adverse Effect.
As used herein, the term "MMI Material Contracts" shall mean all contracts and
agreements filed, or required to be filed, as exhibits to MMI's Annual Report on
Form 10-K for the year ended November 30, 1995, any contracts and agreements
entered into since November 30, 1995 which would be required to be filed as an
exhibit to MMI's Annual Report on Form 10-K for the year ending November 30,
1996, any note, bond, mortgage, indenture, license agreement, lease or other
instrument or obligation to which any of MMI or the MMI Subsidiaries is a party
or by which any of them or any of their properties or assets may be subject.
Except as set forth in the MMI Disclosure Schedule, neither MMI nor any MMI
Subsidiary is a party to any legally binding contract to sell or purchase goods
or services which is not terminable on less than six months notice; any power of
attorney; any agreement containing covenants by it not to compete or restricting
the customers from whom or the area in which it may solicit or conduct its
business; any contract arrangement or commitment for the acquisition of any
other business or assets not made in the ordinary course of business; any
contracts, arrangements or commitments for capital expenditures in excess of
$50,000 in the aggregate; and any contract, arrangement or commitment for
payment of severance or other fees to any existing or former employee,
consultant or sales representative.
3.14. LITIGATION AND GOVERNMENT CLAIMS. Except as disclosed in the MMI SEC
Reports, there is no pending suit, claim, action or litigation, or
administrative, arbitration or other proceeding or governmental investigation or
inquiry, or any pending change in any environmental, zoning or building laws,
regulations or ordinances against MMI or the MMI Subsidiaries to which their
businesses or assets are subject which would, severally or in the aggregate,
have an MMI Material Adverse Effect. To the knowledge of MMI, there are no such
proceedings threatened or contemplated, or any unasserted claims (whether or not
the potential claimant may be aware of the claim) of any nature that might be
asserted against MMI or the MMI Subsidiaries which would, severally or in the
aggregate, have an MMI Material Adverse Effect. Neither MMI nor any MMI
Subsidiary is subject to any judgment, decree, injunction, rule or order of any
court, or any governmental restriction applicable to MMI or any MMI Subsidiary
which is reasonably likely (i) to have an MMI Material Adverse Effect or (ii) to
cause a material limitation on ICI's ability to operate the business of MMI
after the Closing.
3.15. COMPLIANCE WITH LAWS. MMI and the MMI Subsidiaries each have all
material authorizations, approvals, licenses and orders to carry on their
respective businesses as they are now being conducted, to own or hold under
lease the properties and assets they own or hold under lease and to perform all
of their obligations under the agreements to which they are a party, except for
instances which would not have an MMI Material Adverse Effect. MMI and the MMI
Subsidiaries have been and are in compliance with all applicable laws,
regulations and administrative orders of any country, state or municipality or
of any subdivision of any thereof to which their respective businesses and their
employment of labor or their use or occupancy of properties or any part hereof
are subject, the failure to obtain or the violation of which would have an MMI
Material Adverse Effect.
3.16. EMPLOYEE BENEFIT PLANS. Each employee benefit plan, as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), of MMI or the MMI Subsidiaries (collectively the "MMI
Employee Plans") complies in all material respects with all applicable
requirements of ERISA and the Code, and other applicable laws. None of the MMI
Employee Plans is an employee pension benefit plan subject to Title IV or Part 3
of Subtitle B of Title I of ERISA or a multiemployer plan, as such terms are
defined in ERISA. Neither MMI nor any MMI Subsidiary, nor any of their
respective directors, officers, employees or agents has, with respect to any MMI
Employee Plan, engaged in any "prohibited transaction," as such term is defined
in the Code or ERISA, nor has any MMI Employee Plan engaged in such prohibited
transaction which could result in any taxes or penalties or other prohibited
transactions, which in the aggregate could have an MMI Material Adverse Effect.
3.17. LABOR RELATIONS. Each of MMI and the MMI Subsidiaries is in
compliance in all respects with all laws (including Federal and state laws and
the laws of another country or governmental entity
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thereof) respecting employment and employment practices, terms and conditions of
employment, wages and hours, and is not engaged in any unfair labor or unlawful
employment practice, except in any case which would not have an MMI Material
Adverse Effect. There is no unlawful employment practice discrimination charge
pending before the EEOC or EEOC recognized state "referral agency." There is no
unfair labor practice charge or complaint against MMI or any of the MMI
Subsidiaries pending before the National Labor Review Board. There is no labor
strike, dispute, slowdown or stoppage actually pending or, to the knowledge of
MMI, threatened against or involving or affecting MMI or any of the MMI
Subsidiaries and no National Labor Review Board representation question exists
respecting their respective employees. No grievances or arbitration proceeding
is pending and no written claim therefor exists. There is no collective
bargaining agreement that is binding on MMI or any of the MMI Subsidiaries.
3.18. INTELLECTUAL PROPERTY. MMI and the MMI Subsidiaries own or have
valid, binding and enforceable rights to use all patents, trademarks, trade
names, service marks, service names, copyrights, applications therefor and
licenses or other rights in respect thereof ("MMI Intellectual Property") used
or held for use in connection with the business of MMI or the MMI Subsidiaries,
without any conflict with the rights of others, except for such conflicts as do
not have an MMI Material Adverse Effect. Neither MMI nor any of the MMI
Subsidiaries has received any notice from any other person pertaining to or
challenging the right of MMI or any of the MMI Subsidiaries to use any MMI
Intellectual Property or any trade secrets, proprietary information, inventions,
know-how, processes and procedures owned or used or licensed to MMI or the MMI
Subsidiaries.
3.19. PROPERTIES. MMI and the MMI Subsidiaries have good and marketable
title, free and clear of all liens, claims or encumbrances (other than for the
MMI Material Contracts) to all of their material properties and assets whether
tangible or intangible, real, personal or mixed, reflected on the MMI Financial
Statements as being owned by MMI or the MMI Subsidiaries. All buildings and all
fixtures, equipment and other property and assets which are material to its
business held under leases or subleases by any of MMI or the MMI Subsidiaries
are held under valid instruments enforceable in accordance with their respective
terms. Substantially all of MMI's and MMI Subsidiaries' equipment and properties
have been well maintained and are in good and serviceable condition, reasonable
wear and tear excepted.
3.20. INSURANCE. MMI and each of the MMI Subsidiaries is presently
insured, and during each of the past five (5) calendar years has been insured
for reasonable amounts against such risks as companies engaged in similar
business would, in accordance with good business practice, customarily be
insured.
3.21. ENVIRONMENTAL MATTERS. MMI and the MMI Subsidiaries are in
compliance with all applicable federal, state, local and foreign laws relating
to emissions, discharges and releases of hazardous materials into the
environment and the generation, treatment, storage, transportation and disposal
of hazardous waste, including, without limitation, any applicable provisions of
the Resource Conservation and Recovery Act of 1976 or the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, except as would
not cause a MMI Material Adverse Effect. There are no conditions at, on, under
or related to any real property owned or operated by MMI or the MMI Subsidiaries
which presently or potentially poses a significant hazard to human health or the
environment, and there has been no production, use, treatment, storage,
transportation or disposal by MMI or any of the MMI Subsidiaries of any
Hazardous Substance (as hereinbelow defined) nor any release or threatened
release by MMI or any MMI subsidiary of any Hazardous Substance. No Hazardous
Substance is now or ever has been stored by MMI or the MMI Subsidiaries in
underground tanks, pits or surface impoundments. For purposes of the foregoing,
the term "Hazardous Substance" means any hazardous or toxic substance, material
or waste (including, without limitation, petroleum products and by-products)
which is regulated by any applicable federal, state, local or foreign authority.
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3.22. REGISTRATION OBLIGATIONS. Neither MMI nor any of the MMI
Subsidiaries is under any obligation, contingent or otherwise, which will
survive the Merger to register any of its securities under the Securities Act.
3.23. STATE TAKEOVER LAWS. MMI and the MMI Subsidiaries have taken all
steps to exempt the transactions contemplated by this Agreement, and this
Agreement is not subject to, any applicable state takeover law including,
without limitation, DGCL Section 203.
3.24. ACCOUNTING, TAX AND REGULATORY MATTERS. Neither MMI nor any of the
MMI Subsidiaries has taken or agreed to take any action or has any knowledge of
any fact or circumstances that would prevent the transactions contemplated
hereby from qualifying for pooling of interest accounting treatment or as a
reorganization within the meaning of Section 368 of the Code.
3.25. ACCURACY OF DISCLOSURES. None of the information supplied by MMI or
any MMI Subsidiary for inclusion in the Registration Statement or Proxy
Statement (as such terms are defined in Section 5.7) will, in the case of the
Proxy Statement or any amendments or supplements thereto, at the time of mailing
of the Proxy Statement and any amendments or supplements thereto, and at the
time of the meeting of stockholders of MMI in accordance therewith, or, in the
case of the Registration Statement at the time it becomes effective and at the
Effective Date, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act, and the rules and
regulations promulgated thereunder. The Proxy Statement will comply as to form
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder.
3.26. BROKERS AND FINDERS. None of MMI, the MMI Subsidiaries or, to MMI's
knowledge, any of their respective officers, directors and employees has
employed any broker, finder or investment bank or incurred any liability for any
investment banking fees, financial advisory fees, brokerage fees or finders'
fees in connection with the transactions contemplated hereby, except that MMI
has engaged Goldman, Sachs & Co. as financial advisor pursuant to a written
agreement, a true and complete copy of which has been delivered to ICI. Other
than the foregoing arrangements and other than certain fees that may be paid to
ICI's financial advisor as contemplated by Section 4.24 hereof, MMI is not aware
of any claim for payment of any finder's fees, brokerage or agent's commissions
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby. MMI has
delivered to ICI all contracts, agreements and documents, including summaries of
oral agreements, that relate to the engagement of and the payment of fees to its
financial advisors.
3.27. OPINION OF FINANCIAL ADVISOR. MMI has received (and upon receipt
thereof will promptly deliver to ICI a photocopy thereof) the opinion of its
financial advisor (addressed solely to the MMI Board of Directors and not to be
relied upon by any other person) to the effect that, as of the date hereof, the
consideration is fair to the holders of MMI Common Stock.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF ICI AND MERGER CORP.
Except as set forth on "ICI's Disclosure Schedule" (which term shall mean
the written information delivered by ICI to MMI prior to the execution of this
Agreement; provided, that information shall be deemed to be disclosed in
accordance with a given provision of this Agreement only to the extent that
specific written reference to such provision of this Agreement is made in
connection with the disclosure of such information at the time of such
delivery), ICI and Merger Corp. hereby represent and warrant to MMI as follows:
4.1. ORGANIZATION AND GOOD STANDING OF ICI. Each of ICI, Merger Corp. and
the ICI Subsidiaries (as defined in Section 4.2) is a corporation duly
organized, validly existing and in good standing
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under the laws of the jurisdiction of its incorporation. Accurate and complete
copies of ICI's articles of incorporation and bylaws, in each case as in effect
on the date hereof, have heretofore been delivered to MMI.
4.2. CAPITAL STOCK OF ICI SUBSIDIARIES AND OTHER OWNERSHIP
INTERESTS. ICI's Disclosure Schedule sets forth a true and complete list of all
corporations, partnerships and other entities in which ICI owns any equity
interest (the "ICI Subsidiaries"), the jurisdiction in which each ICI Subsidiary
is incorporated or organized, and all shares of capital stock or other ownership
interests authorized, issued and outstanding of each ICI Subsidiary. The shares
of capital stock or other equity interests of each ICI Subsidiary have been duly
authorized and are validly issued, fully paid and nonassessable.
4.3. FOREIGN QUALIFICATION. ICI and each of the ICI Subsidiaries are duly
qualified or licensed to do business and are in good standing as a foreign
corporation in every jurisdiction where the failure so to qualify could have a
material adverse effect on (a) the business, operations, prospects, assets or
financial condition of ICI and the ICI Subsidiaries taken as a whole or (b) the
validity or enforceability of, or the ability of ICI to perform its obligations
under, this Agreement and the other documents contemplated hereby (an "ICI
Material Adverse Effect").
4.4. CORPORATE POWER AND AUTHORITY. Each of ICI and the ICI Subsidiaries
has the corporate power and authority and all licenses and permits required by
governmental authorities to own, lease and operate its properties and assets and
to carry on its business as currently being conducted. Each of ICI and Merger
Corp. has the corporate power and authority to execute and deliver this
Agreement and, except as set forth in ICI's Disclosure Schedule, to perform its
obligations under this Agreement and the other documents executed or to be
executed by ICI in connection with this Agreement and to consummate the Merger.
Except as set forth in ICI's Disclosure Schedule, the execution, delivery, and
performance by ICI and Merger Corp. of this Agreement and the other documents
executed or to be executed by ICI or Merger Corp., as applicable, in connection
with this Agreement have been duly authorized by all necessary corporate action.
4.5. BINDING EFFECT. This Agreement and the other documents executed or to
be executed by ICI and Merger Corp. in connection with this Agreement have been
or will have been duly executed and delivered by ICI and Merger Corp. and are or
will be, when executed and delivered, the legal, valid and binding obligations
of ICI and Merger Corp., enforceable in accordance with their terms except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of public
policy.
4.6. ABSENCE OF RESTRICTIONS AND CONFLICTS. The consummation of the Merger
and the other transactions contemplated by this Agreement and the fulfillment of
and compliance with the terms and conditions of this Agreement do not and will
not, with the passing of time or the giving of notice or both, violate or
conflict with, constitute a breach of or default under, result in the loss of
any material benefit under, permit or result in the acceleration or termination
of any obligation under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of ICI or
any of the ICI Subsidiaries under, (i) any term or provision of the Articles or
Certificate of Incorporation or Bylaws of ICI or any ICI Subsidiary, (ii) any
"ICI Material Contract" (as defined in Section 4.13), (iii) any judgment,
decree, permit, concession, license or order of any court or governmental
authority or agency to which ICI or any ICI Subsidiary is a party or by which
ICI, any ICI Subsidiary or any of their respective properties is bound, or (iv)
any statute, law, regulation or rule applicable to ICI or any ICI Subsidiary.
Except for compliance with the applicable requirements of the HSR Act, the
Securities Act, the Exchange Act, the NMS and applicable state securities laws,
no
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consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental agency or public or regulatory unit, agency, body
or authority is required in connection with the execution, delivery or
performance of this Agreement by ICI, the consummation by ICI of the
transactions contemplated hereby or the ownership and operation of MMI by ICI
after the Effective Date in substantially the same manner as now owned and
operated.
4.7. CAPITALIZATION OF ICI.
(a) The authorized capital stock of ICI consists of 100,000,000 shares
of ICI Common Stock, $.001 par value; and 10,000,000 shares of preferred
stock, no par value. As of the date hereof, there are (i) 30,546,186 shares
of Common Stock outstanding, (ii) no shares of the Preferred Stock
outstanding, and (iii) 2,756,886 shares reserved for issuance upon the
exercise of outstanding options (the "ICI Options") granted under ICI's
stock option plans.
(b) All of the issued and outstanding shares of ICI Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights.
(c) To ICI's knowledge, there are no voting trusts, stockholder
agreements or other voting arrangements by the stockholders of ICI.
(d) Except as set forth in subsection (a) above, there is no outstanding
subscription, contract, convertible or exchangeable security, option,
warrant, call or other right obligating ICI or any of the ICI Subsidiaries
to issue, sell, exchange or otherwise dispose of, or to purchase, redeem or
otherwise acquire, shares of, or securities convertible into or exchangeable
for, capital stock of ICI or the ICI Subsidiaries.
4.8. ICI SEC REPORTS. ICI has made available to MMI (i) ICI's Annual
Reports on Form 10-K, including all exhibits filed thereto and items
incorporated therein by reference, (ii) ICI's Quarterly Reports on Form 10-Q,
including all exhibits thereto and items incorporated therein by reference,
(iii) proxy statements relating to ICI's meetings of stockholders and (iv) all
other reports or registration statements (as amended or supplemented prior to
the date hereof), filed by ICI with the SEC since December 31, 1993, including
all exhibits thereto and items incorporated therein by reference (items (i)
through (iv) being referred to as the "ICI SEC Reports"). As of their respective
dates, the ICI SEC Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Since December 31, 1993, ICI has filed all material
forms, reports and documents with the SEC required to be filed by it pursuant to
the federal securities laws and the SEC rules and regulations thereunder, each
of which complied as to form, at the time such form, report or document was
filed, in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and the applicable rules and regulations
thereunder.
