<PAGE>
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION STATEMENT ON FORM S-4 FILE NO.
333-07977
MICROTEK MEDICAL, INC.
512 LEHMBERG ROAD
COLUMBUS, MISSISSIPPI 39702
(601) 327-1863
------------------------
August 1, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Microtek Medical, Inc. ("Microtek") at 10:00 a.m., local time, on August 30,
1996, at the executive offices of Microtek, 512 Lehmberg Road, Columbus,
Mississippi (together with any adjournments or postponements thereof, the
"Microtek Special Meeting") .
At the Microtek Special Meeting, you will be asked to consider and vote upon
a proposed merger (the "Merger") of MMI Merger Corp., a wholly-owned subsidiary
of Isolyser Company, Inc. ("Isoloyser"), into Microtek. The Merger is described
in the attached Notice of Special Meeting and Joint Proxy Statement/Prospectus.
Upon consummation of the Merger, Microtek will become a wholly owned subsidiary
of Isolyser, and holders of shares of Microtek Common Stock will be entitled to
receive 1.65 shares of Isolyser Common Stock for each share of Microtek Common
Stock.
At the meeting, you will also be asked to approve an amendment (the
"Microtek Option Proposal") to Microtek's 1990 Incentive Stock Option Plan (the
"Option Plan") to increase the number of shares of Microtek Common Stock
issuable upon exercise of stock options under the Option Plan from 883,302 to
1,083,302 shares. Such stock options will be converted into the right to
purchase Isolyser Common Stock if the Merger is consummated.
The enclosed Joint Proxy Statement/Prospectus provides a detailed
description of the matters to be considered at the Special Meeting and extensive
information concerning Microtek and Isolyser. A copy of the Agreement and Plan
of Merger pertaining to the Merger is attached as Annex A to the Joint Proxy
Statement/Prospectus. Please carefully review and consider all of this
information.
Also enclosed is Microtek's Annual Report on Form 10-K/A for the year ended
November 30, 1995, and Quarterly Reports on Form 10-Q for the quarters ended
February 29, 1996 and May 31, 1996.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF MICROTEK HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE OPTION PROPOSAL AND RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE PROPOSED MERGER
AGREEMENT AND "FOR" THE MICROTEK OPTION PROPOSAL AT THE MICROTEK SPECIAL
MEETING.
It is important that your shares be present at the Microtek Special Meeting,
regardless of the number of shares you hold. Therefore, please sign, date and
return your proxy card as soon as possible, whether or not you plan to attend.
This will not prevent you from voting your shares in person if you subsequently
choose to attend.
Very truly yours,
/s/ KIMBER L. VOUGHT
Kimber L. Vought
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
ISOLYSER COMPANY, INC.
4320 INTERNATIONAL BOULEVARD, N.W.
NORCROSS, GEORGIA 30093
------------------------
August 1, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the Shareholders of
Isolyser Company, Inc. ("Isolyser") at 10:00 a.m., local time, on August 30,
1996, at the executive offices of Isolyser, 4320 International Boulevard, N.W.,
Norcross, Georgia (together with any adjournments or postponements thereof, the
"Isolyser Special Meeting").
At the Isolyser Special Meeting, you will be asked to consider and vote upon
the proposed acquisition by Isolyser of Microtek Medical, Inc. ("Microtek")
through a proposed merger (the "Merger") of a wholly-owned subsidiary of
Isolyser into Microtek. In the event of the consummation of the Merger, Microtek
would become a wholly-owned subsidiary of Isolyser. To accomplish the Merger,
Isolyser would issue 1.65 shares of Isolyser common stock per share of Microtek
common stock. Approval of the issuance of such Isolyser common stock is being
sought in compliance with certain rules of The Nasdaq Stock Market.
At the meeting, you will also be asked to approve a proposed amendment (the
"Isolyser Option Proposal") to Isolyser's Stock Option Plan (the "Plan") to
increase the number of shares of Isolyser Common Stock issuable upon the
exercise of stock options under the Plan from 3,600,000 to 4,400,000 shares and
to make certain other technical amendments to the Plan.
The attached Joint Proxy Statement/Prospectus provides a detailed
description of the matters to be considered at the Isolyser Special Meeting and
extensive information concerning Microtek and Isolyser. A copy of the Agreement
and Plan of Merger pertaining to the Merger is attached as Annex A to the Joint
Proxy Statement/Prospectus. Please carefully review and consider all of this
information.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST INTEREST OF
ISOLYSER AND ITS SHAREHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL TO ISSUE THE ISOLYSER COMMON
STOCK TO CONSUMMATE THE MERGER.
It is important that your shares be present at the meeting, regardless of
the number of shares you hold. Therefore, please sign, date and return your
proxy card as soon as possible, whether or not you plan to attend. This shall
not prevent you from voting your shares in person if you subsequently choose to
attend.
Sincerely,
/s/ ROBERT L. TAYLOR
Robert L. Taylor,
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
<PAGE>
MICROTEK MEDICAL, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
AUGUST 30, 1996
To The Stockholders of
Microtek Medical, Inc.:
Notice is hereby given that a Special Meeting of Stockholders of Microtek
Medical, Inc., a Delaware corporation ("Microtek"), will be held on August 30,
1996, beginning at 10:00 a.m. local time, at Microtek's offices at 512 Lehmberg
Road, Columbus, Mississippi (together with any adjournments or postponements
thereof, the "Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve that certain Agreement
and Plan of Merger, dated March 15, 1996 and amended as of June 23, 1996
and July 29, 1996 (the "Merger Agreement"), by and among Microtek,
Isolyser Company, Inc., a Georgia corporation ("Isolyser"), and MMI
Merger Corp. (the "Isolyser Subsidiary"), pursuant to which, among other
things, the Isolyser Subsidiary will be merged with and into Microtek and
Microtek will become a wholly owned subsidiary of Isolyser, and each
issued share of Common Stock of Microtek will be converted into the right
to receive 1.65 shares of Common Stock of Isolyser;
2. To consider and act upon a proposed amendment to Microtek's 1990
Incentive Stock Option Plan (the "Option Plan") to increase the number of
shares of Common Stock of Microtek issuable upon exercise of stock
options under the Option Plan from 883,302 to 1,083,302 shares of Common
Stock; and
3. To transact any other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on July 8, 1996 are entitled
to notice of and to vote at the meeting or any adjournment thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE MARK, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
By Order of the Board of Directors
/s/ DAN LEE
Dan Lee
SECRETARY
Columbus, Mississippi
August 1, 1996
<PAGE>
[LOGO]
ISOLYSER COMPANY, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
AUGUST 30, 1996
To the Shareholders:
Notice is hereby given that a Special Meeting of the Shareholders of
Isolyser Company, Inc., a Georgia corporation ("Isolyser"), will be held on
August 30, 1996, beginning at 10:00 a.m. local time, at Isolyser's offices at
4320 International Boulevard, N.W., Norcross, Georgia 30093 (together with any
adjournments or postponements thereof, the "Special Meeting"), for the following
purposes, all as set forth in the attached Joint Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to approve the issuance of up to
8,758,720 shares of Isolyser common stock, $.001 par value per share, in
connection with the merger (the "Merger") of a wholly-owned subsidiary of
Isolyser with and into Microtek Medical, Inc. ("Microtek") in accordance
with that certain Agreement and Plan of Merger (the "Merger Agreement")
dated as of March 15, 1996 and amended as of June 23, 1996, by and among
Microtek, Isolyser and MMI Merger Corp. (the "Isolyser Subsidiary"). As a
result of the Merger, Microtek will become a wholly-owned subsidiary of
Isolyser, and each share of Microtek common stock will be converted into
the right to receive 1.65 shares of Isolyser common stock.
2. To consider and act upon a proposed amendment to Isolyser's Stock Option
Plan.
3. To transact any other business as may properly come before the meeting
or any adjournment thereof. No other business is expected to be addressed
at the meeting.
Shareholders of record at the close of business on July 8, 1996 are entitled
to notice of and to vote at the meeting and any adjournment thereof.
