SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities and Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LUKENS MEDICAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
LUKENS MEDICAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.
1) Title of each class of securities to which transaction applies:
COMMON STOCK, $.01 PAR VALUE
2) Aggregate number of securities to which transaction applies:
3,150,859 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE
3) Perunit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11:
$4.00 FOR THE COMMON STOCK, PAR VALUE $.01 PER SHARE
4) Proposed maximum aggregate value of transaction:
$12,603,436.00
5) Amount of filing fee:
$2,520.69
[X] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
O-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing:
1) Amount previously paid: $2,520.69
-----------------------------------------------
2) Form, schedule or registration statement no.: Schedule 14A
-------------------------
3) Filing Party: Lukens Medical Corporation
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4) Date Filed: June 3, 1998 and August 12, 1998
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<PAGE>
LUKENS MEDICAL CORPORATION
3820 ACADEMY PARKWAY NORTH, NE
ALBUQUERQUE, NEW MEXICO 87109
August 26, 1998
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
Lukens Medical Corporation (the "Company") to be held at 9:30 a.m. local time on
September 24, 1998 at 101 Club, 101 Park Avenue, New York, New York 10178.
At this important meeting, you will be asked to consider and vote upon an
Agreement and Plan of Merger dated as of April 28, 1998, as amended by Amendment
No. 1 (the "Merger Agreement") among Medisys PLC ("Medisys"), a Scottish public
limited company, LMC Acquisition Corp. ("Merger Sub"), a Delaware corporation
and a wholly owned subsidiary of Medisys, and the Company pursuant to which
Merger Sub will be merged with and into the Company (the "Merger"), with the
Company being the surviving corporation and wholly owned by Medisys. If the
proposed Merger is consummated, the Company's stockholders will be entitled to
receive $4.00 in cash for each share of Common Stock of the Company, par value
$.01 per share ("Lukens Common Stock") owned by such stockholders.
Approval and adoption of the Merger Agreement requires the affirmative vote
of the holders of a majority of the outstanding shares of the Company, as more
fully described in the accompanying Proxy Statement in the section entitled
"Voting at the Special Meeting -- Record Date; Vote Required."
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS. THE BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED OF THE TERMS OF THE MERGER AGREEMENT AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Sands Brothers & Co., Ltd., a financial advisor to the Company, has
rendered a written opinion to the Board of Directors of the Company that as of
the date of the Merger Agreement, the consideration to be received by each
stockholder of the Company in connection with the Merger pursuant to the Merger
Agreement is fair from a financial point of view to the Company and to such
stockholders. A copy of such opinion is attached as Annex B to the Proxy
Statement and should be read in its entirety by the holders of Common Stock.
Important information regarding the Company and the proposed Merger is
included in the enclosed Proxy Statement which contains a more complete
description of the proposed Merger and the background thereof. You are urged to
read the Proxy Statement carefully.
Your vote is important. Whether or not you plan to attend the Special
Meeting, please complete, sign and date your proxy card and return it in the
enclosed envelope. If you do attend, you will be entitled to vote in person, and
such vote will revoke your proxy.
Sincerely,
[sig]
Robert S. Huffstodt
President and Chief Executive Officer
<PAGE>
LUKENS MEDICAL CORPORATION
3820 ACADEMY PARKWAY NORTH, NE
ALBUQUERQUE, NEW MEXICO 87109
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders (the
"Special Meeting") of Lukens Medical Corporation, a Delaware corporation (the
"Company"), will be held at 101 Club, 101 Park Avenue, New York, New York on
September 24, 1998 at 9:30 a.m. (local time) to (i) consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger dated as of April
28, 1998, as amended by Amendment No. 1 (the "Merger Agreement"), by and among
the Company, Medisys PLC ("Medisys"), a Scottish public limited company and LMC
Acquisition Corp. ("Merger Sub"), a Delaware corporation and a wholly owned
subsidiary of Medisys, providing for a merger (the "Merger") pursuant to which
Merger Sub will be merged with and into the Company, and each share of Common
Stock, par value $.01 per share of the Company (the "Lukens Common Stock")
issued and outstanding immediately prior to the effective date of the Merger
(the "Effective Date"), other than dissenting shares and shares held by Medisys
and its subsidiaries, will be converted into the right to receive, and will be
exchangeable for, $4.00 in cash, without any interest thereon; and (ii) transact
such other business as may properly be brought before the Special Meeting or any
adjournment or postponement thereof. A copy of the Merger Agreement is attached
as Annex A to the accompanying Proxy Statement.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, TAKEN AS A WHOLE,
ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS. THE
BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER
BY THE COMPANY'S STOCKHOLDERS.
All stockholders are cordially invited to attend the Special Meeting. Only
stockholders of record at the close of business on August 14, 1998 are entitled
to notice of and to vote at the Special Meeting or any adjournment thereof. The
affirmative vote of a majority of the shares of the Lukens Common Stock
outstanding on such record date is necessary to approve the Merger. PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT IN THE ENCLOSED
ENVELOPE WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING.
If the Merger is approved by the stockholders of the Company at the Special
Meeting and the Merger becomes effective, holders of Lukens Common Stock who
comply with the requirements of Section 262 of the Delaware General Corporation
Law, a copy of which is attached as Annex C to the accompanying Proxy Statement,
will be entitled to dissenters' rights with respect to their shares. See
"Dissenters' Rights" in the accompanying Proxy Statement for a description of
the procedures to be followed to perfect dissenters' rights.
BY ORDER OF THE BOARD OF DIRECTORS
[sig]
Robert S. Huffstodt, President and Chief
Executive Officer
Dated: August 26, 1998
<PAGE>
LUKENS MEDICAL CORPORATION
3820 ACADEMY PARKWAY NORTH, NE
ALBUQUERQUE, NEW MEXICO 87109
------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 24, 1998
------------------
This Proxy Statement is being furnished to the holders of Common Stock, par
value $.01 per share ("Lukens Common Stock"), of Lukens Medical Corporation
("Lukens" or the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company for use at the special meeting of the
stockholders of the Company to be held at 9:30 a.m., local time, on September
24, 1998 at 101 Club, 101 Park Avenue, New York, New York, and at any
adjournment or postponement thereof (the "Special Meeting").
The purpose of the Special Meeting is to consider and vote upon an
Agreement and Plan of Merger dated as of April 28, 1998, as amended by Amendment
No. 1 (the "Merger Agreement"), among Medisys PLC ("Medisys"), a Scottish public
limited company, LMC Acquisition Corp. ("Merger Sub"), a Delaware corporation
and a wholly owned subsidiary of Medisys, and the Company pursuant to which
Merger Sub will be merged with and into the Company (the "Merger"), with the
Company being the surviving corporation and wholly owned by Medisys. If the
proposed Merger is consummated, the Company's stockholders will be entitled to
receive $4.00 in cash for each share of Lukens Common Stock owned by such
stockholders.
This Proxy Statement is dated August 26, 1998 and is, along with the
accompanying form of proxy, first being distributed to the stockholders of the
Company on or about such date.
<PAGE>
AVAILABLE INFORMATION
Lukens is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files periodic reports, proxy and information statements and other
information with the SEC. Lukens' registration statements (including exhibits
thereto), as well as such reports, proxy and information statements and other
information, may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and are available for inspection and copying at the
public reference facilities maintained by the regional offices of the SEC
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such information can be obtained by mail from the Public
Reference Section of the SEC, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
The SEC maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of the SEC's web site is
http:\\www.sec.gov.
<PAGE>
TABLE OF CONTENTS
PAGE
----
SUMMARY ................................................................... 1
The Parties .............................................................. 1
The Special Meeting ...................................................... 1
Record Date; Vote Required ............................................... 1
Background of the Merger ................................................. 2
Recommendation of Lukens' Board of Directors ............................. 2
Opinion of Financial Advisor ............................................. 2
Interests of Certain Persons in the Merger ............................... 2
Market Information Regarding Lukens' Common Stock ........................ 3
Certain Federal Income Tax Consequences .................................. 4
Regulatory Approvals ..................................................... 4
Effective Date ........................................................... 4
Conditions to the Merger ................................................. 4
Treatment of Stock Options ............................................... 4
Termination .............................................................. 5
Dissenters' Rights ....................................................... 5
Cancellation of Stock Certificates ....................................... 5
VOTING AT THE SPECIAL MEETING ............................................. 6
Introduction ............................................................. 6
Time, Date and Place of Meeting .......................................... 6
Record Date; Vote Required ............................................... 6
Quorum ................................................................... 6
Solicitation, Revocation and Use of Proxies .............................. 7
Dissenters' Rights ....................................................... 7
Trading Market for and Market Price of Lukens Common Stock ............... 7
FACTORS TO BE CONSIDERED .................................................. 8
Purposes and Effects of the Merger ....................................... 8
Background of the Merger ................................................. 8
Recommendation of the Board of Directors; Fairness of the Merger ......... 11
Opinion of Financial Advisor ............................................. 12
Interests of Certain Persons in the Merger; Indemnification .............. 15
Accounting Treatment ..................................................... 16
Certain Effects of the Merger ............................................ 16
Certain Federal Income Tax Consequences .................................. 16
Regulatory and Other Approvals ........................................... 17
MERGER AGREEMENT .......................................................... 18
The Merger ............................................................... 18
Representations and Warranties ........................................... 19
Certain Covenants ........................................................ 20
Conduct of Business by the Company Pending the Merger .................. 20
Stockholder Approval; Proxies .......................................... 20
Employee Matters ....................................................... 21
Indemnification ........................................................ 21
Alternative Proposals .................................................. 21
Cancellation of Warrants; Repayment of Loans from Affiliates ........... 22
Agreement of Principal Stockholders .................................... 22
Fairness Opinion ....................................................... 23
Miscellaneous .......................................................... 23
Conditions to the Merger ................................................. 23
Termination .............................................................. 23
Non-Survival of Representations, Warranties and Agreements ............... 25
Fees and Expenses ........................................................ 25
DISSENTERS' RIGHTS ........................................................ 26
i
<PAGE>
PAGE
----
BUSINESS OF THE COMPANY .................................................. 28
Products ................................................................. 28
Suture Products ........................................................ 28
Bone Wax ............................................................... 29
Ulster Product Lines ..................................................... 29
Lancets, Needles and Accessories ....................................... 29
Dispettes .............................................................. 29
Infection Control Kits ................................................. 30
Pro-Tec Product Lines .................................................... 30
New Products ............................................................. 30
India Joint Venture ...................................................... 30
Brazil Joint Venture ..................................................... 30
Sales, Marketing and Customers ........................................... 31
Product Sales .......................................................... 31
Marketing Strategy ..................................................... 31
Customers .............................................................. 31
Research and Development Activities ...................................... 31
Production and Quality Assurance ......................................... 32
Suppliers ................................................................ 32
Competition .............................................................. 33
Government Regulations ................................................... 34
Patents and Proprietary Rights ........................................... 35
Product Liability and Insurance .......................................... 36
Employees ................................................................ 36
Description of Property .................................................. 36
Legal Proceedings ........................................................ 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF THE COMPANY ............................................ 37
CERTAIN TRANSACTIONS ...................................................... 38
MARKET INFORMATION REGARDING LUKENS COMMON STOCK .......................... 39
LUKENS DIVIDEND POLICY .................................................... 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF LUKENS' FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ...................................... 40
Results of Operations .................................................... 40
Liquidity and Capital Resources .......................................... 42
Other Information ........................................................ 43
INFORMATION REGARDING MEDISYS AND MERGER SUB .............................. 45
FINANCIAL INFORMATION ..................................................... 45
FEES AND EXPENSES ......................................................... 45
OTHER MATTERS ............................................................. 45
1998 ANNUAL MEETING OF STOCKHOLDERS ....................................... 45
INDEPENDENT CERTIFIED ACCOUNTANTS ......................................... 46
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ................................ F-1
Annex A -- Merger Agreement
Annex B -- Fairness Opinion of Sands Brothers & Co., Ltd.
Annex C -- Section 262 of Delaware General Corporation Law
Annex D -- Consent of Neff & Company LLP
ii
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement or incorporated herein by reference. This summary is not
intended to be complete and is qualified in its entirety by reference to the
more detailed information appearing elsewhere in, or incorporated by reference
in, this Proxy Statement and the Annexes hereto. Capitalized terms used herein
without definition have the meanings ascribed to them elsewhere in this Proxy
Statement. STOCKHOLDERS ARE URGED TO REVIEW THE ENTIRE PROXY STATEMENT, AND THE
ANNEXES HERETO, CAREFULLY.
THE PARTIES
Lukens Medical Corporation, a Delaware corporation ("Lukens" or the
"Company"), is engaged in the design, development, manufacturing and marketing
of wound closure products and other devices for use in the medical industry,
including, without limitation, suture products, bone wax, lancets, sharps
containers and diagnostic devices. Suture products include sutures (suture
material attached to a surgical needle) and ligatures (suture materials not
attached to a surgical needle). The Company's principal executive offices are
located at 3820 Academy Parkway North NE, Albuquerque, New Mexico 87109, (505)
342-9638.
Medisys PLC, a Scottish public limited company ("Medisys"), is a medical
technology company providing products, through its divisions and subsidiaries,
to the point of care environment, at present focused on two markets -- the point
of care and over the counter diagnostics market and the market for on-site
disposal of biohazardous medical waste. LMC Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Medisys ("Merger Sub"), is a
corporation recently organized in connection with the Merger and has not
conducted any other business. Medisys' and Merger Sub's principal executive
offices are located at Walmar House, 288-292 Regent Street, London W1R SH8
England, (011) 44-171-436-3353
THE SPECIAL MEETING
The special meeting (the "Special Meeting") of stockholders of Lukens will
be held at 9:30 a.m. (local time) on September 24, 1998, at 101 Club, 101 Park
Avenue, New York, New York.
The Special Meeting will be held to permit holders of shares of Lukens
Common Stock to consider and vote upon a proposal to approve and adopt the
Merger Agreement, a copy of which is attached hereto as Annex A, providing for
the merger of Merger Sub with and into Lukens (the "Merger") and the conversion,
upon consummation of the Merger, of all shares of Common Stock, par value $.01
per share of Lukens ("Lukens Common Stock") issued and outstanding immediately
prior to the Effective Date of the Merger (other than dissenting shares and
shares held by Medisys and its subsidiaries) into the right to receive, and be
exchangeable for, $4.00 in cash, without any interest thereon (the "Merger
Consideration"). See "Voting at the Special Meeting."
RECORD DATE; VOTE REQUIRED
Only holders of record of Lukens Common Stock as of the close of business
on August 14, 1998 (the "Record Date"), will be entitled to notice of and to
vote at the Special Meeting. On the Record Date, 3,150,859 shares of Lukens
Common Stock were outstanding.
Under the Delaware General Corporation Law (the "DGCL") and the Company's
bylaws, the presence, in person or by proxy, of the holders of a majority of the
shares of Lukens Common Stock outstanding on the Record Date is necessary to
constitute a quorum at the Special Meeting. Stockholders of record on the Record
Date are entitled to one vote per share on any matter which may properly come
before the Special Meeting. Under the DGCL, the affirmative vote of the holders
of a majority of the shares of Lukens Common Stock is required to approve the
Merger Agreement. The obligations of Lukens and Medisys to consummate the Merger
are subject, among
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other things, to the condition that the affirmative vote of the holders of a
majority of shares of Lukens Common Stock shall have been obtained. See "Merger
Agreement -- Conditions to the Merger." The Board of Directors of Lukens
unanimously approved the Merger Agreement on April 27, 1998. The Board of
Directors of Medisys also has approved the Merger Agreement.
As of the Record Date, the directors and executive officers of Lukens owned
885,857 shares of Lukens Common Stock (representing approximately 28.6% of the
total outstanding shares of Lukens Common Stock). See "Security Ownership of
Certain Beneficial Owners and Management of the Company." Pursuant to the Merger
Agreement and subject to the qualifications se forth therein, each of Messrs.
Robert L. Priddy, John H. Robinson and John P. Holmes have agreed that from and
after the date of the Merger Agreement until October 15, 1998, or such earlier
date as the Merger Agreement shall be terminated that he shall not transfer or
pledge his shares of Lukens Common Stock and he shall vote all of his shares of
Lukens Common Stock in favor of the Merger. See "Merger Agreement -- Certain
Covenants -- Agreement of Principal Stockholders."
BACKGROUND OF THE MERGER
For a description of the events leading up to the approval of the Merger
Agreement by the Board, see "Factors to be Considered -- Background of the
Merger."
RECOMMENDATION OF LUKENS' BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF LUKENS HAS UNANIMOUSLY DETERMINED THAT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, TAKEN AS A WHOLE, ARE FAIR
TO, AND IN THE BEST INTERESTS OF, LUKENS AND ITS STOCKHOLDERS. THE BOARD OF
DIRECTORS OF LUKENS UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER AGREEMENT BY
LUKENS' STOCKHOLDERS. For a discussion of the factors considered by Lukens'
Board of Directors in approving the Merger, see "Factors to be Considered --
Recommendation of the Board of Directors; Fairness of the Merger."
OPINION OF FINANCIAL ADVISOR
The Board has retained Sands Brothers & Co., Ltd. ("Sands Brothers") to
deliver to the Board of Directors of Lukens a written opinion dated May 15,
1998, to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the Merger Consideration was fair,
from a financial point of view, to the holders of Lukens Common Stock. The full
text of the written opinion of Sands Brothers dated May 15, 1998, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken, is attached as Annex B to this Proxy Statement and should be read
carefully in its entirety. The opinion of Sands Brothers is directed to the
Board of Directors of Lukens and relates only to the fairness of the Merger
Consideration from a financial point of view, does not address any other aspect
of the Merger or related transactions and does not constitute a recommendation
to any stockholder as to how such stockholder should vote at the Special
Meeting. See "Factors to be Considered -- Opinion of Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
On the Effective Date, pursuant to the Merger Agreement (a) warrants to
purchase 400,000 shares of Lukens Common Stock at an exercise price of $1.10 per
share held by Mr. John Robinson, a director of the Company, are to be canceled
and in lieu thereof, Mr. Robinson shall have the right to payment in cash equal
to $400,000 in exchange therefor, which payment shall be made by Medisys
promptly after the Effective Date and (b) the outstanding loans by Mr. Robinson
and Mr. Robert Priddy to the Company in the original principal amounts of
$1,700,000 and $500,000, re-
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spectively, shall be repaid by Medisys by (i) making a cash payment to Mr.
Robinson of $1,200,000, plus all accrued and unpaid interest, and the issuance
to Mr. Robinson of Medisys ordinary shares, par value 1p per share, having a
value equal to $500,000 and (ii) making a cash payment to Mr. Priddy of all
accrued and unpaid interest on his loan and the issuance to Mr. Priddy of
Medisys ordinary shares, par value 1p per share, having a value equal to
$500,000, which payments and issuances shall be made promptly after the
Effective Date. The 50,000 warrants to purchase Common Stock held by Mr.
Robinson with an exercise price of $6.25 per share and the options to purchase
12,000 shares of Common Stock at an exercise price of $6.00 per share shall be
canceled on the Effective Date for no consideration. The 50,000 warrants to
purchase Common Stock held by Mr. Priddy with an exercise price of $6.25 per
share, the options to purchase 300,000 shares of Common Stock (100,000 of which
are fully vested at this time) at an exercise price of $4.00 per share and the
option to purchase 12,000 shares of Common Stock at an exercise price of $6.00
per share shall be canceled on the Effective Date for no consideration.
Additionally, all employee stock options held by Mr. Robert Huffstodt, a
director and President of the Company, as well as all employee stock options
held by the other officers and employees of the Company will be converted, on
the same terms and conditions of the existing options, into the right to
purchase Medisys ordinary shares. The total number of outstanding options, both
vested and unvested, held by the officers and directors of the Company as of the
date hereof, including those described above, is 404,600 (or approximately 11.4%
of the outstanding on a fully-diluted, as-converted basis), 180,050 of which are
exercisable within 60 days of the Record Date. Furthermore, pursuant to the
Merger Agreement, Medisys and Merger Sub have agreed to cause the Surviving
Corporation to continue to indemnify the present and former officers and
directors of Lukens to the fullest extent provided under Lukens' Articles of
Incorporation and Bylaws, as in effect on the date of the Merger, for a period
of three years following the Effective Date.
MARKET INFORMATION REGARDING LUKENS' COMMON STOCK
Lukens Common Stock has been quoted on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system under the symbol "LUKN"
since May 6, 1992. The Common Stock has also been listed on the Pacific Stock
Exchange under the symbol "LKN" since May 6, 1992.
The following table sets forth the range of high and low bid prices for the
Common Stock for the periods indicated, as reported by NASDAQ, the principal
system or exchange on which such securities are quoted or traded. The quotations
represent "inter-dealer" prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH ($) LOW ($) HIGH ($) LOW ($)
---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Quarter ended Quarter ended
March 31, 1997 8 3/4 4 1/2 March 31, 1996 3 11/16 1 7/16
Quarter ended Quarter ended
June 30, 1997 6 3/4 5 1/2 June 30, 1996 3 5/16 2 5/8
Quarter ended Quarter ended
September 30, 1997 6 1/8 3 3/4 September 30, 1996 3 9/16 2 9/16
Quarter ended Quarter ended
December 31, 1997 5 1/4 1 1/2 December 31, 1996 4 9/16 3
Fiscal Quarter Ending
March 31, 1998 3 3/8 1 5/8
Fiscal Quarter Ending
June 30, 1998 3 9/16 2 1/2
</TABLE>
3
<PAGE>
On April 28, 1998, the day prior to the date of public announcement of the
proposed Merger, the closing bid and asked prices of the Lukens Common Stock
were $2 13/16 and $3, respectively, as reported on the NASDAQ system. As of July
30, 1998, the closing bid and asked prices of the Lukens Common Stock were $3
and $3 1/4, respectively, as reported on the NASDAQ system.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Each Lukens stockholder will generally recognize gain or loss, for federal
income tax purposes, in an amount equal to the difference between the amount of
cash received by such stockholder for his or her shares of Lukens Common Stock
pursuant to the Merger and the adjusted tax basis in such shares. Lukens
stockholders should read carefully the discussion under "Factors to be
Considered -- Certain Federal Income Tax Consequences" and are urged to consult
their own tax advisors as to the tax consequences of the Merger to them under
federal, state, local or any other applicable law.
REGULATORY APPROVALS
Lukens is not aware of any governmental or regulatory approvals required
for consummation of the Merger other than the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware. See "Factors to be
Considered -- Regulatory Approvals."
EFFECTIVE DATE
Under the Merger Agreement, the required filing of the Certificate of
Merger is expected to be made as soon as practicable after the satisfaction or
waiver of all conditions to the Merger, including the approval of the Merger
Agreement by the stockholders of Lukens at the Special Meeting. The Merger will
be effective as of the date and time of filing of a Certificate of Merger with
the Secretary of State of the State of Delaware in accordance with the DGCL or
at such time thereafter as provided in such Certificate of Merger (the
"Effective Date"). See "Merger Agreement -- The Merger."
CONDITIONS TO THE MERGER
The obligations of Lukens, Merger Sub and Medisys to consummate the Merger
are subject to the approval of the Merger by the stockholders of Lukens. The
Merger also is subject to certain other customary closing conditions that may be
waived by the parties, subject to applicable law and certain limitations imposed
by the Merger Agreement. Lukens does not presently intend to waive any such
conditions although it reserves the right to do so. See "Merger Agreement --
Conditions to the Merger."
TREATMENT OF STOCK OPTIONS
Each outstanding option to purchase Lukens Common Stock under Lukens'
employee stock option plan shall be assumed by Medisys at the Effective Date,
and each such option shall become, on the same terms and conditions of the
existing option, an option to purchase a number of ordinary shares of Medisys,
par value 1p, equal to the number of shares of Lukens Common Stock subject to
each such option multiplied by the "Option Exchange Ratio" which is defined in
the Merger Agreement as the ratio of (x) $4.00 to (y) the U.S. dollar equivalent
of the average of the middle-market closing price per share of Medisys ordinary
shares on the Alternative Investment Market of the London Stock Exchange, as
shown in the "London Stock Exchange Daily Official List," for each of the ten
trading days ending two trading days prior to the Effective Date. See "Merger
Agreement -- The Merger."
4
<PAGE>
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Date by mutual written consent of Medisys, Lukens and
Merger Sub, or by either Lukens or Medisys in certain other circumstances, in
accordance with the termination provisions of the Merger Agreement, including,
without limitation, the right of Medisys to terminate the Merger Agreement at
any time prior to August 10, 1998 in the event that they fail to obtain a
commitment to obtain the necessary financing on terms acceptable to Medisys in
its sole discretion, and Lukens' ability to terminate the Merger Agreement at
any time after August 10, 1998 in the event that Medisys does not provide Lukens
with a letter affirming the fact that all necessary financing has been
committed. See "Merger Agreement -- Termination."
DISSENTERS' RIGHTS
Under Section 262 of the DGCL, stockholders who do not vote in favor of the
Merger Agreement nor consent thereto in writing, and file demands for appraisal
prior to the stockholder vote on the Merger Agreement and who otherwise comply
with the requirements of Section 262 of the DGCL, upon the consummation of the
Merger, have the right to obtain a cash payment for the "fair value" of their
shares of Lukens Common Stock. In order to exercise such rights, a stockholder
must comply with all the procedural requirements of Section 262 of the DGCL
("Section 262"), a description of which is provided in "Dissenters' Rights"
herein and the full text of which is attached to this proxy statement as Annex
C. Such "fair value" would be determined in judicial proceedings, the result of
which cannot be predicted. Failure to take any steps required under Section 262
may result in a loss of such dissenters' rights.
CANCELLATION OF STOCK CERTIFICATES
Promptly following the Effective Date, notice of consummation of the
Merger, together with a letter of transmittal for use in surrendering
certificates representing shares of Lukens Common Stock in exchange for the
Merger Consideration, will be mailed by a bank or trust company or such other
person designated by Medisys prior to the Effective Date as to the paying agent
(the "Paying Agent") to holders of shares of Lukens Common Stock. DO NOT
SURRENDER YOUR CERTIFICATES OF LUKENS COMMON STOCK UNTIL YOU RECEIVE AND
COMPLETE SUCH LETTER OF TRANSMITTAL. See "Merger Agreement -- The Merger."
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VOTING AT THE SPECIAL MEETING
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Lukens for the Special Meeting. At the
Special Meeting, the stockholders of Lukens will consider and vote on a proposal
to approve the Merger Agreement.
TIME, DATE AND PLACE OF MEETING
The Special Meeting will be held at 9:30 a.m. (local time) on September 24,
1998 at 101 Club, 101 Park Avenue, New York, New York.
RECORD DATE; VOTE REQUIRED
The Board of Directors of Lukens has fixed the close of business on August
14, 1998, as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Special Meeting.
Accordingly, only stockholders of record of Lukens at the close of business on
the Record Date have the right to receive notice of and to vote at the Special
Meeting and any postponement or adjournment thereof and will be entitled to one
vote for each share of Lukens Common Stock held. As of the Record Date, there
were 3,150,859 shares of Lukens Common Stock outstanding, held by approximately
83 holders of record.
As of the Record Date, the directors and executive officers of Lukens owned
885,857 shares of Lukens Common Stock (representing approximately 28.6% of the
total outstanding shares of Lukens Common Stock). See "Factors to be Considered
- -- -- Interests of Certain Persons in the Merger; Indemnification" and "Security
Ownership of Certain Beneficial Owners and Management of the Company." Pursuant
to the Merger Agreement and subject to the qualifications se forth therein, each
of Messrs. Robert L. Priddy, John H. Robinson and John P. Holmes have agreed
that from and after the date of the Merger Agreement until October 15, 1998, or
such earlier date as the Merger Agreement shall be terminated that he shall not
transfer or pledge his shares of Lukens Common Stock and he shall vote all of
his shares of Lukens Common Stock in favor of the Merger. See "Merger Agreement
- -- Certain Covenants -- Agreement of Principal Stockholders."
Under the DGCL, the affirmative vote of holders of a majority of the shares
of Lukens Common Stock outstanding as of the Record Date is required to approve
the Merger Agreement. Accordingly, abstentions and broker nonvotes will have the
effect of votes against the Merger Agreement.
The Board of Directors of Lukens unanimously determined on April 27, 1998,
that the Merger Agreement and the transactions contemplated thereby, taken as a
whole, are fair to, and in the best interests of, Lukens and its stockholders.
The Board of Directors of Lukens unanimously approved the Merger Agreement and
recommends approval of the Merger Agreement by Lukens' stockholders. Each of the
Boards of Directors of Medisys and Merger Sub, and Medisys, as the sole
stockholder of Merger Sub, have approved the Merger and the Merger Agreement.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of Common Stock is necessary to
constitute a quorum at the Special Meeting.
SOLICITATION, REVOCATION AND USE OF PROXIES
Shares of Lukens Common Stock represented by a properly executed proxy
received by Lukens will, unless such proxy is properly revoked prior to the
Special Meeting, be voted at the Special Meeting in accordance with the
instructions thereon. Shares of Lukens Common Stock represented by properly
executed proxies that do not contain instructions to the contrary will be voted
FOR approval of the Merger and in the discretion of the proxy holder as to any
other matter that may properly come before the Special Meeting or any
adjournment or postponement thereof. The Board of Directors of Lukens
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knows of no other business that will be presented for consideration at the
Special Meeting other than the proposal to approve the Merger. If other matters
should properly come before the meeting, the proxy holders will vote on such
matters in accordance with their best judgments. Proxies are being solicited
hereby on behalf of the Board of Directors of Lukens.
Any stockholder may revoke his or her proxy at any time before it is voted
by executing and delivering to the Secretary of Lukens, at Lukens' principal
executive offices as set forth above, an instrument of revocation or a proxy
bearing a later date, and by delivering a written notice to the Secretary of
Lukens stating that the proxy is revoked, or by voting in person at the Special
Meeting.
The cost of soliciting proxies, including the cost of preparing,
assembling, printing and mailing this Proxy Statement, the Proxy and any
additional soliciting materials furnished to stockholders, will be borne by the
Company and Medisys. Arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy materials to the
beneficial owners of stock, and such persons may be reimbursed for their
expenses. Proxies may be solicited by directors, officers or employees of the
Company in person or by telephone, telegram or other means. No additional
compensation will be paid for these services.
DISSENTERS' RIGHTS
Under Section 262 of the DGCL, stockholders who do not vote in favor of the
Merger Agreement not consent thereto in writing and file demands for appraisal
prior to the stockholder vote on the Merger Agreement and otherwise comply with
the requirements of Section 262 of the DGCL, upon the consummation of the
Merger, have the right to obtain a cash payment for the "fair value" of their
shares of Lukens Common Stock. In order to exercise such rights, a stockholder
must comply with all the procedural requirements of Section 262 of the DGCL
("Section 262"), a description of which is provided in "Dissenters' Rights"
herein and the full text of which is attached to this proxy statement as Annex
C. Such "fair value" would be determined in judicial proceedings, the result of
which cannot be predicted. Failure to take any steps required under Section 262
may result in a loss of such dissenters' rights. Pursuant to the Merger
Agreement, the obligations of Medisys and Merger Sub to effect the Merger is
subject the condition that the number of shares of Lukens Common Stock for which
written demand for appraisal has been properly made pursuant to Section 262 of
the DGCL shall not have exceeded 5% of the total number of shares of Lukens
Common Stock outstanding immediately prior to the Effective Date. See "Merger
Agreement -- Conditions to the Merger."
TRADING MARKET FOR AND MARKET PRICE OF LUKENS COMMON STOCK
On April 28, 1998, the day prior to the date of public announcement of the
proposed Merger, the closing bid and asked prices of the Lukens Common Stock
were $2-13/16 and $3, respectively, as reported on the NASDAQ system. As of July
30, 1998, the closing bid and asked prices of the Lukens Common Stock were $3
and $3 1/4, respectively, as reported on the NASDAQ system.
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FACTORS TO BE CONSIDERED
PURPOSES AND EFFECTS OF THE MERGER
The purpose of the Merger is to provide Lukens' stockholders with $4.00 in
cash for each share of Lukens Common Stock they hold and for Medisys, through
Merger Sub, to acquire all of the outstanding shares of Lukens Common Stock. For
information concerning the factors leading to the decision by Lukens to approve
the Merger and concerning alternatives to the Merger considered by Lukens, see
"Factors to be Considered -- Background of the Merger."
The acquisition of Lukens is structured as a cash merger. The Merger has
been structured as a cash merger in order to provide a prompt and orderly
transfer of ownership of the Company to Medisys and to provide the stockholders
of the Company with cash for all their shares.
If the Merger is consummated, the stockholders of the Company will no
longer have any equity interest in the Company, and therefore will not share in
its future earnings and growth. Instead, each such stockholder (other than such
stockholders who properly perfect appraisal rights in accordance with Section
262 of the DGCL) will receive, upon surrender of the certificate or certificates
evidencing Lukens Common Stock, the Merger Consideration in exchange for each
share of Lukens Common Stock owned immediately prior to the Effective Date. See
"Factors to be Considered -- Certain Effects of the Merger."
BACKGROUND OF THE MERGER
The Company's management periodically has investigated various alternatives
to enhance the value of the Company's Common Stock, including acquisitions by
the Company of other publicly or privately held firms, continuation of the
Company's growth internally, and strategic alliances with key vendors as well as
with other participants in the medical device industry. As of December 1997, the
Company's management and Board of Directors believed that the Company's
competitive position within the industry would be improved by a strategic
partnership or business combination with a larger company.
In August, 1997, Robert S. Huffstodt, the Company's President and Chief
Executive Officer, had been contacted by a competitor ("Company A") who
indicated an interest in acquiring the Company for cash. After two visits to the
Company, Company A invited Mr. Huffstodt and Mr. Priddy, the Company's Chairman,
to a meeting at Company A's offices. At this meeting, possible offers were
discussed; however valuations suggested by Company A were not sufficiently above
the current market price of the Lukens Common Stock to interest the Company's
Board of Directors. As the Company began discussions in earnest with other
parties in 1998, Company A was again contacted, however Company A declined to
participate in discussions at the valuations then being discussed with other
parties.
In December, 1997, after it was determined by the Board of Directors that
the Company should explore the option of being acquired in order to attempt to
maximize shareholder value, Mr. Huffstodt had a meeting with one of the
Company's larger customers ("Company B") to discuss a potential acquisition by
Company B. At that meeting, the parties discussed an acquisition of the Company
in its entirety, and alternatively, a purchase of only certain product lines. In
early January 1998, Company B indicated that it was only interested in acquiring
one product line, but that it was not prepared to pay the purchase price
suggested by that product line's share of the Company's revenues and earnings.
Accordingly, discussions were discontinued.
In December 1997, Robert L. Priddy, the Company's Chairman, was contacted
by a medical distribution company ("Company C") concerning a potential
acquisition of the Company. At a meeting at the Company's headquarters, Company
C's representatives performed preliminary due diligence in connection with the
potential acquisition of the Company by Company C. In January 1998, Mr. Priddy
met with Company C to discuss structural alternatives with respect to the
potential acquisition. The parties had no further significant discussions until
February 1998, when the Chairman of Company C contacted the Company and, at this
point, discussed acquiring the Company whereby each share of the Lukens Common
Stock outstanding would be exchanged for Company C stock with a stock market
value at the time in excess of the market value of the Lukens Common Stock as of
the date of such proposal.
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Mr. Priddy indicated that the Board of Directors would consider the
proposal, but that another party (Medisys) had expressed interest in the
Company, and had offered to purchase all of the outstanding shares of the Lukens
Common Stock for cash. Thus, unless the price offered by Company C was greater
than the per share cash consideration offered by such other party, the Company
would most likely accept the cash offer. Company C replied that it would
consider this point and respond later. The following day, Company C revised its
proposal for a share exchange and increased the value of the stock to be offered
for each share of the Lukens Common Stock. Mr. Priddy then contacted members of
the Board, who unanimously stated that they still believed the cash offer to be
superior, based partly on the fact that Company C's stock was not traded on a
national stock exchange or the NASDAQ National Market and there were risks
associated with its liquidity and price fluctuations. Mr. Priddy contacted
Company C, which declined to increase its offer further.
In January 1998, the Company was contacted by representatives of Medisys,
who asked for a meeting to discuss a strategic product alliance. At the meeting
held at the Company's headquarters, Medisys' representatives also indicated that
they had been following the Company for a number of months, and that they had
great respect for the Company's management team, and would be interested in
conducting acquisition discussions with the Company if the Company were
interested. The Company's Board of Directors and the Medisys representatives
held further discussions regarding such acquisition. In early February, 1998,
Medisys offered to purchase all of the outstanding shares of the Lukens Common
Stock at a purchase price of $4.00 per share. At the time the Company received
the offer from Medisys, the Company issued a press release and a Current Report
on Form 8-K to publicly announce the $4.00 per share offer and the fact that it
was then in negotiations regarding a sale of the Company. From the time of the
public announcement to the signing of the Merger Agreement with Medisys, the
Company did not receive any higher or better offers for the Company or its
assets.
Although there was no definitive agreement on the terms of a potential
transaction, Medisys began to conduct its due diligence review of the Company,
with various Medisys officials and professional consultants visiting the
Company's facilities on several occasions throughout March, April, and May,
1998. In March and April 1998, as a sign of good faith, Medisys purchased 75,000
shares of Common Stock from the Company for $4.00 per share in cash in private
transactions with the Company.