4.9. FINANCIAL STATEMENTS AND RECORDS OF ICI. ICI has made available to
MMI true, correct and complete copies of the consolidated balance sheets of ICI
and the ICI Subsidiaries as of December 31, 1994 and 1995, and the consolidated
statements of income, stockholders' equity and cash flows for the fiscal years
then ended, including the notes thereto, which financial statements as of
December 31, 1994 and for the fiscal year then ended have been examined by and
accompanied by the report of Deloitte & Touche LLP (the "ICI Financial
Statements"). The ICI Financial Statements have been prepared from, and are in
accordance with, the books and records of ICI and the ICI Subsidiaries and
present fairly, in all material respects, the assets, liabilities and financial
position of ICI as of the dates thereof and the results of operations and
changes in financial position thereof for the periods then ended, in each case
in conformity with generally accepted accounting principles, consistently
applied, except as noted therein. Since December 31, 1995, there has been no
change in accounting principles applicable to, or methods of accounting utilized
by, ICI, except as noted in the ICI Financial Statements or as is required under
generally accepted accounting principles. The statements of income and cash flow
contained in the ICI Financial Statements do not contain any material items of
special or nonrecurring income, except as specifically identified therein. On or
before the 20th day of each
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calendar month following the date of this Agreement, ICI shall deliver to MMI
unaudited financial statements (including a balance sheet and statements of
income and cash flow) as of the end of the previous month and for the year to
date. The books and records of ICI have been and are being maintained in
accordance with good business practice, reflect only valid transactions, are
complete and correct in all material respects, and present fairly in all
material respects the basis for the financial position and results of operations
of ICI set forth in the ICI Financial Statements.
4.10. ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, ICI and the ICI
Subsidiaries have not, except as may result from the transactions contemplated
by this Agreement:
(a) suffered any material adverse change in the business, results of
operations, working capital, assets, liabilities or condition (financial or
otherwise) or the manner of conducting the business of ICI and ICI
Subsidiaries taken as a whole, except as reflected on the ICI Financial
Statements and except for such changes that would not have an ICI Material
Adverse Effect;
(b) suffered any damage or destruction to or loss of the assets of ICI
or any ICI Subsidiary, whether or not covered by insurance, which would be
expected to result in an ICI Material Adverse Effect;
(c) forgiven, compromised, canceled, released, waived or permitted to
lapse any material rights or claims;
(d) entered into or terminated any material agreement, commitment or
transaction, or agreed or made any changes in material leases or agreements,
or suffered any of the foregoing to occur, other than renewals or extensions
thereof and leases, agreements, transactions and commitments entered into in
the ordinary course of business, except in any such case as does not have an
ICI Material Adverse Effect;
(e) written up, written down or written off the book value of any
material amount of assets;
(f) declared, paid or set aside for payment any dividend or distribution
with respect to ICI's capital stock;
(g) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of ICI's capital stock or
securities (other than shares issued upon exercise of the ICI Options) or
any rights to acquire such capital stock or securities, or agreed to changes
in the terms and conditions of any such rights outstanding as of the date of
this Agreement, except as provided in Section 5.2 hereof;
(h) increased the compensation of or paid any bonuses to any employees
or contributed to any employee benefit plan, other than in accordance with
established policies, practices or requirements and except as provided in
Section 5.2 hereof;
(i) entered into any employment, consulting, compensation or collective
bargaining agreement with any person or group, except in any such case which
does not have an ICI Material Adverse Effect on the Surviving Corporation;
(j) entered into, adopted or amended any employee benefit plan except
in any such case as does not have an ICI Material Adverse Effect; or
(k) entered into any agreement to do any of the foregoing.
4.11. NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of ICI or the ICI Subsidiaries of any nature, whether absolute,
accrued, contingent or otherwise, other than:
(a) the liabilities and obligations that are fully reflected, accrued or
reserved against in the ICI Financial Statements, for which the reserves are
appropriate and reasonable, or incurred in the ordinary course of business
and consistent with past practices since December 31, 1995; or
(b) liabilities or obligations not inconsistent with the terms of
Section 5.2.
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4.12. TAX RETURNS; TAXES. Each of ICI and the ICI Subsidiaries have duly
and timely filed all federal, state, county, local and foreign tax returns and
reports required to be filed by it, including those with respect to income,
payroll, property, withholding, social security, unemployment, franchise, excise
and sales taxes and all such returns and reports are true and correct in all
material respects; have either paid in full all taxes that have become due as
reflected on any return or report and any interest and penalties with respect
thereto or have fully accrued on its books or have established adequate reserves
for all taxes payable but not yet due; and have made cash deposits with
appropriate governmental authorities representing estimated payments of taxes,
including income taxes and employee withholding tax obligations. Except as set
forth in ICI's Disclosure Schedule, no unsatisfied deficiency, delinquency or
default for any tax, assessment or governmental charge has been claimed,
proposed or assessed against ICI or the ICI Subsidiaries, nor has ICI or the ICI
Subsidiaries received notice of any such deficiency, delinquency or default.
Except as set forth in ICI's Disclosure Schedule, there is no audit,
examination, deficiency or refund litigation or matter in controversy with
respect to any taxes. ICI and the ICI Subsidiaries have no material tax
liabilities other than those reflected on the ICI Financial Statements and those
arising in the ordinary course of business since December 31, 1995. ICI will
make available to MMI true, complete and correct copies of ICI's consolidated
federal tax returns for the last five years and make available such other tax
returns requested by MMI.
4.13. MATERIAL CONTRACTS. ICI will furnish or make available accurate and
complete copies of the ICI Material Contracts to MMI. All of the ICI Material
Contracts are valid, binding and enforceable. There is not under any of the ICI
Material Contracts any existing breach, default or event of default by ICI or
any of the ICI Subsidiaries nor event that with notice or lapse of time or both
would constitute a breach, default or event of default by ICI or any of the ICI
Subsidiaries nor does ICI know of, and ICI has not received notice of, or made a
claim with respect to, any breach or default by any other party thereto which
would, severally or in the aggregate, have an ICI Material Adverse Effect. As
used herein, the term "ICI Material Contracts" shall mean all of contracts and
agreements filed, or required to be filed, as exhibits to ICI's Annual Report on
Form 10-K for the year ended December 31, 1995 and any contract or agreement
entered into since December 31, 1995 which would be required to be filed as an
exhibit to ICI's Annual Report on Form 10-K for the year ending December 31,
1996, any note, bond, mortgage, indenture, license agreement, lease or other
instrument or obligation to which any of ICI or the ICI Subsidiaries is a party
or by which any of them or any of their properties or assets may be subject.
4.14. LITIGATION AND GOVERNMENT CLAIMS. Except as disclosed in the ICI SEC
Reports, there is no pending suit, claim, action or litigation, or
administrative, arbitration or other proceeding or governmental investigation or
inquiry, or any pending change in any environmental, zoning or building laws,
regulations or ordinances against ICI or the ICI Subsidiaries to which their
businesses or assets are subject which would, severally or in the aggregate,
reasonably be expected to result in an ICI Material Adverse Effect. To the
knowledge of ICI, there are no such proceedings threatened or contemplated, or
any unasserted claims (whether or not the potential claimant may be aware of the
claim) of any nature that might be asserted against ICI or the ICI Subsidiaries
which would, severally or in the aggregate, have an ICI Material Adverse Effect.
Neither ICI nor any ICI Subsidiary is subject to any judgment, decree,
injunction, rule or order of any court, or any governmental restriction
applicable to ICI or any ICI Subsidiary which is reasonably likely (i) to have
an ICI Material Adverse Effect or (ii) to cause a material limitation on ICI's
ability to operate the business of MMI after the Closing.
4.15. COMPLIANCE WITH LAWS. ICI and the ICI Subsidiaries each have all
material authorizations, approvals, licenses and orders to carry on their
respective businesses as they are now being conducted, to own or hold under
lease the properties and assets they own or hold under lease and to perform all
of their obligations under the agreements to which they are a party, except for
instances which would not have an ICI Material Adverse Effect. ICI and the ICI
Subsidiaries have been and are in compliance with all applicable laws,
regulations and administrative orders of any country, state or
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municipality or of any subdivision of any thereof to which their respective
businesses and their employment of labor or their use or occupancy of properties
or any part hereof are subject, the failure to obtain or the violation of which
would have an ICI Material Adverse Effect.
4.16. EMPLOYEE BENEFIT PLANS. Each employee benefit plan, as such term is
defined in Section 3(3) of ERISA, of ICI or the ICI Subsidiaries (collectively
the "ICI Employee Plans") complies in all material respects with all applicable
requirements of ERISA and the Code and other applicable laws. None of the ICI
Employee Plans is an employee pension benefit plan subject to Title IV or Part 3
of Subtitle B of Title I of ERISA or a multiemployer plan, as such terms are
defined in ERISA. Neither ICI nor any ICI Subsidiary, nor any of their
respective directors, officers, employees or agents has, with respect to any ICI
Employee Plan, engaged in any "prohibited transaction," as such term is defined
in the Code or ERISA, nor has any ICI Employee Plan engaged in such prohibited
transaction which could result in any taxes or penalties or other prohibited
transactions, which in the aggregate could have an ICI Material Adverse Effect.
4.17. LABOR RELATIONS. Each of ICI and the ICI Subsidiaries is in
compliance in all respects with all federal and state laws respecting employment
and employment practices, terms and conditions of employment, wages and hours,
and is not engaged in any unfair labor or unlawful employment practice, except
in any case which would not have an ICI Material Adverse Effect. There is no
unlawful employment practice discrimination charge pending before the EEOC or
EEOC recognized state "referral agency." There is no unfair labor practice
charge or complaint against ICI or any of the ICI Subsidiaries pending before
the National Labor Review Board. There is no labor strike, dispute, slowdown or
stoppage actually pending or, to the knowledge of ICI, threatened against or
involving or affecting ICI or any of the ICI Subsidiaries and no National Labor
Review Board representation question exists respecting their respective
employees. No grievances or arbitration proceeding is pending and no written
claim therefor exists.
4.18. INTELLECTUAL PROPERTY. ICI and the ICI Subsidiaries own or have
valid, binding and enforceable rights to use all patents, trademarks, trade
names, service marks, service names, copyrights, applications therefor and
licenses or other rights in respect thereof ("ICI Intellectual Property") used
or held for use in connection with the business of ICI or the ICI Subsidiaries,
without any conflict with the rights of others, except for such conflicts as do
not have an ICI Material Adverse Effect. Neither ICI nor any of the ICI
Subsidiaries has received any notice from any other person pertaining to or
challenging the right of ICI or any of the ICI Subsidiaries to use any ICI
Intellectual Property or any trade secrets, proprietary information, inventions,
know-how, processes and procedures owned or used or licensed to ICI or the ICI
Subsidiaries, except with respect to rights the loss of which, individually or
in the aggregate, would not have an ICI Material Adverse Effect.
4.19. PROPERTIES. ICI and the ICI Subsidiaries have good and marketable
title, free and clear of all liens, claims or encumbrances (other than for the
ICI Material Contracts) to all of their material properties and assets whether
tangible or intangible, real, personal or mixed, reflected on the ICI Financial
Statements as being owned by ICI or the ICI Subsidiaries. All buildings and all
fixtures, equipment and other property and assets which are material to its
business held under leases or subleases by any of ICI or the ICI Subsidiaries
are held under valid instruments enforceable in accordance with their respective
terms. Substantially all of ICI's and ICI Subsidiaries' equipment and properties
have been well maintained and are in good and serviceable condition, reasonable
wear and tear excepted.
4.20. INSURANCE. ICI and each of the ICI Subsidiaries is presently
insured, and during each of the past five (5) calendar years has been insured
for reasonable amounts against such risks as companies engaged in similar
business would, in accordance with good business practice, customarily be
insured.
4.21. ENVIRONMENTAL MATTERS. ICI and the ICI Subsidiaries are in
compliance with all applicable federal, state, local and foreign laws relating
to emissions, discharges and releases of hazardous materials into the
environment and the generation, treatment, storage, transportation and disposal
of
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hazardous waste, including, without limitation, any applicable provisions of the
Resource Conservation and Recovery Act of 1976 or the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, except as would
not cause an ICI Material Adverse Effect. There are no conditions at, on, under
or related to any real property owned or operated by ICI or the ICI Subsidiaries
which presently or potentially poses a significant hazard to human health or the
environment, and there has been no production, use, treatment, storage,
transportation or disposal by ICI or any of the ICI Subsidiaries of any
Hazardous Substance (as hereinbelow defined) nor any release or threatened
release by ICI or any ICI subsidiary of any Hazardous Substance. No Hazardous
Substance is now or ever has been stored by ICI or the ICI Subsidiaries in
underground tanks, pits or surface impoundments. For purposes of the foregoing,
the term "Hazardous Substance" means any hazardous or toxic substance, material
or waste (including, without limitation, petroleum products and by-products)
which is regulated by any applicable federal, state, local or foreign authority.
4.22. ACCOUNTING, TAX AND REGULATORY MATTERS. Neither ICI nor any of the
ICI Subsidiaries has taken or agreed to take any action or has any knowledge of
any fact or circumstances that would prevent the transactions contemplated
hereby from qualifying for pooling of interest accounting treatment or as a
reorganization within the meaning of Section 368 of the Code.
4.23. ACCURACY OF DISCLOSURES. None of the information supplied by ICI or
any ICI Subsidiary for inclusion in the Registration Statement or Proxy
Statement will, in the case of the Proxy Statement or any amendments or
supplements thereto, at the time of mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the meeting of
stockholders of MMI in accordance therewith, or, in the case of the Registration
Statement at the time it becomes effective and at the Effective Date, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement will comply as to form in all material
respects with the provisions of the Securities Act, and the rules and
regulations promulgated thereunder. The Proxy Statement will comply as to form
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder.
4.24. BROKERS AND FINDERS. None of ICI, the ICI Subsidiaries or, to ICI's
knowledge, any of their respective officers, directors and employees has
employed any broker, finder or investment bank or incurred any liability for any
investment banking fees, financial advisory fees, brokerage fees or finders'
fees in connection with the transactions contemplated hereby, except that ICI
has engaged Morgan Keegan & Company, Inc. as its financial advisor. Other than
the foregoing arrangements and other than certain fees that may be paid to MMI's
financial advisors as contemplated by Section 3.26 hereof, ICI is not aware of
any claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
ARTICLE 5.
CERTAIN COVENANTS AND AGREEMENTS
5.1. CONDUCT OF BUSINESS BY MMI. From the date hereof to the Effective
Date, MMI will, and will cause each MMI Subsidiary to, except as required in
connection with the Merger and the other transactions contemplated by this
Agreement and except as otherwise disclosed in MMI's Disclosure Schedule or
consented to in writing by ICI:
(a) Carry on its business in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any
new line of business or enter into any agreement, transaction or activity or
make any commitment except those in the ordinary and regular course of
business and not otherwise prohibited under this Section 5.1;
(b) Neither change nor amend its Certificate or Articles of
Incorporation or Bylaws;
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(c) Other than pursuant to the exercise of the Options outstanding on
the date hereof, not issue, sell or grant options, warrants or rights to
purchase or subscribe to, or enter into any arrangement or contract with
respect to the issuance or sale of any of the capital stock of MMI or any of
the MMI Subsidiaries or rights or obligations convertible into or
exchangeable for any shares of the capital stock of MMI or any of the MMI
Subsidiaries and not alter the terms of any presently outstanding options or
the MMI Stock Option Plan or make any changes (by split-up, combination,
reorganization or otherwise) in the capital structure of MMI or any of MMI's
Subsidiaries;
(d) Not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of
MMI and not redeem, purchase or otherwise acquire any shares of the capital
stock or other securities of MMI or any of the MMI Subsidiaries or rights or
obligations convertible into or exchangeable for any shares of the capital
stock or other securities of MMI or any of the MMI Subsidiaries or
obligations convertible into such, or any options, warrants or other rights
to purchase or subscribe to any of the foregoing;
(e) Not acquire or enter into any agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity or
product line (other than the pending asset acquisitions described in the MMI
Disclosure Schedule);
(f) Use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of MMI and the MMI
Subsidiaries, to keep the officers and employees of MMI and the MMI
Subsidiaries available to MMI and to preserve the relationships of MMI and
the MMI Subsidiaries with suppliers, customers and others having business
relations with any of them, except for such instances which would not have
an MMI Material Adverse Effect;
(g) Not (i) create, incur or assume any long-term debt (including
obligations in respect of capital leases which individually or in the
aggregate involve annual payments in excess of $10,000) or, except in the
ordinary course of business under existing lines of credit, create, incur or
assume any short-term debt for borrowed money, (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person other
than MMI Subsidiaries, (iii) make any loans or advances to any other person
other than the MMI Subsidiaries, except in the ordinary course of business
and consistent with past practice, or (iv) make any capital contributions
to, or investments in, any person other than the MMI Subsidiaries; provided,
however, that MMI may incur long-term debt under its credit facility with
Chemical Bank, as may be amended upon terms not materially less favorable to
MMI in connection with the pending asset acquisitions described in the MMI
Disclosure Schedule up to an aggregate principal amount of $10.0 million; or
(h) Not (i) enter into, modify or extend in any manner the terms of any
employment, severance or similar agreements with officers, directors,
employees and sales representatives, (ii) grant any increase in the
compensation of officers or directors, whether now or hereafter payable or
(iii) grant any increase in the compensation of any other employees except
for compensation increases in the ordinary course of business and consistent
with past practice.