Shareholders are cordially invited to attend the meeting in person. However,
whether or not you expect to attend, we urge you to read the accompanying Joint
Proxy Statement/Prospectus and then complete, sign, date and return the enclosed
proxy card in the enclosed postage pre-paid envelope. It is important that your
shares be represented at the meeting, and your promptness will assist us to
prepare for the meeting and to avoid the cost of a follow-up mailing. If you
receive more than one proxy card because you own shares registered in different
names or at different addresses, each proxy card should be completed and
returned.
By order of the Board of Directors,
/s/ TRAVIS W. HONEYCUTT
Travis W. Honeycutt,
SECRETARY
Norcross, Georgia
August 1, 1996
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
JOINT PROXY STATEMENT
ISOLYSER COMPANY, INC.
MICROTEK MEDICAL, INC.
SPECIAL MEETINGS OF STOCKHOLDERS OF MICROTEK AND
SHAREHOLDERS OF ISOLYSER TO BE
HELD ON AUGUST 30, 1996
------------------------
PROSPECTUS
ISOLYSER COMPANY, INC.
COMMON STOCK
------------------------
This Joint Proxy Statement/Prospectus is being furnished to the shareholders
of Isolyser Company, Inc., a Georgia corporation ("Isolyser"), in connection
with the solicitation of proxies by the Board of Directors of Isolyser for use
at the Special Meeting of Shareholders of Isolyser (the "Isolyser Meeting") to
be held at 10:00 a.m., local time, on August 30, 1996, at 4320 International
Boulevard, N.W., Norcross, Georgia 30093. At the Isolyser Meeting, the Isolyser
shareholders will be asked to consider and vote upon (i) a proposal (the "Merger
Proposal") to approve the issuance of up to 8,758,720 shares of Isolyser Common
Stock in connection with an Agreement and Plan of Merger (the "Merger
Agreement") dated as of March 15, 1996 and amended as of June 23, 1996 and July
29, 1996, by and among Isolyser, MMI Merger Corp., a Delaware corporation and a
newly organized, wholly-owned subsidiary of Isolyser (the "Isolyser
Subsidiary"), and Microtek Medical, Inc., a Delaware corporation ("Microtek"),
pursuant to which Microtek will become a wholly-owned subsidiary of Isolyser,
and (ii) the approval of a proposed amendment to Isolyser's Stock Option Plan
(the "Plan") to increase, contingent upon consummation of the transactions
contemplated by the Merger Agreement, the number of shares of Common Stock of
Isolyser issuable upon exercise of stock options under the Plan from 3,600,000
to 4,400,000 shares of Common Stock and to make certain technical amendments to
the Plan.
This Joint Proxy Statement/Prospectus is also being furnished to
stockholders of Microtek in connection with the solicitation of proxies by the
Board of Directors of Microtek for use at the Special Meeting of Stockholders of
Microtek (the "Microtek Meeting") to be held at 10:00 a.m., local time, on
August 30, 1996, at 512 Lehmberg Road, Columbus, Mississippi. At the Microtek
Meeting, the Microtek stockholders will be asked to consider and vote upon (i) a
proposal to approve and adopt the Merger Agreement pursuant to which the
Isolyser Subsidiary will be merged (the "Merger") with and into Microtek, which
will be the surviving corporation, and Microtek will become a wholly-owned
subsidiary of Isolyser, and (ii) the approval of a proposed amendment to
Microtek's 1990 Incentive Stock Option Plan (the "Option Plan") to increase the
number of shares of Common Stock of Microtek issuable upon exercise of stock
options under the Option Plan from 883,302 to 1,083,302 shares of Common Stock.
Under the Merger Agreement, Microtek will become a wholly-owned subsidiary
of Isolyser, and holders of Microtek Common Stock will be entitled to receive
1.65 shares of Isolyser Common Stock for each share of Microtek Common Stock.
A copy of the Merger Agreement is attached to this Joint Proxy
Statement/Prospectus as Annex A and is incorporated herein by reference. All
capitalized terms not otherwise defined in this Joint Proxy Statement/
Prospectus shall have the meanings given to such terms in the Merger Agreement.
Under the rules of the Securities and Exchange Commission (the
"Commission"), the solicitation of proxies from the stockholders of Microtek to
approve and adopt the Merger Agreement constitutes an offering to stockholders
of Microtek of shares of Isolyser Common Stock. Isolyser has filed registration
statements on Form S-4 (File Nos. 333-3436 and 333-7977) (together with any
amendments thereto, the "Registration Statement") with the Commission relating
to such offering. All information contained in this Joint Proxy
Statement/Prospectus relating to Isolyser and the Isolyser Subsidiary has been
supplied by Isolyser and all information relating to Microtek has been supplied
by Microtek.
The principal executive offices of Isolyser are located at 4320
International Boulevard, Norcross, Georgia 30093 and its telephone number is
(770) 381-7566. The principal executive offices of Microtek are located at 512
Lehmberg Road, Columbus, Mississippi 39702 and its telephone number is (601)
327-1863.
This Joint Proxy Statement/Prospectus and the enclosed proxy card are first
being mailed to stockholders of Isolyser and Microtek on or about August 1,
1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS AUGUST 1, 1996.
<PAGE>
AVAILABLE INFORMATION
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement and exhibits thereto which
Isolyser has filed with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). As permitted by the rules and regulations of the
Commission, this Joint Proxy Statement/Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. Reference is
made to the Registration Statement and to the exhibits thereto for further
information, which may be inspected without charge at the office of the
Commission at 450 Fifth Street, Washington, D.C. 20549, and copies of which may
be obtained from the Commission at prescribed rates. Statements contained in
this Joint Proxy Statement/Prospectus relating to the contents of any contract
or other document referred to herein or therein are not necessarily complete,
and in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference.
In addition, both Isolyser (File No. 0-24866) and Microtek (File No.0-20346)
are subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith file reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at the Regional Offices
of the Commission which are located as follows: Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained from the Commission at prescribed rates. Written requests for such
material should be addressed to the Public Reference Section, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
RELATING TO ISOLYSER AND MICROTEK. DOCUMENTS RELATING TO ISOLYSER (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
HEREIN BY REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR
ORAL REQUEST, WITHOUT CHARGE, FROM ISOLYSER COMPANY, INC., 4320 INTERNATIONAL
BOULEVARD, NORCROSS, GEORGIA ATTENTION: C. FRED HARLOW, CHIEF FINANCIAL OFFICER,
TELEPHONE (770) 381-7566. DOCUMENTS RELATING TO MICROTEK (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED THEREIN BY
REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST,
WITHOUT CHARGE, FROM MICROTEK MEDICAL, INC., 512 LEHMBERG ROAD, COLUMBUS,
MISSISSIPPI 39702, ATTENTION: DAN LEE, CHIEF FINANCIAL OFFICER, TELEPHONE: (601)
327-1863. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST
SHOULD BE MADE BY AUGUST 23, 1996. COPIES OF DOCUMENTS SO REQUESTED WILL BE SENT
BY FIRST CLASS MAIL, POSTAGE PAID WITHIN ONE BUSINESS DAY OF THE RECEIPT OF SUCH
REQUEST.
The following Isolyser documents are incorporated by reference herein:
A. Annual Report on Form 10-K for the year ended December 31, 1995
filed with the Commission on April 1, 1996.
B. Quarterly Report on Form 10-Q for the quarter ended March 31, 1996
filed with the Commission on May 15, 1996.
C. Current Report on Form 8-K filed with the Commission on June 15,
1995, as amended by Current Report on Form 8-K/A filed with the Commission
on July 17, 1995.
D. Current Report on Form 8-K filed with the Commission on October 3,
1995.
E. Current Report on Form 8-K filed with the Commission on July 29,
1996.
2
<PAGE>
F. The description of Isolyser Common Stock set forth in Isolyser's
Registration Statement filed pursuant to Section 12 of the Exchange Act, and
any amendment or report filed for the purpose of updating such description.
The following Microtek documents are incorporated by reference herein:
1. Annual Report on Form 10-K for the year ended November 30, 1995, as
amended and restated by Annual Report on Form 10-K/A filed with the
Commission on May 23, 1996 (as so amended, the "1995 Microtek 10-K").