In late March 1998, Lukens was contacted by an independent agent
representing a principal in the medical device industry ("Company D"). Company D
was interested in entering the U.S. market for certain of the Company's product
lines. After an exchange of confidentiality agreements and preliminary
discussions about the status of the Company's negotiations with Medisys, Company
D indicated it would not be pursuing the discussions further.
In late April, the Company was contacted by a party interested in acquiring
only certain product lines from the Company. Since the price offered was not
sufficient to adequately address the Company's liquidity problems, and in any
event, the funding of the party was not firm, the Company rejected the offer,
which has not been subsequently raised.
Medisys delivered drafts to the Company of the Merger Agreement on April 1,
1998. Shortly thereafter, representatives of Lukens, Medisys and their legal
advisors began negotiating the definitive agreement.
The Company's Board of Directors met by conference call on April 27, 1998,
after having received a copy of the most recent draft of the Merger Agreement.
The Board then proceeded to discuss whether the Merger was in the best interest
of the Company and its stockholders. In connection therewith, the Board
discussed various aspects of, and factors pertaining to, the Merger. The Board
discussed at length various issues regarding the Merger including that the
Merger would be structured as a cash merger whereby the stockholders of the
Company would have the right to receive $4.00 for each outstanding share of
Lukens Common Stock, and in connection with such Merger, certain warrants,
options and debt instruments would be canceled and in some circumstances, the
holders thereof would receive cash consideration therefor. The Board considered
and discussed the possible interest in the transaction of Mr. John Robinson, a
director of the Company and Mr. Priddy, as the Merger Agreement contemplates
repayment of certain indebtedness owed by the Company to Messrs. Robinson and
Priddy upon the
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consummation of the Merger. Messrs. Robinson and Priddy agreed to excuse
themselves from the deliberations, but it was decided by the other members of
the Board not to be necessary as they were all fully aware of their personal
interest in the transaction.
The Board also discussed the fact that pursuant to the Merger Agreement,
Medisys was given a very broad financing contingency through June 30, 1998, that
is, Medisys could terminate the Merger Agreement at any time prior to June 30,
1998 if they failed to raise financing to fund the Merger and other costs on
terms acceptable to them in their sole discretion. The Board also discussed the
fact that Medisys was also to be granted a right to terminate the Merger
Agreement at any time prior to May 15, 1998 if its due diligence investigation
of the Company did not prove to be satisfactory.
The Board then discussed the reasons for the sale and considered and
discussed various alternatives to the Merger that could possibly enhance the
value of the Lukens Common Stock, including a sale of the stock or assets of the
Company to other publicly or privately held entities, continuation of the
Company's growth internally and strategic alliances with other participants in
the medical supply industry. Specifically, the Board discussed previous offers
made for the Company and its assets and determined the offer by Medisys to be
superior to the others. The Board also discussed the Company's current liquidity
problems and the existence of certain payment and financial covenant defaults
under its line of credit with its lending bank. Mr. Huffstodt reported that,
based upon discussions, the Company's lending bank had agreed to waive the
Company's existing defaults under the Company's bank facility and amend certain
of its financial covenants, subject to the execution of the Merger Agreement
with Medisys and the closing of the Merger.
It was then determined that the Board would retain an investment banking
firm to prepare a fairness opinion in respect of the consideration to be
received in the Merger. The Company' legal counsel explained to the Board that
they could terminate the Merger Agreement at any time prior to the expiration of
the three week period from the date the Merger Agreement was signed if it did
not receive an acceptable fairness opinion within such time period. It was
discussed that either Sands Brothers or another investment banking firm with
previous experience with and knowledge about the Company should be retained to
provide the fairness opinion due to their familiarity with the Company. Mr.
Priddy fully disclosed to all of the Board members his relationship with the
other possible investment banking firm and it was determined that such
relationship would not have any impact on the quality of the fairness opinion to
be received from such other firm. It was determined that each of these firms
should be contacted by the Board to determine if they could provide a fairness
opinion within the requisite time period and at a reasonable price.
The Company's legal counsel summarized and reviewed for the Board the
proposed terms of the Merger and various provisions of the Merger Agreement to
be executed in connection therewith. The Company's counsel pointed out various
positive and negative aspects of the Merger, including the existence of a
financing contingency for Medisys.
Based upon its discussions, the Board determined that in light of the
current circumstances and future prospects of the Company, the Merger and the
Merger Agreement and the transactions contemplated thereby, taken as a whole,
were fair to and in the best interest of the Company and the stockholders of the
Company. The Board approved the Merger Agreement, but retained the right to
terminate the Merger Agreement (as set forth therein) if the Company did not
receive a fairness opinion acceptable to the Board indicating that the
consideration to be received by the stockholders of the Company was fair from a
financial point of view. See "Merger Agreement -- Termination." The Merger
Agreement was executed on April 28, 1998.
During the week of May 1, 1998, the Company retained Sands Brothers to
render an opinion to the Company's Board as to the fairness, from a financial
point of view, of the consideration to be received by the stockholders in the
proposed transaction with Medisys. The Board decided to retain Sands Brothers
over the other investment banking firm after considering Sands' Brothers
experience, expertise and reputation in the industry, and the fact that Sands
Brothers offered to complete its analysis of the Merger and to deliver its
fairness opinion in a shorter period of time and for a lower fee than the other
investment banking firm. Such fairness opinion was issued to the Company on May
15, 1998. See "Factors to be Considered -- Opinion of Financial Advisor."
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In July, 1998, Medisys purchased an additional 57,500 shares of Common
Stock from the Company for $4.00 per share in cash in private transactions with
the Company.
In May, 1998, Medisys, the Company and Merger Sub entered into a Letter
Agreement pursuant to which the parties agreed to waive and modify certain terms
set forth in Section 11.4 of the Merger Agreement. In June, 1998, Section 11.4
was again modified pursuant to letter agreement among Medisys the Company and
Merger Sub. In July, 1998, Medisys, the Company and Merger Sub entered into a
letter agreement pursuant to which the parties agreed to waive and modify
certain terms set forth in Sections 11.3 and 11.4 of the Merger Agreement. In
August 1998, the parties entered into Amendment No. 1 to the Merger Agreement
whereby the parties agreed to extend various target dates set forth in the
Merger Agreement, including the closing date.
RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE MERGER
The proposed Merger transaction was negotiated by the Board of Directors on
an arms-length basis with Medisys, a third party unaffiliated with Lukens or any
member of the Board of Directors or management. The Board of Directors of Lukens
has unanimously determined that the Merger Agreement and the transactions
contemplated thereby, taken as a whole, are fair to, and in the best interests
of, Lukens and its stockholders, and unanimously recommends approval of the
Merger by Lukens's stockholders. The Board based its recommendation on a number
of factors, including the following:
(i) The Board determined that the purchase price per share of Lukens
Common Stock is fair to the stockholders of the Company. This determination
was based on the directors' assessment of the Company's value considering
the following factors taken as a whole: the recent and anticipated stock
market valuation of the Company's publicly-traded stock in the absence of
the Merger, the Company's current and anticipated operations and
performance, the current and anticipated opportunities in the markets for
the Company's products and in the medical products market generally, and
the analysis and fairness opinion presented by Sands Brothers. The purchase
price per share of Lukens Common Stock represents a premium over prices at
which the Company's stock was trading immediately prior to the public
announcement of the Merger and expected future prices.
(ii) The Board reviewed and analyzed the alternatives to the Merger,
including: (a) the continuation of the Company's operation as a stand alone
entity; (b) the availability of other potential business partners or
strategic alliances; and (c) the probability that another form of corporate
restructuring would yield a comparable value to the stockholders of the
Company. Specifically, the directors analyzed the opportunities and risks
associated with these alternatives in light of the current and projected
difficulties in the worldwide medical products market, together with the
stock market's perception of that industry. The Board concluded that due to
the Company's chronic working capital deficiency, and its inability to
raise adequate funding from outside sources, the Company would have a very
difficult time sustaining its growth. On past occasions, members of the
Board engaged in preliminary discussions with various financing sources,
but was unable to solicit any serious interest with respect to equity or
debt cash investments on terms acceptable to the Company. As a result, the
Company was reliant upon certain of its directors to provide growth
financing for the Company. See, "Management's Discussion and Analysis of
Lukens' Financial Condition and Results of Operations, Liquidity and
Capital Resources." The Board also believed that other potential corporate
partnerships or alliances, if available at all, would be, at best, complex
and time consuming to structure and, in any event, difficult to achieve.
(iii) The Board's belief that the terms of the Merger Agreement were
attractive to the Company and its stockholders. Particularly, the Board
noted the benefits of an all cash purchase price which was determined by
the Board to be superior to a stock proposal due to the certainty provided
by cash versus receipt of an illiquid or volatile security, despite the
fact that the receipt of cash for shares would be currently taxable to the
stockholders.
(iv) The fact that Lukens has experienced significant volatility in
its share prices due, in part, to occasional earnings fluctuations, and the
fact that future earnings fluctuations could result in decreased stock
prices for Lukens. Such lower stock prices could further result in (i)
difficulty for
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Lukens to continue growth through acquisitions, (ii) difficulty in
designing appropriate equity incentive arrangements for the Company's
employees, and (iii) the need for management to focus attention on
short-term operating results rather than building long-term value for
stockholders.
(v) The fact that during the two month period during which Lukens
actively had responded to potential collaboration or acquisition
opportunities, and since February 22, 1998 when Lukens issued a press
release that it had received an offer to purchase the Company at a price of
$4.00 per share, Lukens received no other acquisition proposal, offer or
collaboration opportunity that, in the Board's judgment, offered a more
favorable opportunity for the Company and its stockholders than the Merger,
even though Lukens had given early indications to likely candidates that
Lukens would consider an acquisition offer.
(vi) The Board's review of the Merger Agreement, including the
provisions permitting Lukens to respond to unsolicited inquiries and
proposals from, provide any confidential information to, and participate in
any discussions and negotiations with, third parties concerning mergers or
similar transactions with Lukens to the extent required to satisfy the
fiduciary duties of its directors, subject to Lukens's obligation to pay
Medisys a $500,000 breakup fee under certain circumstances.
(vii) The conditions to the closing of the Merger and the Board's
determination that such conditions could reasonably be expected to be
satisfied.
(viii) The opinion of Sands Brothers to the effect that, and based
upon and subject to certain matters stated in such opinion, the Merger
Consideration was fair, from a financial point of view, to holders of
Lukens Common Stock. See "Factors to be Considered -- Opinion of Financial
Advisor."
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Lukens Board did not find it practicable to, and
did not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its decisions.
Subsequent to announcement of the proposed Merger, the trading prices of
Lukens's Common Stock have approached the proposed Merger Consideration. See
"Market Information Regarding Lukens Common Stock." The Company believes this
appreciation in price to be due in part to market expectations that the proposed
Merger will be consummated and to be typical of companies that have announced
pending acquisitions and for which there is an active trading market.
Accordingly, the Merger Consideration may represent little or no premium to the
trading prices of Lukens Common Stock at or near the time of the Merger.
OPINION OF FINANCIAL ADVISOR
On May 1, 1998, Sands Brothers was retained by Lukens to render an opinion
as to the fairness, from a financial point of view, to the holders of Lukens
Common Stock of the consideration to be received by such holders in the Merger.
At a meeting of the Lukens Board held on April 27, 1998, to evaluate the
Proposed Merger, the Board discussed that it would retain either Sands Brothers
or a different named investment banking firm to deliver a fairness opinion based
on the fact that each firm was familiar with the Company. In addition, pursuant
to the Merger Agreement, Lukens agreed to engage such investment bank to deliver
the Fairness Opinion within three weeks of the date of the Merger Agreement (the
"Fairness Opinion Period"), and that in the event that Sands Brothers or another
investment bank satisfactory to the Board was unable to deliver the Fairness
Opinion due to the inadequacy of the value of the Merger Consideration, the
Company had the right to terminate the Merger Agreement.
In arriving at its opinion, Sands Brothers reviewed the Merger Agreement
and held discussions with certain senior officers, directors and other
representatives and advisors of Lukens concerning the business, operations and
prospects of Lukens. A representative of Sands Brothers visited the Company to
review current operations and meet firsthand with members of the management
team. Sands Brothers also discussed the terms of the Merger Agreement with
management, and reviewed the Board minutes approving the Merger Transaction. In
addition, Sands Brothers discussed the proposed transaction and the Company's
operations with members of the management team at Medisys PLC. Sands Brothers
also
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reviewed the Company's public SEC filings, including its audited and interim
financial statements for 1996 and 1997. In conjunction with its review of the
financial statements, Sands Brothers reviewed the financial performance and
financial ratios relating to the Company's operations. It also reviewed the
financial projections provided by the Company, and discussed these projections
with various members of the management team to determine how realistic the
execution of said projections would be. In looking at the projected financial
performance that it believed the Company was capable of achieving, Sands
Brothers performed a cash flow analysis of the projected operations in order to
evaluate the capital structure and cash needs of the Company necessary to
achieve this level of performance. The analysis of the Company's future
liquidity needs were based upon historical levels of sales growth and future
purchase commitments from customers, historical receivables collections,
supplier payment patterns, and the available credit of the Company.
Sands Brothers evaluated possible levels of performance for the Company
both as an independent company and as a division of Medisys. In reviewing these
projections, Sands Brothers evaluated the possible future performance of the
Company's Common Stock based on the achievable performance of the Company if it
were to remain an independent entity in comparison to the cash offer from
Medisys. Sands Brothers also performed an evaluation of the historical and
trading price of Lukens Common Stock in comparison to the Medisys offer. Sands
Brothers noted the following factors: (i) over the lifetime of trading history
of Lukens' Common Stock, prices have ranged from a historical low of $1 in April
1995 to a historical high of $8 1/4 in February 1997, (ii) the Common Stock has
not traded in a range above the offered price of $4 per share since October 1997
and (iii) the offer price of $4 per share represents a 33% appreciation in the
current price of the Common Stock of $3 per share.
Sands Brothers also looked at the valuation of comparable medical products
companies in relation to both the current and potential future valuation of
Lukens' stock, as well as in relation to the cash tender offer from Medisys. It
also reviewed the terms of several recent acquisitions in the medical products
industry, and compared the valuation of such companies under these acquisitions
to the valuation of Lukens both in the public markets and under the proposed
acquisition by Medisys. In conjunction with the above-mentioned analyses, Sands
Brothers considered the historical performance of the Company's stock, both
independently and in relation to other comparable companies. Using publicly
available information, Sands Brothers analyzed, among other things, the market
values and trading multiples of the Company and the following selected publicly
traded companies in the medical products industry: (i) LifeQuest Medical, (ii)
Luther Medical, (iii) U.S. Surgical Corp. and (iv) Univec, Inc. Sands Brothers
compared market values as a multiple of revenues, EBITDA and net income. It was
determined by Sands Brothers that the revenue multiple calculation was the most
applicable frame of reference for valuing the transaction, because two of the
comparable companies had negative EBITDA, and three of the comparable companies,
as well as the Company itself, had negative earnings. Sands Brothers deduced
that based on market capitalization to revenues, the comparable companies had an
average multiple of 2.11. Sands Brothers compared this multiple to a multiple
for Lukens of 1.08 at the current stock price of $3 per share, and a multiple of
1.44 at the offered price of $4 per share.
Using publicly available information, Sands Brothers analyzed, among other
things, the implied transaction value multiples paid in selected transactions in
the medical products industry, consisting of (acquirer/target): Elan/Neurex,
Respironics/Healthdyne, Engelhard/Catalyst unit of MKG, Interpore/ Cross Medical
and Sulzer Medical/Spine-Tech. Of these five transactions, a core group
consisting of Respironics, Engelhard and Interpore were determined by Sands
Brothers to be the most directly comparable to the proposed transaction. Sands
Brothers compared the total consideration paid in these transactions as a
multiple of the latest twelve month revenues (prior to the acquisition) and
value of assets acquired. For the core acquisitions, average multiples of 2.47
for consideration/revenues and 2.85 for consideration/assets were found. These
multiples compared to proposed multiples in the Lukens transaction of 1.14 times
consideration/revenues and 1.12 times consideration/assets.
In rendering its opinion, Sands Brothers assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Sands Brothers. Sands Brothers did not make and
was not provided with an independent evaluation or appraisal of the assets of
the Company.
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The full text of the written opinion of Sands Brothers dated May 15, 1998,
which sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached hereto as Annex B and should be read carefully in
its entirety. The opinion of Sands Brothers is directed to the Board of
Directors of Lukens and relates only to the fairness of the Merger Consideration
from a financial point of view, does not address any other aspect of the Merger
or related transactions and does not constitute a recommendation to any
stockholder as to how such stockholder should vote at the Special Meeting. The
summary of the opinion of Sands Brothers set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of such opinion.
In preparing its opinion, Sands Brothers performed a variety of financial
and comparative analyses, including those described above and below. The summary
of such analyses does not purport to be a complete description of the analyses
underlying Sands Brothers' opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, Sands Brothers
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying such analyses and opinion. In its analyses, Sands Brothers made
numerous assumptions with respect to the Company, industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of the Company. The estimates contained in such
analyses and the valuation ranges resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. No company,
transaction or business used in the above-referenced analyses as a comparison is
identical to Lukens or the proposed acquisition by Medisys. Accordingly, an
analysis of the results of the foregoing is not entirely mathematical; rather it
involves complex considerations and judgements concerning differences in
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the selected companies, selected
transactions or the business segment, company or transaction to which they are
being compared. Sands Brothers' opinion and analyses should not be viewed as
determinative of the views of the Board of Directors or management of Lukens
with respect to the Merger Consideration or the proposed Merger.
After careful analysis of the financial position of the Company as a
stand-alone company, it was determined by Sands Brothers that the offered price
of $4 per share was fair, from a financial point of view, to the stockholders of
the Company. Although it was determined that the demand would exist for the
Company's projected level of sales, it was also determined by Sands Brothers
that, in order to achieve that level of sales, the Company would need to obtain
a significant amount of additional capital. Sands Brothers noted that without a
significant amount of additional capital, the future operating results of the
Company would be less than the projected operating results, and as a result, the
Company would deserve a discount to the multiple valuation enjoyed by comparable
companies whose capital resources are significantly greater than that of the
Company. In its review of the Company's current financial position, it appeared
to Sands Brothers that the completion of the proposed acquisition by Medisys
would be the most viable means for the Company to obtain the necessary capital
to finance the projected operating results. As the current offer represents a
33% premium to the stockholders based on the current stock price, Sands Brothers
has determined that the offered price of $4 per share is fair to the
stockholders from a financial point of view.
Pursuant to the terms of Sands Brothers' engagement, the Company has agreed
to pay Sands Brothers an opinion fee of $60,000 for its services in rendering
the Fairness Opinion in connection with the Merger. The Company has also agreed
to indemnify Sands Brothers and related persons against certain liabilities,
including liabilities under the federal securities laws, arising out of Sands
Brothers' engagement.
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Sands Brothers has advised Lukens that, in the ordinary course of business,
Sands Brothers and its affiliates may actively trade or hold the securities of
Lukens and Medisys for their own account or for the account of customers and,
accordingly, may at any time hold a long or short position in such securities.
Sands Brothers and its affiliates may maintain relationships with the Company
and Medisys and their respective affiliates.
Sands Brothers is a recognized investment banking firm and was selected by
Lukens based on its experience and expertise. Sands Brothers regularly engages
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate and other purposes.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; INDEMNIFICATION
In considering the recommendations of Lukens's Board of Directors with
respect to the Merger, stockholders should be aware that certain members of
Lukens's management and Board of Directors have certain interests in the Merger
that are in addition to or different from the interests of the public
stockholders. The Board of Directors of Lukens was aware of these interests and
considered them, among other things, in approving the Merger Agreement. Pursuant
to the Merger Agreement, on the Effective Date, (a) warrants to purchase 400,000
shares of Lukens Common Stock at an exercise price of $1.10 per share held by
Mr. John Robinson, a director of the Company, are to be canceled and in lieu
thereof, Mr. Robinson shall have the right to payment in cash equal to $400,000
in exchange therefor, which payment shall be made by Medisys promptly after the
Effective Date and (b) the outstanding loans by Mr. Robinson and Mr. Priddy to
the Company in the original principal amounts of $1,700,000 and $500,000,
respectively, shall be repaid by Medisys by (i) making a cash payment to Mr.
Robinson of $1,200,000, plus all accrued and unpaid interest, and the issuance
to Mr. Robinson of Medisys ordinary shares, par value 1p per share, having a
value equal to $500,000 and (ii) making a cash payment to Mr. Priddy of all
accrued and unpaid interest on his loan and the issuance to Mr. Priddy of
Medisys ordinary shares, par value 1p per share, having a value equal to
$500,000, which payments and issuances shall be made promptly after the
Effective Date.
The 50,000 warrants to purchase Common Stock held by Mr. Robinson with an
exercise price of $6.25 per share and the options to purchase 12,000 shares of
Common Stock at an exercise price of $6.00 per share shall be canceled on the
Effective Date for no consideration. The 50,000 warrants to purchase Common
Stock held by Mr. Priddy with an exercise price of $6.25 per share, the options
to purchase 300,000 shares of Common Stock at an exercise price of $4.00 per
share and the option to purchase 12,000 shares of Common Stock at an exercise
price of $6.00 per share shall be canceled on the Effective Date for no
consideration. Mr. Robinson's consulting agreement with the Company will be
terminated as of the Effective Date.
Additionally, Mr. Robert S. Huffstodt, President, Chief Executive Officer
and a Director of the Company, as well as each of the other officers and
employees of the Company, will have all of the employee stock options held by
them converted into the right to purchase a number of ordinary shares of
Medisys, par value 1p, equal to the number of shares of Lukens Common Stock
subject to each such option multiplied by the Option Exchange Ratio (as defined
in the Merger Agreement) (the "Substitute Options"). The Substitute Options
shall have a per share exercise price equal to the current exercise price per
share of Lukens Common Stock divided by the Option Exchange Ratio, and each
Substitute Option otherwise shall after the Effective Date be subject to all of
the other terms and conditions of the original option to which it relates.
Each of Messrs. Robinson, Priddy and Holmes (also a director of the
Company) agreed pursuant to the Merger Agreement not to sell or otherwise
transfer or encumber any shares of Lukens Common Stock and vote all such shares
in favor of the Merger. Such obligation expires on October 15, 1998, or such
earlier date as the Merger Agreement shall terminate.
The Merger Agreement also provides that the Company shall indemnify, and
after the Effective Date, the Surviving Corporation shall indemnify the
officers, directors and employees of the Company and its Subsidiaries who were
such at any time prior to the Effective Date from and against all losses,
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expenses, claims, damages or liabilities arising out of the transactions
contemplated by the Merger Agreement occurring before the Effective Date to the
fullest extent permitted or required under applicable law; provided, however,
that such indemnification shall not be available with respect to Losses arising
out of the failure of the Company to obtain the Fairness Opinion. In addition,
Medisys has agreed that all rights to indemnification existing in favor of the
directors, officers or employees of the Company as provided in the Company's
Certificate of Incorporation or By-Laws, as in effect as of the date of the
Merger Agreement, with respect to matters occurring through the Effective Date,
shall survive the Merger and shall continue in full force and effect for a
period of not less than three years from the Effective Date. See "Merger
Agreement -- Certain Covenants -- Indemnification."
There are no post-Merger employment agreements currently anticipated to be
entered into with management. However, the existing employment agreement between
the Company and Robert Huffstodt, a director and the President of the Company
will remain in place and will be unaffected by the transactions contemplated by
the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase in accordance with GAAP.
From and after the Effective Date, Lukens's results of operations will be
included in Medisys' consolidated results of operation.
CERTAIN EFFECTS OF THE MERGER
Upon consummation of the Merger, Merger Sub will be merged with and into
the Company, the separate corporate existence of Merger Sub will cease, and the
Company will continue as the Surviving Corporation. Medisys will own all of the
outstanding shares of common stock of the Surviving Corporation and will be
entitled to all of the benefits and detriments resulting from that interest,
including all income or losses generated by the Surviving Corporation's
operations and any future increase or decrease in the Surviving Corporation's
value. After the Effective Date, the present holders of the Lukens Common Stock
will no longer have any equity interest in the Company, will not share in the
results of operations of the Surviving Corporation and will no longer have
rights to vote on corporate matters. The Company is currently subject to the
information filing requirements of the Exchange Act, and in accordance
therewith, is required to file reports and other information with the SEC
relating to its business, financial statements and other matters. As a result of
the Merger, the Company will become a wholly-owned subsidiary of Medisys and
there will cease to be any public market for the Lukens Common Stock, and after
the Effective Date, the Lukens Common Stock will be delisted from the Nasdaq
Stock Market. Upon such event, the Surviving Corporation will apply to the SEC
for the deregistration of the Lukens Common Stock under the Exchange Act. The
termination of the registration of the Lukens Common Stock under the Exchange
Act would make certain provisions of the Exchange Act (including the proxy
solicitation provisions of Section 14(a), and the short swing trading provisions
of Section 16(b)), no longer applicable to the Surviving Corporation.
Additionally, upon the termination of the registration of the Common Stock under
the Exchange Act, the Lukens Common Stock will no longer constitute "margin
securities" under the regulations of the Board of Governors of the federal
Reserve System.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal federal income tax consequences
relating to the Merger based on the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and applicable regulations, rulings and judicial
authority as in effect on the date of this Proxy Statement. Subsequent changes
in the law could alter the federal income tax consequences of the Merger.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR
GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON PRESENT LAW. BECAUSE
INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER IS URGED TO CONSULT SUCH
STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES
DISCUSSED BELOW TO SUCH STOCKHOLDER AND THE PARTICULAR TAX EFFECTS OF THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
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The receipt by a stockholder of cash for shares of Lukens Common Stock
pursuant to the Merger (including any cash amounts received by dissenting
stockholders pursuant to the exercise of appraisal rights) will be a taxable
transaction for federal income tax purposes under the Code and also may be a
taxable transaction under applicable state, local and other tax laws. The tax
consequences of such receipt may vary depending upon, among other things, the
particular circumstances of the stockholder. A stockholder will generally
recognize gain or loss equal to the difference between the amount of cash
received by the holder pursuant to the Merger in exchange for his or her shares
and the stockholder's adjusted tax basis in such shares. Gain or loss will be
calculated separately for each block of shares (i.e., shares acquired in a
single transaction at the same price). Such gain or loss generally will be
capital gain or loss if the shares are a capital asset in the hands of the
stockholder and will be long-term gain or loss if the shares have a holding
period of more than one year at the time of their conversion at the Effective
Date. Long-term capital gain recognized by an individual stockholder will be
taxed at the lowest rates applicable to capital gains if the stockholder has
held the shares of Common Stock for more than eighteen months. Certain
limitations apply with respect to the deductibility of capital losses.
The receipt of cash by a stockholder pursuant to the Merger may be subject
to backup withholding at the rate of 31% unless the stockholder (i) is a
corporation or comes within other exempt categories, or (ii) provides a
certified taxpayer identification number on Form W-9 and otherwise complies with
the backup withholding rules. Backup withholding is not an additional tax; any
amounts so withheld may be credited against the federal income tax liability of
the stockholder subject to the withholding.
This tax discussion is included for general information only. This
discussion applies only to stockholders holding shares of Lukens Common Stock as
capital assets, and to stockholders holding shares of Lukens Common Stock
received pursuant to the exercise of employee stock options or otherwise as
compensation. This discussion does not apply to Lukens stockholders who are not
citizens or residents of the United States, to Lukens stockholders who are
tax-exempt or to other Lukens stockholders of special status.
REGULATORY AND OTHER APPROVALS
Lukens is not aware of any material governmental or regulatory requirements
to be complied with in connection with the Merger, other than the filing of
Certificate of Merger conforming to the requirements of the DGCL with the
Delaware Secretary of State. The Company conducts operations in a number of
foreign countries where regulatory filings may be required as a result of the
Merger. The Company will make such filings as it deems necessary or appropriate.
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MERGER AGREEMENT
The following is a brief summary of the Merger Agreement, a copy of which
is attached as Annex A to this Proxy Statement and is incorporated herein by
reference. Although the material provisions of the Merger Agreement set forth in
this Proxy Statement have been summarized accurately, the statements made herein
concerning such document are not necessarily complete, and reference is made to
the full text of the Merger Agreement attached hereto as Annex A. Each such
statement is qualified in its entirety by such reference. Capitalized terms that
are not otherwise defined in this summary have the meanings set forth in the
Merger Agreement.
THE MERGER
The Merger Agreement provides that, upon the terms and subject to the
satisfaction or waiver of certain conditions set forth therein, Merger Sub will
be merged with and into Lukens, the separate corporate existence of Merger Sub
will cease and Lukens will continue as the Surviving Corporation. The Merger
will become effective on the Effective Date upon the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware in accordance
with the DGCL.
The Merger Agreement also provides that: (i) the Articles of Incorporation
of Merger Sub, as in effect immediately prior to the Effective Date, will
thereafter be the Articles of Incorporation of the Surviving Corporation; (ii)
the Bylaws of Merger Sub, as in effect immediately prior to the Effective Date,
will remain in effect on the Effective Date and will be the Bylaws of the
Surviving Corporation; and (iii) the directors of Merger Sub immediately prior
to the Effective Date shall be the directors of the Surviving Corporation and
the officers of the Company immediately prior to the Effective Date shall be the
officers of the Surviving Corporation, in each case until their respective
successors are duly elected and qualified.
Pursuant to the Merger Agreement, on the Effective Date (i) each share of
Lukens Common Stock issued and outstanding immediately prior to the Effective
Date (other than shares of Lukens Common Stock held by stockholders, if any, who
properly exercise their dissenters' rights under Section 262 of the DGCL and
shares held by Medisys and its subsidiaries) will be canceled and converted into
the right to receive $4.00 in cash (the "Merger Consideration"), without
interest, upon surrender of the certificate evidencing such share in the manner
provided below and (ii) each share of Merger Sub Common Stock issued and
outstanding immediately prior to the Effective Date will be converted into and
become one validly issued, fully paid and nonassessable share of Common Stock of
the Surviving Corporation.
Shares of Lukens Common Stock that are outstanding immediately prior to the
Effective Date and which are held by holders who shall have not voted in favor
of the Merger or consented thereto in writing and who shall have demanded
properly in writing appraisal for such shares in accordance with Section 262 of
the DGCL and who shall not have withdrawn such demand or otherwise have
forfeited appraisal rights (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the Merger Consideration. Such
holders shall be entitled to receive payment of the appraised value of such
shares, except that all Dissenting Shares held by holders who shall have failed
to perfect or who effectively shall have withdrawn or lost their rights to
appraisal of such shares under such Section 262 shall thereupon be deemed to
have been converted into and to have become exchangeable, as of the Effective
Date, for the right to receive, without any interest thereon, the Merger
Consideration, upon surrender of the certificates evidencing such shares. See
"Dissenter's Rights."
Promptly after the Effective Date, an agent selected by Medisys (the
"Payment Agent") shall mail to each holder of shares of Lukens Common Stock
(other than Dissenting Shares) ("Certificates") a letter of transmittal and
instructions to effect the surrender of the Certificates in exchange for the
Merger Consideration. Each holder of Lukens Common Stock, upon surrender to the
Payment Agent of such holder's Certificates with the letter of transmittal, duly
executed, and such other customary documents as may be required pursuant to such
instructions, shall be paid the amount of cash to which such holder is entitled,
pursuant to the Merger Agreement, as payment of the Merger Consideration
(without any interest accrued thereon). Until so surrendered, each Certificate
shall after the Effective Date represent for all purposes only the right to
receive the Merger Consideration. At the Closing, Medisys shall
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deposit in trust with the Payment Agent, for the ratable benefit of the holders
of Lukens Common Stock (other than Dissenting Shares and shares held by Medisys
and its subsidiaries), the appropriate amount of cash to which such holders are
entitled pursuant to the Merger Agreement as payment of the Merger
Consideration. The Payment Agent shall, pursuant to irrevocable instructions,
make the payments to the holders of Lukens Common Stock as set forth in the
Merger Agreement. LUKENS STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES OR
INSTRUMENTS UNTIL THEY RECEIVE A TRANSMITTAL FORM.
In addition, the holders of options to acquire shares of Lukens Common
Stock issued pursuant to the Company's employee stock option plan and
outstanding immediately prior to the Effective Date, whether vested or unvested,
shall be assumed by Medisys at the Effective Date, and each such option shall
become an option (the "Substitute Option") to purchase a number of ordinary
shares of Medisys, par value 1p, equal to the number of shares of Lukens Common
Stock subject to each such option multiplied by the Option Exchange Ratio (as
defined below). The Substitute Options shall have a per share exercise price
equal to the current exercise price per share of Lukens Common Stock divided by
the Option Exchange Ratio, and each Substitute Option otherwise shall after the
Effective Date be subject to all of the other terms and conditions of the
original option to which it relates. The "Option Exchange Ratio" is the ratio of
(x) $4.00 to (y) the U.S. dollar equivalent of the average of the middle-market
closing price per share of Medisys ordinary shares on the Alternative Investment
Market of the London Stock Exchange, as shown in the "London Stock Exchange
Daily Official List," for each of the ten trading days ending two trading days
prior to the Effective Date.
If the Merger is approved by the requisite vote of the stockholders of
Lukens and certain other conditions to the Merger are satisfied or waived (as
more fully described below), the Closing will be held on the earlier of (A)
September 28, 1998 or (B) the day which is no later than two (2) business days
after the day on which the last of the closing conditions set forth in Article X
of the Merger Agreement is fulfilled or waived and the meeting of Medisys'
stockholders with respect to the Merger and related financing has been held, or
such other date as is agreed upon by the parties.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Lukens as to, among other things: (i) the due organization, valid existence and
good standing of Lukens and its Subsidiaries, (ii) the capitalization of Lukens
and its Subsidiaries; (iii) the authorization of the execution and delivery of
the Merger Agreement and related agreements, the validity and enforceability
thereof against Lukens, the noncontravention thereby of the articles of
incorporation, bylaws, relationships or other contracts, commitments or
agreements of Lukens or any of its Subsidiaries or of any material order, writ,
injunction, decree, statute, rule or regulation applicable to Lukens or any
Subsidiary and, other than filing the Articles of Merger with the Delaware
Secretary of State, the absence of requirements for any consents, approvals,
notices or registrations to be obtained or filed by Lukens or any of its
Subsidiaries in connection with consummation of the Merger; (iv) compliance in
all material respects of Lukens' filings with the SEC under the Securities Act
of 1933, as amended, and the Exchange Act (the "SEC Documents"), and the
accuracy of certain information and financial statements of Lukens included in
the SEC Documents; (v) the absence of undisclosed liabilities; (vi) certain
Company action; (vii) material contracts; (viii) compliance with applicable
laws; (ix) certain insurance matters; (x) product liability; (xi) the absence of
certain changes or events since December 31, 1997; (xii) certain tax matters;
(xiii) certain intellectual property matters; (xiv) litigation involving Lukens
or any of its Subsidiaries; (xv) certain employee benefit matters; (xvi) certain
labor and employment matters; (xvii) certain environmental matters; (xviii)
title to property and (xix) absence of certain business practices.
The Merger Agreement also contains representations and warranties of each
of Medisys and Merger Sub as to, among other things: (i) their due organization,
valid existence and good standing; (ii) capitalization of Merger Sub; (iii) due
authorization of the execution and delivery of the Merger Agreement and related
agreements, the validity and enforceability thereof against Medisys and the
noncontravention thereby of the Memorandum and Articles of Association of
Medisys; (iv) the good faith belief by Medisys that it will have funds
sufficient to enable it to consummate the Merger and (v)the absence of
litigation involving Medisys.
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CERTAIN COVENANTS
CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The Company agreed
that prior to the Effective Date, unless Parent shall otherwise agree in writing
it shall, and shall cause its Subsidiaries to (i) carry on their respective
businesses in the ordinary course in substantially the same manner as previously
conducted, (ii) use their commercially reasonable efforts to preserve intact
their present business organizations and preserve their relationships with
customers, suppliers and others having business dealings with them to the end
that their goodwill and ongoing businesses shall be unimpaired at the Effective
Date, (iii) maintain insurance coverages and its books, accounts and records in
the usual manner consistent with prior practices; (iv) comply in all material
respects with all laws, ordinances and regulations of Governmental Entities
applicable to the Company and its subsidiaries; (v) maintain and keep its
properties and equipment in good repair, working order and condition in
accordance with past practice, ordinary wear and tear excepted; and (vi) perform
in all material respects its obligations under all material contracts and
commitments to which it is a party or by which it is bound.
The Company also agreed that prior to the Effective Date, it shall not and
shall not propose to (i) sell or pledge or agree to sell or pledge any capital
stock owned by it in any of its Subsidiaries (subject to the fiduciary duties of
the Company's Board of Directors), (ii) amend its Certificate of Incorporation
or By-laws, (iii) split, combine or reclassify its outstanding capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of capital stock of the Company, or
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property, or (iii) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any shares of Company
capital stock. In addition, subject to the fiduciary duties of the Company's
Board of Directors, the Company agreed that prior to the Effective Date, it
shall not, nor shall it permit any of its Subsidiaries to, without the consent
of Medisys which shall not be unreasonably withheld (i) issue, deliver or sell
or agree to issue, deliver or sell any additional shares of, or rights of any
kind to acquire any shares of, its capital stock of any class, any indebtedness
having the right to vote on which the Company's stockholders may vote or any
option, rights or warrants to acquire, or securities convertible into, shares of
capital stock other than issuances of Lukens Common Stock pursuant to employment
agreements as in effect on the date hereof, the exercise of stock options
outstanding on the date hereof or granted prior to the Effective Date under
automatic grants under the Company's Employee Stock Option Plan; (ii) acquire,
lease or dispose or agree to acquire, lease or dispose of any capital assets or
any other assets other than in the ordinary course of business consistent with
past practice; (iii) incur additional indebtedness or encumber or grant a
security interest in any asset or enter into any other material transaction
other than in each case in the ordinary course of business consistent with past
practice; (iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof; or (v) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing. The Company also
agreed that prior to the Effective Date, it shall not, nor shall it permit any
of its Subsidiaries to, except as required to comply with applicable law, enter
into any new (or amend any existing) Company Benefit Plan or any new (or amend
any existing) employment, severance or consulting agreement, grant any general
increase in the compensation of directors, officers or employees (including any
such increase pursuant to any bonus, pension, profit-sharing or other plan or
commitment) or grant any increase in the compensation payable or to become
payable to any director, officer or employee, except in any of the foregoing
cases in accordance with pre-existing contractual provisions or in the ordinary
course of business consistent with past practice. The Company also agreed that
prior to the Effective Date, it shall not, nor shall it permit any of its
Subsidiaries to, make any investments in non-investment grade securities.