In connection with the continued operation of the business of MMI and the
MMI Subsidiaries between the date of this Agreement and the Effective Date, MMI
shall confer in good faith and on a regular and frequent basis with one or more
representatives of ICI designated in writing to report operational matters of
materiality and the general status of ongoing operations. In addition, MMI will
allow ICI employees or agent to be present at MMI's business locations to
observe the business and operations of MMI and the MMI Subsidiaries. MMI agrees
to participate in the staff meetings of ICI as may be requested by ICI. MMI
acknowledges that ICI does not and will not waive any rights it may have under
this Agreement as a result of such consultations nor shall ICI be responsible
for any decisions made by MMI's officers and directors with respect to matters
which are the subject of such consultation.
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5.2. CONDUCT OF BUSINESS BY ICI. From the date hereof to the Effective
Date, ICI will, and will cause Merger Corp. and each of the ICI Subsidiaries to,
except as required in connection with the Merger and the other transactions
contemplated by this Agreement and except as otherwise disclosed in ICI's
Disclosure Schedule or consented to in writing by MMI:
(a) Carry on its businesses in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any
new line of business;
(b) Neither change nor amend its Certificate or Articles of
Incorporation or Bylaws;
(c) Other than pursuant to the exercise of ICI Options outstanding on
the date hereof, not issue, sell or grant options (other than employee stock
options granted under ICI's existing stock option plans as such plans may
hereafter be amended), warrants or rights to purchase or subscribe to, or
enter into any arrangement or contract with respect to the issuance or sale
of more than 500,000 shares of the capital stock of ICI or rights or
obligations convertible into or exchangeable for any shares of the capital
stock of ICI;
(d) Not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of
ICI and not redeem, purchase or otherwise acquire any shares of the capital
stock or other securities of ICI or rights or obligations convertible into
or exchangeable for any shares of the capital stock or other securities of
ICI or obligations convertible into such, or any options, warrants or other
rights to purchase or subscribe to any of the foregoing;
(e) Use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of ICI and the ICI
Subsidiaries, to keep the executive officers of ICI and the ICI Subsidiaries
available to ICI and to preserve the relationships of ICI and the ICI
Subsidiaries with suppliers, customers and others having business relations
with any of them, except for such instances which would not have an ICI
Material Adverse Effect;
(f) Not (i) create, incur or assume any long-term debt or, except in the
ordinary course of business under existing lines of credit, create, incur or
assume any short-term debt for borrowed money, (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person other
than ICI Subsidiaries (except in the ordinary course of business and
consistent with past practice), (iii) make any loans or advances to any
other person other than the ICI Subsidiaries, except in the ordinary course
of business and consistent with past practice, or (iv) make any capital
contributions to, or investments in, any person other than the ICI
Subsidiaries, except in each case where such action would not have an ICI
Material Adverse Effect; or
(g) Except in instances which would not have an ICI Material Adverse
Effect, not enter into, modify or extend in any manner the terms of any
employment, severance or similar agreements with officers and directors nor
grant any increase in the compensation of officers, directors or employees,
whether now or hereafter payable (except for compensation increases in the
ordinary course of business and consistent with past practice).
In connection with the continued operation of the business of ICI and the
ICI Subsidiaries between the date of this Agreement and the Effective Date, ICI
shall confer in good faith and on a regular and frequent basis with one or more
representatives of MMI designated in writing to report operational matters of
materiality and the general status of ongoing operations. ICI acknowledges that
MMI does not and will not waive any rights it may have under this Agreement as a
result of such consultations nor shall MMI be responsible for any decisions made
by ICI's officers and directors with respect to matters which are the subject of
such consultation.
5.3. NOTICE OF ANY MATERIAL CHANGE. Each of MMI and ICI shall, promptly
after the first notice or occurrence thereof but not later than the Closing
Date, advise the other in writing of any event or
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the existence of any state of facts that would (i) make any of its
representations and warranties in this Agreement untrue in any material respect,
or (ii) otherwise constitute an MMI Material Adverse Effect or ICI Material
Adverse Effect, as the case may be.
5.4. INSPECTION AND ACCESS TO INFORMATION.
(a) Between the date of this Agreement and the Effective Date, each
party hereto will, and will cause each of its subsidiaries to, provide each
other party and its accountants, counsel and other authorized
representatives full access, during reasonable business hours and under
reasonable circumstances to any and all of its premises, properties,
contracts, commitments, books, records and other information (including tax
returns filed and those in preparation) and will cause their respective
officers to furnish to the other party and its authorized representatives
any and all financial, technical and operating data and other information
pertaining to its business, as each other party shall from time to time
request.
(b) Those certain letter agreements dated February 22, 1996 and March 8,
1996 relative to, without limitation, the protection of the confidential
information of MMI (the "MMI CA") and ICI (the "ICI CA"), respectively,
shall remain in full force and effect except as modified by the terms of
this Agreement. In the event of any inconsistency between the terms of the
MMI CA and the ICI CA, on the one hand, and this Agreement, on the other
hand, this Agreement shall control.
5.5. ANTITRUST LAWS. As soon as practicable, each of ICI and MMI shall
make any and all filings which are required under the HSR Act. Each of ICI and
MMI will assist the other as may be reasonably requested in connection with the
preparation of such filings.
5.6. POOLING. From and after the date hereof and until the Effective Date,
neither ICI nor MMI nor any of their respective subsidiaries or other affiliates
shall (i) knowingly take any action, or knowingly fail to take any action, that
would jeopardize the treatment of the Merger as a "pooling of interest" for
accounting purposes or (ii) knowingly take any action, or knowingly fail to take
any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a)(2)(E) of the Code.
5.7. REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) ICI shall promptly prepare and file a registration statement on Form
S-4 (which registration statement, in the form it is declared effective by
the SEC, together with any and all amendments and supplements thereto and
all information incorporated by reference therein, is referred to herein as
the "Registration Statement") under and pursuant to the provisions of the
Securities Act for the purpose of registering ICI Common Stock to be issued
in the Merger. ICI will use its reasonable efforts to receive and respond to
the comments of the SEC, and MMI shall promptly mail to its stockholders the
proxy statement in its definitive form contained in the Registration
Statement (the "Proxy Statement"). Such Proxy Statement shall also serve as
the prospectus to be included in the Registration Statement. In addition,
MMI shall cause its auditors to prepare and deliver such reports and
consents as ICI may reasonably require for inclusion in the Registration
Statement and such other filings as ICI deems necessary, including, without
limitation, such auditors' consent to the incorporation by reference of such
auditors' reports into ICI's registration statements on Form S-8.
(b) Each of ICI and MMI agrees to provide as promptly as practicable to
the other such information concerning its business and financial statements
and affairs as, in the reasonable judgment of the other party, may be
required or appropriate for inclusion in the Registration Statement and the
Proxy Statement or in any amendments or supplements thereto, and to cause
its counsel and auditors to cooperate with the other's counsel and auditors
in the preparation of the Registration Statement and the Proxy Statement.
(c) At the time the Registration Statement becomes effective and at the
Effective Date, as such Registration Statement is then amended or
supplemented, and at the time the Proxy Statement is mailed to MMI's
stockholders, such Registration Statement and Proxy Statement
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will (i) not contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein as necessary, in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading and (ii) comply in all material respects with
the provisions of the Securities Act and Exchange Act, as applicable, and
the rules and regulations thereunder; provided, however, no representation
is made by ICI or MMI with respect to statements made in the Registration
Statement and Proxy Statement based on information supplied by the other
party expressly for inclusion or incorporation by reference in the Proxy
Statement or Registration Statement or information omitted with respect to
the other party.
5.8. MMI STOCKHOLDERS' MEETING.
(a) MMI shall call a meeting of its stockholders to be held as soon as
practicable after the date hereof for the purpose of voting upon matters
relating to this Agreement.
(b) MMI will use its reasonable efforts to hold its stockholders'
meeting as promptly as practicable as may be directed by ICI and to obtain
stockholder approval and will, through its Board of Directors, recommend to
its stockholders approval of the Merger and this Agreement at the
stockholders' meeting; provided, however, that such recommendation is
subject to any action taken by, or upon the authority of, the Board of
Directors of MMI in the exercise of its good faith judgment as to its
fiduciary duties to the stockholders of MMI exercised in accordance with the
provisions of Section 5.13.
5.9. LISTING APPLICATION. ICI will file a listing application with the NMS
to approve for listing, subject to official notice of issuance, the shares of
ICI Common Stock to be issued in the Merger. ICI shall use its reasonable
efforts to cause the shares of ICI Common Stock to be issued in the Merger to be
approved for listing on the NMS, subject to official notice of issuance, prior
to the Effective Date.
5.10. AFFILIATES. At least 30 days prior to the Closing Date, MMI shall
deliver to ICI a letter identifying all persons who are, at the time the Merger
is submitted to a vote to the stockholders of MMI, "affiliates" of MMI for
purposes of Rule 145 under the Securities Act. Each person who is identified as
an "affiliate" in such letter will deliver to ICI on or before 30 days prior to
the Closing Date a written statement, in form satisfactory to ICI and MMI, that
such person will not offer to sell, transfer or otherwise dispose of any of the
shares of MMI Common Stock or ICI Common Stock issued to such person, except (i)
in accordance with the applicable provisions of the Securities Act and the rules
and regulations thereunder and (ii) until such time as financial results
covering at least 30 days of combined operations of ICI and MMI have been
published (the "Publication Date"). ICI hereby covenants to file a Form 8-K or
10-Q (as applicable) satisfying such publication requirement as soon as
practicable after the completion of any month which contains at least 30 days of
combined operations. ICI shall be entitled to place legends on any certificates
of ICI Common Stock issued to such affiliates to restrict transfer of such
shares as set forth above.
5.11. REASONABLE EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to the
other provisions of this Agreement, the parties hereto shall each use their
reasonable efforts to perform their obligations herein and to take, or cause to
be taken or do, or cause to be done, all things necessary, proper or advisable
under applicable law to obtain all regulatory approvals and satisfy all
conditions to the obligations of the parties under this Agreement and to cause
the Merger and the other transactions contemplated herein to be carried out
promptly in accordance with the terms hereof and shall cooperate fully with each
other and their respective officers, directors, employees, agents, counsel,
accountants and other designees in connection with any steps required to be
taken as a part of their respective obligations under this Agreement, including
without limitation:
(a) MMI and ICI shall promptly make their respective filings and
submissions and shall take, or cause to be taken, all actions and do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to comply with the provisions of the HSR Act.
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(b) Each party shall give prompt written notice to the other of (i) the
occurrence, or failure to occur, of any event which occurrence or failure
would be likely to cause any representation or warranty of MMI or ICI, as
the case may be, contained in this Agreement to be untrue or inaccurate in
any material respect at any time from the date hereof to the Effective Date
or that will or may result in the failure to satisfy any of the conditions
specified in Articles 6 and 7 and (ii) any failure of MMI or ICI, as the
case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder.
(c) MMI has obtained (and will promptly deliver copies to ICI)
agreements from Messrs. Vought, Lee and Berry and Micro Partners, L.P. and
Kitty Hawk Capital Limited Partnership, II (i) not to perfect appraisal
rights with respect to the Merger (to the extent applicable) and (ii) to
vote all shares of MMI Common Stock beneficially owned by such person in
favor of the approval of this Agreement and the Merger (which agreements
shall contain a proxy in favor of ICI with respect to the shares of MMI
Common Stock beneficially owned by such persons).
5.12. PUBLIC ANNOUNCEMENTS. The timing and content of all announcements
regarding any aspect of this Agreement or the Merger to the financial community,
government agencies, employees or the general public shall be mutually agreed
upon in advance (unless ICI or MMI is advised by counsel that any such
announcement or other disclosure not mutually agreed upon in advance is required
to be made by law or applicable stock exchange rule and then only after making a
reasonable attempt to comply with the provisions of this Section). Subject to
the preceding sentence, the parties acknowledge their respective intention to
make a public announcement of the transactions contemplated by this Agreement
promptly following the execution and delivery of this Agreement.
5.13. NO SOLICITATIONS. From the date hereof until the Effective Date or
until this Agreement is terminated or abandoned as provided in this Agreement,
neither MMI nor any of the MMI Subsidiaries shall directly or indirectly (i)
solicit, initiate or encourage discussion with or (ii) enter into negotiations
or agreements with, or furnish any information that is not publicly available
to, any corporation, partnership, person or other entity or group (other than
ICI, an affiliate of ICI or their authorized representatives pursuant to this
Agreement) concerning any proposal for a merger, sale of substantial assets,
sale of shares of stock or securities or other takeover or business combination
transaction (the "Acquisition Proposal") involving MMI or any of the MMI
Subsidiaries, and MMI will exercise its reasonable efforts to cause its
officers, directors, advisors and its financial and legal representatives and
consultants not to take any action contrary to the foregoing provisions of this
sentence; provided, however, that MMI, its officers, directors, advisors and its
financial and legal representatives and consultants shall not be prohibited from
taking any action described in (ii) above to the extent such action is taken by,
or upon the authority of, the Board of Directors of MMI in the exercise of good
faith judgment as to its fiduciary duties to the stockholders of MMI based upon
the advice of independent legal counsel in recognition of, without limitation,
the long-term corporate objectives of MMI sought to be achieved by the Merger.
MMI will notify ICI promptly in writing if MMI becomes aware that any inquiries
or proposals are received by, any information is requested from or any
negotiations or discussions are sought to be initiated with, MMI with respect to
an Acquisition Proposal, and MMI shall promptly deliver to ICI any written
inquiries or proposals received by MMI relating to an Acquisition Proposal. Each
time, if any, that the Board of Directors of MMI determines that it must enter
into negotiations with, or furnish any information that is not publicly
available to, any corporation, partnership, person or other entity or group
(other than ICI, an affiliate of ICI or their authorized representatives)
concerning any Acquisition Proposal, MMI will give ICI prompt notice of such
determination (which shall include a copy of the non-public information which
MMI has delivered to such other person or entity) and shall require the
recipient of such information to execute and deliver to MMI a confidentiality
agreement substantially identical to the MMI CA as a condition precedent to
furnishing any such information (failing which, without limitation of any other
right of ICI, the fifth paragraph of the MMI CA shall no longer be of any force
or effect). In the event of the
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execution of any Acquisition Proposal by MMI, ICI may terminate this Agreement
in the exercise of its discretion. The second preceding sentence of this Section
shall survive any termination of this Agreement.
ARTICLE 6.
CONDITIONS PRECEDENT TO OBLIGATIONS OF MMI
Except as may be waived by MMI, the obligations of MMI to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction
on or before the Closing Date of each of the following conditions:
6.1. COMPLIANCE. ICI shall have, or shall have caused to be, satisfied or
complied with and performed in all material respects all terms, covenants, and
conditions of this Agreement to be complied with or performed by ICI on or
before the Closing Date.
6.2. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by ICI in this Agreement and in all certificates and other
documents delivered by ICI to MMI pursuant hereto shall have been true and
correct in all material respects as of the date hereof, and shall be true and
correct in all material respects at the Closing Date with the same force and
effect as if such representations and warranties had been made at and as of the
Closing Date, except for changes permitted or contemplated by this Agreement and
except that if information which would constitute a breach of the
representations and warranties of ICI made in this Agreement is disclosed in the
Proxy Statement on the date such Proxy Statement is mailed to MMI's
stockholders, then MMI shall be deemed to have waived this condition to the
performance of its obligations hereunder.
6.3. MATERIAL ADVERSE CHANGES. Subsequent to December 31, 1995, there
shall not have occurred any ICI Material Adverse Effect except as set forth in
the ICI Disclosure Schedule.
6.4. NMS LISTING. ICI Common Stock issuable pursuant to the Merger and
pursuant to the exercise of the Options after the Effective Date shall have been
authorized for listing on the NMS.
6.5. CERTIFICATES. MMI shall have received a certificate or certificates,
executed on behalf of ICI by an executive officer of ICI, to the effect that the
conditions contained in Sections 6.2 and 6.3 hereof have been satisfied.