2. Quarterly Reports on Form 10-Q for the quarters ended February 29,
1996 and May 31, 1996 filed with the Commission on April 12, 1996 and July
15, 1996, respectively (collectively, the "Microtek 10-Qs").
3. Current Report on Form 8-K filed with the Commission on May 15,
1996.
All documents filed by Isolyser or Microtek with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
hereof and prior to the date of the Isolyser Meeting and the Microtek
Meeting shall be deemed to be incorporated by reference herein and shall be
a part hereof from the date of filing of such documents. Any statements
contained in a document incorporated by reference herein or contained in
this Joint Proxy Statement/Prospectus shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained
herein (or in any other subsequently filed document which also is
incorporated by reference herein) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
------------------------
The 1995 Microtek 10-K and the Microtek 10-Qs are delivered in conjunction
with this Joint Proxy Statement/Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE OFFERS MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ISOLYSER
OR MICROTEK. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH PERSON'S JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT, SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS, THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ISOLYSER OR
MICROTEK.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Information by Reference......................... 2
Summary of Joint Proxy Statement/Prospectus............................... 5
The Meetings.............................................................. 16
The Merger................................................................ 17
Isolyser and Microtek Pro Forma Combined Financial Information............ 40
Isolyser Pro Forma Combined Financial Information......................... 47
Microtek Pro Forma Combined Financial Information......................... 49
Comparative Rights of Isolyser Shareholders and Microtek Stockholders..... 54
Option Proposals.......................................................... 61
Legal Matters............................................................. 66
Experts................................................................... 66
Stockholder's Proposals................................................... 66
Annex A Agreement and Plan of Merger...................................... A-1
Annex B Opinion of Morgan Keegan & Company, Inc........................... B-1
Annex C Opinion of Goldman, Sachs & Co.................................... C-1
</TABLE>
4
<PAGE>
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS. THE SUMMARY IS NECESSARILY INCOMPLETE AND
SELECTIVE AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING THE ANNEXES
HERETO. THE TERMS "MICROTEK" AND "ISOLYSER" REFER RESPECTIVELY TO MICROTEK
MEDICAL, INC. AND ITS SUBSIDIARIES AND ISOLYSER COMPANY, INC. AND ITS
SUBSIDIARIES, UNLESS THE CONTEXT OTHERWISE REQUIRES.
GENERAL
This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of MMI Merger Corp., a wholly-owned subsidiary of Isolyser (the
"Isolyser Subsidiary"), into Microtek pursuant to an Agreement and Plan of
Merger dated March 15, 1996 (the "Original Merger Agreement"), as amended on
June 23, 1996 and July 29, 1996 (and as amended, the "Merger Agreeement"). Under
the Merger Agreement, Microtek will become a wholly-owned subsidiary of Isolyser
and holders of shares of Microtek Common Stock will be entitled to receive 1.65
shares of Isolyser Common Stock for each share of Microtek Common Stock (the
"Exchange Ratio"). See "The Merger." This Joint Proxy Statement/Prospectus also
relates to (i) a proposed amendment (the "Isolyser Option Proposal") to
Isolyser's Stock Option Plan (the "Plan") to increase, contingent upon
consummation of the transactions contemplated by the Merger Agreement, the
number of shares of Isolyser Common Stock issuable upon exercise of stock
options under the Plan from 3,600,000 to 4,400,000 shares and to make certain
technical amendments to the Plan, and (ii) a proposed amendment (the "Microtek
Option Proposal") to Microtek's 1990 Incentive Stock Option Plan (the "Option
Plan") to increase the number of shares Microtek Common Stock issuable upon
exercise of stock options under the Option Plan from 883,302 to 1,083,302
shares. See "Option Proposals."
THE PARTIES
ISOLYSER. Isolyser develops and manufactures OREX-Registered Trademark-
Degradables-TM-, a series of products made from a thermoplastic, hot water
soluble polymer that can be configured into an array of products such as woven
and non-woven fabrics, film and thermoformed and extruded items. These products
can be dissolved after use, in hot water in a specially designed
OREX-Registered Trademark- processor similar to a commercial washing machine,
for safe disposal through municipal sewer systems. Isolyser believes that this
line of products provides protection to the hospital staff, patient and
environment while providing cost-effective solutions to the problems associated
with waste reduction and disposal.
MICROTEK. Microtek designs, manufactures and sells a broad range of
surgical and medical supplies for use in targeted niche markets in the health
care industry. Its principal product lines are infection and fluid control
products, including disposable drapes for covering operating room equipment
during surgical procedures and pouches that attach to the surgical drapes to
collect and contain fluids during surgical procedures.
THE MEETINGS
ISOLYSER MEETING. The Isolyser Meeting will be held on August 30, 1996, at
10:00 a.m., local time, at Isolyser's executive offices located at 4320
International Boulevard, N.W., Norcross, Georgia 30093. At the Isolyser Meeting,
the Isolyser shareholders will be asked to consider and vote upon (i) a proposal
(the "Merger Proposal") to approve the issuance of up to 8,758,720 shares of
Isolyser Common Stock in connection with the Merger, and (ii) the Isolyser
Option Proposal.
The close of business on July 8, 1996, has been fixed as the record date for
the determination of Isolyser shareholders entitled to receive notice of and to
vote at the Isolyser meeting. As of the close of business on such date, Isolyser
had outstanding and entitled to vote 31,072,545 shares of Isolyser Common Stock.
5
<PAGE>
A majority of the outstanding shares of Isolyser Common Stock on the record
date must be represented in person or by proxy at the Isolyser Meeting in order
to constitute a quorum for the transaction of business. The record holder of
each share of Isolyser Common Stock entitled to vote at the Isolyser Meeting
will have one vote for each share so held. Abstentions will be treated as
Isolyser Common Stock present and entitled to vote for purposes of determining
the presence of a quorum. If a broker indicates on a proxy that it does not have
the discretionary authority as to certain Isolyser Common Stock (a "Broker
Non-Vote"), those shares will be considered in determining the presence of a
quorum but will have no effect on the Merger Proposal or the Isolyser Option
Proposal. The affirmative vote of the holders of a majority of the shares of
Isolyser Common Stock voting at the Isolyser meeting is required to approve the
Merger Proposal. The affirmative vote of the holders of the majority of the
shares represented at the Isolyser Meeting will be required for the approval of
the Isolyser Option Proposal and any other proposal submitted for a vote at the
Isolyser Meeting.
As of July 8, 1996, the directors and executive officers of Isolyser owned
of record approximately 20% of the shares of Isolyser Common Stock entitled to
vote at the Isolyser Meeting. Of those shares, Messrs. Taylor and Honeycutt have
granted to Microtek a proxy to vote all of their shares of Isolyser Common Stock
in favor of the Merger Proposal representing approximately 19% of the Isolyser
Common Stock outstanding on such date. See "The Meetings -- Isolyser Meeting".
MICROTEK MEETING. The Microtek Meeting will be held on August 30, 1996, at
10:00 a.m., local time, at Microtek's executive offices located at 512 Lehmberg
Road, Columbus, Mississippi 39702. At the Microtek Meeting, the Microtek
stockholders will be asked to consider and vote upon (i) the approval and
adoption of the Merger Agreement, and (ii) the approval of the Microtek Option
Proposal.
The close of business on July 8, 1996, has been fixed as the record date for
the determination of stockholders entitled to receive notice of and to vote at
the Microtek Meeting. As of the close of business on such date, Microtek had
outstanding and entitled to vote 4,680,585 shares of Microtek Common Stock. A
majority of the outstanding shares of Microtek Common Stock on the record date
must be represented in person or by proxy at the Microtek Meeting in order to
constitute a quorum for the transaction of business. The record holder of each
share of Microtek Common Stock entitled to vote at the Microtek Meeting will
have one vote for each share so held. Abstentions will be treated as Microtek
Common Stock present and entitled to vote for purposes of determining the
presence of a quorum. In the event of any Broker Non-Votes with respect to any
proposal, such vote will be considered in determining the presence of a quorum
but will have no effect with respect to that proposal. Approval of the Merger
Agreement requires the affirmative vote of holders of the majority of the issued
and outstanding Microtek Common Stock. The affirmative vote of the holders of a
majority of the shares represented at the Microtek Meeting will be required for
the approval of the Microtek Option Proposal and any other proposals submitted
for a vote at the Microtek Meeting.