STOCKHOLDER APPROVAL; PROXIES. Pursuant to the Merger Agreement, Lukens has
agreed to take all action necessary in accordance with applicable law and its
Certificate of Incorporation and Bylaws to convene the Special Meeting as
promptly as practicable to consider and vote upon the approval of the Merger
Agreement and the transactions contemplated thereby. Lukens also has agreed that
its Board of Directors will, subject to the Board of Directors' fiduciary
duties, recommend that the Lukens' stockholders vote in favor of and approve the
Merger and the adoption of the Merger Agreement and the transactions
contemplated thereby.
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Pursuant to the Merger Agreement, Medisys has agreed to take all action
necessary, in accordance with applicable law, stock exchange rules and its
Memorandum and Articles of Association, to convene an extraordinary meeting of
the holders of its ordinary shares to approve the Merger Agreement, the Merger
and the related issuance of securities to Medisys, to the extent approval is
required and sought by Medisys. Medisys has also agreed that its Board of
Directors will, subject to its fiduciary duties, recommend that the Medisys
stockholders vote in favor of and approve the Merger and the adoption of the
Merger Agreement and the transactions contemplated thereby.
The parties also agreed to cooperate and prepare and file with the SEC this
Proxy Statement and the Company has agreed to use all reasonable efforts, and
Medisys has agreed to cooperate with the Company, to have this Proxy Statement
cleared by the SEC as promptly as practical.
EMPLOYEE MATTERS. Pursuant to the Agreement, as of the Effective Date, the
employees of the Company and each Subsidiary shall continue employment with the
Surviving Corporation and the Subsidiaries, respectively, in the same positions
and at the same level of wages and without having incurred a termination of
employment or separation from service; provided that, except as required by law
or by contract, the Surviving Corporation and the Subsidiaries shall not be
required to continue any employment relationship with any employee for any
specified period of time. As of the Effective Date, the Surviving Corporation
shall be the sponsor of Lukens' Employee Benefit Plans sponsored by Lukens
immediately prior to the Effective Date, and Medisys has agreed to cause the
Surviving Corporation and the Subsidiaries to satisfy all obligations and
liabilities under such plans.
INDEMNIFICATION. Pursuant to the Merger Agreement, the Company has agreed
to indemnify, and after the Effective Date, the Surviving Corporation has agreed
to indemnify the officers, directors and employees of the Company and its
Subsidiaries who were such at any time prior to the Effective Date (the
"Indemnified Parties") from and against all losses, expenses, claims, damages or
liabilities ("Losses") arising out of the transactions contemplated by the
Merger Agreement occurring before the Effective Date to the fullest extent
permitted or required under applicable law; provided, however, that such
indemnification shall not be available with respect to Losses arising out of the
failure of the Company to obtain the Fairness Opinion. Medisys has agreed that
all rights to indemnification existing in favor of the directors, officers or
employees of the Company as provided in the Company's Certificate of
Incorporation or By-Laws, as in effect as of the date of the Merger Agreement,
with respect to matters occurring through the Effective Date, shall survive the
Merger and shall continue in full force and effect for a period of not less than
three years from the Effective Date. In addition, Medisys has agreed to cause
the Surviving Corporation to maintain in effect for not less than three years
after the Effective Date the current policies of directors' and officers'
liability insurance maintained by the Company with respect to matters occurring
on or prior to the Effective Date; provided, however, that the Surviving
Corporation may substitute therefor policies of at least the same coverage and
Medisys shall not be required to maintain or procure such coverage to pay an
annual premium in excess of 150% of the current annual premium paid by the
Company for its existing coverage (the "Cap"); and provided, further, that if
equivalent coverage cannot be obtained, or can be obtained only by paying an
annual premium in excess of the Cap, Medisys shall only be required to obtain as
much coverage as can be obtained by paying an annual premium equal to the Cap.
ALTERNATIVE PROPOSALS. Pursuant to the Merger Agreement, prior to the
Effective Date, the Company has agreed (a) that neither it nor any of its
Subsidiaries shall, and it shall direct and use its best efforts to cause it and
its Subsidiaries' officers, directors, employees, agents and representatives not
to, initiate, solicit or encourage any inquiries or the making or implementation
of any proposal or offer with respect to a merger, acquisition, consolidation or
similar transaction involving, or any purchase of all or substantially all of
the assets or any equity securities of, the Company or any of its Subsidiaries
(any such proposal or offer being hereinafter referred to as an "Alternative
Proposal") or engage in any negotiations concerning, or provide any confidential
information to, or have any discussions with, any person relating to an
Alternative Proposal, or release any third party from any obligations under any
existing standstill agreement or arrangement relating to any Alternative
Proposal, or otherwise facilitate any effort to implement an Alternative
Proposal; (b) that it will cause to be terminated any existing activities or
discussions with any parties with respect to any of the foregoing, and it will
take the necessary steps
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to inform the individuals or entities referred to above of its obligations with
respect to Alternative Proposals under the Merger Agreement; and (c) that it
will notify Medisys if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it or any of its Subsidiaries;
provided, however, the Board of Directors of the Company shall not be prohibited
from (i) furnishing information to or entering into discussions or negotiations
with, any person or entity that makes an unsolicited bona fide proposal to
acquire the Company pursuant to a merger, consolidation, share exchange,
purchase of a substantial portion of assets, business combination or other
similar transaction, if, and only to the extent that, (A) the Board of Directors
of the Company determines in good faith that such action is required for the
Board of Directors to comply with its fiduciary duties to stockholders imposed
by law, (B) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, (i) the Company
provides written notice to Medisys to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity and (ii) the Company and such person or entity enter into an
appropriate confidentiality agreement with respect to information to be supplied
by the Company and (C) the Company keeps Medisys promptly informed of the status
and all material terms and conditions of any such discussions and, if any such
proposal is in writing, furnishes a copy of such proposal to Medisys; and (ii)
to the extent applicable, complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Alternative Proposal.
CANCELLATION OF WARRANTS; REPAYMENT OF LOANS FROM AFFILIATES. Pursuant to
the Merger Agreement, on the Effective Date, (a) warrants to purchase 400,000
shares of Lukens Common Stock at an exercise price of $1.10 per share held by
Mr. John Robinson, a director of the Company, are to be canceled and in lieu
thereof, Mr. Robinson shall have the right to payment in cash equal to $400,000
in exchange therefor, which payment shall be made by the Surviving Corporation
promptly after the Effective Date, (b) warrants to purchase 50,000 shares of
Lukens Common Stock held by Mr. Peter Lordi shall be canceled and in lieu
thereof, Mr. Lordi shall have the right to payment in cash equal to $50,000 in
exchange therefor, which payment shall be made by the Surviving Corporation
promptly after the Effective Date and (c) the outstanding loans by Mr. Robinson
and Mr. Robert L. Priddy, another director of the Company, to the Company in the
original principal amounts of $1,700,000 and $500,000, respectively, shall be
repaid by Medisys by (i) making a cash payment to Mr. Robinson of $1,200,000,
plus all accrued and unpaid interest, and the issuance to Mr. Robinson of
Medisys ordinary shares, par value 1p per share, having a value equal to
$500,000 and (ii) making a cash payment to Mr. Priddy of all accrued and unpaid
interest on his loan and the issuance to Mr. Priddy of Medisys ordinary shares,
par value 1p per share, having a value equal to $500,000, which payments and
issuances shall be made promptly after the Effective Date. Options to purchase
300,000 shares of Lukens Common Stock at an exercise price of $4.00 per share,
which are owned by Mr. Priddy, will be canceled.
The 50,000 warrants to purchase Common Stock held by Mr. Robinson with an
exercise price of $6.25 per share and the options to purchase 12,000 shares of
Common Stock at an exercise prince of $6.00 per shares shall be canceled on the
Effective Date for no consideration. The 50,000 warrants to purchase shares of
Common Stock held by Mr. Priddy with an exercise price of $6.25 per share, the
options to purchase 300,000 shares of Common Stock at an exercise price of $4.00
per share and the option to purchase 12,000 shares of Common Stock at an
exercise price of $6.00 per share shall be canceled on the Effective Date for no
consideration.
Additionally, Mr. Robert S. Huffstodt, President, Chief Executive Officer
and a Director of the Company, as well as each of the other officers and
employees of the Company will have all of the employee stock options held by
them converted into the right to purchase a number of ordinary shares of
Medisys, par value 1p, equal to the number of shares of Lukens Common Stock
subject to each such option multiplied by the Option Exchange Ratio (as defined
above) (the "Substitute Options"). The Substitute Options shall have a per share
exercise price equal to the current exercise price per share of Lukens Common
Stock divided by the Option Exchange Ratio, and each Substitute Option otherwise
shall after the Effective Date be subject to all of the other terms and
conditions of the original option to which it relates. See "Factors to Be
Considered -- Interests of Certain Persons in the Merger; Indemnification."
AGREEMENT OF PRINCIPAL STOCKHOLDERS. Each of Messrs. Priddy and Robinson
and Mr. John Holmes have agreed that from and after the date of the Merger
Agreement until October 15, 1998, or such
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earlier date as the Merger Agreement shall be terminated that (a) he shall not
pledge, hypothecate or otherwise transfer his shares of Lukens Common Stock in
any manner and (b) he shall vote all of his shares of Lukens Common Stock in
favor of the Merger (and against any Alternative Proposal), provided that
nothing shall prevent any of them, when acting in their capacities as directors
of the Company, from exercising their fiduciary duties as directors in
accordance with applicable law.
FAIRNESS OPINION. Pursuant to the Merger Agreement, the Company has agreed
to engage an investment bank for the purpose of delivering the Fairness Opinion.
The Company has agreed to engage such investment bank to deliver the Fairness
Opinion within three weeks of the date of the Merger Agreement (the "Fairness
Opinion Period"). Any failure by the Company's investment bank to deliver the
Fairness Opinion for any reason other than the adequacy of the value of the
Merger Consideration shall be deemed, under the Merger Agreement, to be a breach
of such covenant by the Company.
MISCELLANEOUS. The Company has agreed to confer on a regular basis with
Medisys on operational matters and advise Medisys orally and in writing of any
change or event that has had, or could reasonably be expected to have, a
material adverse effect. The Company has also agreed to promptly provide to
Medisys (and its counsel) copies of all filings made by such party with the SEC
or any other state or federal governmental entity in connection with the Merger
Agreement and the transactions contemplated thereby. In addition, upon the
mutual agreement of Medisys and the Company, the parties have agreed that the
Merger shall be restructured in the form of a forward subsidiary merger of the
Company into Merger Sub or as a merger of the Company into Medisys and in such
event, the Merger Agreement shall be deemed appropriately modified to reflect
such form of merger.
CONDITIONS TO THE MERGER
The obligations of each of Medisys, Merger Sub and Lukens to consummate the
Merger are subject to the satisfaction of certain conditions prior to the
Effective Date, including: (i) the approval of the Merger by the requisite vote
of the stockholders of Lukens and (ii) the absence of any injunction or other
order preventing the consummation of the Merger. The obligation of Lukens to
consummate the Merger is subject to the satisfaction (or waiver by Lukens) of
certain additional conditions at or prior to the Effective Date, including: (i)
the accuracy of the representations and warranties of Medisys and Merger Sub in
all material respects when made and on the Effective Date; (ii) the performance
by each of Medisys and Merger Sub in all material respects of each obligation
required in the Merger Agreement to be performed by it on or prior to the
Effective Date; and (iii) the delivery by Medisys and Merger Sub of certified
Board resolutions, various officers' certificates and a legal opinion of
Medisys' and Merger Sub's legal counsel. The obligations of Medisys and Merger
Sub to consummate the Merger are further subject to the fulfillment (or waiver
by Medisys) of certain additional conditions at or prior to the Effective Date,
including: (i) the accuracy of the representations and warranties of Lukens in
all material respects when made and on the Effective Date; (ii) the performance
by Lukens in all material respects of each obligation required by the Merger
Agreement to be performed on or prior to the Effective Date; (iii) the absence
of any change which has had or would reasonably be expected to have a material
adverse change in the financial condition, business, results of operations or
prospects of the Company and its Subsidiaries, taken as a whole; (iv) that
Lukens has not received a written demand for appraisal by holders of the number
of shares of Lukens Common Stock exceeding 5% of the total number of shares of
Lukens Common Stock outstanding immediately prior to the Effective Date; and (v)
the delivery by Lukens of certified Board and stockholder resolutions, various
officers' certificates and a legal opinion of Lukens' legal counsel.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Date, before or after the approval of this
Agreement by the stockholders of the Company, by the mutual consent of Medisys
and the Company.
In addition, the parties have agreed that the Merger Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Medisys or the Company if (a) the Merger shall not have been
consummated by October 15 (provided that the terminating party shall not
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have breached in any material respect its obligations under the Merger Agreement
that shall have proximately contributed to the failure to consummate the
Merger), or (b) the approval of the Company's stockholders shall not have been
obtained, or (c) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable.
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Date, before or after the adoption and approval
by the stockholders of the Company, by action of the Board of Directors of the
Company and written notice to Medisys, if (a) in the exercise of its fiduciary
duties to its stockholders imposed by law, the Board of Directors of the Company
determines that such termination is required by reason of an Alternative
Proposal being made, or (b) there has been a material breach by Medisys or
Merger Sub of any representation or warranty contained in the Merger Agreement,
or (c) there has been a material breach of any of the covenants or agreements
set forth in the Merger Agreement on the part of Medisys, which breach is not
curable or, if curable, is not cured within 30 days after written notice of such
breach is given by the Company to Medisys. In addition, the Company has the
right to terminate the Merger Agreement and abandon the Merger (A) during the
Fairness Opinion Period if the Company receives a written opinion from the
investment bank to the effect that the Merger Consideration is not fair from a
financial point of view to the holders of the Lukens Common Stock, or on the
last day of the Fairness Opinion Period if the Fairness Opinion has not been
delivered, or (B) at any time after August 10, 1998, if, within five (5) days
after the written request by the Company after such date, Medisys has not
furnish to the Company a written letter addressed to the Company from Henry
Ansbacher & Co. Limited and/or other reputable investment banks capable of
providing such financing confirming their firm commitment to provide the
financing required in connection with the transactions contemplated by the
Merger Agreement for the payment of all amounts due thereunder or related
thereto (including fees and expenses of its financial advisors and legal
counsel).
In addition, the Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Date, by action of the Board of
Directors of Medisys and written notice to the Company, if (a) the Board of
Directors of the Company shall have withdrawn or modified in a manner adverse to
Medisys its approval or recommendation of the Merger Agreement or the Merger or
shall have recommended an Alternative Proposal to the Company's stockholders, or
(b) there has been a material breach by the Company of any representation or
warranty contained in the Merger Agreement, or (c) there has been a material
breach by the Company of any of the covenants or agreements set forth in the
Merger Agreement, which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by Medisys to the
Company, or (d) there has been a change which has the effect of producing a
material adverse change in the financial condition, business, results of
operations or prospects of the Company and its Subsidiaries, taken as a whole.
The Merger Agreement may also be terminated by Medisys and the Merger may be
abandoned (A) at any time prior to June 14, 1998, by action of the Board of
Directors of Medisys and written notice to the Company, if Medisys concludes as
a result of Medisys's legal, business and financial due diligence review of the
Company, that (i) the Company's business, properties, assets, condition
(financial or otherwise), liabilities or operations are not satisfactory, or
(ii) the Company is in material breach of any representation or warranty made in
the Merger Agreement, or (B) during the Fairness Opinion Period if the Company
receives a written opinion from the investment bank to the effect that the
Merger consideration is not fair from a financial point of view to the holders
of the Lukens Common Stock, or within two business days after the termination of
the Fairness Opinion Period if the Company shall not have obtained the Fairness
Opinion, or (C) before August 10, 1998 if Medisys shall have failed to obtain
the irrevocable undertaking from holders of a majority of Medisys's ordinary
shares to vote in favor of the resolutions necessary to effect the Merger and
the related financing or (D) prior to August 10, 1998 if Medisys and Merger Sub
shall not have obtained a firm commitment from Henry Ansbacher & Co. Limited
and/or other reputable investment banks capable of providing such financing to
provide the financing required
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in connection with the transactions contemplated by the Merger Agreement for the
payment of all amounts due thereunder or related thereto (including fees and
expenses of its financial advisors and legal counsel).
Pursuant to the Merger Agreement, in the event that (x) any person shall
have made an Alternative Proposal and thereafter the Merger Agreement is
terminated either by the Company due to the Company Board of Directors'
determination that such termination is required by reason of an Alternative
Proposal being made, or by either Medisys or the Company because the approval of
the Company's stockholders has not been obtained, (y) the Board of Directors of
the Company shall have withdrawn or modified in a manner adverse to Medisys its
approval or recommendation of the Merger Agreement or the Merger or shall have
recommended an Alternative Proposal to the Company stockholders and Medisys
shall have terminated the Merger Agreement pursuant to clause (a) of the
immediately preceding paragraph or (z) any person shall have made an Alternative
Proposal and thereafter the Merger Agreement is terminated for any reason other
than those set forth in clauses (x) or (y) above and within 12 months thereafter
any Alternative Proposal shall have been consummated with the third party who
made such Alternative Proposal, then the Company shall promptly, but in no event
later than two days after such termination or consummation with respect to
clause (z), pay Medisys a fee of $500,000 (the "Termination Fee"), but Medisys
shall only be entitled to be paid the Termination Fee in the event that at the
time of the termination of the Merger Agreement Medisys is not in material
breach of any of the representations, warranties or covenants set forth in the
Merger Agreement. The parties have agreed that if the Company fails to promptly
pay the Termination Fee, and, in order to obtain such payment, Medisys or Merger
Sub commences a suit which results in a judgment against the Company for such
fee, the Company shall pay to Medisys its costs and expenses (including
attorneys' fees) in connection with such suit, together with interest on the
amount of the fee at the rate of 12% per annum from the date such payment should
have been made.
In the event of termination of the Merger Agreement and the abandonment of
the Merger pursuant to Article XI of the Merger Agreement (as described above),
all obligations of the parties thereto shall terminate, except the obligations
of the parties pursuant to this paragraph and the immediately preceding
paragraph, and Section 12.3 (Fees and Expenses) and except for the provisions of
certain other miscellaneous sections including specific performance, assignment,
governing law and severability.
NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
All representations and warranties set forth in the Merger Agreement shall
terminate at the Effective Date. All covenants and agreements set forth in the
Merger Agreement and any instrument delivered pursuant to the Merger Agreement
shall survive in accordance with their terms.
FEES AND EXPENSES
The Merger Agreement provides that whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby shall be paid by the party
incurring such expenses, whether or not the Merger is consummated except as
expressly provided in the Merger Agreement and except that the filing fee in
connection with the filing of this Proxy Statement with the SEC and the expenses
incurred in connection with printing and mailing this Proxy Statement shall be
shared equally by Lukens and Medisys.
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DISSENTERS' RIGHTS
Stockholders who have not voted in favor of the Merger or consented thereto
in writing have the right to demand an appraisal of the fair value of their
Lukens Common Stock in accordance with the provisions of Section 262 of the DGCL
("Section 262"), which sets forth the rights and obligations of stockholders
demanding an appraisal and the procedures to be followed. Stockholders who
perfect such rights will not be entitled to surrender their Lukens Common Stock
for payment of the Merger Consideration in the manner otherwise described in
this Proxy Statement. Stockholders should assume that the Surviving Corporation
will take no action to perfect any appraisal rights of any stockholder.
Therefore, to exercise his or her appraisal rights, a stockholder should
strictly comply with the procedures set forth in Section 262 and is urged to
consult his or her legal advisor before electing or attempting to exercise such
appraisal rights. Stockholders who vote in favor of the Merger or consent
thereto in writing cannot demand appraisal rights, but stockholders are not
required to vote their shares of Common Stock against the Merger in order to
obtain such appraisal rights. Stockholders who sign and return the proxy card
included with this Proxy Statement with instructions to vote in favor of the
Merger or, since proxy cards returned without instructions will be voted in
favor of the Merger, with no instruction to vote against or abstain from voting
with respect to the Merger, will not be entitled to appraisal rights.
The following is a summary of the procedures to be followed under Section
262, the text of which is attached to this Proxy Statement as Annex C. The
summary does not purport to be a complete statement of, and is qualified in its
entirety by reference to, Section 262 and to any amendments to Section 262 after
the date of this Proxy Statement. Failure to follow any Section 262 procedure
may result in termination or waiver of appraisal rights under Section 262. Any
stockholder who desires to exercise his or her appraisal rights should review
carefully Section 262 and is urged to consult his or her legal advisor before
electing or attempting to exercise such rights.
Only a stockholder of record is entitled to seek appraisal. The demand for
appraisal must be executed by or for the stockholder of record, fully and
correctly, as such stockholder's name appears on the holder's stock
certificates. If the stock is owned of record in a fiduciary capacity, such as
by a trustee, guardian or custodian, the demand should be made in that capacity,
and if the stock is owned of record by more than one person, as in a joint
tenancy in common, the demand should be made by or for all owners of record. An
authorized agent, including one or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, such agent must identify the
record owner or owners and expressly disclose in such demand that the agent is
acting as agent for the record owner or owners of such shares of Lukens Common
Stock. A record stockholder, such as a broker, who holds shares of Lukens Common
Stock as a nominee for beneficial owners, some of whom desire to demand
appraisal, must exercise appraisal rights on behalf of such beneficial owners
with respect to the shares of Lukens Common Stock held for such beneficial
owners. In such case, the written demand for appraisal must set forth the number
of shares of Lukens Common Stock covered by such demand. Unless a demand for
appraisal specifies a number of shares of Lukens Common Stock, such demand will
be presumed to cover all shares of Lukens Common Stock held in the name of such
record owner.
The Company is mailing to each stockholder of record as of the Record Date
this Proxy Statement, which constitutes the notice required under Section 262.
Included with this Proxy Statement is a copy of Section 262. Any stockholder
entitled to appraisal rights may demand, in writing, from the Company, prior to
the vote on the Merger, an appraisal of his or her shares of Lukens Common
Stock. Such demand will be sufficient if it reasonably informs the Company of
the identity of the stockholder and that the stockholder intends to demand an
appraisal of the fair value of his or her shares of Lukens Common Stock. Failure
to make such a demand will foreclose a stockholder's right to appraisal. A proxy
or vote against the Merger shall not constitute a demand. In addition, any
stockholder voting in favor of the Merger or consenting thereto in writing is
not entitled to appraisal rights under Section 262. Stockholders who sign and
return the proxy card included with this Proxy Statement with instructions to
vote in favor of the Merger or, since proxy cards returned without instructions
will be voted in favor of the Merger, with no instruction to vote against or
abstain from voting with respect to the Merger, will not be entitled to
appraisal rights.
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A stockholder may withdraw his or her demand for appraisal by written
request within 60 days after the Effective Date of the Merger, but thereafter
the approval of the Surviving Corporation is needed for such a withdrawal. Upon
withdrawal of an appraisal demand, a stockholder will be entitled to receive the
Merger Consideration, without interest.
Within 10 days after the Effective Date of the Merger, the Surviving
Corporation shall notify each stockholder who has complied with the provisions
of Section 262. Within 120 days after the Effective Date (the "120-Day Period"),
in compliance with Section 262, any stockholder who has properly demanded an
appraisal and who has not withdrawn his or her demand as provided above (such
stockholders being referred to collectively as the "Dissenting Stockholders")
and the Surviving Corporation each has the right to file in the Delaware Court
of Chancery (the "Delaware Court") a petition (the "Petition") demanding a
determination of the value of the Lukens Common Stock held by all of the
Dissenting Stockholders. If, within the 120-Day Period, no Petition shall have
been filed as provided above, all rights to appraisal will cease and all of the
Dissenting Stockholders who owned Lukens Common Stock will become entitled to
receive the Merger Consideration. The Surviving Corporation is not obligated and
does not intend to file a Petition. Any Dissenting Stockholder is entitled,
within the 120-Day Period and upon written request to the Surviving Corporation,
to receive from the Surviving Corporation a statement setting forth the
aggregate number of shares of Common Stock not voted in favor of the Merger and
the aggregate number of shares of Lukens Common Stock with respect to which
demands for appraisal have been received and the aggregate number of Dissenting
Stockholders.
Upon the filing of the Petition by a Dissenting Stockholder, the Delaware
Court may order that notice of the time and place fixed for the hearing on the
Petition be mailed to the Surviving Corporation and all of the Dissenting
Stockholders and be published at least one week before the day of the hearing in
a newspaper of general circulation published in the City of Wilmington, Delaware
or in another publication determined by the Delaware Court. The costs relating
to these notices will be borne by the Surviving Corporation. If a hearing on the
Petition is held, the Delaware Court is empowered to determine which Dissenting
Stockholders have complied with the provisions of Section 262 and are entitled
to an appraisal of their Common Stock. The Delaware Court may require that
Dissenting Stockholders submit their certificates for notation thereon of the
pendency of the appraisal proceedings. The Delaware Court is empowered to
dismiss the proceedings as to any Dissenting Stockholder who does not comply
with such requirement. Accordingly, Dissenting Stockholders are cautioned to
retain their certificates pending resolution of the appraisal proceedings.
Stockholders considering seeking appraisal should have in mind that the
fair value of their shares of Lukens Common Stock determined under Section 262
could be more, the same, or less than the Merger Consideration and that
investment banking opinions as to fairness from a financial point of view are
not necessarily opinions as to fair value under Section 262. The Delaware Court
has discretion to require the Surviving Corporation to pay interest on the fair
value of the shares determined pursuant to Section 262.
Dissenting Stockholders are generally permitted to participate in the
appraisal proceedings. No appraisal proceeding in the Delaware Court shall be
dismissed as to any Dissenting Stockholder without the approval of the Delaware
Court, and this approval may be conditioned upon terms which the Delaware Court
deems just.
From and after the Effective Date, Dissenting Stockholders will not be
entitled to vote their Common Stock for any purpose and will not be entitled to
receive payment of dividends or other distributions in respect of such Common
Stock payable to stockholders of record thereafter.
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BUSINESS OF THE COMPANY
Lukens was incorporated under the laws of the State of New Jersey on
December 27, 1982 and operated under the name Gyneco, Inc. until 1987 when it
was renamed Lukens Corporation -- New Jersey. On April 27, 1988, the Company
reorganized in the State of Delaware by merger with and into its Delaware
wholly-owned subsidiary, Lukens Medical Corporation. All references to the
Company herein include the operations of the Company's wholly-owned
subsidiaries. The Company's executive offices are located at 3820 Academy
Parkway North NE, Albuquerque, New Mexico 87109 and its telephone number is
(505) 342-9638.
The Company has been engaged since 1906 in the design, development,
manufacturing and marketing of wound closure products for use in the medical
industry, including, without limitation, suture products and bone wax, and more
recently has expanded its product line to include other medical devices,
including, without limitation, lancets, sharps containers and diagnostic
devices. Suture products include sutures (a product consisting of suture
material attached to a surgical needle) and ligatures (suture material not
attached to a surgical needle). Suture materials are made from silk, catgut and
other similar materials. Bone wax is a product used to temporarily seal severed
bones during surgery. The Company markets its products for general surgery
applications, including for use in oral and veterinary surgery, and for
specialty surgery applications, including for use in plastic, ophthalmic and
cardiovascular surgery.
In March 1996, the Company, through a wholly-owned subsidiary, acquired
assets constituting the following three product lines of Ulster Scientific, Inc.
("Ulster") of New Paltz, New York (the "Ulster Acquisition"): (i) lancets,
including needles and accessories, (ii) dispettes and (iii) infection control
kits (collectively referred to herein as the "Ulster Product Lines"). Lancets
are finger-prick devices used to draw small amounts of blood, primarily to test
glucose levels. Dispettes are disposable diagnostic devices used primarily in
physicians' offices to test blood. Infection control kits contain various items
used in medical and scientific facilities to clean up blood and other bodily
fluid spills. Approximately 30% of the Company's revenues for the fiscal year
ended December 31, 1997 are attributable to the sale of such products. For a
further description of these Ulster Product Lines, see "Ulster Product Lines."
In January 1997, the Company entered into a new joint venture with certain
of its international distribution partners to manufacture hypodermic needles,
and other medical products for distribution worldwide (the "India Joint
Venture"). As part of the transaction, the joint venture acquired a modern,
fully-equipped 22,000 square foot plant in the Cochin Export Zone in Southern
India. See "India Joint Venture."
In May 1997, the Company acquired a new subsidiary, Pro-Tec Containers,
Inc. ("Pro-Tec") of Sanford, Florida (the "Pro-Tec Acquisition"). Pro-Tec
manufactures and markets a line of sharps disposal containers which are used by
health care providers for safe disposal of used "sharps," such as hypodermic
needles, scalpels, blades, lancets, and suture needles (the "Pro-Tec Product
Lines"). Approximately 8% of the Company's revenues for the fiscal year ended
December 31, 1997 are derived from the sale of such products. For a further
description of these Pro-Tec Product Lines, see "Pro-Tec Product Lines."
Also in May 1997, the Company acquired a 51% interest in its
Brazilian-based distributor, Techsynt, which then changed its name to Techsynt
Lukens Ltd. ("Techsynt"). Techsynt is engaged primarily in the manufacture and
marketing of sutures for the Brazilian market, although it is anticipated that
Techsynt will eventually export sutures to selected other markets worldwide, and
will market certain of the Company's other products where the local market is
suitable. Techsynt did not commence operations until October 1, 1997, and
therefore did not contribute significant revenues or earnings for the fiscal
year ended December 31, 1997.
PRODUCTS
SUTURE PRODUCTS. During 1997, the surgical suture industry represented in
excess of $2.4 billion of the overall disposable surgical product industry,
approximately 60% of which represented the international market and 40% of
which represented the domestic market. Surgical suture products are comprised
of two principal categories: (i) general surgical suture products, and (ii)
specialty surgical suture products. Differen-
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tiating the categories are the physical properties of the surgical needle such
as size, sharpness and ductility, the type of suture material used, as well as
packaging and cost. The Company designs, develops, manufactures and markets
suture products for both general and specialty surgery uses.
The Company's general surgical suture products are comprised of
approximately 250 standard products and approximately 3,000 additional products
which the Company is capable of providing to meet the specifications of
particular surgeons and practitioners. General surgical sutures primarily
include standard needles. The Company designs, develops, manufactures and
markets suture products that cover a broad spectrum of surgical categories,
including, without limitation, general, ob-gyn, urology, orthopedic, oral and
veterinary surgery, all of which generally utilize the same types of needles and
suture materials. The Company markets and sells its full line of general
surgical suture products worldwide. See "Sales, Marketing and Customers."
The Company's specialty surgical suture products consist of an innovative
line of laser-drilled needles and suture materials for use in the areas of
plastic, ophthalmic, cardiovascular and oral surgery. One major advantage to the
specialty surgeon of utilizing a drilled needle stems from the manner in which
the suture material is attached to such a needle. When suture material is
attached to many standard needles, the back end of the needle is sliced open,
the suture is placed in the opened portion of the needle and the metal is then
crimped together (referred to as "channel swaging") to hold the suture material
in the needle. Over the years, specialty surgeons have recognized that one of
the major problems with such sutures is that the crimped end of the needle
becomes larger in diameter than the rest of the needle, creating a larger hole
in the tissue than is required. Laser-drilled needles offer a significant
improvement to the standard method. Because the Company's specialty needles are
laser-drilled, as opposed to sliced open, there is no bulge at the end of the
needle when the suture material is inserted and crimped into place. During the
laser drilling process, the excess metal is removed from the needle. In
addition, because the distortion of the remaining metal is minimal, as compared
to the standard process, the end of the laser-drilled needle is not as prone to
breakage or snapping. See "Production and Quality Assurance."
Laser-drilled needles are manufactured for the Company by independent
suppliers in accordance with the Company's specifications using 300 Series
stainless steel, an alloy which is more corrosion resistant than the materials
from which standard needles are generally made. This special alloy of stainless
steel also enables the Company's needles to remain sharper than standard needles
after repeated passes through tissue. In addition, as a result of using the 300
Series stainless steel, the Company's laser-drilled needles are also less
brittle and more ductile than standard needles. The Company relies on the
confidential treatment of its proprietary needle design specifications by its
suppliers. See "Suppliers," "Competition" and "Patent and Proprietary Rights."
The Company markets and sells its full line of specialty surgical products
worldwide. See "Sales, Marketing and Customers."
BONE WAX. The Company believes it is one of only three companies in the
United States that sells, and has the approval of the Food and Drug
Administration (the "FDA") to manufacture and market, bone wax. Bone wax is used
to temporarily seal severed bones during surgery. The Company manufactures its
bone wax primarily from bees wax. Although the total worldwide bone wax market
is relatively small (estimated by the Company to be approximately $7 to $10
million annually), gross margins in this area are relatively high. The Company
sells bone wax worldwide.
ULSTER PRODUCT LINES
The Company's Ulster Product Lines are as follows:
LANCETS, NEEDLES AND ACCESSORIES. The Company markets a broad range of
blood lancet-type devices, including general purpose style, safety style and
automatic single-use style. The target markets for lancets include hospitals,
nursing homes, doctors' offices, industrial establishments and the home-use
market. Blood lancing-type devices are used for several purposes, including
routine lab testing, diabetic monitoring, and cholesterol monitoring.
DISPETTES. Dispettes are disposable diagnostic devices used for
sedimentation rate testing of blood and are a more affordable alternative to the
expensive automated blood testing labs. Because dispettes are convenient, easy
to use, and relatively inexpensive to purchase, the primary market for these
prod-
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ucts are small medical clinics and individual physician practices. As
sophisticated blood testing technology in the United States continues to become
more prevalent, the use of dispettes is expected to gradually diminish. The
Company intends to expand the marketing of this product internationally where
access to sophisticated blood analysis technology is more limited.
INFECTION CONTROL KITS. Infection control kits contain various items used
in medical and scientific facilities to clean up blood and other bodily fluid
spills. The infection control clean-up kits are marketing by the Company under
the "BASKIT" name. Under the Occupational Safety and Health Act (OSHA), safety
spill clean up kits, such as the one marketed by the Company, are required to be
maintained in any facility working with blood and other bodily fluids,
including, without limitation, hospitals, laboratories, doctors offices and
ambulances.
With the exception of certain raw materials produced in the Company's
Indian facility (see India Joint Venture), the Company does not manufacture any
of the products in the Ulster Product Lines. The Company purchases these
products under agreements with certain suppliers and, following sterilization
and packaging, resells the products to other medical supply distributors and
end-users. See "Suppliers."
PRO-TEC PRODUCT LINES
In May 1997, in connection with the Pro-Tec Acquisition, the Company
acquired and began selling the products in the Pro-Tec Product Lines. The
Pro-Tec Product Lines consists of sharps disposal containers which are used by
health care providers for safe disposal of used "sharps," such as hypodermic
needles, scalpels, blades, lancets, and suture needles. These products are
available in a variety of sizes and configurations to suit both the
hospital-based and office-based healthcare market segments. All of the products
in the Pro-Tec Product Lines are manufactured and shipped by outside
contractors.
NEW PRODUCTS
In September 1997, the Company began marketing a device known as an aortic
punch, a product which is used by cardiovascular surgeons in performing bypass
procedures. The device has several unique patented features which enable the
surgeon to more easily perforate the aorta prior to connecting a new blood
vessel. The Company estimates that the worldwide market for this product is
approximately $7 million. The Company has begun domestic distribution of this
product through manufacturers' representatives. Due to the product being
launched late in the year and the relatively long sales cycle, sales of the
aortic punch contributed less than 1% to the Company's revenues during 1997.
Also in the fourth quarter, the Company introduced a product called
"Sed-Control," which can be used in conjunction with the Company's dispettes to
verify the accuracy of the test. This product has met with very limited success
due, in the Company's opinion, to its relatively short shelf life, the lack of
regulatory requirements to utilize such a control, and heavy price competition
from other suppliers of such controls. The Company does not anticipate that this
product will generate substantial revenues in the future.
INDIA JOINT VENTURE
In January 1997, the Company entered into a new joint venture to
manufacture hypodermic needles, syringes and other medical products for
distribution worldwide. As part of the transaction, the joint venture acquired a
modern, fully-equipped 22,000 square foot plant in the Cochin Export Zone in
Southern India. The new subsidiary, Lukens Medical Products Private Ltd., is a
joint venture between the Company and certain of its international distribution
partners. The Company is the majority shareholder, and manages the operations,
with all partners contributing to the marketing of the products. Production
began in November 1997 of lancet wires, also called lancet needles, which prior
to being manufactured in-house, were the most costly component in the lancets
marketed by the Company. It is anticipated that certain other disposable medical
products will be manufactured in the facility by the end of 1998.