6.6. STOCKHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of all of the
outstanding shares of MMI Common Stock.
6.7. EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have become effective and no stop order shall been issued by the SEC or
any other governmental authority suspending the effectiveness of the
Registration Statement or preventing or suspending the use thereof or any
related prospectus.
6.8. CONSENTS; LITIGATION. Other than the filing of the Certificate of
Merger as described in Article 1, all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods (including the waiting period under the HSR Act) imposed by any
governmental entity, and all required third-party consents, the failure to
obtain which would have a material adverse effect on ICI and its subsidiaries,
including the Surviving Corporation and its subsidiaries, taken as a whole,
shall have been filed, occurred or been obtained. ICI shall have received all
state securities or Blue Sky permits and other authorizations necessary to issue
ICI Common Stock pursuant to the Merger and the other terms of this Agreement.
In addition, no action, suit or proceeding shall have been instituted before any
court or other governmental entity to restrain, modify, enjoin or prohibit the
carrying out of the transactions contemplated hereby.
6.9. TAX OPINION. MMI shall have received a favorable opinion of Arnall
Golden & Gregory based upon certain factual representations of MMI, ICI and
Merger Corp. reasonably requested by such counsel, and containing such
qualifications as such counsel reasonably deems appropriate
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relative to factual matters not otherwise verified to such counsel's
satisfaction, dated the Closing Date, to the effect that the Merger will
constitute a reorganization for federal income tax purposes within the meaning
of Section 368(a) of the Code and that accordingly:
(a) No gain or loss will be recognized by the shareholders of MMI upon
the conversion of their shares of MMI Common Stock into shares of ICI Common
Stock pursuant to the terms of the Merger (except to the extent cash is
received in lieu of fractional shares);
(b) The tax basis of the shares of ICI Common Stock received by a
shareholder of MMI on the conversion of MMI Common Stock pursuant to the
Merger will be the same as the basis of the shares of the MMI Common Stock
converted (less any portion of such basis allocable to any fractional
interest in any share of ICI Common Stock); and
(c) The holding period of the ICI Common Stock into which shares of MMI
Common Stock are converted will include the period that such shares of MMI
Common Stock were held by the holder, provided such shares were held as a
capital asset by such holder.
ARTICLE 7.
CONDITIONS PRECEDENT TO OBLIGATIONS OF ICI AND MERGER CORP.
Except as may be waived by ICI and Merger Corp., the obligations of ICI and
Merger Corp. to consummate the transactions contemplated by this Agreement shall
be subject to the satisfaction, on or before the Closing Date, of each of the
following conditions:
7.1. COMPLIANCE. MMI shall have, or shall have caused to be, satisfied or
complied with and performed in all material respects all terms, covenants, and
conditions of this Agreement to be complied with or performed by it on or before
the Closing Date.
7.2. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by MMI in this Agreement and in all certificates and other
documents delivered by MMI pursuant hereto, shall have been true and correct in
all material respects as of the date hereof, and shall be true and correct in
all material respects at the Closing Date with the same force and effect as if
such representations and warranties had been made at and as of the Closing Date,
except for changes permitted or contemplated by this Agreement and except that
if information which would constitute a breach of the representations and
warranties of MMI made in this Agreement is disclosed in the Proxy Statement on
the date such Proxy Statement is mailed to MMI's stockholders, then ICI shall be
deemed to have waived this condition to the performance of its obligations
hereunder.
7.3. MATERIAL ADVERSE CHANGES. Since February 29, 1996, there shall not
have occurred any MMI Material Adverse Effect.
7.4. CERTIFICATES. ICI shall have received a certificate or certificates,
executed on behalf of MMI by an executive officer of MMI, to the effect that the
conditions in Sections 7.2 and 7.3 hereof have been satisfied.
7.5. DISSENTERS' RIGHTS. To the extent appraisal rights are available to
MMI's stockholders in connection with the Merger, no more than 10% of the
outstanding shares of MMI Common Stock shall (a) qualify as Dissenting Shares,
(b) be subject to payment in lieu of fractional shares as provided in Section
2.2 hereof or (c) be treasury shares of MMI.
7.6. CONSENTS; LITIGATION. Other than the filing of the Certificate of
Merger as described in Article 1, all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods (including the waiting period under the HSR Act) imposed by, any
governmental entity, and all required third-party consents, the failure to
obtain which would have a material adverse effect on ICI and its subsidiaries,
including the Surviving Corporation and its subsidiaries, taken as a whole,
shall have been filed, occurred or been obtained. ICI shall have received all
state securities or Blue Sky permits and other authorizations necessary to issue
ICI
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Common Stock pursuant to the Merger and the other terms of this Agreement. In
addition, no action, suit or proceeding shall have been instituted before any
court or other governmental entity to restrain, modify, enjoin or prohibit the
carrying out of the transactions contemplated hereby.
7.7. COMFORT LETTER. ICI shall have received from KPMG Peat Marwick
L.L.P., certified public accountants for MMI, (a) "comfort" letters dated the
date of the Proxy Statement, the effective date of the Registration Statement
and the Closing Date (or such other date reasonably acceptable to ICI) with
respect to certain financial statements and other financial information included
in the Registration Statement in customary form, (b) the consents referred to in
Section 5.7(a) in respect of any filing previously or concurrently being made
with the SEC, and (c) a letter addressed to ICI and Deloitte & Touche LLP, in
form and substance reasonably satisfactory to ICI, to the effect that MMI
qualifies as an entity such that the Merger will qualify as a "pooling of
interests" transaction under generally accepted accounting principles.
7.8. POOLING LETTERS. ICI shall have received a letter from Deloitte &
Touche LLP, certified public accountants for ICI, dated the Closing Date,
addressed to ICI, in form and substance reasonably satisfactory to ICI, stating
that the Merger will qualify as a "pooling of interests" transaction under
generally accepted accounting principles.
ARTICLE 8.
INDEMNIFICATION AND INSURANCE
8.1 INDEMNIFICATION. In the event of any claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any of the present or former officers or directors (the "Managers") of MMI or
any of the MMI Subsidiaries is, or is threatened to be, made a party by reason
of the fact that he or she served as a Manager of MMI or any of the MMI
Subsidiaries, or is or was serving at the request of MMI or any of the MMI
Subsidiaries as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, whether before or after
the Effective Date, MMI shall indemnify and hold harmless, and from and after
the Effective Date each of the Surviving Corporation and ICI shall indemnify and
hold harmless, as and to the full extent permitted by applicable law (including
by advancing expenses promptly as statements therefor are received), each such
Manager against any losses, claims, damages, liabilities, costs, expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any such claim, action, suit, proceeding or investigation, and
in the event of any such claim, action, suit proceeding or investigation
(whether arising before or after the Effective Date), (i) if MMI (prior to the
Effective Date) or ICI or the Surviving Corporation (after the Effective Date)
have not promptly assumed the defense of such matter, the Managers may retain
counsel satisfactory to them, and MMI, or the Surviving Corporation and ICI
after the Effective Date, shall pay all reasonable fees and expenses of such
counsel for the Managers promptly, as statements therefor are received, and (ii)
MMI, or the Surviving Corporation and ICI after the Effective Date, will use
their respective reasonable efforts to assist in the vigorous defense of any
such matter; provided that neither MMI nor the Surviving Corporation or ICI
shall be liable for any settlement effected without its prior written consent;
provided further that the Surviving Corporation and ICI shall have no obligation
under the foregoing provisions of this Section 8.1 to any Manager when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, (x) that
indemnification of such Manager in the manner contemplated hereby is prohibited
by applicable law, or (y) that MMI has breached a representation or warranty
hereunder with respect to the same matters for which indemnification is being
sought by such Manager and such Manager fails to prove that such Manager had no
actual knowledge of such breach at the Effective Date; and provided further that
such Manager shall have satisfied any and all applicable conditions precedent to
such indemnification under applicable law. Upon the finality of any such
determination that the Surviving Corporation or ICI is not liable for any such
indemnification claims, the Manager will reimburse ICI and the Surviving
Corporation for any fees, expenses and costs incurred by ICI or the Surviving
Corporation
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in connection with the defense of such claims. Any Manager wishing to claim
indemnification under this Section 8.1, upon learning of any such claim, action,
suit, proceeding or investigation, shall notify MMI and ICI, thereof (provided
that the failure to give such notice shall not affect any obligations hereunder,
except to the extent that the indemnifying party is actually and materially
prejudiced thereby). ICI further covenants not to amend or repeal any provisions
of the Certificate of Incorporation or Bylaws of MMI in any manner which would
adversely affect the indemnification or exculpatory provisions contained herein.
The provisions of this Section 8.1 are intended to be for the benefit of, and
shall be enforceable by, each indemnified party and his or her heirs and
representatives, and shall survive the Closing for a period expiring six years
from the Effective Date.
8.2. DIRECTORS' AND OFFICERS' INSURANCE. For a period of two years from
the Effective Date, the Surviving Corporation shall either, in its discretion
(x) maintain in effect MMI's current directors' and officers' liability
insurance covering those Managers who are currently covered on the date of this
Agreement by MMI's directors' and officers' liability insurance policy (a copy
of which has been heretofore delivered to ICI) the "Indemnified Parties");
PROVIDED HOWEVER, that the Surviving Corporation may substitute for such MMI
policies, policies with at least the same coverage containing terms and
conditions which are no less advantageous to the Managers and provided that said
substitution does not result in any gaps or lapses in coverage with respect to
matters occurring prior to the Effective Date or (y) to the extent applicable,
cause ICI's directors' and officers' liability insurance, if any, then in effect
to cover those persons who are covered on the date of this Agreement by MMI's
directors' and officers' liability insurance policy with respect to those
matters covered by MMI's directors' and officers' liability insurance policy. In
no event, however, shall the Surviving Corporation or ICI be required by this
Section 8.2 to expend a premium for such insurance in an amount equal to double
the rate paid by MMI for the policy period immediately preceding the date of
execution of this Agreement. The provisions of this Section 8.2 are intended to
be for the benefit of, and shall be enforceable by, each Manager and his or her
heirs and representatives. Notwithstanding the foregoing, ICI shall have no
liability or obligation under this Section 8.2 to the extent the policy referred
to in this Section is not reasonably available on the terms set forth in this
Section.
ARTICLE 9.
MISCELLANEOUS
9.1. TERMINATION. In addition to the provisions regarding termination set
forth elsewhere herein, this Agreement and the transactions contemplated hereby
may be terminated at any time on or before the Closing Date:
(a) by mutual consent of MMI and ICI;
(b) by ICI if there has been a material misrepresentation or breach of
warranty in the representations and warranties of MMI set forth herein or a
failure to perform in any material respect a covenant on the part of MMI
with respect to its representations, warranties and covenants set forth in
this Agreement, except for any such misrepresentation, breach or failure to
perform which was disclosed in the Proxy Statement on the date it is mailed
to MMI's stockholders to the extent that ICI has expressly agreed in writing
to such specific disclosure;
(c) by MMI if there has been a material misrepresentation or breach of
warranty in the representations and warranties of ICI set forth herein or a
failure to perform in any material respect a covenant on the part of ICI
with respect to its representations, warranties and covenants set forth in
this Agreement, except for any such misrepresentation, breach or failure to
perform which was disclosed in the Proxy Statement on the date it is mailed
to MMI's stockholders to the extent that MMI has expressly agreed in writing
to such specific disclosure (and, in no event whatsoever shall MMI have any
right or remedy in respect of any breach or violation by ICI of Section
5.2(c) hereof other than to exercise any termination right of MMI under this
Section 9.1(c));
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(d) by either ICI or MMI if the transactions contemplated by this
Agreement have not been consummated by August 31, 1996, unless such failure
of consummation is due to the failure of the terminating party to perform or
observe the covenants, agreements, and conditions hereof to be performed or
observed by it at or before the Closing Date (except for any breach by ICI
of Section 5.2(c) hereof);
(e) by either MMI or ICI if the transactions contemplated hereby violate
any nonappealable final order, decree or judgment of any court or
governmental body or agency having competent jurisdiction;
(f) by MMI if, in the exercise of the good faith judgment of its Board
of Directors as to its fiduciary duties to its stockholders exercised in
accordance with the provisions of Section 5.13, such termination is required
by reason of an Acquisition Proposal;
(g) by ICI if the MMI Board of Directors withdraws or materially
modifies or changes its recommendation to the stockholders of MMI to approve
this Agreement and the Merger; or
(h) by MMI if the Determination Price is less than $13.00 per share.
9.2. EXPENSES.
(a) Except as provided in (b) below, if the transactions contemplated by
this Agreement are not consummated, each party hereto shall pay its own
expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
(b) If, (i) this Agreement is terminated by MMI pursuant to Section
9.1(f) hereof, (ii) this Agreement is terminated by ICI pursuant to Section
9.1(g) or (iii) on or before August 31, 1996, MMI enters into a definitive
agreement with respect to an Acquisition Proposal with any corporation,
partnership, person or other entity or group (other than ICI or any
affiliate of ICI), and such transaction (including any revised transaction
based upon the Acquisition Proposal) is thereafter consummated (whether
before or after August 31, 1996), then MMI shall pay ICI a cash fee equal to
the sum of $2.5 Million, which such fee shall be payable in same day funds
to an account specified by ICI. This Section shall survive any termination
of this Agreement.
9.3. ENTIRE AGREEMENT. This Agreement, the MMI CA, the ICI CA and the
exhibits hereto contain the complete agreement among the parties with respect to
the transactions contemplated hereby and supersede all prior agreements and
understandings among the parties with respect to such transactions. Section and
other headings are for reference purposes only and shall not affect the
interpretation or construction of this Agreement. The parties hereto have not
made any representation or warranty except as expressly set forth in this
Agreement or in any certificate or schedule delivered pursuant hereto. The
obligations of any party under any agreement executed pursuant to this Agreement
shall not be affected by this section.
9.4. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS. The
representations and warranties of each party contained herein or in any exhibit,
certificate, document or instrument delivered pursuant to this Agreement, and
the covenants and agreements of the parties (other than those contained in 2.5,
8.1 and 8.2) shall not survive the Closing.
9.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
A-28
<PAGE>
9.6. NOTICES. All notices, demands, requests or other communications that
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery or facsimile transmission, addressed as
follows:
(i) If to ICI:
4320 International Boulevard, N.W.
Norcross, Georgia 30093
Attention: Robert L. Taylor, President and Chief Executive Officer
Facsimile: (770) 381-7581
with a copy (which shall not constitute notice) to:
Arnall Golden & Gregory
2800 One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309
Attention: Stephen D. Fox
Facsimile: (404) 873-8529
(ii) If to MMI:
Post Office Box 2487
Columbus, Mississippi 39704
Attention: Kimber L. Vought, President and Chief Executive Officer
Facsimile: (601) 329-9176
with a copy (which shall not constitute notice) to:
Crouch & Hallett, L.L.P.
717 North Harwood Street
Suite 1400
Dallas, Texas 75201
Attention: Bruce H. Hallett
Facsimile: (214) 953-0576
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request or communication that is mailed, delivered or
transmitted in the manner described above shall be deemed sufficiently given,
served, sent, and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt, the confirmation
of facsimile delivery or the affidavit of messenger being deemed conclusive
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation.
9.7. SUCCESSORS; ASSIGNMENTS. This Agreement and the rights, interests and
obligations hereunder shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, by operation of law or otherwise, by any of the parties hereto without
the prior written consent of the other.
9.8. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware (except the choice of law
rules thereof).
9.9. AMENDMENT, WAIVER AND OTHER ACTION. To the extent permitted by law,
this Agreement may be amended by a subsequent writing signed by each of ICI and
MMI upon the approval of the Boards of Directors of each of ICI and MMI;
provided, however, that the provisions hereof relating to the manner or basis in
which shares of MMI Common Stock will be exchanged for ICI Common Stock shall
not be amended after the stockholder meeting of MMI to adopt this Agreement
without the
A-29
<PAGE>
requisite approval of the holders of issued and outstanding shares of MMI Common
Stock. Prior to or at the Effective Date, each of ICI and MMI shall have the
right to waive any default in the performance of any term of this Agreement by
the other, to waive or extend the time for the compliance or fulfillment by the
other of any and all of the other's obligations under this Agreement and to
waive any or all of the conditions precedent to its obligations under this
Agreement, except any condition which, if not satisfied, will result in the
violation of any law or applicable governmental regulation.
9.10. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance; and in lieu of
such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
9.11. NO THIRD PARTY BENEFICIARIES. Article 8 is intended for the benefit
of each "Manager" (as defined in Article 8) and may be enforced by such persons.