Certain stockholders of Microtek who at the record date for the Microtek
Meeting collectively owned approximately 46% of the outstanding Microtek Common
Stock have granted Isolyser an irrevocable proxy to vote all of their Microtek
Common Stock in favor of the proposed Merger. In addition, those officers,
directors and affiliates of Microtek who have not granted proxies to Isolyser
own of record approximately 2% of the shares of Microtek Common Stock entitled
to vote at the Microtek Meeting. See "The Meetings -- Microtek Meeting".
THE MERGER
GENERAL. Pursuant to the proposed Merger, the Isolyser Subsidiary will be
merged into Microtek, and Microtek will become a wholly-owned subsidiary of
Isolyser. Upon completion of the Merger, each share of Microtek Common Stock
will be converted into the right to receive 1.65 shares of Isolyser Common
Stock. See "The Merger -- General."
ISOLYSER'S REASONS FOR THE MERGER AND RECOMMENDATION OF ISOLYSER BOARD OF
DIRECTORS. Upon consultation with its legal and financial advisors, and
following consideration of a number of business
6
<PAGE>
issues and factors, the Board of Directors of Isolyser has determined that the
Merger is in the best interest of Isolyser. See "The Merger -- Isolyser's
Reasons for the Merger" for a discussion of the factors considered by the
Isolyser Board in reaching such determination. The Isolyser Board has determined
that the terms of the Merger Agreement, which were established through arms'
length bargaining with Microtek, are fair to, and in the best interests of,
Isolyser's shareholders. ACCORDINGLY, THE ISOLYSER BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE ISOLYSER
SHAREHOLDERS VOTE FOR THE MERGER PROPOSAL.
MICROTEK'S REASONS FOR THE MERGER AND RECOMMENDATION OF MICROTEK BOARD OF
DIRECTORS. In reaching its determination to recommend the Merger, the Microtek
Board consulted with Microtek's management and its financial and legal advisors.
See "The Merger -- Microtek's Reasons for the Merger" regarding the factors that
the Microtek Board considered in reaching its decision. The Microtek Board has
determined that the terms of the Merger Agreement, which were established
through arms' length bargaining with Isolyser, are fair to, and in the best
interests of, Microtek and its stockholders. ACCORDINGLY, THE MICROTEK BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE
MICROTEK STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF ISOLYSER'S FINANCIAL ADVISOR. Morgan Keegan & Company, Inc.
("Morgan Keegan") has delivered its written opinion to the Isolyser Board of
Directors, dated June 21, 1996, to the effect that, as of such date, the
"Transaction Consideration" (as defined in Morgan Keegan's Opinion) is fair,
from a financial point of view, to the shareholders of Isolyser. For purposes of
such opinion, the "Transaction Consideration" was defined as such number of
shares of Isolyser Common Stock as is equal to the quotient obtained by dividing
$16.50 by the average closing price per share of Isolyser Common Stock (but not
lower than $10.00 or higher than $15.00) on The Nasdaq Stock Market ("Nasdaq")
for the 20 trading days immediately preceding the fifth trading day before the
consummation of the Merger. A copy of the opinion of Morgan Keegan, which sets
forth the assumptions made, matters considered and limitations on reviews
undertaken, is attached to this Joint Proxy Statement/ Prospectus as Annex B and
is incorporated herein by reference. Shareholders of Isolyser are urged to, and
should, read such opinion in its entirety. See "The Merger -- Opinion of
Isolyser's Financial Advisor."
OPINION OF MICROTEK'S FINANCIAL ADVISOR. On July 29, 1996, Goldman, Sachs &
Co. ("Goldman Sachs") delivered its opinion to the Board of Directors of
Microtek that, as of the date of such opinion, the Exchange Ratio pursuant to
the Merger Agreement is fair to the holders of shares of Microtek Common Stock.
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached hereto as Annex C and is incorporated
herein by reference. HOLDERS OF SHARES OF MICROTEK COMMON STOCK ARE URGED TO,
AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The Merger -- Opinion of
Microtek's Financial Advisor."
RISK FACTORS. An investment in shares of Isolyser Common Stock involves a
high degree of risk. Isolyser's future performance will depend to a substantial
degree upon market acceptance of and Isolyser's ability to successfully
manufacture, market, deliver and expand its OREX Degradables line of products.
Isolyser only recently began to sell OREX Degradables in material amounts, and
incurred operating and net losses for the years ended December 31, 1994 and 1995
and the three-month and six-month periods ended June 30, 1996. Accordingly,
Microtek stockholders should carefully consider the risk factors beginning on
page 16 of Isolyser's Annual Report on Form 10-K for the year ended December 31,
1995 incorporated herein by reference including, without limitation, such risk
factors captioned "Limited Operating History; Net Losses," "Risks of New
Products" and "Manufacturing and Supply Risks."
7
<PAGE>
EFFECTIVE DATE OF THE MERGER. It is currently contemplated that the Merger
will be consummated as soon as practicable after the Isolyser and Microtek
Meetings. The Merger will be effective upon the filing of a Certificate of
Merger with the Secretary of State of Delaware (the "Effective Date").
EXCHANGE OF MICROTEK STOCK CERTIFICATES. As soon as practicable after the
Effective Date, instructions and a letter of transmittal will be furnished to
all Microtek stockholders for use in exchanging their stock certificates for
certificates evidencing the shares of Isolyser Common Stock they will be
entitled to receive as a result of the Merger. STOCKHOLDERS OF MICROTEK SHOULD
NOT SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL SUCH INSTRUCTIONS AND
LETTER OF TRANSMITTAL ARE RECEIVED. See "The Merger -- Exchange of Certificates
Representing Microtek Shares."
OPERATIONS OF MICROTEK AFTER THE MERGER. Following the Merger, Microtek
will be operated as a wholly-owned subsidiary of Isolyser. Although it is
anticipated that the current executive officers of Microtek will continue as the
executive officers of Microtek following the consummation of the Merger, it is
not anticipated that employment agreements will be entered into between such
executive officers, on the one hand, and either Microtek or Isolyser on the
other. See "The Merger -- Interests of Certain Persons in the Merger."
NO SOLICITATION. The Merger Agreement provides that Microtek will not,
directly or indirectly, (i) solicit or initiate discussions with or (ii) enter
into any negotiations or agreements with, or furnish any information that is not
publicly available to, any third party concerning any proposal for a merger,
sale of substantial assets, sale of shares of stock or securities or other
takeover or business combination transaction (collectively, an "Acquisition
Proposal"), subject to the fiduciary duties of the Microtek Board. See "The
Merger -- Certain Covenants."
NO APPRAISAL RIGHTS. Microtek stockholders will not have appraisal or
dissenters' rights with respect to the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Neither Microtek nor Isolyser has
requested, nor will they receive, an advance ruling from the Internal Revenue
Service as to the tax consequences of the Merger. As contemplated by the Merger
Agreement, it is a condition to the closing of the Merger that counsel for
Isolyser deliver an opinion, subject to certain qualifications and conditions,
with respect to certain federal income tax consequences of the Merger including
(i) that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and (ii) that no gain or loss will be recognized by a Microtek stockholder as a
result of the Merger with respect to shares of Microtek Common Stock converted
solely into Isolyser Common Stock. All Microtek stockholders should read
carefully the discussion in "The Merger -- Certain Federal Income Tax
Consequences" and other sections of this Joint Proxy Statement/Prospectus. They
are urged to consult their own tax advisors as to the specific consequences to
them of the Merger under federal, state, local and any other applicable tax
laws. See "The Merger -- Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT. It is a condition to the Merger that it shall qualify
as a pooling-of-interests for accounting and financial reporting purposes. See
"The Merger -- Accounting Treatment."