BRAZIL JOINT VENTURE
In May 1997, the Company acquired a 51% interest in its exclusive
distribution in Sao Paulo, Brazil. The Company plans to expand the venture's
existing suture manufacturing capacity, and begin producing its new, synthetic
absorbable sutures in Brazil. Eventually the Brazil Joint Venture will export
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sutures to many of the Company's international markets. Currently, Brazil has a
staff of 11 engaged primarily in suture production, and markets via tenders and
a network of several independent sales representatives. Techsynt operates in a
5,000 square foot leased facility in Sao Paulo, Brazil.
SALES, MARKETING AND CUSTOMERS
PRODUCT SALES. The Company's principal means of selling its products has
been through independent distributors that have entered into either exclusive or
non-exclusive arrangements with the Company. Such arrangements have involved the
grant by the Company of exclusive or semi-exclusive rights to sell specific
products or product lines in particular geographic territories. Such agreements
generally contain specified minimum sales levels required in order for the
distributor to maintain exclusivity, as well as provisions requiring the
distributors to participate in trade shows and conventions in their respective
territories in order to promote the Company's products.
MARKETING STRATEGY. The Company's domestic strategy with respect to its
suture products is to focus its marketing energies on its general and specialty
surgical products which are used by doctors and practitioners primarily outside
of a hospital (i.e., in doctors' offices, dentists' offices, veterinary clinics
and outpatient plastic and ophthalmic surgical centers), and where purchasing
decisions are made outside of the large hospital and institutional environment.
To this end, the Company aggressively markets in the United States its dental
and veterinary general surgical suture products and its plastic specialty
surgical suture products. The Company also continues to market and sell its line
of general and specialty surgical products to selected markets internationally,
where it is better able to compete solely as a quality, low-cost supplier to the
foreign hospital and institutional market. As a result of the recent receipt by
the Company of approval from the FDA to begin marketing its synthetic absorbable
suture product for human use, the Company believes that its ability to compete
in parts of the worldwide suture market will be enhanced.
In the third quarter of 1997, the Company refocused its international
marketing strategy to limit its product offerings to higher margin products and
regions. As a result, the Company reduced its standard suture product line to
include only approximately 250 catalog codes (down from approximately 750) and
intends to de-emphasize and even abandon certain international markets. In
connection with this new strategy, in December 1997, the Company wrote-off
approximately $3,030,000 worth of inventory consisting of these discontinued
catalog codes. See "Management's Discussion and Analysis of Operations."
While the Ulster Product Lines and the Pro-Tec Product Lines are currently
marketed entirely in the United States, the Company intends to launch certain of
these products internationally in 1998 and 1999.
The Company currently has a domestic staff of five employees engaged in
direct sales, telemarketing and direct mail promotion of general surgical suture
products and bone wax products worldwide, as well as providing marketing support
to the Company's specialty and general suture distributors. In addition, the
Company has a four person sales staff and a team of eight manufacturer's
representatives responsible for selling all the Company's products in the United
States.
CUSTOMERS. The primary customers for the Company's suture products are its
distributors, who then resell the products to end users, generally under their
own brand names. The Company sells its products directly to certain foreign
governments and is also a party to exclusive agreements with distributors in a
number of foreign countries, including South Africa, Honduras and Italy and
non-exclusive agreements in Costa Rica and Saudi Arabia for the sale of its
general surgery products (as well as certain of the Company's specialty
products) primarily under the "Lukens' name. Customers of the Ulster Product
Lines primarily include large medical and laboratory product distributors, as
well as mail order diabetic supply houses.
RESEARCH AND DEVELOPMENT ACTIVITIES
During 1996, the Company's research and development efforts were focused on
finalizing its FDA submission for a braided synthetic absorbable suture product.
The Company received clearance from the FDA in February of 1997 to market its
synthetic absorbable suture product for human use. The Company released its
braided synthetic absorbable suture product to the human market in April of
1997. See "Gov-
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ernment Regulations." The current Research and Development activities of the
Company are focused on the development of a monofilament synthetic absorbable
suture, the new products to be manufactured by the India Joint Venture, and
ongoing improvements to the Company's product line. The Company does not expect
to expend significant funds on research and development activities in 1998.
PRODUCTION AND QUALITY ASSURANCE
The Company's manufacturing operations for the production of surgical
sutures generally consist of joining surgical needles with suture material and
packaging the finished suture product. The Company's general surgical suture
production operations are primarily conducted in Juarez, Mexico pursuant to an
agreement whereby a maquiladora conducts manufacturing and assembly operations
for the Company's benefit, with the Company supplying all parts, components,
materials, machinery and equipment and bearing all labor costs. In addition, a
number of the Company's suture products are also produced at its facility in
Albuquerque, New Mexico. Suture production and packaging operations are
extremely exacting and labor intensive processes. Because of the extensive range
of possible needle/suture material combinations and the large number of
short-run, special orders which must be filled, it is not economically feasible
to automate the predominant portion of the Company's production activities. Most
must instead be done by hand by highly-trained employees.
Materials (i.e., needles and "suture materials") which comprise the suture
products are purchased from a number of vendors. Upon their receipt by the
Company, all materials are subject to inspection by the Company's quality
assurance staff. Tests conduced by the Company's quality assurance staff include
visual inspection as well as physical tests. Conformity with the Company's
specifications is of prime importance and one of the staff's goals is to detect
non-conforming components prior to assembly and packaging. Upon approval,
needles and suture materials are released to storage areas for pre-processing
preparation and subsequent assembly.
Although many suture products consist solely of the "thread" (e.g., silk,
catgut or other materials), most consist of suture material which has been
attached to one or two needles. Braided suture materials (e.g., silk) used in
the Company's products undergo "tipping," a process which creates a hardened tip
on the end of the suture material to facilitate the attachment of the material
to the needles. The attaching process, known as "swaging", is a critical step in
the Company's production process, with the minimum strength of the attachment
prescribed by the U.S. Pharmacopeia. The attaching process is largely performed
by individuals operating small, pedal activated machines which form the metal of
the needle around the thread, crimping the two together. After swaging, the
completed sutures are wound by hand onto small cards and then packaged according
to suture type and intended use. Packaged and boxed sutures are either delivered
to subcontractors for sterilization, or, in the case of synthetic absorbable and
certain other sutures sterilized in-house. After sterilization, the products are
returned to the production department for additional packaging and distribution.
The Company's quality assurance department is responsible for in-process and
post-production analyses of all of the Company's products. Quality assurance is
supported through the use of both manual and computerized systems to provide
traceability of product batches and track each stage of the production process.
The Company's production and quality assurance operations must comply with the
FDA's current GMP regulations and are subject to periodic FDA inspection. See
"Government Regulations."
The production of bone wax entails the preparation of the beeswax-based
product at the Company's New Mexico facility, where it is packaged and sent to
subcontractors for sterilization by gamma radiation. The products in the Ulster
Products Lines are largely purchased in finished condition and do not involve
extensive processing by the Company. The products in the Pro-Tec Product Lines
are produced, and shipped directly to the Company's customers, by contract
manufacturers utilizing the Company's molds. The hypodermic needles, syringes
and related medical products to be produced by the India Joint Venture will be
manufactured and molded at the facility acquired by the joint venture.
SUPPLIERS
The Company's specialty needles are currently manufactured to the Company's
specifications by two independent overseas vendors. The Company's general
surgery needles and its suture materials are supplied by a number of independent
manufacturers. The Company believes that there are a number of
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alternative sources for all of such products and product components. Further,
while the Company relies upon confidentiality agreements with its suppliers of
specialty needles to protect its particular proprietary needle design and
specifications, specialty needles are not proprietary to the Company and the
Company's arrangements with its suppliers of specialty needles are not
exclusive. See "Competition."
While the Company manufactures its newly approved synthetic absorbable
suture products, it purchases the synthetic absorbable suture threads used in
these products from third-party suppliers. While these materials are currently
available upon commercially reasonable terms, any disruption of the supply of
these materials could have an adverse impact upon the ability of the Company to
produce its synthetic absorbable suture line.
In connection with the Ulster Acquisition, the Company entered into two new
exclusive supply arrangements with the principal suppliers of certain of the
products in the Ulster Product Lines. The supply agreement with Guest Elchrom
Scientific AG, relating to the dispette products, entitles the Company to act as
such supplier's exclusive distributor of such products in the United States. The
Company's supply agreement with Korea Techma, Inc., relating to the automatic
single-stick lancet sold under the "Gentle-let 1" tradename, also entitles the
Company to act as such supplier's exclusive distributor in the United States.
The other products in the Ulster Product Lines are purchased by the Company on a
purchase-order basis from various other suppliers. In general, the molds
utilized by such suppliers in the manufacture of the other products in the
Ulster Product lines are not proprietary to the Company and the Company's
arrangements with such suppliers are not exclusive.
The products in the Pro-Tec Product Line are all molded by outside contract
manufacturers, who also ship the products directly to the Company's customers
which saves the Company shipping and warehousing expense. The Company uses three
primary vendors for molding, and holds title to all of its molds.
COMPETITION
For the past 40 years, the global suture market has been dominated by a
small number of companies, primarily Ethicon, Inc. ("Ethicon"), a wholly-owned
subsidiary of Johnson & Johnson, Inc., and Sherwood Davis & Geck. In addition,
there are several small national firms and regional suppliers of suture products
with which the Company competes in both the general surgery and specialty
surgery markets. In 1992, United States Surgical Corporation ("USSC") entered
the market with a full line of general and specialty surgery products. USSC is
currently the world's leading manufacturer and marketer of surgical staplers and
endoscopic instruments and supplies and they are beginning to gain market share.
The Company believes that the extensive experience of its management group,
its access to an abundant and skilled labor pool, and its economical
manufacturing operations have enabled the Company to position itself as a
quality, low-cost supplier of general and specialty surgery suture products to
the foreign hospital and institutional market, and thus to compete in the sale
of such products on the basis of price. The Company currently markets
approximately 250 products for use in general surgical procedures, and has the
capability and know-how to manufacture approximately 3,000 additional products
in order to meet the specifications of particular customers. With the addition
of the Company's new synthetic absorbable suture line, the Company's product
line offerings are comparable to those offered by Ethicon, Davis & Geck and
USSC. The Company believes that its ability to remain a low-cost producer of
general and specialty surgical suture products in certain international markets
and its focus on the dental and veterinary surgical suture markets, as well as
certain specialty niches in the United States will be important to its ability
to remain competitive with the larger and better capitalized competitors in
these markets.
With respect to the Ulster Product Lines, in the lancet and needle market,
the Company has essentially four major competitors: Sherwood Medical Company,
Owen Mumford, Ltd., Gainor Medical U.S.A., Inc. and Can-Am Care Corporation. LP
Italiana SpA and Polymedco are considered the Company's only competitors in the
dispette market. The Company believes the following four criteria, listed in
order of priority, influence market share: price, availability, customer
relationships and a well rounded product line. The Company hopes to capitalize
on Ulster's twenty years of experience in the market and
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its existing client base, augmented by the Company's international presence, to
compete effectively. However, the Company's competitors in this area are larger,
better capitalized and maintain larger sales forces than the Company and are
therefore formidable competitors.
With respect to the Pro-Tec Product Lines, the Company has essentially
three major competitors: Sage Products, Inc., Graphic Controls, Inc. and
Becton-Dickinson, Inc. The Company believes that this market is influenced
primarily by price and complacency. The fact that these products are often
physically attached to walls and fixtures, there is sometimes resistence to
switching among competing brands. The Company believes that its ability to
provide a low-priced product, combined with a nearly identical customer base for
its Ulster Product Lines, will enable it to effectively compete in this market.
However, the Company's competitors in this area are larger, better capitalized
and maintain larger sales forces than the Company and are therefore formidable
competitors.
GOVERNMENT REGULATIONS
The Company's products and operations are subject to regulation by the FDA
in the United States and by comparable regulatory agencies in certain foreign
countries. Under the Federal Food, Drug and Cosmetic Act (the "FD&C Act"), the
FDA has promulgated regulations and established guidelines and policies
governing "medical devices", including certain of the products sold by the
Company. Under these regulations, the Company's products may not be shipped in
interstate commerce (including export) without prior authorization from the FDA
(except any devices that were in commercial distribution prior to May 28, 1976
that were not then regulated as drugs and that have not changed since that
time). Such authorization is based on a review of the products' safety and
effectiveness for their intended use. Medical devices may be authorized by the
FDA for marketing either pursuant to a pre-market notification under Section
510(k) of the FD&C Act ("510(k)") or a pre-market approval application ("PMA").
A 510(k) consists of a submission, 90 days prior to planned marketing, of
information sufficient to establish that the device is substantially equivalent
to a device marketed prior to May 28, 1976 or a device substantially equivalent
to such a device. Such information normally consists of data comparing the
respective devices, and may include data from clinical studies. A finding by the
FDA of substantial equivalence may take significantly longer than 90 days. A PMA
consists of information sufficient to establish that a device is safe and
effective for its intended use, including data from clinical and other studies.
FDA approval of a PMA, may take as long as several years. Whether a product
requires a 510(k) or a PMA, depends on its classification under the law and FDA
regulations. Most of the Company's products require 510(k)s, although certain
products which the Company may develop in the future might require a PMA. In
addition, the testing of medical devices through clinical investigations
generally requires FDA authorization.
The Company believes that it currently has in place all the requisite
authorizations to market its current line of products, including nine PMAs and
sixteen 510(k)s. The Company's current line of suture products includes all of
the major suture materials that are marketed in the United States. The Company
believes that all of its current suture and non-suture products are covered by
its PMAs and 510(k)s, or are otherwise legally marketed, and that, in view of a
reclassification of suture products by the FDA, those products for which the
Company has PMAs now require only 510(k)s; however, there is no assurance that
the FDA would agree with these positions.
The Company is subject to additional requirements under the FD&C Act,
including registration, recordkeeping and reporting requirements. In addition,
the FDA regulates the promotion of medical devices (except for advertising for
non-restricted devices which is regulated by other authorities), in particular
to ensure that devices are promoted within the terms of their authorized
labeling guidelines. The Company's manufacturing operations must comply with the
FDA's current GMP regulations and are subject to periodic FDA inspection.
Commencing on June 14, 1998, all medical devices imported into Europe must
bear the CE mark. To begin affixing the CE mark to its products, a company must
have implemented a quality management system in accordance with ISO 9001 Quality
Standard requirements and have its products approved by an appropriate Notified
Body. While less than 5% of the Company's revenues are generated in Europe,
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the Company sees potential for growth in this market, as well as other benefits
of ISO approval. Accordingly, the Company is currently in the process of formal
ISO third-party registration of its quality system and is also preparing for
submission the necessary technical dossiers for the relevant products to be CE
marked.
Future changes in regulations or enforcement policies could impose more
stringent requirements on the Company, compliance with which could adversely
affect the Company's business. Failure to comply with applicable regulatory
requirements could result in enforcement action, including withdrawal of
marketing authorization, injunction, seizure of products, and liability for
civil and/or criminal penalties.
PATENTS AND PROPRIETARY RIGHTS
The Company considers its technology and procedures relating to its suture
lines proprietary and relies primarily on trade secret laws and confidentiality
agreements to protect its technology and innovations. Employees, distributors
and key suppliers of the Company, as well as consultants which from time to time
may be hired, enter into confidentiality and/or invention assignment agreements
providing for non-disclosure of proprietary and trade secret information of the
Company and the assignment to the Company of all inventions, improvements,
technical information and suggestions relating in any way to the business of the
Company (whether patentable or not) which the employee or consultant develops
during the period of their employment or association with the Company. Despite
these restrictions, it may be possible for competitors or customers to copy one
or more aspects of the Company's products or obtain information that the Company
regards as proprietary. In addition, consultants of the Company will most likely
be employed by third parties, and accordingly, disputes could arise as to the
proprietary rights to information which has been applied to Company projects
independently developed by such consultants.
Furthermore, there can be no assurance that others will not independently
develop products similar to those sold by the Company.
The Company owns one United States patent relating to its cardiovascular
product packaging and has filed one additional patent application with the
United States Patent and Trademark Office relating thereto. The Company is also
licensed under a patent for the coating of synthetic absorbable sutures. In
addition, in connection with the Ulster Acquisition, the Company acquired the
rights to a patent covering a mold used in the production and component of the
BASKIT product and various trademarks and trademark applications relating to the
products in the Ulster Product Lines.
In connection with the Pro-Tec Acquisition, the Company acquired several
patents and trademarks related to the sharps containers and Pro-ject needle
holder. While the Company may seek patent protection in the future for new
products, there can be no assurance that any patents, or patents which may be
issued, will provide the Company with sufficient protection in the case of an
infringement of its technology or that others will not independently develop
technology comparable or superior to the Company's.
Although the Company believes that the products sold by it do not and will
not infringe upon the patents or violates the proprietary rights of others, it
is possible that such infringement or violation has occurred or may occur. In
the event that any products sold by the Company are deemed to infringe upon the
patents or proprietary rights of others, the Company could be required to modify
its products or obtain a license for the manufacture and/or sale of such
products. There can be no assurance that, in such an event, the Company would be
able to do so in a timely manner, upon acceptable terms and conditions or at
all, and the failure to do any of the foregoing could have a material adverse
effect upon the Company.
Notwithstanding the foregoing paragraph, Owen Mumford Ltd. ("Owen
Mumford"), one of the Company's competitors, filed a complaint in the United
States District Court for the Eastern District of Virginia, Richmond Division on
April 29, 1998 and served a summons and complaint on the Company on June 1,
1998, alleging that the one of the Company's products, the "Gentle-Let 1"
infringes on a patent owned by Owen Mumford. The complaint seeks unspecified
damages adequate to compensate Owen Mumford for the alleged patent infringement,
as well as costs and expenses. The Company intends to vigorously defend itself
in this proceeding. See "Business of the Company -- Legal Proceedings."
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The Company has acquired a registered trademark for the "Lukens" name. The
Company believes that this name, established in 1906, is important to its
business and prospects. In connection with the Ulster Acquisition and the
Pro-Tec Acquisition, the Company acquired all rights to the trademarks and
tradenames used in connection with the sale of the products in those lines. The
Company has also obtained a perpetual, non-exclusive, license to use the name
"Ulster Scientific" in connection with the sale of the products in the Ulster
Product Lines.
PRODUCT LIABILITY AND INSURANCE
The use of the Company's products entails an inherent risk of medical
complications to patients and resultant product liability claims. While the
Company presently maintains product liability insurance in the amount of $2
million per occurrence and in the aggregate which it believes is adequate for
its current activities, there can be no assurance that the Company will be able
to obtain such insurance in the future or that such insurance will be sufficient
to cover all possible liabilities. In the event of a successful suit against the
Company or one of its customers, lack or insufficiency of insurance coverage
could have a material adverse impact on the Company. To date, the Company has
had no material product liability claims.
EMPLOYEES
At March 13, 1998, the Company worldwide had 201 employees (including 67
contract employees and 134 full time employees), of which 177 were engaged in
production, 2 in development activities, 11 in sales and marketing and 11 in
finance and administration. The Company's employees are not covered by any
collective bargaining agreement. The Company considers relations with its
employees to be good.
DESCRIPTION OF PROPERTY
On July 1, 1996, the Company relocated its principal offices and certain of
its production facilities to, and now occupies, approximately 17,000 square feet
of space in Albuquerque, New Mexico which is leased by the Company (the
"Facility"). Rental payments on the Facility are equal to $10,000 per month. The
term of the lease expires on August 31, 2001, with two, two-year renewal
options. Management believes that the Facility is in good condition, is suitable
and adequate for the Company's current and proposed use thereof and is
adequately covered by insurance.
In connection with the Ulster Acquisition, the Company leased Ulster's
25,000 square foot warehouse and office facility in New Paltz, New York for a
period of one year, at a rent equal to $12,500 per month. Such lease expired in
March, 1997. In 1996, the Company relocated the Ulster Product Lines to the
Facility in Albuquerque, New Mexico.
The Company currently leases a 5,000 square foot warehouse and office
facility in Sanford, Florida at a rent equal to $2,600 per month from which it
sells its products in the Pro-Tec Product Lines. Such lease expires in March,
2001. Management believes that such facility is in good condition, is suitable
and adequate for the Company's current and proposed use thereof and is
adequately covered by insurance.
See "Description of the Business -- India Joint Venture," for a description
of the joint venture which owns a production facility utilized by the Company in
Southern India. Since the facility is located in an export zone, the India Joint
Venture leases the site from the zone at a nominal rate per year.
See "Description of the Business -- Brazil Joint Venture" for details on
the leased properties occupied by these entities.
LEGAL PROCEEDINGS
On April 29, 1998, Owen Mumford, one of the Company's competitors, filed a
complaint in the United States District Court for the Eastern District of
Virginia, Richmond Division, alleging that the one of the Company's products,
the "Gentle-Let 1" infringes on a patent owned by Owen Mumford. The summons and
complaint was served on the Company on June 1, 1998. The complaint seeks
unspecified damages adequate to compensate Owen Mumford for the alleged patent
infringement, as well as costs and expenses. The Company intends to vigorously
defend itself in this proceeding.
36
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF THE COMPANY
Set forth below is information concerning stock ownership of all persons
known by the Company to own beneficially 5% or more of the outstanding shares of
Common Stock of the Company, based on information provided to the Company, each
Director of the Company, the Named Executive Officer and all Executive Officers
and Directors of the Company as a group as of the Record Date:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NATURE AND AMOUNT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENTAGE OF CLASS
- ---------------------------------------------- ------------------------- --------------------
<S> <C> <C>
John H. Robinson 927,500(2) 25.7%
RJH Enterprises
260 Townsend Street, 2nd Floor
San Francisco, CA 94107
Robert L. Priddy 493,800(3) 14.9%
3435 Kingsboro Road #1601
Atlanta, GA 30326
Robert S. Huffstodt 99,932(4) 3.1%
Lukens Medical Corporation
3820 Academy Parkway North NE
Albuquerque, NM 87109
John P. Holmes 119,500(5) 3.7%
John P. Homes & Company, Inc.
P.O. Box 428
Shelter Island Heights, NY 11965
All officers and directors as a group 1,665,907(6) 42.9%
(6 persons)
</TABLE>
- ----------
(1) Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to shares of Common Stock
beneficially owned by them.
(2) Includes immediately exercisable warrants to purchase 450,000 shares of
Common Stock. Includes currently exercisable options to purchase 6,500
shares of Common Stock.
(3) Includes immediately exercisable warrants to purchase 50,000 shares of
Common Stock and currently exercisable options to purchase 106,500 shares
of Common Stock.
(4) Includes options exercisable within 60 days to purchase 91,875 shares of
Common Stock.
(5) Includes immediately exercisable options to purchase 50,000 shares of
Common Stock. The shares of Common Stock are owned by John P. Holmes &
Company, Inc., a company controlled by Mr. Holmes.
(6) See footnotes 2 through 5 hereof.
37
<PAGE>
CERTAIN TRANSACTIONS
On April 13, 1995, the Company entered into an agreement with John H.
Robinson, a director of the Company, whereby Mr. Robinson (i) loaned $400,000 to
the Company (the "April Loan"), (ii) agreed to purchase, at the Company's
request at any time prior to March 31, 1996, up to $500,000 of the Lukens Common
Stock at the market price at the time of such investment, and (iii) was issued
400,000 five-year warrants to purchase Common Stock at an exercise price of
$1.10 per share. The April Loan bears interest at the rate of 8% per annum, and
all principal and interest accrued during the term thereof is deferred and
payable on April 15, 1999. Proceeds of the April Loan were used to reduce the
Company's outstanding indebtedness under its line of credit with its lending
bank by $350,000 and the remainder was used for general corporate purposes. On
September 11, 1995, Mr. Robinson loaned the Company an additional $250,000 to
partially finance the payoff of certain capitalized leases in respect of
equipment (the "Buyout Loan"). The Buyout Loan bears interest at the rate of 8%
per annum and all principal and interest accrued during the term thereof is
deferred and payable in October, 1999. On March 5, 1996, Mr. Robinson loaned the
Company $400,000 to fund a portion of the purchase price relating to the
Company's acquisition of three product lines from Ulster Scientific, Inc. (the
"Acquisition Loan"). The Acquisition Loan bears interest at the rate of 10% per
annum and all principal and interest accrued during the term thereof is deferred
and payable on September 5, 2000. Repayment of the April Loan, the Buyout Loan
and the Acquisition Loan are subordinated to the Company's line of credit with
its lending bank. At the request of the Company's lending bank, the previous
maturity dates thereunder were extended for two additional years to the maturity
dates reflected above.
As of March 1, 1996, the Company entered into a consulting agreement with
John H. Robinson, a director of the Company. Such consulting agreement has a
term of one year and thereafter automatically renews for additional one-year
periods unless previously canceled by either party. Mr. Robinson is entitled to
receive approximately $50,000 per year pursuant to the terms of such consulting
agreement. Such consulting agreement is terminable by either party at any time
after the first year upon 60 days' prior written notice. Mr. Robinson's
consulting agreement is still in effect, but will be terminated as of the
Effective Date.
On February 28, 1997, the Company entered into an agreement with John H.
Robinson and Robert L. Priddy, each a director and substantial stockholder of
the Company, whereby Messrs. Robinson and Priddy loaned the Company an aggregate
of $1,000,000. Such loans bear interest at the rate of 10% per annum, are
repayable on or before January 1, 1999 and are subordinated to the Line of
Credit. In connection therewith, Messrs. Robinson and Priddy were each issued
warrants to purchase 15,000 shares of Common Stock at an exercise price of $6.25
per share, and warrants to purchase an additional 35,000 shares of Common Stock
at $6.25 per share.
38
<PAGE>
MARKET INFORMATION REGARDING LUKENS COMMON STOCK
Lukens Common Stock has been quoted on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system under the symbol "LUKN"
since May 6, 1992. The Common Stock has also been listed on the Pacific Stock
Exchange under the symbol "LKN" since May 6, 1992.
The following table sets forth the range of high and low bid prices for the
Common Stock for the periods indicated, as reported by NASDAQ, the principal
system or exchange on which such securities are quoted or traded. The quotations
represent "inter-dealer" prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH ($) LOW ($) HIGH ($) LOW ($)
---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Quarter ended Quarter ended
March 31, 1997 8 3/4 4 1/2 March 31, 1996 3 11/16 1 7/16
Quarter ended Quarter ended
June 30, 1997 6 3/4 5 1/2 June 30, 1996 3 5/16 2 5/8
Quarter ended Quarter ended
September 30, 1997 6 1/8 3 3/4 September 30, 1996 3 9/16 2 9/16
Quarter ended Quarter ended
December 31, 1997 5 1/4 1 1/2 December 31, 1996 4 9/16 3
Fiscal Quarter Ending
March 31, 1998 3 3/8 1 5/8
Fiscal Quarter Ending
June 30, 1998 3 9/16 2 1/2
</TABLE>
As of July 30, 1998, there were approximately 83 holders of record of the
Company's Common Stock.
On July 30, 1998, the closing bid and asked prices of the Common Stock were
$3 and $ 3 1/4, respectively.
LUKENS DIVIDEND POLICY
The Company has never paid a cash dividend on its capital stock. The
Company's loan agreement with its bank contains restrictions on the payment of
dividends.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF LUKENS' FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Proxy Statement.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1997 ("1997") COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1996 ("1996").
Sales increased 5% to approximately $8.6 million during 1997 from
approximately $8.2 million during 1996, primarily as a result of the Pro-Tec
Acquisition. Domestic sales of sutures primarily in the dental and veterinary
market in 1997 were approximately even with sales in 1996. Anticipated sales
growth in the veterinary market as a result of the introduction of the
monofilament synthetic absorbable suture was not realized in 1997 due to
production problems experienced by the Company's supplier of suture material.
The Company believes that these supply problems have been remedied. The
Company's export sales in 1997 and 1996 totaled $1,651,451 and $2,295,066,
respectively, which represents 19% and 28% of total sales in each of those
years, respectively.
Before the product restructuring charge, the Company's gross margins
decreased slightly, from 29% in 1996 to 28% in 1997. Gross Margins for 1997 were
negatively impacted by a repricing of inventory at December 31, 1997. Such
repricing is reflected in the Audited Financial Statements as an inventory cost
reduction totaling approximately $772,000. The Company expects that gross
margins in its most rapidly growing product line, lancets, will improve in the
second quarter of 1998 due to in-house manufacturing of needles (the most
expensive component) at its new facility in Cochin, India. The Company also
expects overall margins to increase in 1998 as the suture sales mix shifts from
the lower priced international markets to the more lucrative OEM domestic
markets, and due partially to the addition of the Pro-Tec Product Lines which
typically carry a higher gross margin than the Company has experienced
historically.
Selling expenses increased 51% in 1997 from $716,042 in 1996, to
$1,087,171, as a result of increases in the number of employees required to sell
and service the Pro-Tec and Ulster Product Lines, increased marketing expenses
relating to the Ulster Product Lines, such as convention and literature
expenditures, and charges for uncollected commissions and an increase in the
reserve for uncollectible accounts receivable.
General and administrative expenses increased approximately 248% to
$2,399,657 in 1997 compared to $965,180 in 1996, due mainly to the costs
incurred in connection with the Pro-Tec Acquisition, the costs related to the
discontinued product line, start-up costs relating to the India faciltiy and the
development costs related to the synthetic absorbable suture.
Research and development expenses decreased approximately 35%, to $70,386
in 1997 compared to approximately $108,594 in 1996, due primarily to the
finalization of the synthetic absorbable suture development project. The Company
does not expect to expend significant funds on research and development
activities in 1998.
During 1996 and most of 1997, the Company saw the international suture
market as a significant growth area for the Company. A number of markets,
including the Middle East, India, South Africa and Brazil, expressed serious
interest in the Company's cardiovascular suture line (the "Cardio Line"), and
its new synthetic absorbable suture in development at that time. Also, in late
1996, the Company was approached by a new U.S. venture which was interested in a
broad line of both products as well. Significant stocking orders were placed for
the products in these lines in early 1997. In February 1997, the Company
received FDA approval for the synthetic absorbable suture, and began actively
marketing this new line.
By late 1997, several new facts became apparent to the Company, including:
(i) international customers of the Cardio Line were unable to meet their sales
goals with respect to the products, (ii) reorders were not meeting the Company's
expectations and (iii) several customers in India and South
40
<PAGE>
Africa were actually returning products to the Company. In addition, the
synthetic absorbable suture, due to the high cost of new materials, had a market
price that was too high for many export markets. The large U.S. customer for
both suture lines was unable to fulfill its initial commitments to the Company,
and their large initial purchase order had been canceled. By December 31, 1997
the Company determined that most of the Cardio Line inventory should be written
off. While the synthetic absorbable suture had not met with widespread
acceptance or success internationally, it had been well accepted in certain
markets, including the domestic dental and veterinary markets. As a result, the
Company's revenue expectations from these two product lines internationally have
been scaled back significantly.
Concurrently with events surrounding the Company's Cardio Line, in the
third quarter of 1997, the Company also decided to refocus its international
marketing strategy to limit its product offerings to higher margin products and
regions. Historically, the Company carried a very large product line and
attempted to sell into numerous international markets, many of which were
unprofitable. By revising its international marketing strategy, the Company
hoped to increase its profitability. As a result, the Company reduced its
standard suture product line to include only approximately 250 catalog codes
(down from approximately 750) and intended to de-emphasize and even abandon
certain international markets. As a result of the foregoing, in December 1997
the Company wrote off approximately $3,030,000 of inventory consisting of
discontinued catalog codes and expired inventory, which included approximately
$300,000 of inventory relating to the Company's "Sed-Control" product. The
resulting aggregate inventory write-off and repricing in December 1997 was equal
to approximately $4,100,000 (the "Inventory Writeoff"). As a result of the
Inventory Writeoff, and increased expenses described above, the Company
experienced an operating loss of approximately $4,200,000 for the year ended
December 31, 1997.
Despite the foregoing, the overall volume for the Company's suture products
has continued to increase in 1998 due to successes in other markets with its
other suture products. The Company's joint venture in India, because it does not
produce sutures, was and is unaffected by the Company's refocused international
strategy for these lines. The Company's joint venture in Brazil was and is also
relatively unaffected due to the fact that while the Brazil joint venture does
produce suture products, the Cardio Line is very limited in scope and had no
significant related inventory. Additionally, the products produced by the Brazil
joint venture are targeted to different markets than those that the Company
determined to exit.
Interest income was $5,000 in 1997 compared to $6,000 in 1996. Interest
expense increased to approximately $433,000 in 1997 from approximately $198,000
in 1996 due primarily to the additional debt incurred relating to the India and
Brazil Joint Ventures, and the Pro-Tec Acquisition.
As result of the Inventory Writeoff, increased expenses and the other
income adjustments referred to above, the Company experienced a net loss of
$4,182,958 for the year ended December 31, 1997 compared to a net profit of
$463,481 for the year ended December 31, 1996. Without giving effect to the
Inventory Writeoff or acquisition costs, the Company experienced a net profit of
$334,262 for the year ended December 31, 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Sales increased approximately $764,000 or 16% for the six months ended June
30, 1998, compared to the six months ended June 30, 1997 due mainly to revenue
generated from the product lines acquired with Pro-Tec Containers, Inc. in May
1997 (the "Pro-Tec Acquisition"), increases in lancet sales and increased dental
suture sales..
Gross margins increased to 39% from 33% due to shifts in product mix,
yielding gross profits of $2,176,959 for the six months ended June 30, 1998,
compared to $1,570,905 for the six months ended June 30, 1997. Total operating
expenses increased $220,000 or 24% for the six months ended June 30, 1998 due,
again, to increases in Sales and Administrative Staff resulting from the PRO-TEC
and Ulster acquisitions due to amortization, selling expenses increased $18,000
or 4% and G&A expenses increased $194,000 or 41%. R&D increased by $8,000 or 33%
due to the successful completion of the Company's synthetic absorbable suture
project.
41
<PAGE>
Interest expense increased $168,000 due to higher levels of borrowing
related to its joint venture in India and the PRO-TEC and Techsynt acquisitions.
As a result of the foregoing, the Company incurred a net profit of $739,000
or $.21 per share, for the six months ended June 30, 1998 compared to a net
profit of $529,000 or $.16 per share during the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been to fund the working capital
requirements created by its sales growth and to make acquisitions. At June 30,
1998, the Company had cash and cash equivalents of $6,583 and working capital of
$1,479,052.
Bank Financing. As of December 31, 1997 and June 30, 1998, the Company had
drawn all of its $1,750,000 working capital portion of its line of credit with
its lending bank (the "Line of Credit"). The Line of Credit also includes an
additional $1,250,000 commitment for the issuance of standby and commercial
letters of credit. On December 31, 1997 approximately $882,000 in letters of
credit were outstanding under this letter of credit commitment and on June 30,
1998, there was approximately $111,000 in stand-by letters of credit and
$553,000 in letters of credit outstanding relating to raw material purchases,
and other general purposes, under the Line of Credit. The Line of Credit matures
and expires on August 30, 1998 unless it is renewed, and all outstanding amounts
are due and payable on such date. The Company expects the Line of Credit to be
renewed for an additional year prior to its expiration. There can be no
assurances, however, that such a renewal will be forthcoming, or, if available,
will be on terms acceptable to the Company.
As of December 31, 1997, the Company had approximately $142,000 outstanding
under a working capital line of credit (the "SBA L/C Facility") with the U.S.
Small Business Administration ("SBA"), which provided working capital for
foreign sales up to the lesser of (a) $600,000 or (b) 80% of the face amount of
negotiated letters of credit issued for the benefit of the Company and delivered
to the lender. It is the Company's understanding that due to the fact that the
majority of the letters of credit received by the Company from its international
customers did not meet the criteria set forth by the SBA, combined with various
other factors, including the existence of technical financial covenant defaults
under the Line of Credit as a result of the Inventory Writeoff, the SBA declined
to renew this line for 1998. The Company has repaid all outstanding amounts
under the SBA L/C Facility and no longer utilizes this facility.
At the same time, during December 1997 and the first quarter of 1998, the
Company has experienced increased sales of certain products, requiring it to
significantly increase its purchases of raw materials necessary to fill such
orders. Due to the decreased liquidity caused by losing the SBA L/C Facility, as
well as the increased outlays for raw materials, the Company has recently
experienced a shortage of working capital. As a result, the Company has recently
experienced difficulties financing its sales growth and has failed to timely pay
certain amounts due under certain term loans granted to the Company by its
lending bank in connection with the Line of Credit. During the quarter ended
March 31, 1998, the Company was still in technical default of certain financial
covenants and in payment default under certain of its term loans with its
lending bank. In April 1998, the Company cured its payment default under the
term loans and, subject to certain conditions, including, without limitation,
the closing of the Merger with Medisys, its lending bank amended certain of the
financial covenants so that the Company is no longer in default under any of its
lines of credit. The Company's credit facility expires and needs to be renewed
prior to the end of August 1998. In the event that such credit facility is not
so renewed, there can be no assurance that the Company will be able to obtain
alternate financing.
To fund future acquisitions and joint ventures, the Company is reliant upon
obtaining long-term borrowing and/or equity financing. Management believes that
the Company will have access to the capital resources necessary to continue to
fund such expansion, although there is no assurance that such financing will be
available or, if available, will be on terms acceptable to the Company. For a
more complete description of the Company's current credit facilities, see Note 5
to Notes to Consolidated Financial Statements.