Other than as expressly set forth in this Section 9.11, nothing expressed or
implied in this Agreement is intended, or shall be construed, to confer upon or
give any person, firm or corporation other than the parties hereto, any rights,
remedies, obligations or liabilities under or by reason of this Agreement or
result in such person, firm or corporation being deemed a third party
beneficiary of this Agreement.
9.12. MUTUAL CONTRIBUTION. The parties to this Agreement and their counsel
have mutually contributed to its drafting. Consequently, no provision of this
Agreement shall be construed against any party on the ground that such party
drafted the provision or caused it to be drafted or the provision contains a
covenant of such party.
9.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MICROTEK MEDICAL, INC.
By: /s/ Kimber L. Vought
--------------------------------------
ISOLYSER COMPANY, INC.
By: /s/ Robert L. Taylor
--------------------------------------
MMI MERGER CORP.
By: /s/ Robert L. Taylor
--------------------------------------
A-30
<PAGE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
XOMED, INC.
AND
MICROTEK MEDICAL, INC.
------------------------
ASSET PURCHASE AGREEMENT
------------------------
for the exchange of
machinery, equipment and inventory of Xomed, Inc.
in the manufacture and distribution of
equipment drapes and patient drapes
for
machinery, equipment and inventory of Microtek Medical, Inc.
used in its Head & Neck division in the manufacture
of vent tubes, middle ear prostheses and burs
------------------------
Dated as of June 27, 1995
------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. PURCHASE AND SALE OF THE PURCHASED ASSETS . . . . . . . . . . 5
SECTION 2.1. Transfer of Assets . . . . . . . . . . . . . . . . . . . 5
SECTION 2.2. Sale at Closing Date . . . . . . . . . . . . . . . . . . 6
SECTION 2.3. Mechanics of Transfer. . . . . . . . . . . . . . . . . . 6
SECTION 2.4. Subsequent Documentation . . . . . . . . . . . . . . . . 6
SECTION 2.5. Excluded Assets. . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.6. Assumption of Liabilities. . . . . . . . . . . . . . . . 7
SECTION 2.7. Closing. . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3. PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.1. Purchase Price . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.2. Allocation of Purchase Price . . . . . . . . . . . . . . 9
SECTION 3.3. Physical Count and Valuation of Xomed Drape
Inventory. . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.4. Physical Count and Valuation of Microtek
Head & Neck Inventory. . . . . . . . . . . . . . . . . . 9
SECTION 3.5. Valuation of Xomed Drape Equipment . . . . . . . . . . . 10
SECTION 3.6. Valuation of Microtek Head & Neck Equipment. . . . . . . 10
SECTION 3.7. Transfer Taxes . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4. REPRESENTATIONS AND WARRANTIES OF XOMED . . . . . . . . . . . 10
SECTION 4.1. Corporate Organization . . . . . . . . . . . . . . . . . 11
SECTION 4.2. Authorization and Validity of Agreement. . . . . . . . . 11
SECTION 4.3. No Conflict or Violation . . . . . . . . . . . . . . . . 11
SECTION 4.4. Valuation of Inventory and Equipment . . . . . . . . . . 11
SECTION 4.5. Title to Xomed Transferred Assets. . . . . . . . . . . . 12
SECTION 4.6. Xomed Drape Intellectual Property. . . . . . . . . . . . 12
SECTION 4.7. Litigation . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.8. Xomed Drape Equipment. . . . . . . . . . . . . . . . . . 13
SECTION 4.9. Xomed Drape Inventory. . . . . . . . . . . . . . . . . . 13
SECTION 4.10. FDA Matters. . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.11. Compliance with Law. . . . . . . . . . . . . . . . . . . 13
SECTION 4.12. Xomed Drape Assumed Contracts. . . . . . . . . . . . . . 13
(i)
<PAGE>
SECTION 5. REPRESENTATIONS AND WARRANTIES OF MICROTEK. . . . . . . . . . 13
SECTION 5.1. Corporate Organization . . . . . . . . . . . . . . . . . 13
SECTION 5.2. Authorization and Validity of Agreement. . . . . . . . . 14
SECTION 5.3. No Conflict or Violation . . . . . . . . . . . . . . . . 14
SECTION 5.4. Valuation of Inventory and Equipment . . . . . . . . . . 14
SECTION 5.5. Title to Microtek Transferred Assets . . . . . . . . . . 15
SECTION 5.6. Microtek Head & Neck Intellectual Property . . . . . . . 15
SECTION 5.7. Litigation . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5.8. Microtek Head & Neck Equipment . . . . . . . . . . . . . 16
SECTION 5.9. Microtek Head & Neck Inventory . . . . . . . . . . . . . 16
SECTION 5.10. FDA Matters. . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.11. Compliance with Law. . . . . . . . . . . . . . . . . . . 16
SECTION 5.12. Microtek Head & Neck Assumed Contracts . . . . . . . . . 16
SECTION 6. MUTUAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 6.1. Post-Closing Orders. . . . . . . . . . . . . . . . . . . 16
SECTION 6.2. Bulk Sales Act . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6.3. Access to Records After Closing Date . . . . . . . . . . 17
SECTION 6.4. Noncompete . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6.5. Product Returns, Credit and Other Allowances . . . . . . 18
SECTION 6.6. Use of Tradenames. . . . . . . . . . . . . . . . . . . . 19
SECTION 7. CONDITIONS PRECEDENT TO XOMED'S OBLIGATIONS . . . . . . . . . 19
SECTION 7.1. Representations and Warranties True at Closing . . . . . 19
SECTION 7.2. Compliance with Agreement. . . . . . . . . . . . . . . . 19
SECTION 7.3. Bring-Down Certificates of Microtek. . . . . . . . . . . 19
SECTION 7.4. Casualty . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 7.5. Consulting Services and Noncompete Agreement . . . . . . 20
SECTION 7.6. Manufacturing Agreement. . . . . . . . . . . . . . . . . 20
SECTION 7.7. International Product Management Agreement . . . . . . . 20
SECTION 7.8. Sterilization Agreement. . . . . . . . . . . . . . . . . 20
SECTION 7.9. Opinion of Counsel . . . . . . . . . . . . . . . . . . . 20
SECTION 7.10. Microtek Inventory Schedule. . . . . . . . . . . . . . . 20
SECTION 7.11. Instruments of Transfer. . . . . . . . . . . . . . . . . 20
SECTION 7.12. Release of Security Interests. . . . . . . . . . . . . . 20
SECTION 8. CONDITIONS PRECEDENT TO MICROTEK'S OBLIGATIONS. . . . . . . . 20
SECTION 8.1. Representations and Warranties True at Closing . . . . . 21
SECTION 8.2. Compliance with Agreement. . . . . . . . . . . . . . . . 21
SECTION 8.3. Bring-Down Certificates of Xomed . . . . . . . . . . . . 21
(ii)
<PAGE>
SECTION 8.4. Casualty . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8.5. Consulting Services and Noncompete Agreement . . . . . . 21
SECTION 8.6. Manufacturing Agreement. . . . . . . . . . . . . . . . . 21
SECTION 8.7. International Product Management Agreement . . . . . . . 21
SECTION 8.8. Sterilization Agreement. . . . . . . . . . . . . . . . . 21
SECTION 8.9. Opinion of Counsel . . . . . . . . . . . . . . . . . . . 21
SECTION 8.10. Xomed Inventory Schedule . . . . . . . . . . . . . . . . 22
SECTION 8.11. Instruments of Transfer. . . . . . . . . . . . . . . . . 22
SECTION 8.12. Release of Security Interests. . . . . . . . . . . . . . 22
SECTION 9. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9.1. Xomed's Indemnification. . . . . . . . . . . . . . . . . 22
SECTION 9.2. Microtek's Indemnification . . . . . . . . . . . . . . . 22
SECTION 9.3. Claims Procedures. . . . . . . . . . . . . . . . . . . . 23
SECTION 10. NATURE AND SURVIVAL OF REPRESENTATIONS. . . . . . . . . . . . 24
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 11.1. Successors and Assigns . . . . . . . . . . . . . . . . . 25
SECTION 11.2. Governing Law, Jurisdiction. . . . . . . . . . . . . . . 25
SECTION 11.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 11.4. Broker's and Finder's Fees . . . . . . . . . . . . . . . 25
SECTION 11.5. Force Majeure. . . . . . . . . . . . . . . . . . . . . . 25
SECTION 11.6. Severability . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 11.7. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 11.8. Amendments; Waivers. . . . . . . . . . . . . . . . . . . 27
SECTION 11.9. Public Announcements . . . . . . . . . . . . . . . . . . 27
SECTION 11.10. Entire Agreement . . . . . . . . . . . . . . . . . . . . 27
SECTION 11.11. Parties in Interest. . . . . . . . . . . . . . . . . . . 27
SECTION 11.12. Section and Paragraph Headings . . . . . . . . . . . . . 27
SECTION 11.13. Counterparts . . . . . . . . . . . . . . . . . . . . . . 28
(iii)
<PAGE>
EXHIBITS
Exhibit A-1 - Form of Microtek Note A
Exhibit A-2 - Form of Microtek Note B
Exhibit A-3 - Form of Microtek Note C
Exhibit B - Form of Manufacturing Agreement
Exhibit C - Form of Gary Tatge Consulting Services
and Noncompete Agreement
Exhibit D-1 - Form of opinion of Crouch & Hallett
Exhibit D-2 - Form of opinion of Willkie Farr & Gallagher
Exhibit E - Form of International Product Management
Agreement
Exhibit F - Form of Sterilization Agreement
SCHEDULES
Schedule 1 - Microtek Head & Neck Products Assumed Contracts
Schedule 2 - Microtek Head & Neck Products Intellectual Property
Schedule 3 - Xomed Drape Assumed Contracts
Schedule 4 - Xomed Drape Intellectual property
Schedule 5 - Allocation of Purchase Price
Schedule 6 - Xomed Drape Inventory Categories
Schedule 7 - Microtek Head & Neck Products Inventory Categories
Schedule 8 - Xomed Drape Equipment
Schedule 9 - Microtek Head & Neck Products Equipment
Schedule 10 - Xomed Drape Products FDA Schedule
Schedule 11 - Microtek Head & Neck Products FDA Schedule
Schedule 12 - Microtek Litigation
(iv)
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of June 27, 1995, between
XOMED, INC., a Delaware corporation ("Xomed"), and MICROTEK MEDICAL, INC., a
Delaware corporation ("Microtek").
W I T N E S S E T H:
WHEREAS, Xomed manufactures and distributes equipment drapes and
patient drapes (the "Xomed Drape Products");
WHEREAS, Microtek manufactures vent tubes, middle ear prostheses and
burs (the "Microtek Head & Neck Products");
WHEREAS, Xomed desires to purchase certain assets of Microtek related
to the Microtek Head & Neck Products from Microtek, and Microtek desires to sell
such assets to Xomed, upon the terms and subject to the conditions set forth in
this Agreement;
WHEREAS, Microtek desires to purchase certain assets of Xomed related
to the Xomed Drape Products from Xomed, and Xomed desires to sell such assets to
Microtek, upon the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements hereinafter contained, the parties hereby agree as
follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
"Book Value Difference" shall mean an amount equal to (a) the sum of
(i) the Xomed Inventory Value plus (ii) the Xomed Equipment Value minus (b) the
sum of (i) the Microtek Inventory Value plus (ii) the Microtek Equipment Value,
which amount may be positive or negative;
"Closing" shall mean the date specified in Section 2.7;
"Closing Date" shall mean the date specified in Section 2.7;
"Consulting Services and Noncompete Agreement" shall mean the
agreement between Xomed and Gary Tatge in the form of Exhibit C attached hereto
and made a part hereof;
<PAGE>
"International Product Management Agreement" shall mean the agreement
between Xomed and Microtek in the form of Exhibit E attached hereto and made a
part hereof;
"Liens" shall mean any liens, charges, encumbrances or security
interests;
"Manufacturing Agreement" shall mean the agreement between Xomed and
Microtek in the form of Exhibit B attached hereto and made a part hereof;
"Microtek" shall have the meaning set forth in the Recitals hereto;
"Microtek Equipment Value" shall mean the amount specified in Section
3.6;
"Microtek Head & Neck Products" shall have the meaning set forth in
the Recitals hereto;
"Microtek Head & Neck Assumed Contracts" shall mean all of the
contracts and agreements listed on Schedule 1 hereto;
"Microtek Head & Neck Equipment" shall mean the machinery and
equipment identified on Schedule 9 hereto;
"Microtek Head & Neck Files and Records" shall mean all files and
records of Microtek specifically relating to the Microtek Head & Neck Products,
whether in hard copy or magnetic format, including research and development
files, Federal Food and Drug Administration and other United States and foreign
governmental agency/instrumentality files pertaining to the Microtek Head & Neck
Products (including registrations, as applicable), market studies, copies of
consumer complaint files and response letters, outlines of production,
production and sales histories, quality control histories, both of Microtek and
any third-party contract manufacturers, and manufacturing know-how;
"Microtek Head & Neck Intellectual Property" shall mean:
(a) all copyrights (whether registered or unregistered), trademarks
and service marks (whether registered or unregistered), patents, patent
applications or inventions for which patent applications have not been filed,
which are used by Microtek and are unique to the manufacture or the distribution
of the Microtek Head & Neck Products, including such of the foregoing as are
listed on Schedule 2 hereto; and
2
<PAGE>
(b) all trade secrets, confidential or proprietary information and
other know-how, information, documents or materials owned, developed or
possessed by Microtek, whether tangible or intangible in form, which are used by
Microtek and are unique to the manufacture or the distribution of the Microtek
Head & Neck Products;
"Microtek Head & Neck Inventory" shall mean (i) all the Microtek Head
& Neck Products finished goods inventory owned by Microtek on the Closing Date
and located within the United States, together with raw materials, work in
progress and packaging supplies used by Microtek exclusively in the production
or sale of Microtek Head & Neck Products, and (ii) any and all rights of
Microtek to the warranties received from its suppliers with respect to such
inventory (to the extent assignable) and related claims, credits, rights of
recovery and offset with respect thereto; PROVIDED, HOWEVER, that the Microtek
Head & Neck Inventory shall not include inventory owned by foreign subsidiaries
of Microtek;
"Microtek Head & Neck Purchase Price" shall have the meaning set forth
in Section 3.1(b);
"Microtek Inventory Cap" shall mean a dollar amount equal to the
dollar amount of Xomed Drape Inventory determined in accordance with Section
3.3;
"Microtek Inventory Schedule" shall have the meaning set forth in
Section 3.4(b);
"Microtek Inventory Value" shall mean the amount specified in Section
3.4(b);
"Microtek Loan Agreement" shall mean the Credit Agreement, dated as of
October 1, 1991 and as amended to date, by and among Microtek, certain
subsidiaries of Microtek and Chemical Bank, as agent;
"Microtek Note A" shall mean the promissory note of Microtek
substantially in the form of Exhibit A-1 attached hereto and made a part hereof;
"Microtek Note B" shall mean the promissory note of Microtek
substantially in the form of Exhibit A-2 attached hereto and made a part hereof;
"Microtek Note C" shall mean the promissory note of Microtek
substantially in the form of Exhibit A-3 attached hereto and made a part hereof;
"Microtek Transferred Assets" shall refer collectively to the Microtek
Head & Neck Equipment, the Microtek Head & Neck Inventory, the Microtek Head &
Neck Intellectual Property and the Microtek Head & Neck Files and Records;
3
<PAGE>
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
Government;
"Sterilization Agreement" shall mean the agreement between Xomed and
Microtek in the form of Exhibit F attached hereto and made a part hereof;
"Xomed" shall have the meaning set forth in the Recitals hereto;
"Xomed Drape Assumed Contracts" shall mean all of the contracts and
agreements listed on Schedule 3 hereto;
"Xomed Drape Equipment" shall mean the machinery and equipment
identified on Schedule 8 hereto;
"Xomed Drape Files and Records" shall mean all files and records of
Xomed specifically relating to the Xomed Drape Products, whether in hard copy or
magnetic format, including research and development files, Federal Food and Drug
Administration and other United States and foreign governmental
agency/instrumentality files pertaining to the Xomed Drape Products (including
registrations, as applicable), market studies, copies of consumer complaint
files and response letters, outlines of production, production and sales
histories, quality control histories, both of Xomed and any third-party contract
manufacturers, and manufacturing know-how;
"Xomed Drape Intellectual Property" shall mean:
(a) all copyrights (whether registered or unregistered), trademarks
and service marks (whether registered or unregistered), patents, patent
applications or inventions for which patent applications have not been filed,
which are used by Xomed and are unique to the manufacture or the distribution of
the Xomed Drape Products, including such of the foregoing as are listed on
Schedule 4 hereto; and
(b) all trade secrets, confidential or proprietary information and
other know-how, information, documents or materials owned, developed or
possessed by Xomed, whether tangible or intangible in form, which are used by
Xomed and are unique to the manufacture or the distribution of the Xomed Drape
Products;
"Xomed Drape Inventory" shall mean (i) all the Xomed Drape finished
goods inventory owned by Xomed on the Closing Date and located within the United
States, together with raw materials, work in progress and packaging supplies
used by Xomed exclusively in the production or sale of Xomed Drape Products, and
(ii) any and all rights of Xomed to the warranties received from its suppliers
with respect to such inventory (to the extent assignable) and related claims,
credits, rights of recovery and
4
<PAGE>
offset with respect thereto; PROVIDED, HOWEVER, that the Xomed Drape
Inventory shall not include inventory owned by foreign subsidiaries of Xomed;
"Xomed Drape Products" shall have the meaning set forth in the
Recitals;
"Xomed Drape Purchase Price" shall have the meaning set forth in
Section 3.1 (a);
"Xomed Equipment Value" shall mean the amount specified in Section
3.5;
"Xomed Inventory Schedule" shall have the meaning set forth in Section
3.3(b);
"Xomed Inventory Value" shall mean the amount specified in Section
3.3(b);
"Xomed Loan Agreement" shall mean the Credit Agreement, dated as of
April 15, 1994, among Bank of Boston Connecticut, Merocel Corporation, Xomed,
Xomed-Treace, P.R. Inc. and Xomed Surgical Products, Inc. (f/k/a Merocel/Xomed
Holdings, Inc.), as amended;
"Xomed Transferred Assets" shall refer collectively to the Xomed Drape
Equipment, the Xomed Drape Inventory, Xomed Drape Intellectual Property and
Xomed Drape Files and Records.