CONDITIONS OF THE MERGER. In addition to approval by the stockholders of
Isolyser and Microtek, consummation of the Merger is subject to the satisfaction
or waiver of a number of conditions and to certain regulatory matters. Other
than approval of the Merger by the Isolyser shareholders and the Microtek
stockholders, substantially all of the conditions to the Merger may be waived,
in whole or in part, by the parties for whose benefit they have been created,
without the approval of their respective stockholders. However, after approval
by the stockholders of Isolyser and Microtek, no amendment or modification may
be made which by law requires further approval by such stockholders unless such
approval is obtained. In addition, the Merger may be abandoned under certain
circumstances, and such abandonment will not require stockholder approval. See
"The Merger -- Conditions to the Merger," "-- Amendment of the Merger Agreement;
Waiver of Conditions" and "-- Certain Regulatory Matters."
8
<PAGE>
TERMINATION. The Merger Agreement may be terminated and the Merger
abandoned, at any time prior to the Effective Date, whether before or after the
approval by the Isolyser or Microtek stockholders, (i) by the mutual consent of
Isolyser and Microtek; (ii) by Isolyser if there has been a material
misrepresentation or breach of warranty in the representations and warranties of
Microtek made in the Merger Agreement, or there has been a material failure by
Microtek to comply with its obligations under the Merger Agreement, subject to
certain exceptions; (iii) by Microtek if there has been a material
misrepresentation or breach of warranty in the representations and warranties of
Isolyser made in the Merger Agreement, or there has been a material failure by
Isolyser to comply with its obligations under the Merger Agreement, subject to
certain exceptions; (iv) by either Isolyser or Microtek if all conditions to
that party's obligation to consummate the Merger have not been satisfied or
waived by September 30, 1996, unless such failure of consummation is due to the
failure of the terminating party to perform or observe the covenants,
agreements, and conditions to be performed or observed by it; (v) by either
Isolyser or Microtek if the consummation of the Merger would violate any
nonappealable final order, decree or judgment of any court or governmental body
or agency having competent jurisdiction; (vi) by Microtek if in the exercise of
the good faith judgment of its Board of Directors (which judgment is based upon
the advice of independent, outside legal counsel) as to its fiduciary duties to
its stockholders such termination is required by reason of an Acquisition
Proposal; or (vii) by Isolyser, if the Microtek Board of Directors withdraws or
materially modifies or changes its recommendation to the stockholders of
Microtek to approve the Merger Agreement and the Merger. See "The Merger --
Termination of Merger Agreement" and "-- Amendment of the Merger Agreement;
Waiver of Conditions."
TERMINATION FEE. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such costs or expenses.
Notwithstanding the foregoing, if (a) Microtek terminates the Merger Agreement
because its Board of Directors, in the exercise of its good faith judgment
(based upon advice of independent, outside counsel) as to its fiduciary duties
to its stockholders determines such termination is required by reason of an
Acquisition Proposal; (b) the Merger Agreement is terminated by Isolyser because
the Microtek Board of Directors withdraws or materially modifies or changes its
recommendation to the stockholders of Microtek to approve the Merger Agreement
and the Merger; or (c) on or before September 30, 1996 and while the Merger
Agreement remains in effect, Microtek enters into a definitive agreement with
respect to an Acquisition Proposal with any corporation, partnership, person or
other entity or group (other than Isolyser or any affiliate of Isolyser), and
such transaction (including any revised transaction based upon the Acquisition
Proposal) is thereafter consummated (whether before or after September 30,
1996), then Microtek shall pay to Isolyser a fee of $2.5 million. See "The
Merger -- Fees and Expenses."
COMPARATIVE RIGHTS OF ISOLYSER SHAREHOLDERS AND MICROTEK
STOCKHOLDERS. Isolyser is incorporated under the laws of the State of Georgia
and Microtek is incorporated under the laws of the State of Delaware.
Stockholders of Microtek will, upon consummation of the Merger and to the extent
they receive Isolyser Common Stock, become stockholders of Isolyser, and their
rights as such will be governed by Georgia law and Isolyser's Articles of
Incorporation and Bylaws. See "Comparative Rights of Isolyser Shareholders and
Microtek Stockholders."
THE OPTION PROPOSALS
ISOLYSER OPTION PROPOSAL. The Board of Directors of Isolyser has approved,
adopted and recommended to the shareholders of Isolyser an amendment to
Isolyser's Plan to increase, contingent upon consummation of the transactions
contemplated by the Merger Agreement, the number of shares of Isolyser Common
Stock subject to the Plan from 3,600,000 to 4,400,000 shares, and to make
certain technical amendments to the Plan. The consummation of the Merger will
result in the issued and outstanding Microtek options at July 1, 1996 to
purchase a total of 627,730 shares of Microtek Common Stock being converted into
stock options to purchase a total of 1,035,755 shares of Isolyser
9
<PAGE>
Common Stock. The affirmative vote of the holders of a majority of the shares of
Isolyser Common Stock represented at the Isolyser Meeting will be required for
the approval of the Isolyser Option Proposal. See "Option Proposals --
Isolyser's Option Proposal."
MICROTEK OPTION PROPOSAL. The Board of Directors of Microtek has approved,
subject to stockholder approval by the Microtek stockholders, the increase of
the number of shares of Microtek Common Stock subject to the Option Plan from
883,302 shares to 1,083,302 shares, in order that the Option Plan will have
enough available shares to cover option grants made by the Board of Directors in
November and December 1995, which option grants exceeded the number of then
authorized shares available for grant pursuant to the Option Plan and were made
subject to and contingent upon stockholder approval. If the Merger Agreement is
approved by the Microtek stockholders and the Merger is consummated, no
additional options will be granted under the Option Plan. In addition, the
Merger Agreement prohibits the further grant of options by Microtek prior to the
Merger. The affirmative vote of the holders of a majority of the shares of
Microtek Common Stock represented at the Microtek Meeting will be required for
the approval of the Microtek Option Proposal. See "Option Proposals --
Microtek's Option Proposal."
SUMMARY HISTORICAL AND PRO FORMA SELECTED FINANCIAL INFORMATION
The following tables set forth (i) selected consolidated financial
information for Isolyser for and as of each of the five years in the period
ended December 31, 1995, and the three-month periods ended March 31, 1995 and
1996, (ii) selected financial information for Microtek for and as of each of the
five years in the period ended November 30, 1995, and the three-month periods
ended February 28, 1995 and February 29, 1996, and (iii) selected unaudited pro
forma combined information giving effect to the Merger under the pooling of
interests method of accounting. The selected unaudited pro forma combined
balance sheet information as of March 31, 1996 gives effect to the Merger as
though it had been consummated on that date. The selected unaudited pro forma
combined balance sheet information as of March 31, 1996 also gives effect to
Microtek's acquisition of Venodyne a division of Advanced Instruments, Inc.
("Venodyne") on April 27, 1996 as if such acquisition had ocurred on February
29, 1996. The selected unaudited pro forma combined statements of operations
information for the years ended December 31, 1993, 1994 and 1995 and the
three-month period ended March 31, 1996, gives effect to the Merger as if it had
occurred at the beginning of the earliest year presented. For the year ended
December 31, 1995, the selected unaudited pro forma statement of operations
information also gives effect to Isolyser's acquisitions of SafeWaste
Corporation ("SafeWaste") on May 31, 1995 and White Knight Healthcare, Inc.
("White Knight") effective September 1, 1995 and Microtek's acquisition of
Medi-Plast International, Inc. ("Medi-Plast") on November 30, 1995, and Venodyne
on April 27, 1996 as if such acquisitions had occurred at the beginning of
Isolyser's and Microtek's fiscal years, January 1, 1995 and December 1, 1994,
respectively. For the three-months ended March 31, 1996, the selected unaudited
pro forma statement of operations information also gives effect to Microtek's
acquisition of Venodyne as if such acquisition had occurred at December 1, 1994.
For purposes of this selected unaudited pro forma combined financial statement
information, the balance sheet and statements of operations information combine
Microtek's balance sheet as of February 29, 1996 and its statements of
operations for the years ended November 30, 1993, 1994 and 1995, and the
three-month period ended February 29, 1996, respectively, as Microtek's fiscal
year ends on November 30.
The selected pro forma combined information is not necessarily indicative of
the operating results and financial position that would have been reported had
the Merger and the SafeWaste, White Knight, Medi-Plast and Venodyne acquisitions
occurred at the pro forma dates specified, nor is it necessarily indicative of
future results.