42
<PAGE>
During the quarter ended June 30, 1998, the Company experienced lower
levels of productivity at its primary suture manufacturing facility in Juarez,
Mexico. This was caused by unusually high turnover of staff, due to increased
competition for labor in the local market, productivity fell be as much as
30-35% for the period, and as a result, the Company fell short of its production
goals which in turn created increased levels of inventory. The Company's
decreased ability to convert its inventory into cash or accounts receivable has
resulted in a working capital shortfall. The Juarez facility is the Company's
primary suture assembly plant, and typically generates approximately 30% of the
products sold by the Company in a given quarter. The Company is currently
working to remedy its production problems, but no assurance can be given that a
remedy will be forthcoming in the immediate future.
Stockholder Loans. On February 28, 1997, the Company entered into an
agreement with John H. Robinson and Robert L. Priddy, each a director and
substantial stockholder of the Company, whereby Messrs. Robinson and Priddy
loaned the Company an aggregate of $1,000,000. Such loans bear interest at the
rate of 10% per annum, are repayable on or before January 1, 1999 and are
subordinated to the Line of Credit. In connection therewith, Messrs. Robinson
and Priddy were each issued warrants to purchase 15,000 shares of Common Stock
at an exercise price of $8.25 per share, and warrants to purchase an additional
35,000 shares of Common Stock at $6.00 per share. See "Item 12. Certain
Relationships and Related Transactions."
In the past, the Company has been reliant upon Messrs. Robinson or Priddy
to finance the costs associated with certain acquisitions and to restructure
certain indebtedness, on terms favorable to the Company. There can be no
assurance the such financing, or other third party debt or equity financing,
will be available in the future or, if available, will be on terms acceptable to
the Company.
Investment by Medisys. In March, and April of 1998, Medisys purchased an
aggregate of 75,000 shares of Common Stock from the Company for $4.00 per share
in cash in private transactions with the Company. In July, Medisys purchased an
additional 57,500 shares of Common Stock from the Company for $4.00 per share in
cash in a private transaction with the Company.
OTHER INFORMATION
Sales to the U.S. Government. During 1996, the department of the U.S.
Government responsible for procuring medical supplies, such as sutures, began
purchasing more of such items outside the traditional bid system. The Company
has been successful over the last several years in obtaining substantial awards
under the bid system. The new system, which incorporates local dealers called
Prime Vendors, is less sensitive to price and more sensitive to the impact of a
direct sales force. As a result of the foregoing, since the Company has only a
limited sales force, there can be no assurance that the Company will continue to
meet or exceed its historical levels of sales of its products to the U.S.
Government in the future and during 1997 sales were nominal.
Acquisition of the Pro-Tec Product Lines. For a description of the
consideration paid and payable by the Company in connection with the Pro-Tec
Acquisition, including, without limitation, the Common Stock issued in
connection therewith, see Note 15 to Notes to Consolidated Financial Statements
and the Company's Current Report of Form 8-K filed in connection with the
Pro-Tec Acquisition.
Pro-Tec Stock Price Guarantee. In connection with the Pro-Tec Acquisition,
the Company agreed to guarantee the value of the Common Stock issued to the
former owner pursuant to such acquisition for a period of six months from the
effective date of the Registration Statement on Form S-3 which was filed by the
Company to register the resale of such shares. As a result of the decline in the
price to the Lukens Common Stock during such period (and taking into account
certain other adjustments), the Company owes the former owner of Pro-Tec
approximately $300,000, which amount is payable by the issuance of a one-year
promissory note. The Company and such individual are currently negotiating to
extend the term of the payment of this amount. No agreement, however, has yet
been finalized and there can be no assurance given that any such agreement will
be reached.
Net Operating Loss Carryforwards. As of December 31, 1997, the Company had
net operating loss carryforwards ("NOLs") of approximately $13,775,000 which
will expire from 1998 through 2010. The deductibility of portion of the NOLs is
subject to an annual limitation of approximately $460,000; the excess of such
annual limitation over the amount to be used in subsequent year until they
expire. See Note 10 of Notes to Consolidated Financial Statements.
43
<PAGE>
Year 2000 Disclosure. The Company believes that its operations will not be
materially disrupted by any problems associated with the "Year 2000" syndrome
after January 1, 2000; however, there can no assurances in this regard.
44
<PAGE>
INFORMATION REGARDING MEDISYS AND MERGER SUB
Medisys PLC, a Scottish public limited company ("Medisys"), is a medical
technology company providing products, through its divisions and subsidiaries,
to the point of care environment, at present focused on two markets -- the point
of care and over the counter diagnostics market and the market for on-site
disposal of biohazardous medical waste. Merger Sub is a Delaware corporation
recently organized in connection with the Merger. Merger Sub has not conducted
any business to date, other than incidental to its organization and in
connection with the Merger. Merger Sub will not have any assets or liabilities
(other than those arising under the Merger Agreement or in connection with the
Merger) or engage in any activities other than those incident to its formation
and capitalization and the Merger. As of the date of this Proxy Statement, all
the authorized capital stock of Merger Sub is owned by Medisys. Medisys' and
Merger Sub's principal executive offices are located at Walmar House, 288-292
Regent Street, London W1R SH8 England, (011) 44-171-436-3353. As of the Record
Date, Medisys owned 132,500 shares of Lukens Common Stock and neither Merger Sub
nor any of their affiliates owned any shares of Lukens Common Stock.
FINANCIAL INFORMATION
The Company's consolidated audited financial statements for the years ended
December 31, 1997 and 1996 and the unaudited financial statements for the six
month period ended June 30, 1998 and 1997 are included as part of this Proxy
Statement.
FEES AND EXPENSES
The Merger Agreement provides that whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby shall be paid by the party
incurring such expenses, whether or not the Merger is consummated except as
expressly provided in the Merger Agreement and except that the filing fee in
connection with the filing of this Proxy Statement with the SEC and the expenses
incurred in connection with printing and mailing this Proxy Statement shall be
shared equally by Lukens and Medisys.
OTHER MATTERS
As of the time of preparation of this Proxy Statement, the Board of
Directors knows of no other matters that will be acted on at the Special Meeting
other than the approval and adoption of the Merger Agreement and the Merger. If
any other matters are presented for action at the Special Meeting or at any
adjournment or postponement thereof, it is intended that the proxies will be
voted with respect thereto in accordance with the best judgment and in the
discretion of the persons named as proxies in the accompanying proxy card. All
documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date hereof and prior to the date of the
Special Meeting shall be deemed to be incorporated by reference herein.
1998 ANNUAL MEETING OF STOCKHOLDERS
The Company does not plan to hold an annual meeting of stockholders during
1998 unless the Merger is not consummated. If the Merger is not consummated,
stockholder proposals previously received by the Secretary of the Company on or
before November 30, 1997 will be considered for inclusion in the proxy materials
for the Company's 1998 Annual Meeting of Stockholders.
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<PAGE>
INDEPENDENT CERTIFIED ACCOUNTANTS
Lukens' independent public accountants for the fiscal year ended December
31, 1997, and for the current fiscal year are Neff and Company LLP. It is not
anticipated that representatives of Neff and Company LLP will be present at the
Special Meeting.
[sig]
Robert S. Huffstodt, President and Chief
Executive Officer
August 26, 1998
STOCKHOLDERS WHO DO NOT EXPECT TO BE PERSONALLY PRESENT AT THE MEETING AND WHO
WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT TO CONTINENTAL STOCK TRANSFER & TRUST COMPANY, THE
COMPANY'S TRANSFER AGENT.
46
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT .............................................. F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets for the years ended
December 31, 1997 and 1996 ............................................. F-3
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 ............................................. F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996 ............................................. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 ............................................. F-7
Notes to Consolidated Financial Statements as of December 31, 1997 ....... F-9
Consolidated Balance Sheets for the six months ended June 30, 1998
(unaudited) and December 31, 1997 ...................................... F-25
Consolidated Statements of Operations for the six months
ended June 30, 1998 (unaudited) ........................................ F-27
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 ........................................... F-28
Notes to Consolidated Financial Statements as of June 30, 1998 ........... F-29
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Lukens Medical Corporation
We have audited the accompanying consolidated balance sheets of Lukens
Medical Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These 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 Lukens
Medical Corporation and Subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
NEFF & COMPANY LLP
Albuquerque, New Mexico
March 27, 1998
F-2
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 11) ............... $ 74,048 878,090
Accounts receivable, net of allowance of
$40,000 in 1997 and $5,790 in 1996
(Notes 5 and 6) ................................. 1,836,542 1,901,947
Inventory (Notes 2, 5, 6, and 14) ................. 5,105,900 5,565,210
Prepaid expenses .................................. 127,080 34,290
----------- ---------
Total current assets ............................ 7,143,570 8,379,537
Fixed assets, net (Notes 3, 5, 6 and 8) ............ 3,599,150 2,062,842
Intangible assets, net of accumulated amortization
of $1,222,264 and $966,065 in 1997 and 1996,
respectively (Notes 4 and 15) ..................... 2,215,420 1,098,487
Other assets ....................................... 85,754 261,294
----------- ---------
Total assets .................................... $13,043,894 11,802,160
=========== ==========
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 1,864,832 1,406,243
Accrued liabilities ......................................... 138,016 62,139
Current maturities of long-term debt (Notes 5 and 6) ........ 5,146,950 2,002,191
Current maturities of obligations under
capital leases (Note 8) ................................... 146,893 39,825
------------- ---------
Total current liabilities ................................. 7,296,691 3,510,398
Long-term debt, excluding current maturities
(Notes 5, 6 and 11) ......................................... 73,483 796,446
Stockholder payable and accrued interest (Notes 7 and 11)..... 2,290,991 1,157,408
Obligations under capital leases, excluding current maturities
(Note 8) .................................................... 266,256 59,378
------------- ---------
Total liabilities ......................................... 9,927,421 5,523,630
------------- ---------
Commitments and contingencies (Notes 5, 8, 13, 15, and 16) .
Minority interests ........................................... 74,955 --
------------- ---------
Stockholders' equity (Notes 5 and 9):
Common stock $.01 par value, authorized 20,000,000 shares;
issued and outstanding 3,043,359 shares in 1997 and
2,731,988 shares in 1996 .................................... 30,434 27,320
Additional paid-in capital .................................. 18,526,035 17,213,952
Accumulated deficit ......................................... (15,461,903) (10,962,742)
Foreign currency translation adjustments .................... (53,048) --
------------- -----------
Total stockholders' equity ................................ 3,041,518 6,278,530
------------- -----------
Total liabilities and stockholders' equity ................ $ 13,043,894 11,802,160
============= ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- ------------
<S> <C> <C>
Net sales (Note 12) ............................. $ 8,618,863 8,178,576
Cost of sales (Note 14) ......................... 5,469,327 5,496,534
Inventory cost reduction ........................ 770,000 300,000
Product restructuring charge (Note 14) .......... 3,005,280 --
------------ ---------
Gross profit (loss) ............................ (625,744) 2,382,042
------------ ---------
Selling expenses ................................ 1,087,171 716,042
General and administrative expenses ............. 2,399,657 965,180
Research and development expenses ............... 70,386 108,594
------------ ---------
Total operating expenses ..................... 3,557,214 1,789,816
------------ ---------
Earnings (loss) from operations .............. (4,182,958) 592,226
------------ ---------
Other income (expense):
Interest income ................................ 5,236 6,578
Interest expense ............................... (433,463) (197,566)
Minority interests' share of loss .............. 80,570 --
Other, net ..................................... 31,454 62,243
------------ ---------
Total other expense, net ..................... (316,203) (128,745)
------------ ---------
Earnings (loss) before income taxes .......... (4,499,161) 463,481
Income tax expense (Note 10) .................... -- --
------------ ---------
Net earnings (loss) .......................... $ (4,499,161) 463,481
============ =========
Basic net earnings (loss) per share ............. $ (1.48) .17
============ =========
Dilutive net earnings (loss) per share .......... $ (1.48) .15
============ =========
Weighted average number of common shares
outstanding - basic ............................ 3,043,359 2,677,698
============ =========
Weighted average number of common shares
outstanding - dilutive ......................... 3,043,359 3,068,113
============ =========
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F-5
<PAGE>
LUKENS MEDICAL CORPORTATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
(NOTES 9 AND 15) ADDITIONAL CURRENCY
---------------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENTS TOTAL
----------- ---------- ------------ ----------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ......... 2,611,418 $26,115 16,938,696 $ (11,426,223) -- 5,538,588
Exercise of options for common
stock ............................. 120,570 1,205 275,256 -- -- 276,461
Net earnings (loss) ................ -- -- -- 463,481 -- 463,481
--------- ------- ---------- ------------- -- ---------
Balance December 31, 1996 .......... 2,731,988 27,320 17,213,952 (10,962,742) -- 6,278,530
Exercise of options for common
stock ............................. 111,371 1,114 478,103 -- -- 479,217
Issuance of common stock for busi-
ness acquisition .................. 200,000 2,000 833,980 -- -- 835,980
Net earnings (loss) ................ -- -- -- (4,499,161) -- (4,499,161)
Foreign currency translation adjust-
ments ............................. -- -- -- -- (53,048) (53,048)
--------- ------- ---------- ------------- ------- ----------
Balance, December 31, 1997 ......... 3,043,359 $30,434 18,526,035 $ (15,461,903) (53,048) 3,041,518
========= ======= ========== ============= ======= ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F-6
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
Cash flows from operations:
Net earnings (loss) ............................................ $ (4,499,161) 463,481
Adjustments to reconcile net earnings
to cash flows applied to operating activities:
Minority interest in net loss ................................ (80,570) --
Depreciation ................................................. 398,943 262,941
Amortization of intangible assets ............................ 256,199 169,563
Decrease in inventory valuation allowance .................... -- 250,000
Loss on disposal of fixed assets ............................. -- 9,855
Accrued interest due stockholder ............................. 133,583 79,024
Changes in current assets and liabilities:
Accounts receivable ............................................ 245,235 (632,736)
Inventory ...................................................... 472,310 (1,966,159)
Prepaid expenses ............................................... (92,305) (10,834)
Other assets ................................................... 4,667 (176,579)
Accounts payable ............................................... 385,025 741,163
Accrued liabilities ............................................ 62,634 (20,916)
------------ ----------
Net cash applied to operating activities ..................... (2,713,416) (831,197)
------------ ----------
Cash flows from investing activities:
Purchase of equipment ........................................... (1,311,378) (561,910)
Purchase of intangible assets ................................... (29,602) (785,377)
Proceeds from disposal of equipment ............................. 26,417 --
Proceeds from joint venture formation,
net of cash transferred ........................................ 155,525 --
Business acquisitions, net of cash purchased .................... (224,916) --
------------ ----------
Net cash flows applied to investing activities ............... (1,383,954) (1,347,287)
------------ ----------
Cash flows from financing activities:
Proceeds from issuance of common stock
and equivalents ................................................ 479,217 276,461
Borrowings on long-term debt .................................... 5,174,575 2,621,155
Principal payments on long-term debt and capital leases ......... (3,360,440) (280,091)
Borrowings from major stockholders .............................. 1,000,000 400,000
------------ ----------
Net cash flows provided by
financing activities ........................................... 3,293,352 3,017,525
------------ ----------
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F-7
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- ----------
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents .......... (804,042) 839,041
Cash and cash equivalents at beginning of year ................ 878,090 39,049
-------- -------
Cash and cash equivalents at end of year ...................... $ 74,048 878,090
========== =======
Supplemental disclosures:
Cash paid for interest ........................................ $ 274,767 113,532
========== =======
Production equipment acquired with capital
leases ....................................................... $ 375,484 63,095
========== =======
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F-8
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activities. Lukens Medical Corporation, a
Delaware corporation, and its wholly-owned subsidiaries, (the Company) is a
disposable surgical products company engaged in the design, development,
manufacture, and marketing of needle suture products, disposable safety
scalpels, lancets, disposal supplies, and bone wax. The Company markets its
products worldwide to hospitals, independent care facilities, physicians'
offices, and to the United States government directly and through independent
distributors.
In addition to its facility in Albuquerque, New Mexico which includes the
operations of Lukens Medical Corporation and its wholly owned subsidiary ProTec,
Inc., the Company's operations include the following:
Lukens Medical Products Limited, a 90 percent owned joint venture in
Cochin, India that serves primarily as a manufacturing facility.
Techsynt-Lukens Industrial, Commercial, Import and Export Limited, a
51 percent owned joint venture in Sao Paolo, Brazil, that manufactures and
sells the Company's products.
Somar-Lukens S.A de C.V., a 50 percent owned joint venture in Piedras
Negras, Mexico that is not yet active and as of December 31, 1997, had no
assets or operations.
The Company utilizes contract manufacturing facilities in Piedras Negras
and Ciudad Juarez, Mexico for certain suture products. These facilities are
operated by contractors and are not owned by the Company.
Principles of Consolidation. The consolidated financial statements include
the accounts of Lukens Medical Corporation and its wholly-owned subsidiary and
majority owned joint ventures. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents. Cash and cash equivalents consist substantially
of cash in banks and repurchase agreements which are collateralized by
government securities at a 102 percent of fair market value and recorded in the
bank's name. The Company considers all highly liquid financial instruments with
original maturities of three months or less to be cash equivalents.
Inventory. Inventory, which consists principally of the Company's products,
supplies and components, is stated at the lower of cost or market value. Cost is
determined using the first-in, first-out (FIFO) method. Market value for raw
materials is based on replacement costs and for other inventory classifications
on net realizable value. Appropriate consideration is given to deterioration,
obsolescence and other factors in evaluating net realizable value. Inventory
costs include material, labor, and manufacturing overhead.
Fixed Assets. Equipment and leasehold improvements are recorded at cost.
Depreciation expense is calculated using the straight-line method based on the
estimated useful lives of the respective assets which approximate three to ten
years. The Company follows the policy of capitalizing expenditures that
materially increase asset useful lives and charging ordinary maintenance and
repairs to operations as incurred.
Intangible Assets. Intangible assets consist principally of costs incurred
to obtain Food and Drug Administration approvals, trademarks, organizational
costs, patents, non compete agreements and goodwill. The Company evaluates its
intangible assets annually to determine potential impairment that may have been
caused due to changing circumstances or events by comparing the carrying value
to the undiscounted future net cash flows of related assets. No impairment
losses have been recognized in the periods presented. Intangible assets are
being amortized using the straight-line method over periods of 8 to 10 years.
F-9
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Capitalization of Interest. Interest is capitalized in connection with the
construction and start-up of major facilities. The capitalized interest is
recorded as part of the asset to which it relates and is amortized over the
asset's estimated useful life. In 1997, $80,828 of interest was capitalized. No
interest was capitalized in 1996.
Income Taxes. The Company accounts for its income taxes in accordance with
Financial Accounting Standards Statement No. 109, Accounting for Income Taxes
(SFAS 109). SFAS 109 requires a company to recognize deferred tax liabilities
and assets for the expected future tax consequences of events that have been
recognized in a company's financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax basis of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. The Company has provided a valuation
allowance to offset the benefit of any net operating loss carryforwards or
deductible temporary differences.
Translation of Foreign Currencies. The translation of foreign currencies
into U.S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense accounts
using an average exchange rate for the period. The gains or losses resulting
from translation are included in shareholders' equity. The functional currency
of operations in India and Brazil is the local currency - the functional
currency of the operations in Mexico is the US dollar, which is also the
currency of the books of record.
Net Sales. Sales are recorded at the time products are shipped, net of
sales returns and allowances.
Research and Development Expenses. Research and development costs are
expensed as incurred.
Long-Lived Assets. Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of (SFAS 121), was adopted as of January 1, 1996. SFAS 121
standardized the accounting practices for the recognition and measurement of
impairment losses on certain long-lived assets. The adoption of SFAS 121 had no
effect on the results of operations or financial position.
Effect of New Accounting Pronouncements. Effective January 1, 1996, the
Company adopted SFAS No. 123, Accounting for Stock-Based Compensation. The
Company adopted this pronouncement by making the required pro forma note
disclosure only. Accordingly, the adoption of SFAS No. 123 did not impact the
Company's results of operation or financial condition.
Earnings Per Share. Effective for the year ended December 31, 1997, the
Company adopted SFAS 128, Earnings Per Share. In adopting this pronouncement,
the Company computed the earnings (loss) per share on the basis of the weighted
average number of common shares outstanding during the year and included the
effect of potential common stock to the extent they are dilutive. This
pronouncement was adopted for both 1997 and 1996, however, there was no impact
on the earnings per share previously reported for 1996.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Net loss .................................. $ (4,499,161) -- --
------------ -- --
Loss to common stockholders-
basic and diluted loss per share ......... $ (4,499,161) 3,043,359 (1.48)
============ ========= =====
</TABLE>
The warrants and options described in Note 9 and 15 were not included in
potential common stock as the effect of conversion would be antidilutive.
F-10
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Net earnings .................................... $463,481
--------
Basic EPS ....................................... 463,481 2,677,698 .17
Effect of dilutive options and warrants ......... -- 390,415 --
-------- --------- ---
Diluted EPS ..................................... $463,481 3,068,113 .15
======== ========= ===
</TABLE>
Warrants and options described in Note 9 and 15 to purchase 964,227 shares
of common stock were not included in potential common stock as the offset of
conversion would be antidilutive.
The Company uses the fair value of goods or services received or the fair
value of the options or warrants issued, whichever is more reliably measurable,
to determine the expense to record for options or warrants issued to
non-employees. Such amounts were not material and not recorded in 1996 or 1997.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassification. The Company has reclassified certain amounts in the 1996
financial statements to conform to the 1997 presentation.
NOTE 2. INVENTORY
Inventory consists of the following components at December 31:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Raw materials ............ $1,938,343 2,767,214
Work-in-process .......... 1,972,124 1,419,685
Finished goods ........... 1,261,603 1,444,481
Less reserves ............ (66,170) (66,170)
---------- ---------
$5,105,900 5,565,210
========== =========
</TABLE>
NOTE 3. FIXED ASSETS
Fixed assets owned or held under capital lease (see Note 8) consist of the
following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Building ................................ $ 899,762 --
Leasehold improvements .................. 227,112 172,677
Production equipment .................... 3,951,117 3,018,600
Office equipment ........................ 286,461 229,646
Construction in progress ................ 198,075 --
5,562,527 3,420,923
Less accumulated depreciation .......... 1,963,377 1,358,081
---------- ---------
$3,599,150 2,062,842
========== =========
</TABLE>
F-11
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 3. FIXED ASSETS - (CONTINUED)
Production equipment valued at $807,543 and $776,553, respectively, was not
being utilized in 1996 or 1997 and as of December 31, 1997, was in Piedras
Negras, Mexico in anticipation of the start up of a joint venture (See Note 15).
NOTE 4. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31,:
<TABLE>
<CAPTION>
1997 1996
--------------- ------------
<S> <C> <C>
Suture regulatory approvals ............. $ 963,448 920,089
Ulster Scientific non-compete agreements,
patents and trademarks ................. 642,069 642,069
ProTec patents and goodwill ............. 1,296,968 --
Other ................................... 535,199 502,394
------------ -------
Total .................................. 3,437,684 2,064,552
Accumulated amortization ................ (1,222,264) (966,065)
------------ ---------
$ 2,215,420 1,098,487
============ =========
</TABLE>
NOTE 5. BANK FINANCING INSTRUMENTS
At December 31, 1997, the Company had the following bank borrowing
agreements:
A working capital line-of-credit agreement, which provides for borrowings
for working capital up to the lesser of (a) $1,750,000 or (b) the sum of 80
percent of eligible accounts receivable (as defined in the agreement) plus the
lesser of 40 percent of qualified inventory. Interest is payable monthly on the
amount drawn at the Bank's corporate base rate (the Bank's prime rate) plus .75
percent. At December 31, 1997, there was $1,750,000 outstanding under this
line-of-credit agreement.
A letter-of-credit line, which provides for other credit instruments
including commercial letters-of-credit and banker's acceptances which guarantee
payment to raw material suppliers, and standby letters-of-credit which may also
be used for the purchase of raw material on forward currency contracts. The sum
of these shall not exceed $1,250,000 at any one time. At December 31, 1997,
there was $634,127 of Bankers' acceptances and commercial letters of credit and
$124,577 in standby letters of credit outstanding under this line. Additionally,
under a separate letter of credit, there was a $360,000 letter of credit
relating to the purchase of the India facility.
A SBA equipment term loan, which provides for the purchase of equipment and
machinery up to $150,000, interest and principal payable monthly on equal
installments of $2,510 at the New York prime rate as published in the Wall
Street Journal, plus 1.5 percent. At December 31, 1997, there was $114,018
outstanding under this agreement.
A SBA equipment term loan, which provides for the purchase of equipment and
machinery up to $150,000, interest and principal payable monthly on equal
installments of $2,535 at the New York prime rate as published in the Wall
Street Journal, plus 1.5 percent. At December 31, 1997, there was $135,221
outstanding under this agreement.
On May 24, 1996, the Company obtained a bank term loan for the purchase of
equipment and machinery in the amount of $120,000, interest and principal
payable monthly on equal installments of $3,859 at the bank's corporate base
rate plus 1.5 percent. At December 31, 1997, there was $68,268 outstanding under
this agreement.
F-12
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 5. BANK FINANCING INSTRUMENTS - (CONTINUED)
On December 30, 1996, the Company obtained a bank term loan for funding of
a joint venture in India in the amount of $700,000, interest and principal
payable monthly on equal installments of $14,700 at the bank's corporate base
rate plus 1 percent. At December 31, 1997, there was $613,575 outstanding under
this agreement.
On August 31, 1997, the Company obtained a bank term loan for funding of
general operations in the amount of $1,000,000, interest plus principal payable
in equal monthly installments of $21,011, at the bank's corporate rate plus .75
percent. At December 31, 1997, there was $972,099 outstanding under this
agreement.
On November 27, 1997, the Company obtained a bank term loan for payment of
expired letters-of-credit in the amount of $184,087 interest plus principal due
on March 27, 1998, at the bank's corporate rate plus 1.5 percent. At December
31, 1997, there was $141,958 outstanding under this agreement.
At December 31, 1997, these bank credit instruments had covenants which
provided, among other things, for: the maintenance of tangible net worth of the
corporate affiliates on a consolidated basis at any time to be less than
$6,800,000, a minimum current ratio, as defined in the agreement, of 2:1;
aggregate debt to consolidated stockholders' equity of not greater than 1:1 and
fixed charges coverage not less than 1:3. The agreements also provide for a
security interest in substantially all of the Company's assets and has certain
covenants which restrict the Company's payment of dividends and prohibit
incurring any additional material indebtedness without the consent of the Bank.
As of December 31, 1997, the Company was in arrears on its bank notes
payable and did not meet the financial ratios required. The bank has not granted
a waiver for any default by the Company; as a result, the notes payable have
been classified as current.
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Bank Debt:
Outstanding letter-of-credit payable to NationsBank,
N.A. interest is accrued at the corporate base rate
plus .75% (9.25% at December 31, 1997), maturing
August 30, 1998 ........................................ $ 634,127 796,838
Outstanding line-of-credit payable to NationsBank,
N.A. interest is accrued at the corporate base rate
plus .75% (9.25% at December 31, 1997), maturing
August 30,1998 ......................................... 1,750,000 966,102
Various notes payable to NationsBank, N.A. interest is
accrued at the base corporate rate (8.5% at December 31,
1997) plus 1% to 1.5%, maturing between March
1998 and November 2003 ................................. 2,045,138 952,074
</TABLE>
F-13
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 6. LONG-TERM DEBT - (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Other debt:
Community Development Block Grant note, due in monthly
installments of $4,167, plus interest at a rate equal
to the six-month Treasury Bill rate with a minimum of
7% and a maximum of 9% (7% at December 31, 1997),
maturing July 7, 1998, secured by equipment purchased
with the proceeds
from the note ........................................... $ 20,973 83,623
Note payable to Kerala State Industrial Corporation,
due in monthly principal installments of $15,000,
plus interest due quarterly at an annual rate of
15.5%, maturing March 1999 secured by a standby
letter of credit with
NationsBank, N.A. ....................................... 240,000 --
Notes payable to the sole stockholder of ProTec for
acquisition of ProTec Containers, Inc., terms to be
finalized (Note 15) ..................................... 454,163 --
Other bank notes .......................................... 76,032 --
--------- ------
Total long-term debt ..................................... 5,220,433 2,798,637
Current maturities of long-term debt ..................... 5,146,950 2,002,191
--------- ---------
Long-term debt, excluding current maturities ............. $ 73,483 796,446
========= =========
</TABLE>
The NationsBank, N.A. debt is secured by accounts receivable, inventory and
fixed assets of the Company, except for those purchased with the proceeds
obtained from the Community Development Block Grant note.
Future scheduled debt payments at December 31 are:
1998 ..................................... $5,146,950
1999 ..................................... 73,483
----------
$5,220,433
==========
NOTE 7. STOCKHOLDER PAYABLE
During 1995, a major stockholder loaned the Company $400,000 which defeased
a $350,000 line of credit and provided $50,000 for general operations. The note
is due April 1999, including all interest, accrued at 8 percent. The major
stockholder also received warrants for 400,000 shares of common stock
exercisable at 1.10 per share (Note 9).
In September 1995, the Company received $250,000 from the stockholder for
repayment of various capital leases. The note is due October 1999, including all
interest, accrued at 10 percent.
In March 1996, the Company received $400,000 from the stockholder for use
in the Ulster acquisition. The note is due September 2000, including all
interest, accrued at 10 percent.
In March, May and June 1997, the Company received a total of $1,000,000
from two major stockholders to fund expansion of the recently acquired India
Facility, expansion of capacity for synthetic absorbable sutures and for the
acquisition of ProTec Containers, Inc. The notes are due May 1998
F-14
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 7. STOCKHOLDER PAYABLE - (CONTINUED)
bearing interest at 10%. Each major stockholder also received warrants for
50,000 shares of common stock. These warrants are exercisable at $6.25 per share
(Note 9). Subsequent to year end these notes were extended to January 1999.
NOTE 8. LEASES
The Company has five capital lease obligations for production equipment. At
December 31, 1997 and 1996, the Company had $501,992 and $126,508, respectively,
recorded as production equipment under capital leases with related accumulated
depreciation of $42,120 and $4,206, respectively (see Note 3).
The present value of future minimum capital lease payments as of December
31, 1997 follows:
1998 .................................. $190,530
1999 .................................. 157,186
2000 .................................. 92,152
2001 .................................. 59,805
--------
Total minimum lease payments ........ 499,673
Less amount representing interest
(at rates ranging from 8% to 16%) ... 86,524
--------
Present value of net minimum capital
lease payments ...................... 413,149
Current maturities of obligations under
capital leases ...................... 146,893
--------
Obligations under capital leases, ex-
cluding current maturities .......... $266,256
========
The Company leases its facilities and certain equipment under terms of
various operating leases. Future minimum rental payments required under the
operating leases as of December 31, 1997, are as follows:
Year ending December 31:
1998 ............................................ $125,748
1999 ............................................ 128,953
2000 ............................................ 132,253
2001 ............................................ 86,925
--------
Total minimum payments required ......... $473,879
========
Total rental expense for operating leases during 1997 and 1996 was $147,807
and $111,787, respectively.
F-15
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 9. STOCK WARRANTS AND OPTIONS
Warrants for Common Stock
The following warrants are outstanding at December 31, 1997:
NUMBER OF SHARES EXERCISE DATE DATE OF
COVERED BY WARRANTS PRICE EXERCISABLE EXPIRATION
--------------------- ---------- ------------- ---------------
435,000 6.00 Presently May 6, 1998
65,000 4.50 Presently June 11, 1999
400,000 1.10 Presently April 13, 2000
30,000 6.25 Presently March 1, 2002
70,000 6.25 Presently May 1, 2002
50,000 3.00 Presently March 5, 2004
Each warrant allows the holder to purchase one share of common stock at the
warrant price.
Options for Common Stock
In 1992, the Company adopted a stock option plan (1992 Plan) which provides
for the issuance of incentive and nonqualified stock options for officers,
directors, key employees, and consultants of the Company. The 1992 Plan replaced
a similar plan in effect in prior years. The 1992 Plan allows the issuance of a
maximum of 850,000 options for exercise into common stock at an option price not
less than the fair market value (trading value) of the common stock on the date
such options are granted. Options outstanding under the 1992 Plan total 623,508
and 243,223 at December 31, 1997 and 1996, respectively. As of December 31, 1997
and 1996, an additional 104,800 and 108,000, respectively, of options were
granted under various other plans. The weighted average remaining life of
employee options is six years. The weighted average remaining life of
non-employee options is four years. The Company has filed a registration
statement for its stock option plans.
A summary of the common stock options for employees for the year ended
December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE OPTIONS
OPTIONS PRICE EXERCISABLE
------------- --------- ------------
<S> <C> <C> <C>
Balance, December 31, 1995 ......... 316,305 2.310
Granted ........................... 82,800 3.500
Expired ........................... (135,112) 2.395
Exercised ......................... (20,570) 1.954
--------
Balance, December 31, 1996 ......... 243,423 2.710 82,425
----- ------
Granted ........................... 164,600 5.780
Expired ........................... (41,144) 4.539
Exercised ......................... (43,371) 2.089
-------- -----
Balance, December 31, 1997 ......... 323,508 4.125 108,400
======== ===== =======
</TABLE>
F-16
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 9. STOCK WARRANTS AND OPTIONS - (CONTINUED)
A summary of the common stock options for non-employees for the year ended
December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE OPTIONS
OPTIONS PRICE EXERCISABLE
------------ --------- ------------
<S> <C> <C> <C>
Balance, December 31, 1995 ......... 167,837 2.650
Granted ........................... 103,000 5.167
Expired ........................... (63,037) 2.375
Exercised ......................... (100,000) 2.650
--------
Balance, December 31, 1996 ......... 107,800 5.220 33,000
===== =======
Granted ........................... 300,000 4.000
Exercised ......................... (3,000) 3.500
-------- -----
Balance, December 31, 1997 ......... 404,800 4.331 171,600
======== ===== =======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- ----------------------------------
WEIGHTED-
AVERAGE
NUMBER REMAINING WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AT AVERAGE
EXERCISE PRICES AT 12/31/97 LIFE EXERCISE PRICE 12/31/97 EXERCISE PRICE
- ----------------------- ------------- ------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
$1.06 to 1.88 ......... 45,500 7.7 years $ 1.35 24,294 $ 1.45
$3.00 to 4.00 ......... 479,908 5.6 3.78 202,639 3.75
$4.50 to 5.00 ......... 63,100 3.7 4.93 14,358 4.95
$6.25 to 6.87 ......... 139,800 3.6 6.46 38,709 6.52
------- -------
$1.06 to 6.87 ......... 728,308 5.2 3.69 280,000 3.99
======= =======
</TABLE>
On February 5, 1998, the Company granted additional options under the 1992
plan to purchase 19,200 shares at an exercise price of $4.00 per share.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. FASB Statement No. 123 Accounting for Stock-Based
Compensation (SFAS 123) was issued by the FASB and, if fully adopted, changes
the methods for recognition of cost or plans similar to those of the Company.
Adoption of SFAS 123 is optional; however, proforma disclosures as if the
Company adopted the cost recognition requirements under SFAS 123 are presented
below:
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ----------------------
AS AS
REPORTED PROFORMA REPORTED PROFORMA
---------------- --------------- ---------- ---------
<S> <C> <C> <C> <C>
Net income (loss) ......................... $ (4,499,161) (5,264,788) 463,481 267,225
Basic earnings (loss) per share ........... (1.48) (1.73) .17 .10
Diluted earnings (loss) per share ......... (1.48) (1.73) .15 .09
</TABLE>
The calculation model used to determine the stocked based compensation cost
included in the above proforma was the straight line method with graded vesting
compensation calculations. The calculation uses the 5 year Treasury Bill rate,
an expected life of three years and an 82 percent volitity rate. No dividends
were used in the calculation.
F-17
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 9. STOCK WARRANTS AND OPTIONS - (CONTINUED)
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1996
and additional awards in future years are anticipated.
NOTE 10. INCOME TAXES
At December 31, 1997 and 1996, the Company had deferred tax assets
amounting to approximately $5,400,000 and $4,200,000, respectively. The deferred
tax assets consist primarily of the tax benefit of net operating loss
carryforwards and temporary differences in depreciation and are fully offset by
a valuation allowance of the same amount.
The net change in the valuation allowance for deferred tax assets was an
increase of approximately $1,200,000 in 1997 and did not change materially for
1996. The net change for 1997 is primarily due to the recording of the increase
of net operating loss carryforwards.
Recoveries for income taxes differs from the amount of income tax
recoveries determined by applying the applicable U.S. statutory Federal income
tax rate to the pretax loss as a result of the increase in the valuation
allowance to offset the increase in the deferred tax assets.
There is no income tax payable at December 31, 1996, because of the usage
of net operating loss carryforwards.
The net operating loss and credit for increasing research activities
carryforwards as of December 31, 1997, expire as follows:
<TABLE>
<CAPTION>
INCREASING RESEARCH
APPROXIMATE NET OPERATING ACTIVITIES BOOK/TAX
LOSS CARRYFORWARD CREDITS
------------------------------------------- --------------------
STATE LOSS FEDERAL LOSS
AMOUNT AMOUNT TAX EFFECT TAX EFFECT
------------ ------------- ------------ --------------------
<S> <C> <C> <C> <C>
1999 ......... $2,537,000 -- 122,000 3,800
2000 ......... -- 1,930,000 656,000 37,200
2001 ......... 3,000,000 1,835,000 789,000 37,500
2002 ......... -- 1,132,000 385,000 1,400
2003 ......... 1,480,000 2,086,000 780,000 25,100
2004 ......... 315,000 390,000 148,000 --
2005 ......... 161,000 278,000 102,000 --
2006 ......... -- 50,000 17,000 --
2007 ......... -- 26,000 9,000 --
2008 ......... -- 88,000 30,000 --
2009 ......... -- 2,760,000 938,000 --
2012 ......... -- 3,000,000 1,020,000 --
---------- --------- --------- ------
$7,493,000 13,575,000 4,996,000 105,000
========== ========== ========= =======
</TABLE>
The capital loss carryforwards of approximately $271,000, tax effect of
$105,000, expire in 1998.