SECTION 2. PURCHASE AND SALE OF THE PURCHASED ASSETS.
SECTION 2.1. TRANSFER OF ASSETS. (a) Subject to the terms and
conditions set forth herein, Xomed shall sell, convey, transfer, assign and
deliver to Microtek, and Microtek shall purchase and accept from Xomed, on the
Closing Date, all right, title and interest of Xomed in and to the Xomed
Transferred Assets, wherever located, free and clear of any Liens.
(b) Subject to the terms and conditions set forth herein, Microtek
shall sell, convey, transfer, assign and deliver to Xomed, and Xomed shall
purchase and accept from Microtek, on the Closing Date, all right, title and
interest of Microtek in and to the Microtek Transferred Assets, wherever
located, free and clear of any Liens.
SECTION 2.2. SALE AT CLOSING DATE. (a) The sale, transfer,
assignment and delivery by Xomed of the Xomed Transferred Assets to Microtek, as
provided herein, shall be effected on the Closing Date by bills of sale,
endorsements, assignments and other instruments of transfer and conveyance
satisfactory in form and substance to counsel for Microtek.
5
<PAGE>
(b) The sale, transfer, assignment and delivery by Microtek of the
Microtek Transferred Assets to Xomed, as provided herein, shall be effected on
the Closing Date by bills of sale, endorsements, assignments and other
instruments of transfer and conveyance satisfactory in form and substance to
counsel for Xomed.
SECTION 2.3. MECHANICS OF TRANSFER. Without limiting the foregoing:
(a) all of the Xomed Drape Inventory shall be delivered to Microtek,
at Microtek's cost, no later than July 5, 1995;
(b) the Xomed Drape Equipment shall be delivered to Microtek, at
Microtek's cost, no later than six (6) months following the Closing Date in
accordance with the terms and conditions of the Manufacturing Agreement;
(c) all of the Microtek Head & Neck Inventory shall be delivered to
Xomed, at Xomed's cost, no later than July 5, 1995;
(d) the Microtek Head & Neck Equipment shall be delivered to Xomed,
at Xomed's cost, no later than six (6) months following the Closing Date in
accordance with the terms and conditions of the Manufacturing Agreement;
SECTION 2.4. SUBSEQUENT DOCUMENTATION. (a) Xomed shall, at any time
and from time to time within thirty (30) days after the Closing Date, upon the
request of Microtek and at the expense of Xomed, do, execute, acknowledge and
deliver, or cause to be done, executed, acknowledged and delivered, all such
further deeds, assignments, transfers and conveyances as may be required for the
better assigning, transferring, granting, conveying and confirming to Microtek
or its successors and assigns, or for aiding and assisting in collecting and
reducing to possession, any or all of the Xomed Transferred Assets.
(b) Microtek shall, at any time and from time to time within thirty
(30) days after the Closing Date, upon the request of Xomed and at the expense
of Microtek, do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, all such further deeds, assignments,
transfers and conveyances as may be required for the better assigning,
transferring, granting, conveying and confirming to Xomed or its successors and
assigns, or for aiding and assisting in collecting and reducing to possession,
any or all of the Microtek Transferred Assets.
SECTION 2.5. EXCLUDED ASSETS. (a) Microtek shall not hereby acquire
any interest in any assets of Xomed other than the Xomed Transferred Assets.
(b) Xomed shall not hereby acquire any interest in any assets of
Microtek other than the Microtek Transferred Assets.
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SECTION 2.6. ASSUMPTION OF LIABILITIES. (a) On the Closing Date,
Microtek shall assume and agree to pay, perform and discharge all of the
obligations, debts and liabilities of Xomed under the Xomed Drape Assumed
Contracts on and after the Closing Date. Such assumption shall be pursuant to
an Assignment and Assumption Agreement in form and substance reasonably
satisfactory to counsel for Xomed and Microtek. Microtek shall not assume or
pay, perform or discharge, nor shall Microtek be responsible, directly or
indirectly for any other debts, obligations, contracts or liabilities of Xomed,
including without limitation, any liability for product liability actions
arising from the sale of any Xomed Drape finished goods delivered to a customer
prior to the Closing Date.
(b) On the Closing Date, Xomed shall assume and agree to pay, perform
and discharge all of the obligations, debts and liabilities of Microtek under
the Microtek Head & Neck Assumed Contracts on and after the Closing Date. Such
assumption shall be pursuant to an Assignment and Assumption Agreement in form
and substance reasonably satisfactory to counsel for Xomed and Microtek. Xomed
shall not assume or pay, perform or discharge, nor shall Xomed be responsible,
directly or indirectly for any other debts, obligations, contracts or
liabilities of Microtek, including without limitation, any liability for product
liability actions arising from the sale of any Microtek Head & Neck Products
finished goods delivered to a customer prior to the Closing Date.
(c) To the extent that the assignment of any assumed contract shall
require the consent of the other party thereto, this Agreement shall not
constitute an agreement to assign the same if an attempted assignment would
constitute a breach thereof. Each party will use its best efforts to obtain
such consent of the other parties to such contracts for the assignment thereof.
If such consent is not obtained in respect of any such assumed contract, each
party will cooperate with the other party in any reasonable arrangement
requested by such other party to provide for such other party the benefits under
any such assumed contract.
SECTION 2.7. CLOSING. Subject to the conditions set forth in
Sections 7 and 8 of this Agreement, the closing (the "Closing") will take place
at the offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York 10022, on July 3, 1995 (the "Closing Date").
SECTION 3. PURCHASE PRICE.
SECTION 3.1. PURCHASE PRICE. (a) The purchase price to be paid by
Microtek to Xomed for the sale and transfer of the Xomed Transferred Assets (the
"Xomed Drape Purchase Price") shall be an amount equal to the sum of (i) the
Xomed Inventory Value plus (ii) the Xomed Equipment Value plus (iii) $2,650,000.
Microtek shall pay the Xomed Purchase Price to Xomed on the Closing Date by:
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(x) transferring the Microtek Transferred Assets to Xomed as set forth in
Section 2 hereof; and
(y) paying the sum of $1,325,000, plus the Book Value Difference to Xomed
by wire transfer of immediately available funds to the account of
Xomed with Bank of Boston Connecticut (ABA number: 011000390; account
number: 54149357) and paying the sum of $1,325,000 by delivering to
Xomed (A) the Microtek Note A in the principal amount of $1,125,000,
(B) the Microtek Note B in the principal amount of $100,000 and (C)
the Microtek Note C in the principal amount of $100,000.
(b) The purchase price to be paid by Xomed to Microtek for the sale
and transfer of the Microtek Transferred Assets (the "Microtek Head & Neck
Purchase Price") shall be an amount equal to the sum of (i) the Microtek
Inventory Value plus (ii) the Microtek Equipment Value. Xomed shall pay the
Microtek Head & Neck Purchase Price to Microtek on the Closing Date by
transferring the Xomed Transferred Assets to Microtek as set forth in Section 2
hereof (less the cash adjustment to be paid by Microtek to Xomed equal to the
Book Value Difference pursuant to Section 3.1(a)(y)).
SECTION 3.2. ALLOCATION OF PURCHASE PRICE. The Xomed Drape Purchase
Price and the Microtek Head & Neck Purchase Price shall be allocated among the
Xomed Transferred Assets and the Microtek Transferred Assets, respectively, in
accordance with Schedule 5 and that Xomed and Microtek shall reflect such
allocation on any returns required to be filed with the U.S. Internal Revenue
Service or any other foreign or state tax authority because of this transaction.
SECTION 3.3. PHYSICAL COUNT AND VALUATION OF XOMED DRAPE INVENTORY.
(a) On the second day prior to the Closing Date, at each site where Xomed Drape
Inventory is located, representatives of Xomed and Microtek shall take a
physical count of the Xomed Drape Inventory. Upon completion of each portion of
the physical count, such Xomed and Microtek representatives shall immediately
consult and seek in good faith to reach agreement on the count of the number of
merchantable (as to Xomed Drape finished goods) and usable (as to raw materials,
work in progress and packaging supplies) units of each type of Xomed Drape
Inventory. Between the time on which such physical count of the Xomed Drape
Inventory is completed and time of transfer of the Xomed Drape Inventory
specified in Section 2.3(a), Xomed shall not (i) sell any of the Xomed Drape
Inventory or (ii) permit any Xomed Drape Inventory to be removed from the site
of the physical count.
(b) Attached hereto on Schedule 6 is a list of each category of Xomed
Drape Inventory and its per unit book value, as derived from the books and
records of Xomed. On or before the Closing Date, Xomed shall prepare a schedule
of
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inventory (the "Xomed Inventory Schedule") showing the number of units of
each category of Xomed Drape Inventory, as determined under Section 3.3(a),
multiplied by the price per unit of that category as set forth on Schedule 6.
The Xomed Inventory Value shall be an amount equal to the aggregate dollar
amount shown on the Xomed Inventory Schedule.
SECTION 3.4. PHYSICAL COUNT AND VALUATION OF MICROTEK HEAD & NECK
INVENTORY. (a) On the second day prior to the Closing Date, at each site where
Microtek Head & Neck Inventory is located, representatives of Microtek and Xomed
shall take a physical count of the Microtek Head & Neck Inventory. Upon
completion of each portion of the physical count, Microtek and Xomed
representatives shall immediately consult and seek in good faith to reach
agreement on the count of the number of merchantable (as to Microtek Head & Neck
Products finished goods) and usable (as to raw materials, work in progress and
packaging supplies) units of each type of Microtek Head & Neck Inventory.
Between the time on which such physical count of the Microtek Head & Neck
Inventory is completed and time of transfer of the Microtek Head & Neck
Inventory specified in Section 2.3(c), Microtek shall not (i) sell any of the
Microtek Head & Neck Inventory or (ii) permit any Microtek Head & Neck Inventory
to be removed from the site of the physical count.
(b) Attached hereto on Schedule 7 is a list of each category of
Microtek Head & Neck Inventory and its per unit book value, as derived from the
books and records of Xomed. On or before the Closing Date, Microtek shall
prepare a schedule of inventory (the "Microtek Inventory Schedule") showing the
number of units of each category of Microtek Head & Neck Inventory, as
determined under Section 3.4(a), multiplied by the price per unit of that
category as set forth on Schedule 7. The Microtek Inventory Value shall be an
amount equal to the lesser of (i) the aggregate dollar amount shown on the
Microtek Inventory Schedule and (ii) the Microtek Inventory Cap.
SECTION 3.5. VALUATION OF XOMED DRAPE EQUIPMENT. Attached hereto on
Schedule 8 is a list of each item of Xomed Drape Equipment, setting forth for
each item (a) the location of such item, (b) the historical cost of such item
and (c) the depreciated book value of such item as of May 31, 1995. The Xomed
Equipment Value shall be an amount equal to the sum of the book values of each
item of equipment listed on Schedule 8.
SECTION 3.6. VALUATION OF MICROTEK HEAD & NECK EQUIPMENT. Attached
hereto on Schedule 9 is a list of each item of Microtek Head & Neck Equipment,
setting forth for each item (a) the location of such item, (b) the historical
cost of such item and (c) the depreciated book value of such item as of May 31,
1995. The Microtek Equipment Value shall be equal to the sum of the book values
of each item of equipment listed on Schedule 9.
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SECTION 3.7. TRANSFER TAXES. Each party shall be liable for and
shall pay all state, provincial and local sales taxes payable in connection with
the other party's conveyance and transfer of assets to such party, including,
without limitation, stamp taxes, transfer taxes, and all recording and filing
fees that may be imposed by reason of the sale, transfer, assignment and
delivery of such assets, whether arising before, on or after the Closing Date.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF XOMED.
Xomed hereby represents and warrants to Microtek as follows:
SECTION 4.1. CORPORATE ORGANIZATION. Xomed is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to own its
properties and assets and to conduct its businesses as now conducted.
SECTION 4.2. AUTHORIZATION AND VALIDITY OF AGREEMENT. Xomed has all
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement and the performance of Xomed's obligations hereunder have been duly
authorized by all necessary corporate action by the Board of Directors and
stockholders of Xomed and no other corporate proceedings on the part of Xomed
are necessary to authorize such execution, delivery and performance. This
Agreement has been duly executed by Xomed and constitutes its valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION 4.3. NO CONFLICT OR VIOLATION. The execution, delivery and
performance by Xomed of this Agreement (i) do not and will not violate or
conflict with any provision of the Certificate of Incorporation or By-laws of
Xomed, (ii) do not and will not violate any provision of law, or any order,
judgment or decree of any court or other governmental or regulatory authority
having jurisdiction over Xomed, the Xomed Drape Products or the Xomed
Transferred Assets, and (iii) do not violate, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any
contract, lease, loan agreement, mortgage, security agreement, trust indenture
or other agreement or instrument to which Xomed is a party or by which it is
bound or to which any of the Xomed Transferred Assets is subject; PROVIDED that
the sale of the Xomed Transferred Assets by Xomed requires the consent of Bank
of Boston Connecticut under the terms of the Xomed Loan Agreement, which consent
shall be obtained on or prior to the Closing Date.
SECTION 4.4. VALUATION OF INVENTORY AND EQUIPMENT. The unit book
values for the Xomed Drape Inventory set forth on Schedule 6 and the book values
for the Xomed Drape Equipment set forth on Schedule 8 are derived from the books
and records of Xomed, which books and records have been maintained in accordance
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with U.S. generally accepted accounting principles applied on a basis consistent
with Xomed's December 31, 1994 audited financial statements. Further, (i) the
values of the Xomed Drape Inventory reflected on such Schedule 6 are stated at
cost and (ii) the values of the Xomed Drape Equipment reflected on such Schedule
8 are stated at their fully depreciated book values through May 31, 1995.
SECTION 4.5. TITLE TO XOMED TRANSFERRED ASSETS. Except for the
security interest of Bank of Boston Connecticut under the Xomed Loan Agreement,
Xomed is the owner of the Xomed Transferred Assets with good title thereto, free
and clear of any mortgage, lien, charge, security interest, adverse claim or
other encumbrance.
SECTION 4.6. XOMED DRAPE INTELLECTUAL PROPERTY. Except as described
on Schedule 4, Xomed is the beneficial owner of all right, title and interest in
the Xomed Drape Intellectual Property and the registered owner of all right,
title and interest in the items listed on Schedule 4. Xomed is not aware of any
material reason why any of the Xomed Drape Intellectual Property should not be
assignable to Microtek nor is Xomed aware of any material reason why Microtek
would not have right to bring an enforceable proceeding with respect to any such
Xomed Drape Intellectual Property, it being understood that such right to bring
an enforceable proceeding does not imply any representation by Xomed that should
Microtek attempt to bring any proceeding it would prevail. To the best of
Xomed's knowledge and except as described in Schedule 4, there are no
infringements, threats of infringements, or asserted or unasserted claims by
Xomed of infringements or misappropriation of any of the Xomed Drape
Intellectual Property in the United States nor are there any asserted or
unasserted claims by Xomed contesting or challenging the right, title or
interest of any other Person in any of the Xomed Drape Intellectual Property.