The selected information set forth below should be read in conjunction with
(i) the pro forma combined financial information included elsewhere herein, (ii)
the historical consolidated financial statements and notes thereto and other
financial information included in Isolyser's and Microtek's separate Annual
Reports on Form 10-K for the years ended December 31, 1995 and November 30,
1995, respectively, and Quarterly Reports on Form 10-Q for the three-months
ended March 31, 1996
10
<PAGE>
and February 29, 1996, respectively, incorporated by reference herein, (iii) the
historical financial statements of SafeWaste and White Knight included in
Isolyser's Current Reports on Form 8-K filed with the Commission on June 15,
1995 and October 3, 1995, respectively, incorporated by reference herein and
(iv) the historical financial statements of Medi-Plast and Venodyne included in
Microtek's Annual Report on Form 10-K for the year ended November 30, 1995
incorporated by reference herein.
ISOLYSER -- HISTORICAL
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $ 2,587 $ 5,502 $ 11,831 $ 46,625 $ 75,414 $ 12,155 $ 31,008
Gross profit......................... 1,264 3,001 4,860 11,508 16,138 2,625 7,128
Income (loss) from operations........ 88 513 261 (2,329) (5,523) (1,204) (988)
Income (loss) before extraordinary
item and cumulative effect of change
in accounting principle (1)......... 162 532 636 (1,919) (2,851) (146) (377)
Net income (loss).................... 266 748 636 (1,862) (2,851) (146) (377)
Income (loss) per common and common
equivalent share:
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle.... 0.01 0.04 0.04 (0.11) (0.11) (0.01) (0.01)
Net income (loss).................. 0.02 0.06 0.04 (0.10) (0.11) (0.01) (0.01)
Weighted average number of common and
common equivalent shares
outstanding......................... 12,162 13,486 16,053 18,684 25,575 24,468 30,500
BALANCE SHEET DATA:
Working capital...................... $ 4,935 $ 6,656 $ 24,461 $ 80,743 $ 90,766 $ 79,613 $ 88,634
Total assets......................... 5,263 8,058 47,911 105,985 208,712 116,447 208,155
Long-term debt....................... 6,732 9,821 16,481 9,899
Redeemable common stock.............. 26,150 1,717
Total shareholders' equity........... 5,047 7,419 11,281 90,779 174,179 92,073 174,407
</TABLE>
- ------------------------
(1) Isolyser recognized extraordinary benefits from net operating loss
carryforwards of $104,000 and $216,000 in 1991 and 1992, respectively, and
recognized a $57,000 cumulative effect benefit in 1994 from the adoption on
January 1, 1994 of Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities".
11
<PAGE>
MICROTEK -- HISTORICAL
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
YEAR ENDED NOVEMBER 30, FEBRUARY FEBRUARY
----------------------------------------------------- 28, 29,
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $ 20,416 $ 25,753 $ 26,939 $ 26,894 $ 30,059 $ 7,107 $ 9,067
Gross profit...................... 10,398 13,442 13,072 11,947 13,783 2,877 4,352
Income from operations............ 1,171 3,705 2,108 1,402 4,385 677 1,587
Income (loss) before extraordinary
items and cumulative effect of
change in accounting principle
(1).............................. (654) 1,287 1,007 585 2,308 337 730
Net income (loss)................. (1,472) 775 1,031 580 2,308 337 730
Income (loss) per common and
common equivalent share:
Income (loss) before
extraordinary item and
cumulative effect of change in
accounting principle........... (0.46) 0.28 0.20 0.11 0.47 0.07 0.15
Net income (loss)............... (0.87) 0.15 0.20 0.11 0.47 0.07 0.15
Weighted average number of common
and common equivalent shares
outstanding...................... 2,016 3,827 5,059 5,058 4,927 5,036 4,991
BALANCE SHEET DATA:
Working capital................... $ 4,335 $ 7,829 $ 10,784 $ 7,784 $ 10,283 $ 7,695 $ 12,905
Total assets...................... 22,634 23,114 27,084 26,988 45,227 26,581 46,659
Long-term debt.................... 14,044 2,958 4,436 47 16,591 62 18,209
Redeemable preferred stock........ 2,279
Total stockholders' equity........ 2,580 17,749 19,117 19,883 21,119 20,220 21,862
</TABLE>
- ------------------------
(1) Microtek recognized extraordinary charges from the early retirement of
long-term debt of $817,000 and $741,000 in 1991 and 1992 respectively, and
extraordinary benefits from net operating loss carryforwards of $229,000 and
$24,000 in 1992 and 1993, respectively. Microtek recognized a $5,000
cumulative effect charge in 1994 from the adoption on December 1, 1993 of
SFAS No. 109, "Accounting for Income Taxes".
12
<PAGE>
ISOLYSER/MICROTEK -- PRO FORMA COMBINED (1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
--------------------------------- ENDED MARCH 31,
1993 1994 1995 1996
--------- --------- ----------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $ 38,769 $ 73,383 $ 151,744 $ 41,053
Gross profit............................................. 17,932 23,455 45,398 12,156
Income (loss) from operations............................ 2,369 (927) 942 567
Income (loss) before extraordinary item and cumulative
effect of change in accounting principle................ 1,643 (720) (1,179) 353
Income (loss) before extraordinary item and cumulative
effect of change in accounting principle per common and
common equivalent share................................. 0.07 (0.03) (0.03) 0.01
Weighted average number of common and common equivalent
shares outstanding...................................... 24,400 27,030 34,014 38,735
BALANCE SHEET DATA:
Working capital.......................................... $ 99,552
Total assets............................................. 260,703
Long-term debt........................................... 33,858
Total shareholders' equity............................... 193,272
</TABLE>
- ------------------------
(1) The selected unaudited pro forma combined financial statement information
gives effect to the Merger of Isolyser and Microtek under the pooling of
interests method of accounting. The selected unaudited pro forma combined
statement of operations information for the year ended December 31, 1995
also gives effect to Isolyser's acquisitions of SafeWaste on May 31, 1995
and White Knight effective September 1, 1995 and Microtek's acquisition of
Medi-Plast on November 30, 1995 and Venodyne on April 27, 1996 as if such
acquisitions had occurred at the beginning of Isolyser's and Microtek's
fiscal years, January 1, 1995 and December 1, 1994, respectively. For the
three-months ended March 31, 1996, the selected unaudited pro forma
statement of operations information also gives effect to Microtek's
acquisition of Venodyne as if such acquisition had occurred at December 1,
1994. The selected unaudited pro forma combined balance sheet information as
of March 31, 1996 also gives effect to Microtek's acquisition of Venodyne on
April 27, 1996 as if such acquisition had occurred on February 29, 1996. For
purposes of this selected unaudited pro forma combined financial statement
information, the balance sheet and statement of operations information
combine Microtek's balance sheet as of February 29, 1996 and its statements
of operations for the years ended November 30, 1993, 1994 and 1995, and the
three month period ended February 29, 1996, respectively, as Microtek's
fiscal year ends on November 30.
Pro forma per share amounts are based on the Exchange Ratio of 1.65 shares of
Isolyser Common Stock for each share of Microtek Common Stock. The selected
unaudited combined balance sheet information reflects estimated Merger
expenses of $2,750,000. These expenses include investment banking, legal,
accounting and miscellaneous transaction costs of the Merger, and are
excluded from the pro forma statements of operations. Plans for the
integration and consolidation of the companies' operations are currently
being developed, but associated costs are not presently estimable. The
accounting policies utilized by Isolyser and Microtek are currently being
studied from a conformity perspective; however, the impact of any potential
adjustment is not presently expected to be material.