The deduction of federal net operating loss carryforwards is limited to
approximately $3,962,000 as of December 31, 1997. This limitation is based on an
annual limitation of $460,000 plus available carryover of $654,000 and losses
incurred subsequent to 1992 of $5,248,000. In addition, should the sale of the
Company discussed in Note 16 occur, there may be additional limitations.
F-18
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED )
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions are used by the Company in
determining its fair value disclosures for financial investments:
Cash and cash equivalents. The carrying amount reported in the balance
sheet approximates fair value.
Long-term debt including current maturities and stockholder payable. The
floating-rate long-term debt approximates its fair value. The fair value of the
fixed-rate stockholder payable is estimated using discounted cash flow analysis,
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments
are:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------- -------------
<S> <C> <C>
Cash and cash equivalents ............................ $ 74,078 $ 74,078
Long-term debt, including current maturities ......... $5,220,433 $5,220,433
Stockholder payable and accrued interest ............. $2,290,991 $2,198,846
</TABLE>
NOTE 12. GEOGRAPHIC SEGMENT REPORTING
The Company sells its products throughout the world. The Company's export
sales from U.S. operations for 1997 and 1996 totaled $1,651,451 and $2,295,066,
respectively which represent 21 percent and 28 percent of total sales in each of
those years. Accounts receivable related to these sales is $878,000 and
$1,033,000 at December 31, 1997 and 1996, respectively.
Geographic information for the year ended December 31, 1997, is presented
in the following table. Transfers between geographic area are accounted for at
amounts that are generally above cost and consistent with rules and regulations
of governing tax authorities. Such transfers are eliminated in the consolidated
financial statements. Operating income by geographic segment does not include an
allocation of general corporate expenses which are included in United States
operations. Identifiable assets are those that can be directly associated with a
particular geographic area and include intangible assets.
F-19
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 12. GEOGRAPHIC SEGMENT REPORTING - (CONTINUED)
<TABLE>
<S> <C>
Customer sales:
Brazil ..................... $ 87,330
India ...................... --
Mexico ..................... --
USA ........................ 8,531,533
Eliminations ............... --
------------
Consolidated ............... $ 8,618,863
============
Intercompany sales
Brazil ..................... $ --
India ...................... 3,362
Mexico ..................... --
USA ........................ 134,105
Eliminations ............... (137,467)
------------
Consolidated ............... $ --
============
Loss before taxes:
Brazil ..................... $ (128,324)
India ...................... (188,335)
Mexico ..................... --
USA ........................ (4,172,444)
Eliminations ............... (10,058)
------------
Consolidated ............... $ (4,499,161)
============
Assets:
Brazil ..................... $ 356,007
India ...................... 1,447,804
Mexico ..................... 2,381,085
USA ........................ 9,021,104
Eliminations ............... (153,106)
------------
Consolidated ............... $ 13,043,894
============
</TABLE>
The Company's worldwide business is subject to risks of currency
fluctuations, governmental actions and other governmental proceedings abroad.
The Company does not regard these risks as a deterrent to further expansion of
its methods of operations abroad. However, the Company closely reviews its
methods of operations, particularly in less developed countries, and adopts
strategies responsive to changing economic and political conditions.
NOTE 13. COMMITMENTS AND CONTINGENCIES
Employment Agreement. The Company has entered into an employment agreement
with its Chief Executive Officer which provides for a three-year term expiring
in January 1998, with automatic one-year extensions thereafter. This agreement
provides for a base salary of $135,000 per annum. This agreement allows for an
annual base salary increase at least equal to the percentage increase in the
Consumer Price Index (or closest substitute for such index then available). For
future years, the employee's base salary shall increase no less than 10 percent
if the Company's net income increases at least 10 percent as compared to the
preceding year. The Chief Executive Officer is entitled to an annual bonus of up
to 35 percent of base compensation for such year for achieving objectives
established jointly by the employees and Board of Directors, as defined in the
agreement.
F-20
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 13. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
Litigation. The Company is involved in litigation in the ordinary course of
business. Management believes, after consulting with legal counsel, that the
ultimate outcome of this litigation will not result in a material adverse impact
on the Company's financial statements.
The Company has been notified by a competitor asserting that it is in
violation of a certain patent which relates to the single-stick lancet product.
The Company believes it is indemnified under an agreement with a supplier and
its agreement with Ulster Scientific, Inc. for the purchase of the Ulster
product lines. Management intends to vigorously contest the competitor's
assertion and cannot estimate the potential liability, if any, at this time.
Consulting Agreement. Effective March 1, 1996, the Company entered into a
one year consulting agreement, which can be extended annually, with a major
stockholder. Payments under the agreement are $4,167 per month.
Profit Sharing/Savings Plan. The Company has a voluntary profit
sharing/savings plan (Plan) covering substantially all employees residing in the
United States over age 21 and who have been employed at least six months by the
Company. The Plan is qualified under section 401(k) of the Internal Revenue
Code. The Plan provides for voluntary employee contributions and discretionary
Company profit sharing/savings plan contributions. The Company matches employee
contributions at a rate of 50 percent of their contributions up to 3 percent of
their base pay. In addition, the Plan provides that the Company may pay for
certain administrative costs of the Plan. For 1997 and 1996, there were no
Company profit sharing contributions. Company matching contributions and
administrative expenses for 1997 and 1996 were approximately $36,000 and
$24,500, respectively.
NOTE 14. PRODUCT LINE RESTRUCTURING AND INVENTORY REDUCTION
During the fourth quarter of 1997, the Company implemented a new strategy
of focusing its marketing efforts for sutures mainly on domestic accounts. This
new strategy lead to a review of the product lines manufactured by the Company
and inventories held by the Company in certain cases for more than three years.
These inventories had been purchased or manufactured to service a clientele that
failed to grow, thereby putting the value of such inventories in question. After
attempting with limited success, to sell these inventories at any price below
the costs necessary is some cases to finish the product, the Company elected to
write off the items in question as of December 31, 1997. The resultant product
line restructuring charge was $2,855,012.
Also in 1997, the Company attempted to launch a new product into the
diagnostic market. This effort was unsuccessful. The costs of the product
purchased for his effort amounting to $150,268 was written off.
Certain international markets for sutures were abandoned and the related
receivables aggregating to $327,000 were written off to operating expenses as
part of the product line restructuring.
During 1997 and 1996, the Company reduced inventory values to net
realizable value (replacement cost) which was lower than cost due to the
reduction in utility. As a result, inventory carrying amounts were reduced and
cost of sales increased by approximately $770,000 in 1997 and $300,000 in 1996.
NOTE 15. ACQUISITIONS AND JOINT VENTURES
On March 4, 1996, the Company completed an acquisition of three product
lines from Ulster Scientific, Inc. (USI), a New York corporation. The
acquisition was accounted for under the purchase method. USI was a wholesale
distributor of medical supplies. The Company paid $248,000 cash, and assumed
$320,000 in supplier liabilities for a total purchase price of $568,000. The
Company also agreed to terms on a consulting and royalty contract with payments
of 2 percent or more of certain Ulster sales
F-21
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 15. ACQUISITIONS AND JOINT VENTURES - (CONTINUED)
over eight years and with minimum payments of $90,000 per year for the next five
years. The Company assigned no value to this contract in recording the purchase.
In addition, the Company agreed to issue warrants to the seller to purchase
200,000 shares of common stock at $3.00 per share expiring in eight years. No
value was assigned to these warrants in recording the purchase, 150,000 of which
are contingent upon future product sales. The Company acquired, in addition to
inventory and equipment, patents, trademarks, and other intangible assets. The
intangibles purchased totaled $490,000 related to a non compete agreement,
patents, and trademarks. All intangibles are amortized over eight years.
On May 12, 1997, the Company acquired 100 percent of the stock of ProTec
Containers, Inc. a Florida corporation. The acquisition was accounted for under
the purchase method. ProTec is a manufacturer of containers for the disposal of
used medical "sharps", such as hypodermic needles. The Company paid $250,000 in
cash to the owner of the ProTec for manufacturing molds, and issued 200,000
shares of its common stock, valued at $835,980 and recorded liabilities totaling
approximately $515,328 in exchange for all outstanding shares of ProTec. All
intangibles are amortized over ten years.
In connection with the ProTec Acquisition, the Company agreed to guarantee
the value of the common sock issued to the former owner pursuant to such
acquisition for a period of six months from the effective date of the
Registration Statement on Form S-3 which was filed by the Company to register
the resale of such shares. As a result of the decline in the price to the Lukens
Common Stock during such period (and taking into account certain other
adjustments), the Company owes the former owner of ProTec approximately
$300,000, which amount is payable by the issuance of a one-year promissory note.
The amount was recorded by reducing the value of the common stock and recording
the liability as a one year note payable (see Note 6).
As a result of the acquisition of ProTec, the Company had the following
non-cash activity:
<TABLE>
<S> <C>
Assets acquired:
Accounts receivable, net ......................... $ 179,830
Inventory ........................................ 13,000
Fixed assets ..................................... 77,854
Intangible assets ................................ 1,164,091
Other ............................................ 9,051
----------
1,443,826
Liabilities assumed:
Accounts payable and accrued liabilities ......... (86,807)
Notes payable .................................... (30,795)
----------
(117,602)
Notes payable issued ..................... (515,328)
Value of common stock issued ............. (835,980)
----------
Cash acquired ............................ $ (25,084)
==========
</TABLE>
F-22
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 15. ACQUISITIONS AND JOINT VENTURES - (CONTINUED)
The proforma results of operations for the year ended December 31, 1997 and
1996, as though the companies had been combined at the beginning of that period
is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- ------------
<S> <C> <C>
Net sales ............................ $ 9,035,443 9,289,455
============ =========
Net earnings (loss) .................. $ (4,429,621) 648,923
============ =========
Weighted average number of common and
common equivalent shares outstanding:
Basic ............................... $ 2,996,612 2,877,698
============ =========
Dilutive ............................ $ 2,996,612 3,268,113
============ =========
Net earnings (loss) per common and
common equivalent share:
Basic ............................... $ (1.48) .23
============ =========
Dilutive ............................ $ (1.48) .20
============ =========
</TABLE>
In 1996, the Company formed a joint venture (Somar Lukens) with Serral, S.A
de C.V., a Mexican Corporation, to produce needles. The joint venture is an
equal partnership, with each partner retaining ownership of the equipment it
provides and purchasing the products produced. As of December 31, 1997, the
venture was still in the process of setting up the equipment and configuring the
production process. As of December 31, 1997, the Company had not contributed any
capital to the joint venture.
In May 1997, the Company entered into another joint venture with two
individuals in Brazil to manufacture and market sutures into international
markets. The Company owns 51 percent of the venture. The venture assumed the
suture operations of a pre-existing Brazilian company, Medical Express Ltda.
Under the terms of the joint venture, the Company agreed to purchase and sell
inventory to the joint venture at fully-loaded manufacturing cost plus 25
percent and not to sell products purchased from the joint venture in Brazil. In
addition, the Company may not transfer its interest in the joint venture without
allowing the other shareholders the option of purchasing it. The new venture did
not become operational until October 1, 1997. As of December 31, 1997, the
Company had invested $125,000 in the joint venture.
On January 9, 1997, the Company became the majority shareholder in a new
joint manufacturing venture based in Cochin, India. Under the joint venture
agreement, the Company was required to contribute $800,000 in capital and may
not transfer its interest in the joint venture without allowing the other
shareholders the option of purchasing it. The venture, which manufactures
syringes, hypodermic needles, and components for other Company products,
acquired the basic equipment required for the process, as well as a 22,000
square-foot facility and began operations in November 1997. The venture will
market the products through Lukens and the two minority shareholders, who are
all current distribution partners of Lukens, in various parts of the world. As
of December 31, 1997, the Company owned 90 percent of the joint venture and had
invested $940,000.
NOTE 16. SUBSEQUENT EVENT
On February 20, 1998, the Company announced that it was negotiating the
sale of the Company to an unnamed third party. The proposal most recently
received by the Company contemplates a merger pursuant to which existing
shareholders of Lukens would receive approximately $4.00 in cash for each
F-23
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 16. SUBSEQUENT EVENT - (CONTINUED)
share of Lukens Common Stock. No definitive terms have, as yet, been agreed upon
and the proposal is, and any other matters are subject to further review by both
boards, the completion of due diligence reviews and the negotiation and
execution of definitive agreements. No assurance can be given that the current
negotiations will result in any transaction or as to the ultimate terms or
timing of any such transaction.
NOTE 17. LIQUIDITY
The Company produced a net loss in 1997. At December 31, 1997, current
liabilities exceed current assets, the Company is in arrears on its note
payments to the bank and has violated its debt covenants. The bank has not
granted a waiver on any default by the Company. However, the bank has stated
that as long as the Company adheres to the payment plan submitted, no action
will be taken. Total long-term debt to the bank and a major stockholder has
increased over 1996 levels. Some of these borrowings have been used to acquire a
subsidiary and to fund the start up of joint ventures causing an increase in
intangible and other assets. The Company's capacity to meet its obligations is
dependent upon several factors, such as returning to profitability, developing
adequate liquidity, adhering to debt covenants and required payments, possible
debt restructuring or sale (see Note 16).
In 1997, the Company implemented a major strategic shift in its marketing
approach regarding its largest product line, sutures. This shift, away from
lower priced markets where the Company had been successful in securing new
business to a focus on certain domestic accounts, was a result of the Company's
desire to improve margins, reduce inventory requirements, and provide a more
consistent order flow. While the Company intends to utilize its Brazilian
facility to continue to service selected international customers, many
unprofitable markets will be abandoned. This strategy led to a significant
write-off of inventory at the end of 1997.
In 1997, the Company also expanded its product lines further with the
acquisition of ProTec Containers, Inc., and brought its facility in Cochin,
India on-line for the manufacture of certain key raw materials. These actions
provide an opportunity to increase revenues and overall margins. Cash flow
projections by management anticipate more abundant cash becoming available in
May 1998.
While the Company has been successful in increasing its orders in the new
areas of focus, and has been successful in producing certain raw materials at a
lower cost, there can be no assurance that the Company efforts will result in
profitability from operations consistently in the future. Additionally, the
Company's write-off of inventory makes the expansion of its credit lines
unlikely in the near term, and the financing of continued internal growth and
acquisitions difficult.
F-24
<PAGE>
LUKENS MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED AUDITED
JUNE 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................. $ 6,583 $ 74,048
Accounts Receivable, net of allowance for doubtful accounts
of $40,000 as of December 31,1997 and $40,000 as of June
30,1998 ................................................. $ 2,504,342 $ 1,836,542
Inventory ................................................. $ 5,822,224 $ 5,105,900
Prepaid Expenses .......................................... $ 265,518 $ 127,080
----------- -----------
Total current assets ...................................... $ 8,598,667 $ 7,143,570
Land, building and equipment, net of accumulated deprecia-
tion of $1,963,377as of December 31,1997
and $2,161,643 as of June 30,1998 net of amortization of
$1,222,264 as of December 31,1997 and $1,346,832 as of
June 30,1998 ............................................ $ 3,446,871 $ 3,599,150
Intangible assets ......................................... $ 2,103,280 $ 2,215,420
Other assets .............................................. $ 78,533 $ 85,754
----------- -----------
Total assets .............................................. $14,229,351 $13,043,894
=========== ===========
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED AUDITED
JUNE 30, DECEMBER 31,
1998 1997
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................... $ 2,376,924 $ 1,864,832
Accrued liabilities ............................................ $ 106,958 $ 138,016
Current maturities of long term debt ........................... $ 4,618,840 $ 5,146,950
Current maturities of obligations under capital leases ......... $ 139,672 $ 146,893
------------ ------------
Total current liabilities .................................... $ 7,242,394 $ 7,296,691
Long-term debt, excluding current maturities .................... $ 1,477,226 $ 73,483
Long Term Stockholder Payable ................................... $ 1,233,075 $ 2,290,991
Obligations under cap leases, excl current maturities ........... $ 211,062 $ 266,256
------------ ------------
Total liabilities ............................................ $ 10,163,757 $ 9,927,421
Minority interest ............................................... $ 74,955 $ 74,955
Stockholders' equity:
Common stock, $.01 par value, authorized 20,000,000 shares:
issued and outstanding 3,043,359 shares as of December
31,1997and 3,093,359 as of June 30,1998 ...................... $ 30,934 $ 30,434
Additional paid-in capital ...................................... $ 18,725,535 $ 18,526,035
Accumulated Deficit ............................................. ($ 14,723,216) ($ 15,461,903)
Foreign Currency Adjustment ..................................... ($ 62,615) ($ 53,048)
------------ ------------
Total stockholders' equity ..................................... $ 3,970,639 $ 3,041,518
------------ ------------
Total liabilities and stockholders' equity ..................... $ 14,229,351 $ 13,043,894
============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F-26
<PAGE>
LUKENS MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- ------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Sales .......................................... $ 2,839,069 $2,329,859 $5,498,002 $4,733,798
Cost of sales .................................. $ 1,696,981 $1,524,609 $3,321,043 $3,162,893
----------- ---------- ---------- ----------
Gross profit .................................. $ 1,142,088 $ 805,250 $2,176,959 $1,570,905
----------- ---------- ---------- ----------
Selling expenses ............................... $ 220,371 $ 200,656 $ 447,375 $ 429,030
General and administrative expenses ............ $ 355,946 $ 254,880 $ 667,754 $ 473,638
Research and development expenses .............. $ 15,898 $ 12,881 $ 32,996 $ 24,901
----------- ---------- ---------- ----------
Total operating expenses .................... $ 592,216 $ 468,417 $1,148,126 $ 927,569
----------- ---------- ---------- ----------
Earnings from operations ...................... $ 549,873 $ 336,833 $1,028,834 $ 643,336
----------- ---------- ---------- ----------
Other (expense) income:
Interest income ............................... $ 0 ($ 2,011) ($ 50) ($ 3,871)
Interest expense .............................. $ 167,731 $ 68,941 $ 290,197 $ 122,407
Other, net .................................... $ 0 ($ 5,888) $ 0 ($ 4,388)
----------- ---------- ---------- ----------
Total other (expense) income ................ $ 167,731 $ 61,042 $ 290,147 $ 114,148
----------- ---------- ---------- ----------
Earnings (loss) before income taxes ......... $ 382,142 $ 275,791 $ 738,687 $ 529,188
Income tax expense ............................. $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Net earnings ................................ $ 382,142 $ 275,791 $ 738,687 $ 529,188
=========== ========== ========== ==========
Basic net earnings (loss) per share ............ $ 0.12 $ 0.09 $ 0.23 $ 0.18
=========== ========== ========== ==========
Dilutive net earnings (loss) per share ......... $ 0.11 $ 0.08 $ 0.21 $ 0.16
=========== ========== ========== ==========
Weighted average number of common
shares outstanding - basic .................... 3,093,359 2,998,571 3,171,745 2,865,280
=========== ========== ========== ==========
Weighted average number of common
and common equivalent shares
outstanding -- dilutive ....................... 3,591,551 3,354,795 3,445,841 3,335,296
=========== ========== ========== ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F-27
<PAGE>
LUKENS MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1997
-------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net earnings (loss) ............................................ $ 738,687 $ 529,188
Adjustments to reconcile net earnings (loss) to cash
provided (used) by operating activities:
Depreciation ................................................... $ 207,832 $ 209,910
Amortization of intangible assets .............................. $ 124,588 $ 82,202
Changes in current assets and liabilities:
Accounts receivable ............................................ ($ 667,800) ($ 739,756)
Inventory ...................................................... ($ 716,324) ($ 229,153)
Prepaids ....................................................... ($ 138,438) ($ 14,310)
Accounts payable ............................................... $ 512,092 $ 209,891
Accrued liabilities ............................................ ($ 31,058) $ 40,776
Change in other assets .......................................... $ 7,221 ($ 22,448)
--------- -----------
Net cash provided (used) by operating activities ............. ($ 36,800) $ 66,300
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment ................................ ($ 50,000) ($ 1,244,228)
Investment in Joint ventures ................................... $ 0 ($ 943,941)
Purchase of intangible assets .................................. $ 0 ($ 435,401)
--------- -----------
Net cash used in investing activities ........................ ($ 50,000) ($ 2,623,570)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long term debt & obligations under capital
leases ....................................................... $ 0 $ 1,611,477
Principal payments on long term debt & obligations under
capital leases ............................................... ($ 254,265) $ 1,175,303
Proceeds from the issuance of common stock and equiva-
lents ........................................................ $ 200,000 ($ 1,000,098)
--------- -----------
Net cash provided by financing activities .................... ($ 54,265) $ 1,786,682
--------- -----------
Net increase (decrease) in cash and cash equivalents ......... ($ 67,465) ($ 770,588)
--------- -----------
Cash and cash equivalents at beginning of period ................ $ 74,048 $ 878,090
========= ===========
Cash and cash equivalents at end of period ...................... $ 6,583 $ 107,502
========= ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F-28
<PAGE>
LUKENS MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's principal business activity is the manufacture and sale of
disposable surgical products. The Company's main product lines are surgical
sutures, lancets, sharps containers, and diagnostic products. The accompanying
unaudited financial statements have been prepared in accordance with the
instructions to Form 10-QSB and therefore do not include all information and
footnote disclosure necessary for a full presentation of financial position,
results of operations, and cash flows. The information furnished, in the opinion
of management, reflects all adjustments necessary to present fairly the results
of operations of the Company for the six-month period ended June 30, 1998 and
1997. The accounting policies followed by the Company are set forth in note (1)
of Notes to the Company's Consolidated Financial Statements in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997, as amended
(the "1997 Form 10-K") filed with the Securities and Exchange Commission. The
results of operations of interim periods are not necessarily indicative of
results which may be expected for any other interim period or for the year as a
whole.
(2) INVENTORY
Inventory consists of the following components at:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31
1998 1997
------------- --------------
<S> <C> <C>
Raw Materials ............. $2,325,774 $1,938,343
Work-in-Process ........... 2,192,974 1,972,124
Finished Goods ............ 1,369,646 1,261,603
Inventory Reserve ......... (66,170) (66,170)
---------- ----------
$5,822,224 $5,105,900
========== ==========
</TABLE>
(3) INCOME TAXES
The net operating loss and credit for increasing research activities
carryforwards as of December 31, 1997, expire as follows:
<TABLE>
<CAPTION>
APPROXIMATE INCREASING RESEARCH
NET OPERATING ACTIVITIES BOOK/TAX
LOSS CARRYFORWARD CREDITS
---------------------------- --------------------------
STATE LOSS FEDERAL LOSS
AMOUNT AMOUNT TAX EFFECT TAX EFFECT
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
1999 ......... $2,537,000 $ -- $ 122,000 $ 3,800
2000 ......... -- 1,930,000 656,000 37,200
2001 ......... 3,000,000 1,835,000 789,000 37,500
2002 ......... -- 1,132,000 385,000 1,400
2003 ......... 1,480,000 2,086,000 780,000 25,100
2004 ......... 315,000 390,000 148,000 --
2005 ......... 161,000 278,000 102,000 --
2006 ......... 50,000 17,000 --
2007 ......... --- 26,000 9,000 ---
2008 ......... --- 88,000 30,000 ---
2009 ......... --- 2,760,000 938,000
2012 ......... --- 3,000,000 1,020,000 ---
$7,493,000 $13,575,000 $4,996,000 $105,000
========== =========== ========== ========
</TABLE>
F-29
<PAGE>
The capital loss carryforwards of approximately $271,000, tax effect of
$105,000, expire in 1998.
The deduction of federal net operating loss carryforwards is limited to
approximately $3,962,000 as of December 31, 1997. This limitation is based on an
annual limitation of $460,000 plus available carryover of $654,000 and losses
incurred subsequent to 1992 of $5,248,000. In addition, should the sale of the
Company occur (See "Liquidity and Capital Resources"), there may be additional
limitations.
(4) PENDING LITIGATION
Owen Mumford Ltd. ("Owen Mumford"), one of the Company's competitors, filed
a complaint in the United States District Court for the Eastern District of
Virginia, Richmond Division on April 29, 1998 and served a summons and complaint
on the Company on June 1, 1998, alleging that one of the Company's products, the
"Gentle-Let 1" infringes on a patent owned by Owen Mumford. The complaint seeks
unspecified damages adequate to compensate Owen Mumford for the alleged patent
infringement, as well as costs and expenses. The Company intends to vigorously
defend itself in this proceeding. The matter is currently in the discovery
phase.
(5) STATUS OF DEFAULT UNDER CREDIT FACILITY
During the quarter ended March 31, 1998, the Company was in technical
default of certain financial covenants and in payment default under certain of
its term loans with its lending bank. In April 1998, the Company cured its
payment default under the term loans and its lending bank amended certain of the
financial covenants so that the Company is no longer in default under any of its
lines of credit.
(6) OTHER COMPREHENSIVE INCOME
The components of other comprehensive income are presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDING SIX MONTHS ENDING
JUNE 30, 1998 JUNE 30, 1998
--------------------- ------------------
<S> <C> <C>
Net Earnings .................................... $382,142 $738,687
Foreign currency translation adjustment ......... (4,014) (9,567)
Total comprehensive income .................... $378,128 $729,120
</TABLE>
F-30
<PAGE>
ANNEX A
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
APRIL 28, 1998
AMONG
MEDISYS PLC
LMC ACQUISITION CORP.
AND
LUKENS MEDICAL CORPORATION
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of April 28,
1998, by and among MEDISYS PLC, a Scottish public limited company ("Parent"),
LMC ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and LUKENS MEDICAL CORPORATION, a Delaware corporation (the
"Company"):
W I T N E S S E T H:
WHEREAS, Parent and the Company desire to effect a business combination by
means of the merger of Sub with and into the Company (the "Merger"); and
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
approved the Merger, upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein the parties hereto
agree as follows:
ARTICLE II
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, on the
Effective Date (as defined in Section 1.2), Sub shall be merged into the Company
and the separate existence of Sub shall thereupon cease, and the Company, as the
corporation surviving the Merger (the "Surviving Corporation"), shall by virtue
of the Merger continue its corporate existence under the laws of the State of
Delaware.
1.2 Effective Date of the Merger. Subject to the provisions of this
Agreement, a certificate of merger (the "Certificate of Merger") in such form as
is required by the relevant provisions of the Delaware General Corporation Law
(the "DGCL") shall be duly prepared, executed and acknowledged by the Surviving
Corporation and thereafter delivered to the Secretary of State of the State of
Delaware for filing on the date of the Closing (as defined in Section 4.1(c)).
The Merger shall become effective (the "Effective Date") upon the filing of the
Certificate of Merger or at such time thereafter as is provided in such
Certificate of Merger.
ARTICLE II
SURVIVING CORPORATION
2.1 Certificate of Incorporation. The Certificate of Incorporation of Sub
shall be the Certificate of Incorporation of the Surviving Corporation after the
Effective Date, and thereafter may be amended in accordance with its terms and
as provided by law and this Agreement.
2.2 By-Laws. The By-laws of Sub as in effect on the Effective Date shall be
the By-laws of the Surviving Corporation, and thereafter may be amended in
accordance with its terms and as provided by law and this Agreement.
2.3 Board of Directors; Officers. The directors of Sub immediately prior to
the Effective Date shall be the directors of the Surviving Corporation, and the
officers of the Company immediately prior to the Effective Date shall be the
officers of the Surviving Corporation, in each case until their respective
successors are duly elected and qualified.
2.4 Effects of Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.
ARTICLE III
CONVERSION OF SHARES; OTHER SECURITIES
3.1 Merger Consideration. On the Effective Date, by virtue of the Merger
and without any action on the part of any holder of any shares of Common Stock,
par value $.01 per share, of the Company ("Company Common Stock"):
A-2
<PAGE>
(a) All shares of Company Common Stock which are held by the Company
or any subsidiary of the Company, and any shares of Company Common Stock
owned by Parent, Sub or any other subsidiary of Parent, shall be canceled.
(b) Each remaining outstanding share of Company Common Stock, other
than the Dissenting Shares (as defined in Section 4.2), shall be converted
into and represent the right to receive $4.00 in cash (the "Merger
Consideration") in accordance with Section 4.1.
(c) Each issued and outstanding share of capital stock of Sub shall be
converted into and become one fully paid and nonassessable share of common
stock of the Surviving Corporation.
In the event of any stock dividend, stock split, reclassification,
recapitalization, combination or exchange of shares with respect to, or rights
issued in respect of, Company Common Stock after the date hereof, the Merger
Consideration shall be adjusted accordingly.
ARTICLE IV
PAYMENT PROCEDURES; MECHANICS OF THE MERGER
4.1 Payment Procedures.
(a) Prior to the Effective Date, Parent shall select a Payment Agent,
which shall be Parent's Transfer Agent or such other person or persons
designated by Parent, to act as Payment Agent for the Merger (the "Payment
Agent").
(b) Promptly after the Effective Date, Parent shall instruct the
Payment Agent to mail to each holder of a certificate or certificates
evidencing shares of Company Common Stock (other than Dissenting Shares)
("Certificates") (i) a letter of transmittal (which shall include a
Substitute Form W-9 and shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper
delivery of such Certificates to the Payment Agent) and (ii) instructions
to effect the surrender of the Certificates in exchange for the Merger
Consideration. Each holder of Company Common Stock, upon surrender to the
Payment Agent of such holder's Certificates with the letter of transmittal,
duly executed, and such other customary documents as may be required
pursuant to such instructions, shall be paid the amount of cash to which
such holder is entitled, pursuant to this Agreement, as payment of the
Merger Consideration (without any interest accrued thereon). Until so
surrendered, each Certificate shall after the Effective Date represent for
all purposes only the right to receive the Merger Consideration. In the
event any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such person of a bond in such reasonable amount
as the Surviving Corporation may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Payment Agent
will deliver in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration payable in respect thereof pursuant to this Agreement.
(c) At the Closing of the transactions contemplated by this Agreement
(the "Closing), Parent shall deposit in trust with the Payment Agent, for
the ratable benefit of the holders of Company Common Stock (other than
Dissenting Shares), the appropriate amount of cash to which such holders
are entitled pursuant to this Agreement as payment of the Merger
Consideration (the "Payment Fund"). The Payment Agent shall, pursuant to
irrevocable instructions, make the payments to the holders of the Company
Common Stock as set forth in this Agreement.
(d) If any delivery of the Merger Consideration is to be made to a
person other than the registered holder of the Certificates surrendered in
exchange therefor, it shall be a condition to such delivery that the
Certificate so surrendered shall be properly endorsed or be otherwise in
proper form for transfer and that the person requesting such delivery shall
(i) pay to the Payment Agent any transfer or other taxes required as a
result of delivery to a person other than the registered holder or (ii)
establish to the satisfaction of the Payment Agent that such tax has been
paid or is not payable.
A-3
<PAGE>
(e) Any portion of the Payment Fund that remains undistributed to the
holders of Company Common Stock as of the first anniversary of the
Effective Date shall be delivered to Parent upon demand, and any holder of
Company Common Stock who has not theretofore complied with the exchange
requirements of this Section shall have no further claim upon the Payment
Agent and shall thereafter look only to Parent for payment of the Merger
Consideration.
(f) If a Certificate has not been surrendered prior to the date on
which any receipt of Merger Consideration would otherwise escheat to or
become the property of any governmental agency, such Certificate shall, to
the extent permitted by applicable law, be deemed to be canceled and no
Merger Consideration, money or other property will be due to the holder
thereof.
(g) The Payment Agent shall invest cash in the Payment Fund in
obligations of or guaranteed by the United States of America with remaining
maturities not exceeding 180 days, in commercial paper obligations
receiving the highest rating from either Moody's Investors Services, Inc.
or Standard & Poor's Corporation, or in certificates of deposit or banker's
acceptances of commercial banks with capital exceeding $500 million
(collectively, "Permitted Investments"). The maturities of Permitted
Investments shall be such as to permit the Payment Agent to make prompt
payment to former stockholders of the Company entitled thereto as
contemplated by this Section. Any interest and other income resulting from
such investments shall be paid to Parent or as Parent may otherwise direct.
4.2 Dissenting Shares.
(a) Notwithstanding any other provision of this Agreement to the
contrary, shares of Company Common Stock that are outstanding immediately
prior to the Effective Date and which are held by holders who shall have
not voted in favor of the Merger or consented thereto in writing and who
shall have demanded properly in writing appraisal for such shares in
accordance with Section 262 of the DGCL and who shall not have withdrawn
such demand or otherwise have forfeited appraisal rights (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such holders shall be entitled to receive
payment of the appraised value of such shares, except that all Dissenting
Shares held by holders who shall have failed to perfect or who effectively
shall have withdrawn or lost their rights to appraisal of such shares under
such Section 262 shall thereupon be deemed to have been converted into and
to have become exchangeable, as of the Effective Date, for the right to
receive, without any interest thereon, the Merger Consideration, upon
surrender of the Certificates evidencing such shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any
other instruments served pursuant to the DGCL and received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under the DGCL. The Company shall not,
except with the prior written consent of Parent, make any payment with
respect to any demands for appraisal, or offer to settle, or settle, any
such demands.
4.3 Stock Options.
(a) The Company's stock option plan, which is attached to Section 4.3
of the Company Disclosure Schedule (as defined in Section 6.1) (the "Option
Plan"), and each option to acquire shares of Company Common Stock
outstanding immediately prior to the Effective Date thereunder, whether
vested or unvested (each, an "Option" and collectively, the "Options"),
shall be assumed by Parent at the Effective Date, and each such Option
shall become an option to purchase a number of ordinary shares of Parent,
par value 1p (a "Substitute Option"), equal to the number of shares of
Company Common Stock subject to such Option multiplied by the Option
Exchange Ratio (as defined below). The per share exercise price for each
Substitute Option shall be the current exercise price per share of Company
Common Stock divided by the Option Exchange Ratio, and each Substitute
Option otherwise shall after the Effective Date be subject to all of the
other terms and conditions of the original Option to which it relates.
Prior to the Effective Date, the Company shall take such additional actions
as are reasonably necessary under the applicable agree-
A-4
<PAGE>
ments and Option Plan to provide that each outstanding Option shall, from
and after the Effective Date, represent only the right to purchase, upon
exercise, ordinary shares of Parent and Parent shall take such additional
actions as are reasonable and necessary under applicable law in order to
effect the issuance of such Substitute Options to such holders. Except as
set forth in Section 4.3 of the Company Disclosure Schedule, the vesting of
no Option shall be accelerated by reason of the Merger unless the agreement
or arrangement under which it was granted or by which it is otherwise
governed specifically provides for such acceleration. For avoidance of
doubt, it is the intention of Parent and the Company that the Substitute
Options be identical in all respects to the Options (except for the number
and type of shares for which they shall be exercisable and the exercise
price thereof) and that, without limitation, (i) all terms of the plans
under which such Options were issued and (ii) all policies set forth in
Section 4.3 of the Company Disclosure Schedule, shall apply thereto from
and after the Effective Date.
(b) For purposes of this Agreement, the term "Option Exchange Ratio"
shall mean the ratio of (x) $4.00 to (y) the U.S. dollar equivalent of the
average of the middle-market closing price per share of the Parent ordinary
shares on the Alternative Investment Market of the London Stock Exchange,
as shown in the "London Stock Exchange Daily Official List," for each of
the ten trading days ending two trading days prior to the Effective Date.
4.4 Stockholders' Meetings. (a) The Company shall take all action
necessary, in accordance with applicable law and its Certificate of
Incorporation and By-laws, to convene a special meeting of the holders of
Company Common Stock (the "Company Meeting") as promptly as practicable for the
purpose of considering and taking action upon this Agreement. Subject solely to
its fiduciary duties, the Board of Directors of the Company will recommend that
holders of Company Common Stock vote in favor of and approve the Merger and the
adoption of the Agreement at the Company Meeting. At the Company Meeting, all of
the shares of Company Common Stock then owned by Parent, Sub, or any other
subsidiary of Parent, or with respect to which Parent, Sub, or any other
subsidiary of Parent holds the power to direct the voting, will be voted in
favor of approval of the Merger and adoption of this Agreement.
(b) Parent shall take all action necessary, in accordance with
applicable law, stock exchange rules and its Memorandum and Articles of
Association, to convene an extraordinary meeting of the holders of its
ordinary shares to approve this Agreement, the Merger and the related
issuance of securities of Parent, to the extent approval is required and
sought by Parent. Subject solely to its fiduciary duties, the Board of
Directors of Parent will recommend that holders of its ordinary shares vote
in favor of the matters put before them.
4.5 Closing of the Company's Transfer Books. At the Effective Date, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall be made thereafter. In the event that, after the
Effective Date, Certificates are presented to the Surviving Corporation, they
shall be canceled and exchanged for the Merger Consideration as provided in
Sections 3.1 (b) and 4.1.
4.6 Assistance in Consummation of the Merger. Each of Parent, Sub and the
Company shall provide all commercially reasonable assistance to, and shall
cooperate with, each other to bring about the consummation of the Merger as soon
as possible in accordance with the terms and conditions of this Agreement.