There are no outstanding threatened or actual claims asserted against Xomed
alleging the infringement or misappropriation by Xomed of any intellectual
property of any other party that may materially affect the Xomed Transferred
Assets or the revocation, withdrawal, expiration, abandonment or breach of any
right to use the Xomed Drape Intellectual Property in the United States and
Xomed has not been notified of any such claim of any Person.
SECTION 4.7. LITIGATION. There are no actions, suits, proceedings,
investigations, arbitration proceedings or other proceedings pending or, to the
best knowledge of Xomed, threatened against or affecting the Xomed Transferred
Assets at law or in equity or by or before any federal, provincial, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or by or before any arbitrator which
actions, suits or arbitration proceedings relate to the Xomed Transferred
Assets, and there is not presently outstanding against Xomed any judgment,
decree, injunction, rule, order or award of any court, arbitrator, governmental
department, commission, board, bureau, agency, instrumentality, domestic or
foreign, relating to the Xomed Transferred Assets.
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SECTION 4.8. XOMED DRAPE EQUIPMENT. The Xomed Drape Equipment, as
a whole, is in good operating condition, ordinary wear and tear excepted, and
is useable in the ordinary course of business.
SECTION 4.9. XOMED DRAPE INVENTORY. The Xomed Drape Inventory is
of a type, quality and quantity useable and saleable in the ordinary course
of the business related to the Xomed Drape Products.
SECTION 4.10. FDA MATTERS. Except as set forth on Schedule 10, no
Xomed Drape Product requires any approval of the United States Food and Drug
Administration (the "FDA"), for the purpose for which it is being
manufactured, assembled or sold. FDA approval has been obtained for each
Xomed Drape Product listed on Schedule 10. Xomed has not received any notice
of any action or proceeding in the FDA, including, but not limited to, recall
procedures, pending or, to the knowledge of Xomed, threatened against Xomed
relating to safety or efficacy of any of the Xomed Drape Products.
SECTION 4.11. COMPLIANCE WITH LAW. To Xomed's best knowledge, the
manufacture of the Xomed Drape Products by Xomed's contract manufacturers
conforms in all respects to current FDA "good manufacturing practices".
SECTION 4.12. XOMED DRAPE ASSUMED CONTRACTS. Xomed has performed
all material obligations required to be performed by it to date under, and is
not in default or delinquent in performance, status or any other material
respect (claimed or actual) in connection with, any Xomed Drape Assumed
Contract, and no event has occurred which, with due notice or lapse of time
or both, would constitute such a default. To the best knowledge of Xomed, no
other party to any Xomed Drape Assumed Contract is in default in respect
thereof, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a default. Xomed has delivered to Microtek or
its representatives true and complete originals or copies of all the Xomed
Drape Assumed Contracts.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF MICROTEK.
Microtek hereby represents and warrants to Xomed as follows:
SECTION 5.1. CORPORATE ORGANIZATION. Microtek is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power and authority to own
its properties and assets and to conduct its businesses as now conducted.
SECTION 5.2. AUTHORIZATION AND VALIDITY OF AGREEMENT. Microtek
has all requisite corporate power and authority to enter into this Agreement
and to carry out its obligations hereunder. The execution and delivery of
this Agreement and the
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performance of Microtek's obligations hereunder have been duly authorized by
all necessary corporate action by the Board of Directors and stockholders of
Microtek and no other corporate proceedings on the part of Microtek are
necessary to authorize such execution, delivery and performance. This
Agreement has been duly executed by Microtek and constitutes its valid and
binding obligation, enforceable against it in accordance with its terms.
SECTION 5.3. NO CONFLICT OR VIOLATION. The execution, delivery
and performance by Microtek of this Agreement (i) do not and will not violate
or conflict with any provision of the Certificate of Incorporation or By-laws
of Microtek, (ii) do not and will not violate any provision of law, or any
order, judgment or decree of any court or other governmental or regulatory
authority having jurisdiction over Microtek, the Microtek Head & Neck
Products or the Microtek Transferred Assets, and (iii) do not violate, result
in a breach of or constitute (with due notice or lapse of time or both) a
default under any contract, lease, loan agreement, mortgage, security
agreement, trust indenture or other agreement or instrument to which Microtek
is a party or by which it is bound or to which any of the Microtek
Transferred Assets is subject; PROVIDED that the sale of the Microtek
Transferred Assets by Microtek requires the consent of Chemical Bank under
the terms of the Microtek Loan Agreement, which consent shall be obtained on
or prior to the Closing Date.
SECTION 5.4. VALUATION OF INVENTORY AND EQUIPMENT. The unit book
values for the Microtek Head & Neck Product Inventory set forth on Schedule 7
and the book values for the Microtek Head & Neck Product Equipment set forth
on Schedule 9 are derived from the books and records of Microtek, which books
and records have been maintained in accordance with U.S. generally accepted
accounting principles applied on a basis consistent with Microtek's November
30, 1994 audited financial statements. Further, the values of the Microtek
Head & Neck Inventory reflected on such Schedule 7 are stated at cost and
(ii) the values of the Microtek Head & Neck Equipment reflected on such
Schedule 9 are stated at their fully depreciated book values through May 31,
1995.
SECTION 5.5. TITLE TO MICROTEK TRANSFERRED ASSETS. Except for the
security interest of Chemical Bank under the Microtek Loan Agreement,
Microtek is the owner of the Microtek Transferred Assets with good title
thereto, free and clear of any mortgage, lien, charge, security interest,
adverse claim or other encumbrance.
SECTION 5.6. MICROTEK HEAD & NECK INTELLECTUAL PROPERTY. Except
as described on Schedule 2, Microtek is the beneficial owner of all right,
title and interest in the Microtek Head & Neck Intellectual Property and the
registered owner of all right, title and interest in the items listed on
Schedule 2. Microtek is not aware of any material reason why any of the
Microtek Head & Neck Intellectual Property should not be assignable to Xomed
nor is Microtek aware of any material reason why Xomed would not have right
to bring an enforceable proceeding with respect to any such
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Microtek Head & Neck Intellectual Property, it being understood that such
right to bring an enforceable proceeding does not imply any representation by
Microtek that should Xomed attempt to bring any proceeding it would prevail.
To the best of Microtek's knowledge and except as described in Schedule 2,
there are no infringements, threats of infringements, or asserted or
unasserted claims by Microtek of infringements or misappropriation of any of
the Microtek Head & Neck Intellectual Property in the United States nor are
there any asserted or unasserted claims by Microtek contesting or challenging
the right, title or interest of any other Person in any of the Microtek Head
& Neck Intellectual Property. There are no outstanding threatened or actual
claims asserted against Microtek alleging the infringement or
misappropriation by Microtek of any intellectual property of any other party
that may materially affect the Microtek Transferred Assets or the revocation,
withdrawal, expiration, abandonment or breach of any right to use the
Microtek Head & Neck Intellectual Property in the United States and Microtek
has not been notified of any such claim of any Person.
SECTION 5.7. LITIGATION. Other than as disclosed on Schedule 12,
there are no actions, suits, proceedings, investigations, arbitration
proceedings or other proceedings pending or, to the best knowledge of
Microtek, threatened against or affecting the Microtek Transferred Assets at
law or in equity or by or before any federal, provincial, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or by or before any arbitrator which
actions, suits or arbitration proceedings relate to the Microtek Transferred
Assets, and there is not presently outstanding against Microtek any judgment,
decree, injunction, rule, order or award of any court, arbitrator,
governmental department, commission, board, bureau, agency, instrumentality,
domestic or foreign, relating to the Microtek Transferred Assets.
SECTION 5.8. MICROTEK HEAD & NECK EQUIPMENT. The Microtek Head &
Neck Equipment, as a whole, is in good operating condition, ordinary wear and
tear excepted, and is useable in the ordinary course of business.
SECTION 5.9. MICROTEK HEAD & NECK INVENTORY. The Microtek Head &
Neck Inventory is of a type, quality and quantity useable and saleable in the
ordinary course of the business related to the Microtek Head & Neck Products.
SECTION 5.10. FDA MATTERS. Except as set forth on Schedule 11, no
Microtek Head & Neck Product requires any approval of the FDA, for the
purpose for which it is being manufactured, assembled or sold. FDA approval
has been obtained for each Microtek Head & Neck Product listed on Schedule
11. Microtek has not received any notice of any action or proceeding in the
FDA, including, but not limited to, recall procedures, pending or, to the
knowledge of Microtek, threatened against Microtek relating to safety or
efficacy of any of the Microtek Head & Neck Products.
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SECTION 5.11. COMPLIANCE WITH LAW. To Microtek's best knowledge,
the manufacture of the Microtek Head & Neck Products by Microtek's contract
manufacturers conforms in all respects to current FDA "good manufacturing
practices".
SECTION 5.12. MICROTEK HEAD & NECK ASSUMED CONTRACTS. Microtek has
performed all material obligations required to be performed by it to date
under, and is not in default or delinquent in performance, status or any
other material respect (claimed or actual) in connection with, any Microtek
Head & Neck Assumed Contract, and no event has occurred which, with due
notice or lapse of time or both, would constitute such a default. To the
best knowledge of Microtek, no other party to any Microtek Head & Neck
Assumed Contract is in default in respect thereof, and no event has occurred
which, with due notice or lapse of time or both, would constitute such a
default. Microtek has delivered to Xomed or its representatives true and
complete originals or copies of all the Microtek Head & Neck Assumed
Contracts.
SECTION 6. MUTUAL COVENANTS.
SECTION 6.1. POST-CLOSING ORDERS. (a) From and after the Closing
Date, Xomed shall promptly (but in no event later than two (2) business days
after receipt by Xomed's customer service department) deliver any purchase
orders and refer all inquiries it shall receive with respect to the Xomed
Drape Products to Microtek.
(b) From and after the Closing Date, Microtek shall promptly (but
in no event later than two (2) business days after receipt by Microtek's
customer service department) deliver any purchase orders and refer all
inquiries it shall receive with respect to the Microtek Head & Neck Products
to Xomed.
SECTION 6.2. BULK SALES ACT. Each party hereby waives compliance
with any applicable bulk sales act governing the purchase and sale of the
Microtek Transferred Assets and the Xomed Transferred Assets.
SECTION 6.3. ACCESS TO RECORDS AFTER CLOSING DATE. (a) For a
period of three years after the Closing Date, Xomed and its representatives
shall have reasonable access to all of the books and records of Microtek with
respect to periods prior to the Closing Date to the extent that such access
may reasonably be required by Xomed in connection with matters relating to or
affected by the Microtek Head & Neck Products prior to the Closing Date.
Microtek shall afford such access upon receipt of reasonable advance notice
and during normal business hours. Xomed shall be solely responsible for any
costs or expenses incurred by it pursuant to this Section 6.3(a). If
Microtek shall desire to dispose of any of such books and records prior to
the expiration of such three-year period, Microtek shall, prior to such
disposition, give Xomed a reasonable opportunity, at Xomed's expense, to
segregate and remove such books and records as Xomed may elect.
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(b) For a period of three years after the Closing Date, Microtek
and its representatives shall have reasonable access to all of the books and
records of Xomed with respect to periods prior to the Closing Date to the
extent that such access may reasonably be required by Microtek in connection
with matters relating to or affected by the Xomed Drape Products prior to the
Closing Date. Xomed shall afford such access upon receipt of reasonable
advance notice and during normal business hours. Microtek shall be solely
responsible for any costs or expenses incurred by it pursuant to this Section
6.3(b). If Xomed shall desire to dispose of any of such books and records
prior to the expiration of such three-year period, Xomed shall, prior to such
disposition, give Microtek a reasonable opportunity, at Microtek's expense,
to segregate and remove such books and records as Microtek may elect.
SECTION 6.4. NONCOMPETE. (a) For and in consideration of the
agreements and undertakings of Microtek under this Agreement, Xomed covenants
and agrees that it will not, during a period of 60 months after the Closing
Date, without the written consent of Microtek, directly or indirectly, as
owner, partner, stockholder, agent, lender, consultant or similar capacity,
have any financial interest in, or be associated with any person engaged in,
or itself conduct, the manufacture or distribution of any product that
competes with the Xomed Drape Products; PROVIDED, HOWEVER, that each foreign
subsidiary of Xomed shall be (i) entitled to sell Xomed Drape Products owned
by it on the Closing Date and (ii) permitted to act as a distributor for
Microtek after the Closing.
(b) For and in consideration of the agreements and undertakings of
Xomed under this Agreement, Microtek covenants and agrees that it will not,
during a period of 60 months after the Closing Date, without the written
consent of Xomed, directly or indirectly, as owner, partner, stockholder,
agent, consultant or similar capacity, have any financial interest in, or be
associated with any person engaged in, or itself conduct, the manufacture of
any product that competes with the Microtek Head & Neck Products; PROVIDED,
HOWEVER, that each foreign subsidiary of Xomed shall be (i) entitled to sell
Microtek Head & Neck Products owned by it on the Closing Date and (ii)
permitted to act as a distributor for Xomed after the Closing.
(c) Each party agrees that a monetary remedy for a breach of the
covenants set forth in this Section 6.4 will be inadequate and impracticable
and further agree that breaching party would cause irreparable harm to the
non-breaching party, and that the non-breaching party shall be entitled to
temporary and permanent injunctive relief without the necessity of proving
actual damages. In the event of such a breach, the breaching party agrees
that the non-breaching party shall be entitled to such injunctive relief,
including temporary restraining orders, preliminary injunctions and permanent
injunctions as a court of competent jurisdiction shall determine. If any
provision of this Section 6.4 is determined by a court of competent
jurisdiction to be invalid in part, it shall be curtailed, both as to time
and location, to the minimum
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extent required for its validity under the applicable law and shall be
binding and enforceable with respect to the breaching party as so curtailed.
SECTION 6.5. PRODUCT RETURNS, CREDIT AND OTHER ALLOWANCES. (a)
Xomed agrees that after the Closing Date, it shall be responsible for
servicing product returns, customer credits, freight reimbursements and other
customer and delivery allowances that directly relate to sales of Xomed Drape
Inventory that occurred prior to the Closing Date. In the event that any of
the Xomed Drape Inventory sold prior to the Closing Date is returned to Xomed
thereafter, Xomed shall deliver such inventory to Microtek within ninety (90)
days after its receipt thereof.
(b) Microtek agrees that after the Closing Date, it shall be
responsible for servicing product returns, customer credits, freight
reimbursements and other customer and delivery allowances that directly
relate to sales of Microtek Head & Neck Inventory that occurred prior to the
Closing Date. In the event that any of the Microtek Head & Neck Inventory
sold prior to the Closing Date is returned to Microtek thereafter, Microtek
shall deliver such inventory to Xomed within ninety (90) days after its
receipt thereof.
SECTION 6.6. USE OF TRADENAMES. From and after the Closing Date
and through March 31, 1996, each party hereby grants a non-exclusive license
to the other party to use its tradename solely in connection with the sale of
Xomed Drape Products or Microtek Head & Neck Products that are in existence
on the Closing Date or are manufactured in accordance with the Manufacturing
Agreement. Such license shall permit the licensee (i) to distribute its
product in the packaging materials of the licensor and (ii) to use the sales
and marketing materials of the licensor in furtherance of its selling efforts.
SECTION 7. CONDITIONS PRECEDENT TO XOMED'S OBLIGATIONS.
The obligations of Xomed hereunder are subject to the conditions
that on or prior to the Closing Date:
SECTION 7.1. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of Microtek contained in this Agreement
(including the Schedules hereto) or in any certificate or document delivered
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby shall be true and correct on and as of the Closing Date
as though such representations and warranties were made at and as of such
date, except as otherwise contemplated herein.
SECTION 7.2. COMPLIANCE WITH AGREEMENT. Microtek shall have
performed and complied with all agreements and covenants required by this
Agreement to be performed or complied with by them prior to or at the Closing.
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SECTION 7.3. BRING-DOWN CERTIFICATES OF MICROTEK. Microtek shall
have delivered to Xomed copies of the resolutions of the Board of Directors
of Microtek authorizing the transactions contemplated herein, with such
resolutions to be certified to be true and correct by its Secretary or
Assistant Secretary of Microtek, dated the Closing Date, certifying in such
detail as Xomed may reasonably request, to the fulfillment of the conditions
specified in Sections 7.1 and 7.2.