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain per common share information for
Isolyser and Microtek on both historical and pro forma combined bases. Income
(loss) per common share information represents income (loss) per common share
before extraordinary items and the cumulative effect of changes in accounting
principles. Pro forma combined income (loss) per share is derived from the pro
forma combined financial information presented elsewhere herein, which gives
effect to the Merger under the pooling of interests method of accounting as if
the Merger had occurred at the beginning of the earliest year presented. For the
year ended December 31, 1995, pro forma combined income (loss) per common share
also gives effect to Isolyser's acquisitions of SafeWaste on May 31, 1995 and
White Knight effective September 1, 1995 and Microtek's acquisitions of
Medi-Plast on November 30, 1995, and Venodyne on April 27, 1996, as if such
acquisitions had occurred at the beginning of Isolyer's and Microtek's fiscal
years, January 1, 1995 and December 1, 1994, respectively. For the three-months
ended March 31, 1996 pro forma combined income (loss) per common share of
Isolyser and Microtek, respectively, also gives effect to Microtek's acquisition
of Venodyne as if such acquisition had occurred at December 1, 1994.
Historical book value per common share as of the end of each year and the
three-month period presented is computed by dividing historical shareholders'
equity by the number of common shares outstanding at the end of each period
presented. Pro forma combined book value per common share as of March 31, 1996,
is computed by dividing pro forma combined shareholders' equity on such dates by
the corresponding number of shares of Isolyser Common Stock outstanding on such
dates, adjusted for the shares of Isolyser Common Stock to be issued in the
Merger.
The equivalent pro forma combined per share information for Microtek is
determined by multiplying the Isolyser pro forma combined per share information
by the Exchange Ratio of 1.65 shares of Isolyser Common Stock for each share of
Microtek Common Stock.
<TABLE>
<CAPTION>
PER SHARE OF COMMON STOCK
---------------------------------
INCOME CASH BOOK
(LOSS) DIVIDEND VALUE
--------- ----------- ---------
<S> <C> <C> <C>
Isolyser -- Historical
Year Ended December 31:
1993............................................................................. $ 0.04 $ -- $ 0.82
1994............................................................................. (0.11) -- 3.78
1995............................................................................. (0.11) -- 5.72
Three-months ended March 31, 1996................................................ (0.01) -- 5.70
Isolyser -- Pro Forma Combined
Year Ended December 31:
1993............................................................................. $ 0.07 $ -- $ --
1994............................................................................. (0.03) -- --
1995............................................................................. (0.03) -- --
Three-months ended March 31, 1996................................................ 0.01 -- 5.07
Microtek -- Historical
Year Ended November 30:
1993............................................................................. $ 0.20 $ -- $ 4.06
1994............................................................................. 0.11 -- 4.17
1995............................................................................. 0.47 -- 4.60
Three-months ended February 29, 1996............................................. 0.15 -- 4.76
Microtek -- Equivalent Pro Forma Combined
Year Ended December 31:
1993............................................................................. $ 0.12 $ -- $ --
1994............................................................................. (0.05) -- --
1995............................................................................. (0.05) -- --
Three-months ended February 29, 1996............................................. 0.02 -- 8.36
</TABLE>
14
<PAGE>
COMPARATIVE MARKET PRICE DATA
The Isolyser Common Stock and the Microtek Common Stock are traded and
quoted on Nasdaq. The table below sets forth, for the calendar quarters
indicated, the reported high and low sale prices of the Isolyser Common Stock
and of the Microtek Common Stock as reported on Nasdaq, which in the case of
Isolyser Common Stock is for the period since the Isolyser Common Stock began
trading publicly on October 21, 1994. Neither Isolyser nor Microtek has declared
or paid any cash dividends on their respective Common Stock. Each of Isolyser
and Microtek currently intends to retain any future earnings to finance the
growth and development of its business and therefore does not anticipate paying
any cash dividends in the foreseeable future. In addition, the credit facility
maintained by each of Isolyser and Microtek prohibits the declaration or payment
of cash dividends without the prior written consent of their respective lenders.
<TABLE>
<CAPTION>
ISOLYSER MICROTEK
COMMON STOCK (1) COMMON STOCK
-------------------- --------------------
CALENDAR YEAR HIGH LOW HIGH LOW
- -------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1994
First Quarter..................................... -- -- $ 6.50 $ 5.25
Second Quarter.................................... -- -- 6.50 5.50
Third Quarter..................................... -- -- 7.75 5.50
Fourth Quarter.................................... $ 12.00 $ 6.44 7.00 4.13
1995
First Quarter..................................... 9.63 8.13 6.00 4.25
Second Quarter.................................... 17.88 8.38 5.88 4.50
Third Quarter..................................... 21.06 15.38 7.50 5.50
Fourth Quarter.................................... 23.00 10.00 9.25 5.75
1996
First Quarter..................................... 18.25 11.50 16.00 8.50
Second Quarter.................................... 21.00 10.50 18.00 11.25
Third Quarter (through July 29, 1996)............. 12.88 8.63 15.38 9.38
</TABLE>
- ------------------------
(1) On September 1, 1995, Isolyser declared a two-for-one stock split. The stock
split was effected in the form of a share dividend paid on October 2, 1995
to Isolyser shareholders of record on September 15, 1995. The high and low
prices per share of Isolyser common stock have been retroactively adjusted
to reflect the stock split.
On March 15, 1996, the last full trading day prior to the public
announcement of the execution and delivery of the Merger Agreement, the last
reported sale price of the Isolyser Common Stock on Nasdaq was $16.88 per share
and the last reported sale price of the Microtek Common Stock on Nasdaq was
$11.25 per share.
On July 29, 1996, the most recent practicable date prior to the date of this
Joint Proxy Statement/ Prospectus, the last reported sale price of the Isolyser
Common Stock on Nasdaq was $9.38 per share and the last reported sale price of
the Microtek Common Stock on Nasdaq was $12.75 per share.
Because the market price of Isolyser Common Stock may fluctuate, the market
value of the shares of Isolyser Common Stock that holders of Microtek Common
Stock will receive in the Merger cannot be determined until the Merger is
consummated. Microtek stockholders are urged to obtain current market quotations
for the Isolyser Common Stock and the Microtek Common Stock. See "The Merger --
General."
15
<PAGE>
THE MEETINGS
ISOLYSER MEETING
This Joint Proxy Statement/Prospectus is furnished to shareholders of
Isolyser in connection with the solicitation of proxies on behalf of the
Isolyser Board of Directors for use at the Isolyser Meeting to be held on August
30, 1996. Proxies in the form enclosed will be voted at the Isolyser Meeting, if
properly executed, returned to Isolyser prior to the meeting and not revoked. A
proxy may be revoked at any time before it is voted by giving written notice to
the secretary of Isolyser. The approximate date on which this Joint Proxy
Statement/Prospectus and the enclosed proxy card will be first sent to Isolyser
shareholders is August 1, 1996.
OUTSTANDING CAPITAL SHARES AND RECORD DATE. The record date for
shareholders of Isolyser entitled to vote at the Isolyser Meeting is July 8,
1996. At the close of business on that day, there were 31,072,545 shares of
Isolyser Common Stock outstanding and entitled to vote at the Isolyser Meeting.
QUORUM AND VOTING. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Isolyser Common Stock is necessary to
constitute a quorum at the meeting. In deciding all questions, a holder of
Isolyser Common Stock is entitled to one vote, in person or by proxy, for each
share held in his or her name on the record date. Abstentions will be treated as
Isolyser Common Stock present and entitled to vote for purposes of determining
the presence of a quorum. The affirmative vote of the holders of a majority of
the shares of Isolyser Common Stock voting at the Isolyser Meeting is required
to approve the Merger Proposal. Abstentions and Broker Non-Votes, if any, will
not be included in vote totals and, as such, will have no effect on the Merger
Proposal. The affirmative vote of the holders of a majority of the shares
represented at the Isolyser Meeting will be required for the approval of the
Isolyser Option Proposal and any other proposals submitted for a vote at the
Isolyser Meeting. As of July 8, 1996, Isolyser's executive officers and
directors had the right to vote an aggregate of 6,092,764 shares of Isolyser
Common Stock, representing approximately 20% of the shares of Isolyser Common
Stock then outstanding. Of these shares, Messrs. Taylor and Honeycutt have
granted Microtek an irrevocable proxy to vote all of their Isolyser Common Stock
in favor of the Merger Proposal representing approximately 19% of the shares of
Isolyser Common Stock outstanding on the record date.