Parent shall cause Sub to perform all of its obligations in connection with this
Agreement.
4.7 Closing. The Closing shall take place (i) at the offices of Brock
Silverstein McAuliffe LLC, One Citicorp Center, 153 East 53rd Street, 56th
floor, New York, New York 10022, at 10:00am, New York City time, on the earlier
of (A) August 14, 1998 or (B) the day which is no later than two business days
after the day on which the last of the conditions set forth in Article X is
fulfilled or waived and the meeting of Parent's Shareholders with respect to the
Merger and related financing has been held or (ii) at such other time and place
as Parent and the Company shall agree in writing.
A-5
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
5.1 Organization and Qualification. Parent is a public limited company duly
incorporated, validly existing and in good standing under the laws of Scotland
and has the corporate power to carry on its business as it is now being
conducted or currently proposed to be conducted.
5.2 Authority Relative to this Agreement. Parent has the corporate
authority to enter into this Agreement and, subject to the satisfaction of the
conditions contained herein, to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by Parent's Board of
Directors. The Agreement constitutes a valid and binding obligation of Parent
enforceable in accordance with its terms except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought. Except for the
requisite approval of the holders of the Parent ordinary shares of the
transactions contemplated hereby and related financing, no other corporate
proceedings on the part of Parent are necessary to authorize the Agreement and
the transactions contemplated hereby. Parent is not subject to or obligated
under (i) any memorandum, articles of association, indenture or other loan
document provision or (ii) any other contract, license, franchise, permit,
order, decree, concession, lease, instrument, judgment, statute, law, ordinance,
rule or regulation applicable to Parent or any of its subsidiaries or their
respective properties or assets, which would be breached or violated, or under
which there would be a default (with or without notice or lapse of time, or
both), or under which there would arise a right of termination, cancellation,
modification or acceleration of any obligation or the loss of a material
benefit, by its executing and carrying out this Agreement other than those
which, either singly or in the aggregate, has not had, or would not reasonably
be expected to have, a material adverse effect on the Parent's ability to
consummate the transactions contemplated hereby, including the Merger. Except as
required in connection, or in compliance, with the provisions of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act of
1933, as amended (the "Securities Act"), and the corporation, securities or blue
sky laws or regulations of the various states or any rules or regulations of the
London Stock Exchange applicable to Parent, no filing or registration with, or
authorization, consent or approval of, any public body or authority is necessary
for the consummation by Parent of the Merger or the other transactions
contemplated by this Agreement other than filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain has
not had, or would not reasonably be expected to have a material adverse effect
on Parent's ability to consummate the transactions contemplated hereby,
including the Merger.
5.3 Parent Action. The Board of Directors of Parent (at a meeting duly
called and held) has by the requisite vote of all directors present determined
that the Agreement is advisable and in the best interests of Parent and its
stockholders.
5.4 Financial Advisor. Parent represents and warrants that, except for
Henry Ansbacher & Co. Limited and any other underwriter, broker, finder or
investment banker to be engaged in the normal course of business for the
offering of Parent's securities, no broker, finder or investment banker is
entitled to any brokerage or finder's fee or investment banking fee in
connection with the Merger and the related financing based upon arrangements
made by or on behalf of Parent.
5.5 Information. As of the date of this Agreement, Parent does not know of
any facts or circumstances which currently or with the passage of time
constitute a breach of the representations or warranties made by the Company
herein. To its knowledge, Parent has been furnished with and been given access
by the Company to considerable information about the Company and its business as
it has requested. The Company acknowledges that the foregoing shall not in any
way limit Parent's ability to terminate this Agreement pursuant to Section 11.4.
5.6 Financing. Based upon preliminary discussions with its proposed sources
of financing, Parent has a good faith belief that it will be able to raise the
funds necessary to consummate the transactions contemplated hereby.
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5.7 Litigation. There is no suit, action, claim, arbitration or proceeding
pending or, to the knowledge of Parent, threatened against Parent seeking to
prevent or challenge the transactions contemplated by this Agreement. Parent is
not subject to any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality, or arbitrator
outstanding against Parent having, or which would reasonably be expected to
have, either alone or in the aggregate, a material adverse effect on Parent's
ability to consummate the transactions hereby.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
6.1 Organization and Qualification. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the corporate power to carry on its business as it is now
being conducted. The Company is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified will
not have a material adverse effect on the business, properties, prospects,
assets, condition (financial or otherwise), liabilities or results of operations
of the Company and its Subsidiaries taken as a whole (a "Company Material
Adverse Effect"). Complete and correct copies as of the date hereof of the
Certificate of Incorporation and By-laws of the Company and each of its
Subsidiaries are attached to Section 6.1 of the disclosure schedule delivered by
the Company to Parent prior to execution and delivery of this Agreement (the
"Company Disclosure Schedule"). The Certificate of Incorporation and By-laws of
the Company are in full force and effect. The Company is not in violation of any
provision of its Certificate of Incorporation or By-laws.
6.2 Capitalization. The authorized capital stock of the Company consists of
20,000,000 shares of Company Common Stock, $.01 par value and 1,000,000 shares
of preferred stock, $.01 par value (the "Preferred Stock"). As of March 31,
1998, 3,093,359 shares of Company Common Stock were validly issued and
outstanding, fully paid and nonassessable, there were no shares of Preferred
Stock issued and outstanding and (except for issuances upon the exercise of
outstanding options) there have been no changes in such numbers of shares
through the date hereof. As of the date hereof, there are no bonds, debentures,
notes or other indebtedness having the right to vote on any matters on which the
Company's shareholders may vote issued or outstanding. Except as set forth in
Section 6.2 of the Company Disclosure Schedule, there are no options, warrants,
calls or other rights, agreements or commitments presently outstanding
obligating the Company to issue, deliver or sell shares of its capital stock or
debt securities, or obligating the Company to grant, extend or enter into any
such option, warrant, call or other such right, agreement or commitment. After
the Effective Date, subject to Section 4.3, the Surviving Corporation will have
no obligation to issue, transfer or sell any shares of capital stock of the
Company or the Surviving Corporation pursuant to any Company Employee Benefit
Plan (as defined in Section 6.8).
6.3 Subsidiaries. The only Subsidiaries of the Company are disclosed in
Section 6.3 of the Company Disclosure Schedule. Each Subsidiary of the Company
is a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has the corporate power to
carry on its business as it is now being conducted. Each Subsidiary of the
Company is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or held under lease or the nature of its activities makes such qualification
necessary except where the failure to be so qualified, when taken together with
all such failures, has not had, or would not reasonably be expected to have a
material adverse effect on the business, properties, assets, condition
(financial or otherwise), liabilities or results of operations of such
Subsidiary. Section 6.3 of the Company Disclosure Schedule contains, with
respect to each Subsidiary of the Company, its name and jurisdiction of
incorporation and, with respect to each Subsidiary that is not wholly owned, the
number of issued and outstanding shares of capital stock and the number of
shares of capital stock owned by the Company or a Subsidiary. All the
outstanding shares of capital stock of each Subsidiary of the Company are
validly issued, fully paid and nonassessable, and those owned by the
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Company or by a Subsidiary of the Company are owned free and clear of any liens,
claims or encumbrances. Except as set forth in Section 6.3 of the Company
Disclosure Schedule, there are no existing options, warrants, calls or other
rights, agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of any of the Subsidiaries of the
Company. Except as set forth in Section 6.3 of the Company Disclosure Schedule,
the Company does not directly or indirectly own any interest in any other
corporation, partnership, joint venture or other business association or entity.
6.4 Authority Relative to this Agreement. The Company has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Company's
Board of Directors. This Agreement constitutes a valid and binding obligation of
the Company enforceable in accordance with its terms except as enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought. Except for the
approval of the holders of a majority of the shares of Company Common Stock, no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement and the transactions contemplated hereby. Except as set
forth in Section 6.4 of the Company Disclosure Schedule, the Company is not
subject to or obligated under (i) any charter, by-law, indenture or other loan
document provision or (ii) any other contract, license, franchise, permit,
order, decree, concession, lease, instrument, judgment, statute, law, ordinance,
rule or regulation applicable to the Company or any of its Subsidiaries or their
respective properties or assets which would be breached or violated, or under
which there would be a default (with or without notice or lapse of time, or
both), or under which there would arise a right of termination, cancellation,
modification or acceleration of any obligation or the loss of a material
benefit, by its executing and carrying out this Agreement. Except as disclosed
in Section 6.4 of the Company Disclosure Schedule or, with respect to the Merger
or the transactions contemplated thereby, in connection, or in compliance, with
the provisions of the Securities Act, the Exchange Act, and the corporation,
securities or blue sky laws or regulations of the various states, no filing or
registration with, or authorization, consent or approval of, any public body or
authority is necessary for the consummation by the Company of the Merger or the
other transactions contemplated hereby, other than filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain has
not had, or would not reasonably be expected to have, a Company Material Adverse
Effect or prevent the consummation of the transactions contemplated hereby,
including the Merger.
6.5 Reports and Financial Statements.
(a) The Company has previously furnished Parent with true and complete
copies of its (i) Annual Report to Stockholders and Annual Reports on Form
10-K for the fiscal years ended December 31, 1995, December 31, 1996 and
December 31, 1997 as filed with the Securities and Exchange Commission (the
"Commission"), (ii) proxy statements related to all meetings of its
shareholders (whether annual or special) since January 1, 1996 and (iii)
the other reports (including Forms 10-Q and 8-K) or registration statements
set forth in Section 6.5 of the Company Disclosure Schedule which have been
filed by the Company with the Commission since January 1, 1995, except for
preliminary material (in the case of clauses (ii) and (iii) above) and
except for registration statements on Form S-8 relating to employee benefit
plans, which are all the documents that the Company was required to file
with the Commission since that date (clauses (i) through (iii) being
referred to herein collectively, together with all financial statements
(including footnotes), exhibits, schedules thereto and documents
incorporated by reference therein, as the "Company SEC Reports"). As of
their respective filing dates, the Company SEC Reports complied as to form
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the
Commission thereunder applicable to such Company SEC Reports. As of their
respective filing dates, the Company 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. None of the
Company's subsidiaries is required to file any forms, reports or other
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documents with the Commission. The consolidated financial statements of the
Company included in the Company SEC Reports, including any forms, reports
or other documents filed with the Commission by the Company subsequent to
the date hereof, (i) comply as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto; (ii) have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods presented (except as may be
indicated therein or in the notes thereto) or in the case of unaudited
statements, as permitted for presentation in quarterly reports on Form
10-Q; (iii) present fairly, in all material respects, the financial
position of the Company and its Subsidiaries as at the dates thereof and
the results of their operations and cash flow for the periods then ended,
subject in the case of interim financial statements to normal year-end
adjustments; and (iv) are in all material respects, prepared in accordance
with the books of account and records of the Company and its Subsidiaries.
(b) The Company has (i) delivered to Parent true and complete copies
of all material correspondence between the Commission and the Company or
its legal counsel, accountants or other advisors since January 1, 1995
except for cover letters transmitting SEC reports, and (ii) disclosed to
Parent in writing the content of all material discussions between the
Commission and the Company or its legal counsel, accountants or other
advisors concerning the adequacy of form of any SEC Report filed with the
Commission since January 1, 1995. The Company is not aware of any issues
raised by the Commission with respect to any of the SEC Reports, other than
those disclosed to Parent pursuant to clause (i) or (ii) of this Section
6.5(b).
6.6 Absence of Certain Changes or Events. Since December 31, 1997, except
as set forth on Section 6.6 of the Company Disclosure Schedule, the Company and
its Subsidiaries have conducted their businesses in the ordinary course,
consistent with past practice, and since such date, there has not been (i) any
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
individually or in the aggregate that has had, or would reasonably be expected
to have, a Company Material Adverse Effect; (ii) any damage, destruction or
loss, whether or not covered by insurance, which has had, or would reasonably be
expected to have, a Company Material Adverse Effect; (iii) any entry into any
commitment or transaction material to the Company and its Subsidiaries taken as
a whole (including, without limitation, any borrowing or sale of assets) except
in the ordinary course of business consistent with past practice; (iv) any
declaration, setting aside or payment of any dividend or distribution (whether
in cash, stock or property) with respect to its capital stock; (v) any material
change in its accounting principles, practices or methods or revaluation of the
Company's assets; (vi) any repurchase or redemption with respect to its capital
stock; (vii) any split, combination or reclassification of any of the Company's
capital stock or the issuance or authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for, shares of the
Company's capital stock except as set forth in Section 6.6 of the Company
Disclosure Schedule; (viii) any grant of or any amendment of the terms of any
option to purchase shares of capital stock of the Company; (ix) any granting by
the Company or any of its Subsidiaries to any director, officer or employee of
the Company or any of its Subsidiaries of (A) any increase in compensation
(other than in the case of employees in the ordinary course of business
consistent with past practice) or (B) any increase in severance or termination
pay; (x) any entry by the Company or any of its Subsidiaries into any
employment, severance, bonus or termination agreement with any director, officer
or employee of the Company or any of its Subsidiaries; or (xi) any agreement
(whether or not in writing), arrangement or understanding to do any of the
foregoing.
6.7 Litigation. Except as described in the SEC Reports and in Section 6.7
of the Company Disclosure Schedule, there is no suit, action, claim, arbitration
or proceeding pending or, to the knowledge of the Company, threatened against
the Company or any of its Subsidiaries which, either alone or in the aggregate,
has had or would reasonably be expected to have a Company Material Adverse
Effect or a material adverse effect on the Company's ability to consummate the
transactions contemplated hereby, nor is there any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against the Company or any of its
Subsidiaries having, or which would reasonably be expected to have, either alone
or in the aggregate, a Com-
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pany Material Adverse Effect or a material adverse effect on the Company's
ability to consummate the transactions contemplated hereby.
6.8 Employee Benefit Plans.
(a) Section 6.8 of the Company Disclosure Schedule hereto sets forth a
list of all "employee benefit plans", as defined in Section 3(3) of the
United States Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all other material employee benefit arrangements or payroll
practices, including, without limitation, any such arrangements or payroll
practices providing severance pay, sick leave, vacation pay, salary
continuation for disability, retirement benefits, deferred compensation,
bonus pay, incentive pay, stock options (including those held by Directors,
employees, and consultants), hospitalization insurance, medical insurance,
life insurance, scholarships or tuition reimbursements, that are maintained
by the Company, any Subsidiary of the Company or any Company ERISA
Affiliate (as defined below) or to which the Company, any Subsidiary of the
Company or any Company ERISA Affiliate is obligated to contribute
thereunder for current or former employees, independent contractors,
consultants and leased employees of the Company, any Subsidiary of the
Company or any Company ERISA Affiliate (the "Company Employee Benefit
Plans").
(b) None of the Company Employee Benefit Plans is a "multiemployer
plan", as defined in Section 4001(a)(3) of ERISA (a "Multiemployer Plan"),
and neither the Company nor any Company ERISA Affiliate presently maintains
such a plan. None of the Company, any Subsidiary or Company ERISA Affiliate
(subject to the knowledge of the Company, in the case of any Subsidiary or
Company ERISA Affiliate acquired by the Company, for periods prior to such
acquisition), has withdrawn in a complete or partial withdrawal from any
Multiemployer Plan, nor has any of them incurred any material liability due
to the termination or reorganization of such a Multiemployer Plan.
(c) No Company Benefit Plan nor the Company has incurred any material
liability or penalty under Section 4975 of the Internal Revenue Code, as
amended (the "Code") or Section 502(i) of ERISA.
(d) Except as set forth in Section 6.8 (d) of the Company Disclosure
Schedule, the Company does not maintain or contribute to any plan or
arrangement which provides or has any liability to provide life insurance
or medical or other employee welfare benefits to any employee or former
employee upon his retirement or termination of employment, and the Company
has never represented, promised or contracted (whether in oral or written
form) to any employee or former employee that such benefits would be
provided.
(e) The execution of, and performance of the transactions contemplated
in, this Agreement will not, either alone or upon the occurrence of
subsequent events, result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any employee. The only severance agreements or severance
policies applicable to the Company or its Subsidiaries in the event of a
change of control of the Company are the agreements and policies
specifically referred to in Section 6.8 of the Company Disclosure Schedule
(and, in the case of such agreements, the form of which is attached to the
Company Disclosure Schedule). Each executive officer of the Company (as
such term is defined in Rule 3b-7 under the Exchange Act) and each of the
individuals identified on Section 6.8(e) of the Company Disclosure Schedule
is a party to a non-competition agreement with the Company or a Significant
Subsidiary, as the case may be, and copies of the forms of such
non-competition agreements are attached to Section 6.8 of the Company
Disclosure Schedule.
(f) None of the Company Employee Benefit Plans is a "single employer
plan", as defined in Section 4001(a)(15) of ERISA, that is subject to Title
IV of ERISA, and neither the Company nor any Company ERISA Affiliate
presently maintains such a plan. None of the Company, any of its
Subsidiaries or any ERISA Affiliate has any material liability under
Section 4062 of ERISA to the Pension Benefit Guaranty Corporation or to a
trustee appointed under Section 4042 of ERISA.
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None of the Company, any Subsidiary, or any Company ERISA Affiliate
(subject to the knowledge of the Company, in the case of any Subsidiary or
Company ERISA Affiliate acquired by the Company, for periods prior to such
acquisition) has engaged in any transaction described in Section 4069 of
ERISA.
(g) Each Company Employee Benefit Plan that is intended to qualify
under Section 401 of the Code, and each trust maintained pursuant thereto,
has been determined to be exempt from federal income taxation under Section
501 of the Code by the IRS, and, to the Company's knowledge, nothing has
occurred with respect to the operation or organization of any such Company
Employee Benefit Plan and there have been no amendments to any such Company
Employee Benefit Plan that would cause the loss of such qualification or
exemption or the imposition of any material liability, penalty or tax under
ERISA or the Code.
(h) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under
any of the Company Employee Benefit Plans to any funds or trusts
established thereunder or in connection therewith have been made by the due
date thereof and no contributions have been made to the Company Employee
Benefit Plans that would be considered non-deductible under the Code.
(i) There has been no violation of ERISA or the Code with respect to
the filing of applicable reports, documents and notices regarding the
Company Employee Benefit Plans with the Secretary of Labor or the Secretary
of the Treasury or the furnishing of required reports, documents or notices
to the participants or beneficiaries of the Company Employee Benefit Plans.
(j) True, correct and complete copies of the following documents, with
respect to each of the Company Benefit Plans, have been delivered or made
available to the Parent by the Company: (i) all plans and related trust
documents and any other instruments or contracts under which the Company
Employee Benefit Plans are operated, and amendments thereto; (ii) the Forms
5500 for the past three years and (iii) summary plan descriptions.
(k) There are no pending actions, claims or lawsuits which have been
asserted, instituted or, to the Company's knowledge, threatened, against
the Company Employee Benefit Plans, the assets of any of the trusts under
such plans or the plan sponsor or the plan administrator, or, to the
Company's knowledge, against any fiduciary of the Company Employee Benefit
Plans with respect to the operation of such plans (other than routine
benefit claims).
(l) The Company Employee Benefit Plans have been maintained, in all
material respects, in accordance with their terms and with all provisions
of ERISA and the Code (including rules and regulations thereunder) and
other applicable federal and state laws and regulations.
(m) For purposes of this Agreement, "Company ERISA Affiliate" means
any business or entity which is a member of the same "controlled group of
corporations," under "common control" or an "affiliated service group" with
an entity within the meanings of Sections 414(b), (c) or (m) of the Code,
or required to be aggregated with the entity under Section 414(o) of the
Code, or is under "common control" with the entity, within the meaning of
Section 4001(a)(14) of ERISA, or any regulations promulgated or proposed
under any of the foregoing Sections.
6.9 Labor Matters. Neither the Company nor any of its Subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of the Company, threatened against the Company or its Subsidiaries
relating to their business. To the best knowledge of the Company, there are no
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving employees of the Company or
any of its Subsidiaries. There is no labor strike, material slowdown or material
work stoppage or lockout actually pending or, to the best knowledge of the
Company, threatened against or affecting the Company or its Subsidiaries and
neither the Company nor any Subsidiary has experienced any strike, material
slowdown or material work stoppage or lockout.
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6.10 Company Action. The Board of Directors of the Company (at a meeting
duly called and held) has by the requisite vote of all directors present (a)
determined that the Merger is advisable and fair and in the best interests of
the Company and its shareholders, (b) approved the Merger in accordance with the
provisions of Section 251 of the DGCL, (c) recommended the approval of this
Agreement and the Merger by the holders of the Company Common Stock and directed
that the Merger be submitted for consideration by the Company's shareholders at
the Company Meeting.
6.11 Compliance with Applicable Laws. The Company and each of its
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all courts, administrative agencies or commissions or other
governmental authorities or instrumentalities, domestic or foreign (each, a
"Governmental Entity"), material to and necessary to conduct the business of the
Company or such Subsidiary, as the case may be (the "Company Permits"). The
Company and its Subsidiaries are in compliance in all material respects with the
terms of the Company Permits, and the Company and each of its Subsidiaries are
in compliance in all material respects with all laws, ordinances and regulations
of any Governmental Entity. Except as disclosed in Section 6.11 of the Company
Disclosure Schedule, no investigation or review by any Governmental Entity, with
respect to the Company or any of its Subsidiaries is pending, or to the
knowledge of the Company, threatened.
6.12 Liabilities. Since December 31, 1997, neither the Company nor any of
its Subsidiaries has incurred any material liabilities or obligations (absolute,
accrued, contingent or otherwise) of the type that is required to be disclosed
in the Company SEC Reports (including the financial statements contained
therein), except for (i) accounts payable incurred in the ordinary course of
business not in excess of $250,000, (ii) liabilities of the same nature as those
reflected on the financial statements to the Company SEC Reports (including the
footnotes thereto) incurred in the ordinary course of business in accordance
with past practice (iii) liabilities under or required to be incurred under this
Agreement and (iv) liabilities under Company Material Contracts (as hereafter
defined). To the best knowledge of the Company, as of the date of this
Agreement, there was no basis for any claim or liability of any nature against
the Company or its Subsidiaries, whether absolute, accrued, contingent or
otherwise, which has had, or would reasonably be expected to have, a Company
Material Adverse Effect, other than as reflected in the Company SEC Reports
(including the financial statements thereto).
6.13 Taxes. (a) For the purposes of this Agreement, the term "Tax" shall
include all Federal, state, local and foreign income, profits, franchise, gross
receipts, payroll, sales, employment, use, property, withholding, excise and
other taxes, duties and assessments of any nature whatsoever together with all
interest, penalties and additions imposed with respect to such amounts. Each of
the Company and its Subsidiaries has filed all Tax returns required to be filed
by any of them and has paid (or the Company has paid on its behalf), or has set
up an adequate reserve for the payment of, all Taxes required to be paid in
respect of the periods covered by such returns. The information contained in
such Tax returns is true and complete in all material respects. Neither the
Company nor any Subsidiary of the Company is delinquent in the payment of any
Tax, assessment or governmental charge. Except as disclosed in Section 6.13 of
the Company Disclosure Schedule, no deficiencies for any taxes have been
proposed, asserted or assessed against the Company or any of its Subsidiaries
that have not been finally settled or paid in full, and no requests for waivers
of the time to assess any such Tax are pending.
6.14 Certain Agreements. Except as set forth on Section 6.14 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries, nor, to
the best knowledge of the Company, any other party thereto, is in breach of or
default under any material agreement, contract or commitment to which the
Company or any of its Subsidiaries is a party (each, a "Company Material
Contract"), nor has the Company or any Subsidiary received in writing any claim
or threat of such breach or default, in any case in such a manner as would
permit any other party to cancel or terminate the same or would permit any other
party to collect material damages from the Company or any of its Subsidiaries
thereunder. All of the Company Material Contracts are in full force and effect.
True and complete copies of the Company Material Contracts have been provided to
Parent by the Company. Except as set forth on Section 6.14 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries is party to
any agreement containing any provision or covenant limiting in any material
respect the ability of the Company or any Subsidiary to (i) sell any products or
services of any other person, (ii) engage in any line of
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business, or (iii) compete with or to obtain products or services from any
person or limiting the ability of any person to provide products or services to
the Company or any Subsidiary.
6.15 Patents, Trademarks, Etc.
(a) The Company and its Subsidiaries own or are licensed or otherwise
possess legally enforceable rights to use all patents, trademarks, trade
names, service marks, trade secrets, copyrights and licenses, all
applications for and registrations of such patents, trademarks, trade
names, service marks, trade secrets, copyrights and licenses, and all
processes, formulae, methods, schematics, technology, know-how, tangible or
intangible proprietary information or material that are necessary to
conduct the business of the Company and its Subsidiaries as currently
conducted (the "Intellectual Property Rights");
(b) Neither the Company nor any of its Subsidiaries is or will be as a
result of the execution and delivery of this Agreement or the performance
of its obligations under this Agreement, in breach of any license,
sublicense or other agreement relating to the Intellectual Property Rights
or any license, sublicense or other agreement pursuant to which the Company
or any of its Subsidiaries is authorized to use any third party patents,
trademarks or copyrights, in the manufacture of, incorporated in, or form a
part of any product of the Company or any of its Subsidiaries.
(c) To the Company's knowledge, all patents, registered trademarks,
service marks and copyrights held by the Company or any of its Subsidiaries
which the Company considers to be material to its business are valid and
enforceable and except as set forth on Section 6.15 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries (i)
has been sued in any suit, action or proceeding which involves a claim of
infringement of any patent, trademark, service or mark or copyright or the
violation of any trade secret or other proprietary right of any third
party; or (ii) has any knowledge that the manufacturing, importation,
marketing, licensing, sale, offer for sale, or use of any of its products
infringes any patent, trademark, service mark, copyright, trade secret or
other proprietary right of any third party.
6.16 No Material Adverse Effect. Except as otherwise disclosed herein, in
the Company SEC Reports, in the Company Disclosure Schedule or Section 6.16 of
the Company Disclosure Schedule, the Company is not aware of any fact which,
alone or together with another fact, which has had, or would reasonably be
expected to have, a Company Material Adverse Effect.
6.17 Products Liability.
(a) There is no notice, demand, claim, action, suit, inquiry, hearing,
proceeding, notice of violation or investigation of a civil, criminal or
administrative nature before any court or governmental or other regulatory
or administrative agency, commission or authority against or involving any
product, substance or material (collectively, "Product") or class of claims
or lawsuits involving the same or similar Product produced, distributed or
sold by or on behalf of the Company which is pending or, to the knowledge
of Company, threatened, resulting from an alleged defect in design,
manufacture, materials or workmanship of any Product produced, distributed
or sold by or on behalf of the Company, or any alleged failure to warn, or
from any breach of implied warranties or representations, and there has not
been any Occurrence (as defined below) that is material to the business of
the Company or any of its subsidiaries taken as a whole;
(b) For purposes of this Section 6.17, the term "Occurrence" shall
mean any accident, happening or event which was caused or allegedly caused
by any alleged hazard or alleged defect in manufacture, design, materials
or workmanship including, without limitation, any alleged failure to warn
or any breach of express or implied warranties or representations with
respect to, or any such accident, happening or event otherwise involving, a
Product (including any parts or components) manufactured, produced,
distributed or sold by or on behalf of the Company which is likely to
result in a claim or loss.
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6.18 Environmental Matters.
(a) The operations of the Company and its Subsidiaries are, and in the
past have been, in compliance in all material respects with all applicable
laws, regulations and other requirements of governmental or regulatory
authorities or duties under the common law relating to toxic or hazardous
substances, wastes, pollution or to the protection of human health, safety,
or the environment (collectively, "Environmental Laws") and have obtained
and maintained in effect all material licenses, permits and other
authorizations or registrations (collectively "Environmental Permits")
required under all Environmental Laws and are, and in the past have been,
in compliance with all such Environmental Permits in all material respects.
(b) Neither the Company nor any Subsidiary has performed or suffered
any act which would reasonably be expected to give rise to, or has
otherwise incurred, liability to any person (governmental or other) under
the United States Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), or any other Environmental Laws, as amended, nor
has the Company or any Subsidiary received written notice of any such
liability or any claim therefor or submitted notice pursuant to Section 103
of CERCLA to any governmental agency with respect to any of its assets.
(c) No hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in any applicable Environmental
Law and collectively referred to herein as "Hazardous Materials") has been
released, placed or dumped by the Company or any of its Subsidiaries or by
action of any of them otherwise come to be located on, at, beneath or near
any of the assets or properties owned or leased by the Company or any of
its Subsidiaries or any surface waters or groundwaters thereon or
thereunder.
(d) Neither the Company nor any of its Subsidiaries owns or operates,
and has never owned or operated, aboveground or underground storage tanks
containing a regulated substance, as such term is defined in Subchapter IX
of the Resource Conservation and Recovery Act, 42 U.S.C. (section) 6991 et
seq., as amended, or a surface impoundment, lagoon, landfill, PCB
containing electrical equipment or asbestos containing materials.
(e) With respect to any or all of the real properties owned or leased
by the Company or any of its Subsidiaries to the knowledge of the Company,
(i) there are no, nor have there been in the past, asbestos-containing
materials, urea formaldehyde insulation, polychlorinated biphenyls or
lead-based paints present at any such properties; and (ii) there are no
wetlands (as defined under any Environmental Law) located on any such
properties, nor have any been drained, filled or otherwise altered.
(f) None of the real properties owned or leased by the Company or any
of its Subsidiaries (i) has been used or is now used for the generation,
transportation, storage, handling, treatment or disposal of any Hazardous
Materials in violation of applicable Environmental Laws or (ii) is
identified on a federal, state or local listing of sites which require or
might require environmental cleanup.
(g) There are no ongoing investigations or negotiations, pending or
threatened, or administrative, judicial or regulatory proceedings, or
consent decrees or other agreements in effect that relate to environmental
conditions in, on, under, about or related to the Company or any of its
Subsidiaries, any of their operations or the real properties owned or
leased by them.
(h) Neither the Company nor any of its Subsidiaries is subject to
reporting requirements under the federal Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. (section) 11001 et seq., or analogous state
statues and related regulations, all as amended.
(i) Notwithstanding the foregoing, the Company makes no representation
or warranty with respect to any buildings in which the Company leases
office space, the common areas of such buildings, the land upon which such
buildings are situated, or the premises in such buildings leased by the
Company (except with respect to the Company's personal property located
therein).
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6.19 Title to Property.
(a) Except as set forth in Section 6.19 of the Company Disclosure
Schedule, the Company and its Subsidiaries have good and marketable title,
or valid leasehold rights in the case of leased property, to all real
property and all personal property purported to be owned or leased by them,
free and clear of all material liens, security interests, claims,
encumbrances and charges, excluding (i) liens for fees, taxes, levies,
imposts, duties or governmental charges of any kind which are not yet
delinquent or are being contested in good faith by appropriate proceedings
which suspend the collection thereof, (ii) liens for mechanics,
materialmen, laborers, employees, suppliers or other liens arising by
operation of law for sums which are not yet delinquent or are being
contested in good faith by appropriate proceedings, (iii) liens created in
the ordinary course of business in connection with the leasing or financing
of office, computer and related equipment and supplies, (iv) easements and
similar encumbrances ordinarily created for fuller utilization and
enjoyment of property, and (v) liens or defects in title or leasehold
rights that, in the aggregate, do not and will not have a Company Material
Adverse Effect;
(b) Consummation of the Merger will not result in any breach of or
constitute a default (or an vent with which notice or lapse of time or both
would constitute a default) under, or give to others any rights of
termination or cancellation of, or require the consent of others under, any
lease in which the Company or its Subsidiaries is a lessee.
6.20 Absence Of Certain Business Practices. During the past five years,
none of the Company's officers, employees or, to the Company's knowledge,
agents, nor, to the Company's knowledge, any other person acting on behalf of
any of them or the Company, has, directly or indirectly, given or agreed to give
any improper gift or similar benefit to any customer, supplier, governmental
employee or other person.
6.21 Financial Advisor. Except for the financial advisor that will deliver
the Fairness Opinion (as defined in Section 9.11 hereof), no broker, finder or
investment banker is entitled to any brokerage or finder's fee or investment
banking fee in connection with the Merger based upon arrangements made by or on
behalf of the Company.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to the Company
as follows:
7.1 Organization. Sub is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. Sub has not
engaged in any business since it was incorporated other than in connection with
its organization and the transactions contemplated by this Agreement.
7.2 Capitalization. The authorized capital stock of Sub consists of 1,000
shares of Common Stock, par value $.01 per share, 100 shares of which are
validly issued and outstanding, fully paid and nonassessable and are owned
directly or indirectly by Parent free and clear of all liens, claims and
encumbrances.
7.3 Authority Relative to this Agreement. Sub has the corporate power to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and sole shareholder, and no other corporate proceedings on the part
of Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. Except as referred to herein or in connection, or in
compliance, with the provisions of the Securities Act, the Exchange Act and the
environmental, corporation, securities or blue sky laws or regulations of the
various states, no filing or registration with, or authorization, consent or
approval of, any public body or authority is necessary for the consummation by
Sub of the Merger or the transactions contemplated by this Agreement, other than
filings, registrations, authorizations, consents or approvals the failure to
make or obtain would not prevent the consummation of the transactions
contemplated hereby.
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ARTICLE VIII
CONDUCT OF BUSINESS PENDING THE MERGER
8.1 Conduct of Business by the Company Pending the Merger. Prior to the
Effective Date, unless Parent shall otherwise agree in writing:
(i) The Company shall, and shall cause its Subsidiaries to, carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, and shall, and shall
cause its Subsidiaries to, use their commercially reasonable efforts to
preserve intact their present business organizations and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their goodwill and on going businesses shall be
unimpaired at the Effective Date. The Company shall, and shall cause its
Subsidiaries to, (a) maintain insurance coverages and its books, accounts
and records in the usual manner consistent with prior practices; (b) comply
in all material respects with all laws, ordinances and regulations of
Governmental Entities applicable to the Company and its subsidiaries; and
(c) maintain and keep its properties and equipment in good repair, working
order and condition in accordance with past practice, ordinary wear and
tear excepted; and (d) perform in all material respects its obligations
under all material contracts and commitments to which it is a party or by
which it is bound;
(ii) The Company shall not and shall not propose to (A) sell or pledge
or agree to sell or pledge any capital stock owned by it in any of its
Subsidiaries (subject to the fiduciary duties of the Company's Board of
Directors), (B) amend its Certificate of Incorporation or By-laws, (C)
split, combine or reclassify its outstanding capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of the Company, or
declare, set aside or pay any dividend or other distribution payable in
cash, stock or property, or (D) directly or indirectly redeem, purchase or
otherwise acquire or agree to redeem, purchase or otherwise acquire any
shares of Company capital stock;
(iii) Subject to the fiduciary duties of the Company's Board of
Directors, the Company shall not, nor shall it permit any of its
Subsidiaries to, without the consent of Parent which shall not be
unreasonably withheld (A) issue, deliver or sell or agree to issue, deliver
or sell any additional shares of, or rights of any kind to acquire any
shares of, its capital stock of any class, any indebtedness having the
right to vote on which the Company's shareholders may vote or any option,
rights or warrants to acquire, or securities convertible into, shares of
capital stock other than issuances of Company Common Stock pursuant to
employment agreements as in effect on the date hereof, the exercise of
stock options outstanding on the date hereof or granted prior to the
Effective Date under automatic grants under the Company's Employee Stock
Option Plan; (B) acquire, lease or dispose or agree to acquire, lease or
dispose of any capital assets or any other assets other than in the
ordinary course of business consistent with past practice; (C) incur
additional indebtedness or encumber or grant a security interest in any
asset or enter into any other material transaction other than in each case
in the ordinary course of business consistent with past practice; (D)
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof; or (E) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(iv) The Company shall not, nor shall it permit any of its
Subsidiaries to, except as required to comply with applicable law, enter
into any new (or amend any existing) Company Benefit Plan or any new (or
amend any existing) employment, severance or consulting agreement, grant
any general increase in the compensation of directors, officers or
employees (including any such increase pursuant to any bonus, pension,
profit-sharing or other plan or commitment) or grant any increase in the
compensation payable or to become payable to any director, officer or
employee, except in any of the foregoing cases in accordance with
pre-existing contractual provisions or in the ordinary course of business
consistent with past practice; and
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(v) The Company shall not, nor shall it permit any of its Subsidiaries
to, make any investments in non-investment grade securities
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1 Access and Information. The Company and its Subsidiaries shall afford
Parent and to its accountants, counsel and other representatives, upon
reasonable advance notice, reasonable access during normal business hours (and
at such other times as the parties may mutually agree) throughout the period
prior to the Effective Date to all of their properties, books, contracts,
commitments, records and personnel and, during such period, the Company shall
furnish promptly to the Parent (i) a copy of each report, schedule and other
document filed or received by it or its Subsidiaries pursuant to the
requirements of federal or state securities laws, and (ii) all other information
concerning the Company's or its Subsidiaries' business, properties and personnel
as the Parent may request. Each of the Company and Parent shall hold, and shall
cause their respective Affiliates, employees and agents to hold, in confidence
all information provided to the other pursuant to the terms hereof, in
connection with the transactions contemplated hereby or otherwise provided on a
confidential basis.