SECTION 7.4. CASUALTY. No substantial portion of the Microtek
Transferred Assets shall have been stolen, taken by eminent domain or subject
to condemnation nor shall any fire, accident, flood or other casualty or act
of God or a public enemy have resulted in a material adverse effect on the
assets, business, operations or prospects of the Microtek Head & Neck
Products business.
SECTION 7.5. CONSULTING SERVICES AND NONCOMPETE AGREEMENT. Gary
Tatge shall have entered into the Consulting Services and Noncompete
Agreement with Xomed.
SECTION 7.6. MANUFACTURING AGREEMENT. Microtek shall have
executed the Manufacturing Agreement.
SECTION 7.7. INTERNATIONAL PRODUCT MANAGEMENT AGREEMENT. Microtek
shall have executed the International Product Management Agreement.
SECTION 7.8. STERILIZATION AGREEMENT. Microtek shall have
executed the Sterilization Agreement.
SECTION 7.9. OPINION OF COUNSEL. Xomed shall have received from
Crouch & Hallett, L.L.P., counsel to Microtek, an opinion in the form of
Exhibit D-1.
SECTION 7.10. MICROTEK INVENTORY SCHEDULE. Xomed shall have
received the Microtek Inventory Schedule and agreed to the valuations set
forth therein.
SECTION 7.11. INSTRUMENTS OF TRANSFER. Xomed shall have received
such bills of sale, endorsements, assignments and other instruments of
transfer and conveyance that are satisfactory in form and substance to
counsel for Xomed.
SECTION 7.12. RELEASE OF SECURITY INTERESTS. Microtek shall
provide evidence satisfactory (or shall make satisfactory arrangements for
the provision thereof) to Xomed's counsel that all security interests in the
Microtek Transferred Assets and the Microtek Head & Neck Assumed Contracts
have been released.
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SECTION 8. CONDITIONS PRECEDENT TO MICROTEK'S OBLIGATIONS.
The obligations of Microtek hereunder are subject to the conditions
that on or prior to the Closing Date:
SECTION 8.1. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of Xomed contained in this Agreement
(including the Schedules hereto) or in any certificate or document delivered
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby shall be true and correct on and as of the Closing Date
as though such representations and warranties were made at and as of such
date, except as otherwise contemplated herein.
SECTION 8.2. COMPLIANCE WITH AGREEMENT. Xomed shall have
performed and complied with all agreements and covenants required by this
Agreement to be performed or complied with by them prior to or at the Closing.
SECTION 8.3. BRING-DOWN CERTIFICATES OF XOMED. Xomed shall have
delivered to Microtek copies of the resolutions of the Board of Directors of
Xomed authorizing the transactions contemplated herein, with such resolutions
to be certified to be true and correct by its Secretary or Assistant
Secretary of Xomed, dated the Closing Date, certifying in such detail as
Microtek may reasonably request, to the fulfillment of the conditions
specified in Sections 8.1 and 8.2.
SECTION 8.4. CASUALTY. No substantial portion of the Xomed
Transferred Assets shall have been stolen, taken by eminent domain or subject
to condemnation nor shall any fire, accident, flood or other casualty or act
of God or a public enemy have resulted in a material adverse effect on the
assets, business, operations or prospects of the Xomed Drape Products
business.
SECTION 8.5. CONSULTING SERVICES AND NONCOMPETE AGREEMENT. Gary
Tatge shall have entered into the Consulting Services and Noncompete
Agreement with Xomed.
SECTION 8.6. MANUFACTURING AGREEMENT. Xomed shall have executed
the Manufacturing Agreement.
SECTION 8.7. INTERNATIONAL PRODUCT MANAGEMENT AGREEMENT. Xomed
shall have executed the International Product Management Agreement.
SECTION 8.8. STERILIZATION AGREEMENT. Xomed shall have executed
the Sterilization Agreement.
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SECTION 8.9. OPINION OF COUNSEL. Microtek shall have received
from Willkie Farr & Gallagher, counsel to Xomed, an opinion in the form of
Exhibit D-2.
SECTION 8.10. XOMED INVENTORY SCHEDULE. Microtek shall have
received the Xomed Inventory Schedule and agreed to the valuations set forth
therein.
SECTION 8.11. INSTRUMENTS OF TRANSFER. Microtek shall have
received such bills of sale, endorsements, assignments and other instruments
of transfer and conveyance that are satisfactory in form and substance to
counsel for Microtek.
SECTION 8.12. RELEASE OF SECURITY INTERESTS. Xomed shall provide
evidence satisfactory (or shall make satisfactory arrangements for the
provision thereof) to Microtek's counsel that all security interests in the
Xomed Transferred Assets and the Xomed Drape Assumed Contracts have been
released.
SECTION 9. INDEMNIFICATION.
SECTION 9.1. XOMED'S INDEMNIFICATION.
(a) Xomed will indemnify and hold harmless Microtek and each of its
directors, officers, employees, advisors, affiliates, agents and shareholders
from and against any and all losses, damages, liabilities, costs, claims and
expenses, including, but not limited to, attorney's fees arising out of, based
upon or resulting from:
(i) any inaccuracy of any representation or warranty of Xomed
which is contained in or made pursuant to this Agreement;
(ii) any breach by Xomed of any of its agreements, covenants or
obligations contained in or made pursuant to this Agreement; or
(iii) any liabilities relating to the Xomed Transferred Assets
arising on or prior to the Closing Date.
(b) Xomed shall have no obligation to indemnify Microtek under
this Section for any breach of Xomed's representations and warranties made in
or pursuant to this Agreement, until such time, if any, as the aggregate
amount of the liabilities, losses, damages, claims, costs and expenses
arising out of such breach exceeds $250,000, and then only to the extent of
such excess.
SECTION 9.2. MICROTEK'S INDEMNIFICATION.
(a) Microtek will indemnify and hold harmless Xomed and each of
its directors, officers, employees, advisors, affiliates, agents and
shareholders from and
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against any and all losses, damages, liabilities, costs, claims and expenses,
including, but not limited to, attorney's fees arising out of, based upon or
resulting from:
(i) any inaccuracy of any representation or warranty of
Microtek which is contained in or made pursuant to this Agreement;
(ii) any breach by Microtek of any of its agreements, covenants
or obligations contained in or made pursuant to this Agreement; or
(iii) any liabilities relating to the Microtek Transferred
Assets arising on or prior to the Closing Date.
(b) Microtek shall have no obligation to indemnify Xomed under
this Section for any breach of Microtek's representations and warranties made
in or pursuant to this Agreement, until such time, if any, as the aggregate
amount of the liabilities, losses, damages, claims, costs and expenses
arising out of such breach exceeds $250,000, and then only to the extent of
such excess.
SECTION 9.3. CLAIMS PROCEDURES.
(a) Promptly after the receipt by any party hereto of notice
under this section of (i) any claim or (ii) the commencement of any action or
proceeding, such party (the "Aggrieved Party") will, if a claim with respect
thereto is to be made against any party obligated to provide indemnification
(the Indemnifying Party") pursuant to this Section, give such Indemnifying
Party written notice of such claim or the commencement of such action or
proceeding and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting from such claim. Failure by the
Indemnifying Party to notify the Aggrieved Party of its election to defend
any such action within a reasonable time, but in no event more than fifteen
(15) days after notice thereof shall have been given to the Indemnifying
Party, shall be deemed a waiver by the Indemnifying Party of its right to
defend such action.
(b) If the Indemnifying Party assumes the defense of any such
claim or litigation resulting therefrom, the obligations of the Indemnifying
Party as to such claim shall be limited to taking all steps necessary in the
defense or settlement of such claim or litigation resulting therefrom and to
holding the Aggrieved Party harmless from and against any and all losses,
damages and liabilities caused by or arising out of any settlement approved
by the Indemnifying Party or any judgment in connection with such claim or
litigation resulting therefrom. The Aggrieved Party may participate, at its
expense, in the defense of such claim or litigation; PROVIDED that the
Indemnifying Party shall direct and control the defense of such claim or
litigation. The Indemnifying Party shall not, in the defense of such claim
or any litigation resulting therefrom consent to entry of any judgment or
enter into any settlement, except with the written consent of the Aggrieved
Party, which does not include as an unconditional term
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thereof the giving by the claimant or the plaintiff to the Aggrieved Party of
a release from all liability in respect of such claim or litigation.
(c) If the Indemnifying Party shall not assume the defense of any
such claim or litigation resulting therefrom, the Aggrieved Party may defend
against such claim or litigation in such manner as it may deem appropriate
and, unless the Indemnifying Party shall deposit with the Aggrieved Party a
sum equivalent to the total amount demanded in such claim or litigation, or
shall deliver to the Aggrieved Party a surety bond or an irrevocable letter
of credit in form and substance reasonably satisfactory to the Aggrieved
Party, the Aggrieved Party may settle such claim or litigation on such terms
as it may deem appropriate, and the Indemnifying Party shall promptly
reimburse the Aggrieved Party for the amount of all reasonable expenses,
legal or otherwise, incurred by the Aggrieved Party in connection with the
defense against or settlement of such claims or litigation. If no settlement
of such claim or litigation is made, the Indemnifying Party shall promptly
reimburse the Aggrieved Party for the amount of any judgment rendered with
respect to such claim or in such litigation and for all expenses, legal or
otherwise, incurred by the Aggrieved Party in the defense against such claim
or litigation.
SECTION 10. NATURE AND SURVIVAL OF REPRESENTATIONS
All statements contained in any certificate or other instrument
executed and delivered by Xomed or Microtek pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed
representations and warranties by Xomed and Microtek, respectively,
hereunder. All representations and warranties and agreements made by the
parties hereto in this Agreement or pursuant hereto shall survive the Closing
hereunder and any investigation at any time made by or on behalf of Xomed or
Microtek, PROVIDED, HOWEVER, that neither party shall not commence any action
against the other party in respect of any provision of this Agreement at any
time more than twelve (12) months after the Closing Date.
SECTION 11. MISCELLANEOUS.
SECTION 11.1. SUCCESSORS AND ASSIGNS. Except as otherwise provided
in this Agreement, no party hereto shall assign this Agreement or any rights
or obligations hereunder without the prior written consent of the other party
hereto and any such attempted assignment without such prior written consent
shall be void and of no force and effect. This Agreement shall inure to the
benefit of and shall be binding upon the successors and permitted assigns of
the parties hereto.
SECTION 11.2. GOVERNING LAW, JURISDICTION. This Agreement shall be
construed, performed and enforced in accordance with, and governed by, the
laws of the State of Delaware, without giving effect to the principles of
conflicts of laws thereof. The parties hereto irrevocably elect as the sole
judicial forum for the
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adjudication of any matters arising under or in connection with this
Agreement, and consent to the jurisdiction of, the courts of the State of
Delaware.
SECTION 11.3. EXPENSES. Except as otherwise provided herein, each
of the parties hereto shall pay its own expenses in connection with this
Agreement and the transactions contemplated hereby, including, without
limitation, any legal and accounting fees, whether or not the transactions
contemplated hereby are consummated.
SECTION 11.4. BROKER'S AND FINDER'S FEES. Each of the parties
represents and warrants that it has dealt with no broker or finder in
connection with any of the transactions contemplated by this Agreement and,
insofar as it knows, no other broker or other person is entitled to any
commission or finder's fee in connection with any of these transactions.
SECTION 11.5. FORCE MAJEURE. Neither party shall be liable for any
failure of or delay in the performance of this Agreement for the period that
such failure or delay is due to acts of God, public enemy, civil war, strikes
or labor disputes, or any other cause beyond the parties' reasonable control.
Each party agrees to notify the other party promptly of the occurrence of
any such cause and to carry out this Agreement as promptly as practicable
after such cause is terminated.
SECTION 11.6. SEVERABILITY. In the event that any part of this
Agreement is declared by any court or other judicial or administrative body
to be null, void or unenforceable, said provision shall survive to the extent
it is not so declared, and all of the other provisions of this Agreement
shall remain in full force and effect.
SECTION 11.7. NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
to have been duly given (i) on the date of service, if served personally on
the party to whom notice is to be given; (ii) on the day of transmission, if
sent via facsimile transmission to the facsimile number given below, and
telephonic confirmation of receipt is obtained promptly after completion of
transmission; (iii) on the day after delivery to Federal Express or similar
overnight courier or the Express Mail service maintained by the United States
Postal Service; or (iv) on the fifth day after mailing, if mailed to the
party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid and properly addressed, to the party as follows:
If to Xomed:
Xomed, Inc.
6743 Southpoint Drive North
Jacksonville, Florida 32216
Attn: Mark K. Adams
Telecopy: (904) 296-1004
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Copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attn: Peter H. Jakes, Esq.
Telecopy: (212) 821-8111
If to Microtek:
Microtek Medical, Inc.
512 Lehmberg Road
Columbus, Mississippi 39702
Attn: Kimber L. Vought
Telecopy: (601) 329-9176
Copy to:
Crouch & Hallett, L.L.P.
717 N. Harwood, Suite 1400
Dallas, Texas 75201
Attn: Bruce H. Hallett
Telecopy: (214) 953-0576
Any party may change its address for the purpose of this Section by
giving the other party written notice of its new address in the manner set
forth above.
SECTION 11.8. AMENDMENTS; WAIVERS. This Agreement may be amended
or modified, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties hereto, or in the case of a waiver, by the party waiving compliance.
Any waiver by any party of any condition, or of the breach of any provision,
term, covenant, representation or warranty contained in this Agreement, in
any one or more instances, shall not be deemed to be nor construed as a
further or continuing waiver of any such condition, or of the breach of any
other provision, term, covenant, representation or warranty of this Agreement.
SECTION 11.9. PUBLIC ANNOUNCEMENTS. The parties agree that after
the signing of this Agreement, neither party shall make any press release or
public announcement concerning this transaction without the prior written
approval of the other party unless a press release or public announcement is
required by law. If any such announcement or other disclosure is required by
law, the disclosing party agrees to give the nondisclosing party prior notice
and an opportunity to comment on the proposed disclosure.
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SECTION 11.10. ENTIRE AGREEMENT. This Agreement contains the
entire understanding between the parties hereto with respect to the
transactions contemplated hereby and supersedes and replaces all prior and
contemporaneous agreements and understandings, oral or written, with regard
to such transactions. All schedules hereto and any documents and instruments
delivered pursuant to any provision hereof are expressly made a part of this
Agreement as fully as though completely set forth herein.
SECTION 11.11. PARTIES IN INTEREST. Nothing in this Agreement is
intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than Xomed and Microtek and their respective
successors and permitted assigns. Nothing in this Agreement is intended to
relieve or discharge the obligations or liability of any third persons to
Xomed or Microtek. No provision of this Agreement shall give any third
persons any right of subrogation or action over or against Xomed or Microtek.
SECTION 11.12. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.
SECTION 11.13. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but both of which
shall constitute the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized as of
the date first above written.
XOMED, INC.
By:
--------------------------------------------
Name:
Title:
MICROTEK MEDICAL, INC.
By:
--------------------------------------------
Name:
Title:
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AUDITORS' CONSENT
Board of Directors
Microtek Medical, Inc.
We consent to incorporation by reference in the registration statement
(No. 33-47461) on Form S-8 of Microtek Medical, Inc. and subsidiaries of our
report dated January 17, 1996, relating to the balance sheets of Microtek
Medical, Inc. and subsidiaries as of November 30, 1995 and 1994 and the
related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three year period ended November 30, 1995,
which report appears in the November 30, 1995 annual report on Form 10-K/A of
Microtek Medical, Inc. and subsidiaries.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Jackson, Mississippi
May 21, 1996
<PAGE>
[Letterhead of Olin J. Harrell]
INDEPENDENT AUDITOR'S CONSENT
Board of Directors
Medi-Plast International, Inc.
I consent to incorporation by reference in the registration statement (No.
33-47461) on form S-8 of Microtek Medical, Inc. and subsidiaries of my report
dated March 31, 1995, relating to the balance sheets of Medi-Plast
International, Inc. as of December 31, 1994 and 1993 and the related
statements of operations, retained earnings and cash flows for the years then
ended.
Atlanta, Georgia Olin J. Harrell, CPA
May 21, 1996 /s/ OLIN J. HARRELL
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
No. 33-47461 of Microtek Medical, Inc. and subsidiary on Form S-8 of our
report dated April 5, 1996 on the financial statements of the Venodyne
Division of Advanced Instruments, Inc., as of February 24, 1996 and the
eleven month period then ended, appearing in the Amended Annual Report on
Form 10-K/A of Microtek Medical, Inc. for the year ended November 30, 1995.
/s/ WOLF & COMPANY, P.C.
- ------------------------
WOLF & COMPANY, P.C.
Boston, Massachusetts
May 21, 1996