9.2 Proxy Statement. Parent and the Company shall cooperate and promptly
prepare, and the Company shall file with the Commission as soon as practicable,
a proxy statement with respect to the Company Meeting (the "Proxy Statement"),
which shall comply as to form in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder. The
Company shall use all reasonable efforts, and Parent will cooperate with the
Company, to have the Proxy Statement cleared by the Commission as promptly as
practicable. The Company shall, as promptly as practicable, provide copies of
any written comments received from the Commission with respect to the Proxy
Statement to Parent and advise Parent of any oral comments with respect to the
Proxy Statement received from the Commission. Parent agrees that none of the
information supplied or to be supplied by Parent for inclusion or incorporation
by reference in the Proxy Statement and each amendment or supplement thereto, at
the time of mailing thereof and at the time of the Company Meeting, will contain
an 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. The Company agrees
that none of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the Proxy Statement and each
amendment or supplement thereto, at the time of mailing thereof and at the time
of the Company Meeting, will contain an 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. For purposes of the foregoing, it is understood and agreed
that information concerning or related to Parent will be deemed to have been
supplied by Parent and information concerning or related to the Company and the
Company Meeting shall be deemed to have been supplied by the Company. The
Company will provide Parent with a reasonable opportunity to review any
amendment or supplement to the Proxy Statement prior to filing such with the
Commission, and will provide Parent with a copy of all such filings made with
the Commission. No amendment or supplement to the Proxy Statement shall be made
without the approval of Parent, which approval shall not be unreasonably
withheld or delayed.
9.3 Employee Matters. As of the Effective Date, the employees of the
Company and each Subsidiary shall continue employment with the Surviving
Corporation and the Subsidiaries, respectively, in the same positions and at the
same level of wages and/or salary and without having incurred a termination of
employment or separation from service; provided, however, except as may be
specifically required by applicable law or any contract, the Surviving
Corporation and the Subsidiaries shall not be obligated to continue any
employment relationship with any employee for any specific period of time.
Except as otherwise provided by Section 4.3 hereof, as of the Effective Date,
the Surviving Corporation shall be the sponsor of the Company Employee Benefit
Plans sponsored by the Company immediately prior to the Effective Date, and
Parent shall cause the Surviving Corporation and the Subsidiaries to satisfy all
obligations and liabilities under such Company Employee Benefit Plans. To the
extent any employee
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benefit plan, program or policy of the Parent or its affiliates is made
available to the employees of the Surviving Corporation or its Subsidiaries: (i)
service with the Company and the Subsidiaries by any employee prior to the
Effective Date shall be credited for eligibility and vesting purposes under such
plan, program or policy, but not for benefit accrual purposes, and (ii) with
respect to any welfare benefit plans to which such employees may become
eligible, Parent shall cause such plans to provide credit for any co-payments or
deductibles by such employees and waive all pre-existing condition exclusions
and waiting periods, other than limitations or waiting periods that have not
been satisfied under any welfare plans maintained by the Company and the
Subsidiaries for their employees prior to the Effective Date.
9.4 Indemnification.
(a) The Company shall indemnify, defend and hold harmless, and after
the Effective Date, the Surviving Corporation shall indemnify, defend and
hold harmless the officers, directors and employees of the Company and its
subsidiaries who were such at any time prior to the Effective Date (the
"Indemnified Parties") from and against all losses, expenses, claims,
damages or liabilities ("Losses") arising out of the transactions
contemplated by this Agreement occurring before the Effective Date to the
fullest extent permitted or required under applicable law, including
without limitation the advancement of expenses; provided, however, that
such indemnification shall not be available with respect to Losses arising
out of the failure of the Company to obtain the Fairness Opinion. Parent
agrees that all rights to indemnification existing in favor of the
directors, officers or employees of the Company as provided in the
Company's Certificate of Incorporation or By-Laws, as in effect as of the
date hereof, with respect to matters occurring through the Effective Date,
shall survive the Merger and shall continue in full force and effect for a
period of not less than three years from the Effective Date. Parent agrees
to cause the Surviving Corporation to maintain in effect for not less than
three years after the Effective Date the current policies of directors' and
officers' liability insurance maintained by the Company with respect to
matters occurring on or prior to the Effective Date; provided, however,
that the Surviving Corporation may substitute therefor policies of at least
the same coverage (with carriers comparable to the Company's existing
carriers) containing terms and conditions which are no less advantageous to
the Indemnified Parties; provided, further, that Parent shall not be
required in order to maintain or procure such coverage to pay an annual
premium in excess of 150% of the current annual premium paid by the Company
for its existing coverage (the "Cap"); and provided, further, that if
equivalent coverage cannot be obtained, or can be obtained only by paying
an annual premium in excess of the Cap, Parent shall only be required to
obtain as much coverage as can be obtained by paying an annual premium
equal to the Cap.
(b) In the event that any action, suit, proceeding or investigation
relating hereto or to the transactions contemplated by this Agreement is
commenced by a person or entity who or which is not a party to this
Agreement, whether before or after the Effective Date, the parties hereto
agree to cooperate and use their respective reasonable efforts to defend
against and respond thereto.
9.5 Additional Agreements.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement, including
using all reasonable efforts to obtain all necessary waivers, consents and
approvals as may be necessary or advisable to consummate the merger, to
effect all necessary registrations and filings (including, but not limited
to, filings with all applicable Governmental Entities) and to lift any
injunction to the Merger (and, in such case, to proceed with the Merger as
expeditiously as possible).
(b) In case at any time after the Effective Date any further action is
necessary or desirable to carry out the purposes of this Agreement, the
proper officers and/or directors of Parent, the Company and the Surviving
Corporation shall take all such commercially reasonable and necessary
action.
9.6 Alternative Proposals. Prior to the Effective Date, the Company agrees
(a) that neither it nor any of its Subsidiaries shall, and it shall direct and
use its best efforts to cause it and its Subsidiaries' officers, directors,
employees, agents and representatives (including, without limitation, any
investment
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banker, attorney or accountant retained by it or any of its Subsidiaries) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a merger,
acquisition, consolidation or similar transaction involving, or any purchase of
all or substantially all of the assets or any equity securities of, the Company
or any of its Subsidiaries (any such proposal or offer being hereinafter
referred to as an "Alternative Proposal") or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Alternative Proposal, or release any
third party from any obligations under any existing standstill agreement or
arrangement relating to any Alternative Proposal, or otherwise facilitate any
effort or attempt to make or implement an Alternative Proposal; (b) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing, and it will take the necessary steps to inform the
individuals or entities referred to above of the obligations undertaken in this
Section 9.6; and (c) that it will notify Parent immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, it or any of its Subsidiaries: provided, however, that nothing contained
in this Section 9.6 shall prohibit the Board of Directors of the Company from
(i) furnishing information to or entering into discussions or negotiations with,
any person or entity that makes an unsolicited bona fide proposal to acquire the
Company pursuant to a merger, consolidation, share exchange, purchase of a
substantial portion of assets, business combination or other similar
transaction, if, and only to the extent that, (A) the Board of Directors of the
Company determines in good faith (after consultation with and based on advice of
its outside legal counsel) that such action is required for the Board of
Directors to comply with its fiduciary duties to stockholders imposed by law,
(B) prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, (i) the Company provides written
notice to Parent to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person or entity and (ii) the
Company and such person or entity enter into an appropriate confidentiality
agreement with respect to information to be supplied by the Company and (C) the
Company keeps Parent promptly informed of the status and all material terms and
conditions of any such discussions or negotiations (including identities of
parties) and, if any such proposal or inquiry is in writing, furnishes a copy of
such proposal or inquiry to Parent as soon as practicable after the receipt
thereof; and (ii) to the extent applicable, complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Alternative Proposal.
Nothing in this Section 9.6 shall (x) permit the Company to terminate this
Agreement (except as specifically provided in Article XI hereof), (y) permit the
Company to enter into any agreement with respect to an Alternative Proposal
during the term of this Agreement (it being agreed that during the term of this
Agreement, the Company shall not enter into any agreement with any person that
provides for, or in any way facilitates, an Alternative Proposal (other than a
confidentiality agreement in customary form)), or (z) affect any other
obligation of the Company under this Agreement.
9.7 Advice of Changes; SEC Filings. The Company shall confer on a regular
basis with Parent on operational matters. The Company shall promptly advise
Parent orally and in writing of any change or event that has had, or could
reasonably be expected to have, a Company Material Adverse Effect. The Company
shall promptly provide to Parent (and its counsel) copies of all filings made by
such party with the Commission or any other state or federal Governmental Entity
in connection with this Agreement and the transactions contemplated hereby.
9.8 Restructuring of Merger. Upon the mutual agreement of Parent and the
Company, the Merger shall be restructured in the form of a forward subsidiary
merger of the Company into Sub, with Sub being the surviving corporation, or as
a merger of the Company into Parent, with Parent being the surviving
corporation. In such event, this Agreement shall be deemed appropriately
modified to reflect such form of merger.
9.9 Cancellation of Warrants; Repayment of Loans from Affiliates. On the
Effective Date, and without any further action by the holders thereof (a)
warrants to purchase 400,000 shares of Company Common Stock held by Mr. John
Robinson and warrants to purchase 50,000 shares of Company Common Stock held by
Mr. Peter Lordi shall be canceled and the holders thereof shall thereafter have
the right to payment in cash equal to $400,000 and $50,000, respectively, in
exchange therefor, which pay-
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ment shall be made by the Surviving Corporation promptly after the Effective
Date and (b) the loans by Mr. Robinson and Mr. Robert L. Priddy to the Company
in the original principal amounts of $1,700,000 and $500,000, respectively,
shall be converted into the right to (i) the cash payment to Mr. Robinson of
$1,200,000 plus all accrued and unpaid interest on his loan and the issuance to
Mr. Robinson by Parent of Parent ordinary shares, par value 1p per share, having
a value equal to $500,000 and (ii) the cash payment to Mr. Priddy of all accrued
and unpaid interest on his loan and the issuance to Mr. Priddy by Parent of
Parent ordinary shares having a value equal to $500,000, which payments and
issuances shall be made promptly after the Effective Date and (c) the 300,000
options outstanding to Mr. Priddy shall be canceled at Closing. For purposes of
determining the value of the Parent ordinary shares hereunder, each Parent
ordinary share shall have a value equal to the average of the middle market
closing price for the Parent ordinary shares on the Alternative Investment
Market of the London Stock Exchange, as shown in "The London Stock Exchange
Daily Official List" on each of the ten trading days ending two days prior to
the Effective Date. Prior to the issuance of such Parent ordinary shares, each
of Messrs. Robinson and Priddy shall enter into a subscription with Parent in
form reasonably satisfactory to Parent, which will provide, among other things,
that the Parent ordinary shares to be issued hereunder may not be sold,
assigned, pledged or otherwise transferred for a period of six months from the
date of issuance.
9.10 Agreement of Principal Stockholders. Each of Messrs. Priddy and
Robinson and Mr. John Holmes (collectively, the "Stockholders") agrees that from
and after the date hereof until August 31, 1998, or such earlier date as this
Agreement shall be terminated (a) he shall not pledge, hypothecate or otherwise
transfer his shares of Company Common Stock in any manner and (b) he shall vote
all of his shares of Company Common Stock in favor of the Merger (and against
any Alternative Proposal). Nothing contained in this Section 9.10 shall be
construed to prevent any of the Stockholders, when acting in their capacities as
directors of the Company, from exercising their fiduciary duties as directors in
accordance with applicable law.
9.11 Fairness Opinion. The Company shall use its commercially reasonable
efforts to engage an investment bank reasonably acceptable to Parent promptly
after the date of this Agreement for the purpose of delivering a written opinion
to the effect that, as of the date of this Agreement, the Merger Consideration
is fair to the holders of Company Common Stock from a financial point of view
(the "Fairness Opinion"). The Company shall engage such investment bank to
deliver the Fairness Opinion within three weeks of the date of this Agreement
(the "Fairness Opinion Period"). The fees and commissions payable to the
Company's financial advisor in connection with its services to the Company shall
be reasonably acceptable to Parent. The Company take all commercially reasonable
steps to facilitate the delivery of the Fairness Opinion and shall use its
commercially reasonable efforts to cooperate with the investment bank and supply
all information reasonably requested on a timely basis. Any failure by the
Company's investment bank to deliver the Fairness Opinion for any reason other
than the adequacy of the value of the Merger Consideration shall be deemed to be
a breach of this covenant by the Company.
ARTICLE X
CONDITIONS PRECEDENT
10.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following conditions:
(a) This Agreement and the Merger shall have been approved and adopted
by the requisite vote of the holders of the Company Common Stock.
(b) No preliminary or permanent injunction or other order by any
federal or state court in the United States of competent jurisdiction which
prevents the consummation of the Merger shall have been issued and remain
in effect (each party agreeing to use its reasonable efforts to have any
such injunction lifted).
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10.2 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Date of the following conditions,
unless waived by the Company:
(a) The Parent and Sub shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the Effective Date, and the representations and warranties of
Parent and Sub contained in this Agreement shall be true in all material
respects when made and on and as of the Effective Date as if made on and as
of such date (except to the extent they relate to a particular date),
except as expressly contemplated or permitted by this Agreement, and the
Company shall have received a certificate of the President or Chief
Executive Officer or a Vice President of Parent and Sub to that effect.
(b) Parent and Sub shall have furnished the Company with a certified
copy of the resolutions adopted by their respective directors approving the
terms, execution and delivery of this Agreement, the Merger contemplated
hereby, and Parent's and Sub's performance hereunder, together with a
certificate of incumbency of Parent and Sub, executed by their respective
President or a Vice-President, and Secretary, which lists the officers and
specimen signatures of the officers who have executed this Agreement and
all other documents and instruments contemplated by this Agreement on
behalf of Parent and Sub.
(c) The Company shall have received an opinion of Parent's and Sub's
legal counsel, dated as of the Closing Date, as to the matters set forth on
Exhibit 10.2(c) attached hereto, addressed to the Company.
10.3 Conditions to Obligations of Parent and Sub to Effect the Merger. The
obligations of Parent and Sub to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Date of the additional following
conditions, unless waived by Parent:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Effective Date, and the representations and warranties of the
Company contained in this Agreement shall be true when made and on and as
of the Effective Date as if made on and as of such date (except to the
extent they relate to a particular date), except as expressly contemplated
or permitted by this Agreement, and Parent and Sub shall have received a
certificate of the President or Chief Executive Officer or a Vice President
of the Company to that effect.
(b) From the date of this Agreement through the Effective Date, there
shall not have occurred any change, individually or together with other
changes, that has had, or would reasonably be expected to have, a material
adverse change in the financial condition, business, results of operations
or prospects of the Company and its Subsidiaries, taken as a whole.
(c) The number of shares of Company Common Stock for which written
demand for appraisal has been properly made pursuant to Section 262 of the
DCGL shall not have exceeded 5% of the total number of shares of Company
Common Stock outstanding immediately prior to the Effective Date.
(d) The Company shall have furnished Parent and Sub with a certified
copy of the resolutions adopted by the Company's directors and stockholders
approving the terms, execution and delivery of this Agreement, the Merger
contemplated hereby, and the Company's performance hereunder, together with
a certificate of incumbency of the Company, executed by its President or a
Vice-President, and its Secretary, which lists the officers and specimen
signatures of the officers who have executed this Agreement and all other
documents and instruments contemplated by this Agreement on behalf of the
Company.
(e) Parent and Sub shall have received an opinion of the Company's
legal counsel, dated as of the Closing Date, as to the matters set forth on
Exhibit 10.3(e) attached hereto, addressed to Parent and Sub.
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ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Date, before or
after the approval of this Agreement by the stockholders of the Company, by the
mutual consent of Parent and the Company.
11.2 Termination by Either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Parent or the Company if (a) the Merger shall not have been
consummated by August 31, 1998, or (b)the approval of the Company's stockholders
required by Section 10.1(a) shall not have been obtained at a meeting duly
convened therefor or at any adjournment or postponement thereof, or (c) a United
States federal or state court of competent jurisdiction or United States federal
or state governmental, regulatory or administrative agency or commission shall
have issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and non-appealable; provided, that the party seeking to terminate this
Agreement pursuant to this clause (c) shall have used all reasonable efforts to
remove such injunction, order or decree; and provided, in the case of a
termination pursuant to clause (a) above, that the terminating party shall not
have breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the failure to consummate
the Merger.
11.3 Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Date, before or after
the adoption and approval by the stockholders of the Company referred to in
Section 10.1(a), by action of the Board of Directors of the Company and written
notice to Parent, if (a) in the exercise of its fiduciary duties to its
stockholders imposed by law, the Board of Directors of the Company determines
that such termination is required by reason of an Alternative Proposal being
made, or (b) there has been a material breach by Parent or Sub of any
representation or warranty contained in this Agreement, or (c) there has been a
material breach of any of the covenants or agreements set forth in this
Agreement on the part of Parent, which breach is not curable or, if curable, is
not cured within 30 days after written notice of such breach is given by the
Company to Parent. Notwithstanding anything contained in this Agreement to the
contrary, the Company shall have the right to terminate this Agreement and
abandon the Merger (A) during the Fairness Opinion Period if the Company
receives a written opinion from the investment bank retained pursuant to Section
9.11 to the effect that the Merger Consideration is not fair from a financial
point of view to the holders of the Company Common Stock, or on the last day of
the Fairness Opinion Period if the Fairness Opinion has not been delivered, or
(B) at any time after June 30, 1998, if, within five (5) days after the written
request by the Company after such date, Parent does not furnish to the Company a
written letter addressed to the Company from Henry Ansbacher & Co. Limited
and/or other reputable investment banks capable of providing such financing
confirming their firm commitment to provide the financing required in connection
with the transactions contemplated hereby for the payment of all amounts due
hereunder or related hereto (including fees and expenses of its financial
advisors and legal counsel).
11.4 Termination by Parent. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Date, by action of the Board
of Directors of Parent and written notice to the Company, if (a) the Board of
Directors of the Company shall have withdrawn or modified in a manner adverse to
Parent its approval or recommendation of this Agreement or the Merger or shall
have recommended an Alternative Proposal to the Company's stockholders, or (b)
there has been a material breach by the Company of any representation or
warranty contained in this Agreement, or (c) there has been a material breach by
the Company of any of the covenants or agreements set forth in this Agreement,
which breach is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by Parent to the Company, or (d) a change
or changes having the effect specified in Section 10.3(b) shall have occurred.
Notwithstanding the foregoing, this Agreement may be terminated by Parent and
the Merger may be abandoned (A) at any time prior to May 15, 1998, by action of
the Board of Directors of Parent and written notice to the Company, if Parent
concludes as a result of
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Parent's legal, business and financial due diligence review of the Company, that
(i) the Company's business, properties, assets, condition (financial or
otherwise), liabilities or operations are not satisfactory, or (ii) the Company
is in material breach of any representation or warranty made in this Agreement,
or (B) during the Fairness Opinion Period if the Company receives a written
opinion from the investment bank retained pursuant to Section 9.11 to the effect
that the Merger consideration is not fair from a financial point of view to the
holders of the Company Common Stock, or within two business days after the
termination of the Fairness Opinion Period if the Company shall not have
obtained the Fairness Opinion, or (C) before June 30, 1998 if Parent shall have
failed to obtain the irrevocable undertaking from holders of a majority of
Parent's ordinary shares to vote in favor of the resolutions necessary to effect
the Merger and the related financing or (D) prior to June 30, 1998 if Parent and
Sub shall not have obtained a firm commitment from Henry Ansbacher & Co. Limited
and/or other reputable investment banks capable of providing such financing to
provide the financing required in connection with the transactions contemplated
hereby for the payment of all amounts due hereunder or related hereto (including
fees and expenses of its financial advisors and legal counsel) on terms
satisfactory to Parent in its sole discretion.
11.5 Effect of Termination and Abandonment.
(a) In the event that (x) any person shall have made an Alternative
Proposal and thereafter this Agreement is terminated either by the Company
pursuant to Section 11.3(a) or by either Parent or the Company pursuant to
Section 11.2(b), (y) the Board of Directors of the Company shall have
withdrawn or modified in a manner adverse to Parent its approval or
recommendation of this Agreement or the Merger or shall have recommended an
Alternative Proposal to the Company stockholders and Parent shall have
terminated this Agreement pursuant to Section 11.4(a) or (z) any person
shall have made an Alternative Proposal and thereafter this Agreement is
terminated for any reason other than those set forth in clauses (x) or (y)
above and within 12 months thereafter any Alternative Proposal shall have
been consummated with the third party who made such Alternative Proposal,
then the Company shall promptly, but in no event later than two days after
such termination or consummation with respect to clause (z), pay Parent a
fee of $500,000 (the "Termination Fee"), which amount shall be payable by
wire transfer of same day funds. Notwithstanding anything to the contrary
contained herein, Parent shall only be entitled to be paid the Termination
Fee in the event that at the time of the termination of this Agreement
Parent is not in material breach of any of the representations, warranties
or covenants set forth in this Agreement. The Company acknowledges that the
agreements contained in this Section 11.5(a) are an integral part of the
transactions contemplated in this Agreement, and that, without these
agreements, Parent and Sub would not enter into this Agreement;
accordingly, if the Company fails to promptly pay the amount due pursuant
to this Section 11.5(a), and, in order to obtain such payment, Parent or
Sub commences a suit which results in a judgment against the Company for
the fee set forth in this Section 11.5(a), the Company shall pay to Parent
its costs and expenses (including attorneys' fees) in connection with such
suit, together with interest on the amount of the fee at the rate of 12%
per annum from the date such payment should have been made.
(b) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article XI, all obligations of the parties
hereto shall terminate, except the obligations of the parties pursuant to
this Section 11.5 and Section 12.3 and except for the provisions of
Sections 12.5, 12.6, 12.7, 12.9, 12.11, 12.12 and 12.14. Moreover, in the
event of termination of this Agreement pursuant to Section 11.2, 11.3 or
11.4, nothing herein shall prejudice the ability of the non-breaching party
from seeking damages from any other party for any breach of this Agreement,
including without limitation, attorneys' fees and the right to pursue any
remedy at law or in equity; provided that following termination of this
Agreement upon the occurrence of any of the events described in clauses
(x), (y) or (z) of Section 11.5(a), and provided that the Termination Fee
payable pursuant to Section 11.5 shall after such termination be paid,
neither Parent nor Sub shall (i) have any rights whatsoever in respect of
or in connection with the representations, warranties or covenants of the
Company, (ii) assert or pursue in any manner, directly or indirectly, any
claim or cause of action based in whole or in part upon alleged tortious or
other interference with rights under this Agreement against any entity or
person submitting an Alternative Proposal or (iii) assert
A-23
<PAGE>
or pursue in any manner, directly or indirectly, any claim or cause of
action against the Company or any of its officers or directors based in
whole or in part upon its or their receipt, consideration, recommendation,
or approval of an Alternative Proposal.
ARTICLE XII
GENERAL PROVISIONS
12.1 Non-Survival of Representations, Warranties and Agreements. All
representations and warranties set forth in this Agreement shall terminate at
the Effective Date. All covenants and agreements set forth in this Agreement and
any instrument delivered pursuant to this Agreement shall survive in accordance
with their terms.
12.2 Notices. All notices or other communications under this Agreement
shall be in writing and shall be given (and shall be deemed to have been duly
given upon receipt) by delivery in person, by facsimile or other standard form
of telecommunications, overnight courier or by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
If to the Company:
Lukens Medical Corporation
3820 Academy Parkway North NE
Albuquerque, New Mexico 87109
Attention: Robert Huffstodt, President
and Chief Executive Officer
Facsimile: (505) 342-9735
With a copy to:
Golenbock, Eiseman, Assor & Bell
437 Madison Avenue, 35th Floor
New York, New York 10022
Attention: Andrew M. Singer, Esq.
Facsimile: (212)754-0330
If to Parent or Sub:
Medisys PLC
Walmar House
288-292 Regent Street
London W1R SH8 England
Attention: Brian Timmons
Facsimile: (011) 171-436-5303
With a copy to:
Brock Silverstein McAuliffe LLC
One Citicorp Center
153 East 53rd Street, 56th Floor
New York, New York 10022
Attention: David Robbins, Esq.
Facsimile: (212) 371-5500
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
12.3 Fees and Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses, whether or not the Merger is consummated except as ex-
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<PAGE>
pressly provided herein and except that (a) the filing fee in connection with
the filing of the Proxy Statement with the Commission and (b) the expenses
incurred in connection with printing and mailing the Proxy Statement, shall be
shared equally by the Company and Parent.
12.4 Publicity. So long as this Agreement is in effect, Parent, Sub and the
Company agree to consult with each other in issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated by this Agreement, and none of them shall issue any press release
or make any public statement prior to such consultation, except as may be
required by law or by obligations pursuant to the rules of any listing agreement
with any national securities exchange, NASDAQ, the Alternative Investment Market
of the London Stock Exchange, or other regulatory body or association. The
commencement of litigation relating to this Agreement or the transactions
contemplated hereby or any proceedings in connection therewith shall not be
deemed a violation of this Section 12.4.
12.5 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions or other appropriate equitable relief (in addition to other remedies
at law), without the requirement to post bond or security to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
12.6 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties; provided, however, Parent and Sub may
assign their rights, but not their obligations, under this Agreement to any of
their respective direct or indirect wholly owned subsidiaries. Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement;
provided that the Indemnified Parties shall be third-party beneficiaries of
Parent's agreement contained in Section 9.4 hereof.
12.7 Entire Agreement. This Agreement, the Exhibits, the Company Disclosure
Schedule and any documents delivered by the parties in connection herewith and
therewith constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.
12.8 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of the Company and the Parent, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
12.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to its rules
of conflict of laws.
12.10 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
12.11 Headings and Table of Contents. Headings of the Articles and Sections
of this Agreement and the Table of Contents are for the convenience of the
parties only, and shall be given no substantive or interpretive effect
whatsoever.
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<PAGE>
12.12 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
12.13 Waivers. At any time prior to the Effective Date, the parties hereto,
by or pursuant to action taken by their respective Boards of Directors, may (i)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any documents delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid if set forth in an instrument in writing signed on behalf
of such party. Except as provided in this Agreement, no action taken pursuant to
this Agreement, including, without limitation, any investigation by or on behalf
of any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
12.14 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
12.15 Subsidiaries. As used in this Agreement, the word "Subsidiary" when
used with respect to any party means any corporation or other organization,
whether incorporated or unincorporated, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization, or any organization of which such party is a
general partner.
12.16 United States Dollars; Exchange Rates. (a) As used in this Agreement,
unless otherwise indicated, "$" shall mean U.S. dollars; and (b) to the extent
that the calculation of foreign currency exchange rates is required hereby,
reference shall be made to the appropriate rates set forth in "The Wall Street
Journal" for the applicable date.
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<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunder duly authorized all as of
the date first written above.
MEDISYS PLC
By: /s/ Brian P. Timmons
------------------------------------
Name: Brian P. Timmons
Title: Vice President
LMC ACQUISITION CORP.
By: /s/ Brian P. Timmons
------------------------------------
Name: Brian P. Timmons
Title: Vice President
LUKENS MEDICAL CORPORATION
By: /s/ Robert S. Huffstodt
------------------------------------
Name: Robert S. Huffstodt
Title: President
Agreed and Accepted
with Respect to Sections 9.9 and 9.10
/s/ John Robinson
- ---------------------------------
John Robinson
/s/ Robert L. Priddy
- ---------------------------------
Robert L. Priddy
/s/ John Holmes
- ---------------------------------
John Holmes
A-27
<PAGE>
EXHIBIT 10.2(E)
Form of Opinion of Counsel to Parent and Sub (to be split between US and UK
counsel)
1. Parent is a public limited company duly incorporated, validly existing
and in good standing under the laws of Scotland and has the corporate power to
carry on its business as it is now being conducted or currently proposed to be
conducted.
2. Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware.
3. Parent has the corporate authority to enter into the Merger Agreement
and to carry out its obligations hereunder. The execution and delivery of the
Merger Agreement and the consummation of the transactions contemplated thereby
have been duly authorized by Parent's Board of Directors. No other corporate
proceedings on the part of Parent are necessary to authorize the Merger
Agreement and the transactions contemplated thereby.
4. Sub has the corporate power to enter into the Merger Agreement and to
carry out its obligations thereunder. The execution and delivery of the Merger
Agreement and the consummation of the transactions contemplated thereby have
been duly authorized by Sub's Board of Directors and sole shareholder, and no
other corporate proceedings on the part of Sub are necessary to authorize this
Agreement and the transactions contemplated hereby.
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<PAGE>
EXHIBIT 10.3(E)
Form of Opinion of Counsel to the Company
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has the corporate
power to carry on its business as it is now being conducted.
2. The authorized capital stock of the Company consists of 20,000,000
shares of Company Common Stock, par value $.01 per share and 1,000,000 shares of
preferred stock, par value $.01 per share.
3. Each Subsidiary of the Company incorporated in the United States is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has the corporate power to carry
on its business as it is now being conducted.
4. The Company has the corporate power to enter into the Merger Agreement
and to carry out its obligations thereunder. The execution and delivery of the
Merger Agreement and the consummation of the transactions contemplated thereby
have been duly authorized by the Company's Board of Directors. No other
corporate proceedings on the part of the Company are necessary to authorize the
Merger Agreement and the transactions contemplated thereby.
5. The Board of Directors of the Company (at a meeting duly called and
held) has by the requisite vote of all directors present approved the Merger in
accordance with the provisions of Sections 251 of the DGCL.
6. A majority of the Company's stockholders have approved the Merger
Agreement and the Merger at a meeting duly called and held for such purpose.
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<PAGE>
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER, dated as of August 26,
1998 ("Amendment No. 1") , among Medisys PLC, a Scottish public limited company
("Parent"), LMC Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Parent ("Sub"), Lukens Medical Corporation, a Delaware corporation
(the "Company"), John Robinson ("Robinson"), Robert L. Priddy ("Priddy") and
John Holmes ("Holmes").
W I T N E S S E T H:
WHEREAS, Parent, Sub, the Company, Robinson, Priddy and Holmes have entered
into that certain Agreement and Plan of Merger dated as of April 28, 1998 (the
"Merger Agreement"). Capitalized terms used but not defined in this Amendment
No. 1 shall have the respective meanings ascribed thereto in the Merger
Agreement.
WHEREAS, the Merger Agreement has been previously amended by that certain
letter agreement dated July 22, 1998, among Parent, Sub and the Company (the
"July Waiver Letter").
WHEREAS, Parent, Sub, the Company, Robinson, Priddy and Holmes desire to
amend the Merger Agreement as set forth in this Amendment No. 1.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
1. Section 4.7(i)(A) of the Merger Agreement is hereby amended by
deleting "August 14, 1998" and inserting the following in lieu
thereof:
September 28, 1998
2. Section 9.10 of the Merger Agreement is hereby amended by deleting
"August 31, 1998" from the third line thereof and inserting the
following in lieu thereof:
October 15, 1998
3. Section 11.2(a) of the Merger Agreement is hereby amended by deleting
"August 31, 1998" and inserting the following in lieu thereof:
October 15, 1998
4. Except as expressly amended by this Amendment No. 1 and by the July
Waiver Letter, the Merger Agreement, the Merger Agreement shall remain
in full force and effect as the same was in effect immediately prior
to the date of this Amendment No. 1.
5. This Amendment No. 1 shall be governed and construed in accordance
with the laws of the State of Delaware, without regard to rules of
conflicts of laws.
6. This Amendment No. 1 may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and
the same instrument. Each counterpart may consist of a number of
copies hereof each signed by less than all, but together signed by all
of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
the Merger Agreement to be executed by their respective officers thereunto duly
authorized as of the date first written above.
MEDISYS PLC
By: /s/ Brian P. Timmons
------------------------------------
Name: Brian P. Timmons
Title: Vice President
LMC ACQUISITION CORP.
By: /s/ Brian P. Timmons
------------------------------------
Name: Brian P. Timmons
Title: Vice President
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<PAGE>
LUKENS MEDICAL CORPORATION
By: /s/ Robert S. Huffstodt
------------------------------------
Name: Robert S. Huffstodt
Title: President and Chief Executive
Officer
/s/ John Robinson
----------------------------------------
John Robinson
/s/ Robert L. Priddy
----------------------------------------
Robert L. Priddy
/s/ John Holmes
----------------------------------------
John Holmes
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<PAGE>
ANNEX B
SANDS BROTHERS & CO., LTD.
INVESTMENT BANKERSMEMBER NYSE
90 PARK AVENUE, NEW YORK, N.Y. 10016
(212) 697-5200 TOLL FREE (800) 866-6116 FAX (212)697-1096
May 15, 1998
The Board of Directors
Lukens Medical Corporation
3820 Academy Parkway North N.E.
Albuquerque, NM 87109
Gentlemen:
You have requested our opinion as investment bankers as to whether the
consideration to be received the shareholders of Lukens Medical Corporation
("Lukens" or the "Company") in connection with the proposed acquisition (the
"Transaction") of the Company by Medisys PLC ("Medisys"), as described in the
Agreement and Plan of Merger Dated as of April 28, 1998 among Medisys PLC, LMC
Acquisition Corp. and Lukens Medical Corporation (the "Agreement"), is fair to
the Company's shareholders from a financial point of view.
In the ordinary course of its business, Sands Brothers & Co., Ltd. ("Sands
Brothers") is regularly engaged in the valuation and pricing of businesses and
their securities and in advising corporate securities issuers on related
matters.
In arriving at our opinion, Sands Brothers has:
(1) reviewed the Agreement and discussed with the Company's management the
terms of the Agreement;
(2) reviewed the board minutes of the Company with respect to the
Transaction;
(3) reviewed certain financial and other data with respect to Lukens
provided by the Company, including audited financial statements for
the years 1996 and 1997 and certain other relevant financial and
operating data of Lukens.
(4) reviewed financial projections furnished to us by the Company,
including, among other things, the capital structure, sales, net
income, cash flow, capital requirements and other data of Lukens we
deemed relevant;
(5) reviewed the pro-forma effects of the Transaction on Lukens'
forecasted business plan;
(6) reviewed and analyzed the valuation of companies in the medical
products industry that we deemed comparable;
(7) compared the purchase price of Lukens from a financial point of view
with the recent public market statistics of certain other publicly
traded companies deemed comparable;
(8) compared the financial terms of the Transaction contemplated by the
Agreement with the financial terms, to the extent publicly available,
of other similar transactions deemed to be comparable in whole or in
part;
(9) reviewed the historical market prices of the Company's common stock
and compared the trading history with that of certain companies we
deemed comparable; and
(10) conducted such other studies, analyses, inquiries and examinations and
considered such other financial, economic and market data as we deemed
appropriate.
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<PAGE>
We have relied upon the accuracy and completeness of the financial and other
information we used in arriving at our opinion without independent verification.
In arriving at our opinion, we have not obtained any evaluations or appraisals
of the assets of the Company. Our opinion is necessarily based upon information
and conditions as they exist and can be evaluated as of the date of this letter.
We note, in rendering this opinion, that Sands Brothers will receive a usual and
customary fee for rendering this opinion.
Based upon and subject to the foregoing, we are of the opinion that a purchase
price of $4.00 in cash per common share for Lukens Medical Corporation is fair
compensation to the Company's shareholders from a financial point of view. Sands
Brothers understand that this opinion will be reproduced in full in any proxy
statement mailed to shareholders of the Company and hereby gives its consent to
such use.
Sincerely,
Sands Brothers & Co., Ltd.
/s/ Alan M. Bluestine
----------------------------------------
By: Alan M. Bluestine,
Managing Director
Corporate Finance
B-2
<PAGE>
ANNEX C
DELAWARE GENERAL CORPORATION LAW
TITLE 8
ss. 262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to ss. 228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.251(g)
of this title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to ss.ss.
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares of fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to ss. 228 or
ss. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the
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effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
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holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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ANNEX D
NEFF & COMPANY LLP
Lukens Medical Corporation
Albuquerque, NM 87109
We consent to the incorporation in the Proxy Statement Pursuant to Section 14(a)
of our report dated March 27, 1998, to the consolidated financial statements of
Lukens Medical Corporation for the year ended December 31, 1997.
/s/ Neff and Company LLP
Albuquerque, New Mexico
July 21, 1998
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<PAGE>
LUKENS MEDICAL CORPORATION
3820 ACADEMY PARKWAY NORTH, NE
ALBUQUERQUE, NEW MEXICO 87109
-----------------
PROXY
For Special Meeting of Stockholders to be held on September 24, 1998
-----------------
This Proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Robert S. Huffstodt and Robert L. Priddy as
Proxies, each with the power of substitution, and hereby authorizes each of them
to represent and to vote, as designated below, all the shares of common stock of
Lukens Medical Corporation held of record by the undersigned on August 14, 1998
at the Special Meeting of Stockholders to be held on, September 24, 1998, or any
adjournment or postponement thereof.
1. TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER DATED AS OF APRIL 28,
1998, AMONG LUKENS MEDICAL CORPORATION, MEDISYS PLC AND LMC ACQUISITION
CORP. AND THE MERGER PROVIDED FOR THEREIN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. TO CONSIDER AND ACT UPON ANY OTHER BUSINESS AS MAY COME BEFORE THE SPECIAL
MEETING OF STOCKHOLDERS OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
PLEASEMARK, SIGN, DATE AND RETURN THIS PROXY TO CONTINENTAL STOCK
TRANSFER & TRUST COMPANY, THE COMPANY'S TRANSFER AGENT.
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This Proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. (IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 and in the discretion of the named proxies with respect
to any other matter that may properly come before the meeting or any adjournment
or postponement thereof.)
----------------------------------
Signature
----------------------------------
Signature, if held jointly
Dated ______________, 1998
Please date and sign exactly as
name appears on your stock
certificate. Joint owners should
each sign personally. Trustees,
custodians, executors and others
signing in a representative
capacity should indicate the
capacity in which they sign.
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