ACTION TO BE TAKEN AT THE ISOLYSER MEETING. At the Isolyser Meeting the
shareholder of Isolyser will be asked to consider and vote upon (i) the proposal
to approve the issuance of up to 8,758,720 shares of Isolyser Common Stock in
connection with the Merger (i.e., the Merger Proposal), and (ii) the proposal to
increase, contingent upon consummation of the transactions contemplated by the
Merger Agreement, the number of shares of Isolyser Common Stock issuable upon
exercise of stock options under the Plan from 3,600,000 to 4,400,000 shares and
to make certain technical amendments to the Plan (i.e., the Isolyser Option
Proposal). The accompanying proxy, unless the shareholder otherwise specifies in
the proxy, will be voted for the Merger Proposal, for the Isolyser Option
Proposal and at the discretion of the proxy holder on any other matter that may
properly come before the meeting or any adjournment thereof. Where shareholders
have appropriately specified how the proxies are to be voted, they will be voted
accordingly. If any other matter of business is brought before the meeting, the
proxy holders may vote the proxies at their discretion. The directors of
Isolyser do not know of any such other matter of business.
MICROTEK MEETING
This Joint Proxy Statement/Prospectus is furnished to stockholders of
Microtek in connection with the solicitation of proxies on behalf of the
Microtek Board of Directors for use at the Microtek Meeting to be held on August
30, 1996. Proxies in the form enclosed will be voted at the Microtek Meeting, if
properly executed, returned to Microtek prior to the meeting and not revoked. A
proxy may be revoked at any time before it is voted by giving written notice to
the Secretary of Microtek. The approximate date on which this Joint Proxy
Statement/Prospectus and the enclosed proxy card will first be sent to Microtek
stockholders is August 1, 1996.
16
<PAGE>
OUTSTANDING CAPITAL STOCK AND RECORD DATE. The record date for stockholders
of Microtek entitled to vote at the Microtek Meeting is July 8, 1996. At the
close of business on that day, there were 4,680,585 shares of Microtek Common
Stock outstanding and entitled to vote at the Microtek Meeting.
QUORUM AND VOTING. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Microtek Common Stock is necessary to
constitute a quorum at the meeting. In deciding all questions, a holder of
Microtek Common Stock is entitled to one vote, in person or by proxy, for each
share held in his or her name on the record date. An abstention will be included
in vote totals and, as such, will have the same effect on each proposal as a
negative vote. Broker non-votes, if any, will not be included in vote totals
and, as such, will have no effect on any proposal. Approval of the Merger
Agreement requires the affirmative vote of holders of a majority of the issued
and outstanding Microtek Common Stock. Certain stockholders of Microtek who at
the record date collectively owned approximately 46% of the outstanding Microtek
Common Stock have granted Isolyser an irrevocable proxy to vote all of their
Microtek Common Stock in favor of the proposed Merger. The affirmative vote of
the holders of a majority of the shares represented at the Microtek Meeting will
be required for the approval of the Microtek Option Proposal and all other
proposals submitted for a vote at the Microtek Meeting.
ACTION TO BE TAKEN AT THE MICROTEK MEETING. The accompanying proxy, unless
the stockholder otherwise specifies in the proxy, will be voted at the Microtek
Meeting (i) for approval of the Merger Agreement, (ii) for approval of the
Microtek Option Proposal and (iii) at the discretion of the proxy holders on any
other matter that may properly come before the meeting or any adjournment
thereof. Where stockholders have appropriately specified how their proxies are
to be voted, they will be voted accordingly. If any other matter of business is
brought before the meeting, the proxy holders may vote the proxies at their
discretion. The directors of Microtek do not know of any such other matter of
business. A representative of KPMG Peat Marwick LLP, Microtek's independent
auditors, is expected to be present at the Special Meeting and will be available
to answer questions.
SOLICITATION OF PROXIES
Isolyser and Microtek will each bear the cost of solicitation of proxies
from their respective stockholders. In addition to soliciting proxies by mail,
directors, officers and employees of Isolyser and Microtek, without receiving
additional compensation therefor, may solicit proxies by personal interview,
telephone and telegram. Arrangements have also been made with brokerage houses,
banks and other custodians, nominees and fiduciaries for the forwarding of
soliciting material to the beneficial owners of the shares of Isolyser Common
Stock and Microtek Common Stock held of record by such persons, and Isolyser and
Microtek will respectively reimburse them for reasonable out-of-pocket expenses
incurred by them in connection therewith.
THE MERGER
GENERAL
The terms and conditions of the Merger are set forth in the Merger
Agreement, the text of which is attached to this Joint Proxy
Statement/Prospectus as Annex A. The summary of the Merger Agreement contained
in this Joint Proxy Statement/Prospectus does not purport to be complete and is
qualified in its entirety by reference to the complete text of such document.
At the time the Merger becomes effective, the Isolyser Subsidiary will be
merged with and into Microtek in accordance with Delaware law. As a result of
the Merger, the separate corporate existence of the Isolyser Subsidiary (which
was formed solely for the purposes of the Merger and has not engaged in any
operations or businesses) will cease, and Microtek will continue its existence
as a wholly-owned subsidiary of Isolyser.
Upon the consummation of the Merger, each share of Microtek Common Stock
outstanding immediately prior to the time the Merger becomes effective (the
"Microtek Shares") will be converted into the right to receive 1.65 shares of
Isolyser Common Stock (the "Isolyser Shares"). Any fractional
17
<PAGE>
shares resulting from such conversion will entitle the holder to receive cash.
See "-- No Fractional Shares." The shares of capital stock of Isolyser
outstanding immediately prior to the Merger will not be affected as a result of
the Merger.
Isolyser will treat the Merger as a pooling-of-interests for financial
reporting purposes. See "-- Accounting Treatment." The Merger is intended to be
a tax-free reorganization under the federal income tax laws, and, as such, no
gain or loss will be recognized by the stockholders of Microtek upon their
receipt of the Isolyser Shares in exchange for their Microtek Shares. Gain or
loss will be recognized, however, by holders of Microtek Shares to the extent of
any cash received by the Microtek stockholders for any fractional share amount.
See "-- Certain Federal Income Tax Consequences."
BACKGROUND OF THE MERGER
Microtek completed an initial public offering of its Common Stock in October
1992. During 1993, Baxter International ("Baxter"), which was then Microtek's
largest customer, resumed the internal manufacturing of surgical drape products
previously purchased from Microtek. Primarily as a result of this loss of
business, Microtek's net earnings per share declined from $.15 in fiscal 1992 to
$.11 in fiscal 1994. Microtek management responded to the loss of Baxter's
business by implementing a strategic plan to reduce operating costs and
diversify its customer base. Nevertheless, the price of Microtek's Common Stock
as reported on Nasdaq dropped from a high of $14.50 in fiscal 1992 to a low of
$4.13 in fiscal 1994.
In April 1994, Microtek engaged the firm of Goldman, Sachs to evaluate
various strategic alternatives to enhance stockholder value, including a
possible sale of Microtek. During the course of this engagement, several
companies were approached by Goldman Sachs to determine their interest in
purchasing Microtek. Microtek's management was familiar with Isolyser and had
previously discussed with Isolyser management Isolyser's potential interest in
making a strategic investment in Microtek. On this basis, Goldman Sachs included
Isolyser among the third parties it contacted regarding a proposed sale of
Microtek. After several months, the Microtek Board of Directors determined that
no third party had demonstrated sufficient interest in acquiring Microtek to
merit further negotiations, and on March 3, 1995, Microtek issued a press
release indicating that any discussions regarding a sale of Microtek had been
terminated.
During fiscal 1995, Microtek achieved net sales and net income exceeding
that reported for any year since its initial public offering. Also in 1995,
Microtek completed several acquisitions and increased its international net
sales. In April 1995, Isolyser and Microtek entered into a joint venture to
facilitate the manufacture in the Dominican Republic of certain Isolyser raw
materials into finished products. As a result of this joint venture, the
management of Isolyser and Microtek maintained contact with one another.
On February 8, 1996, Robert L. Taylor, under his general authority as
Isolyser's Chairman and Chief Executive Officer, telephoned Kimber L. Vought,
the Chief Executive Officer of Microtek, to indicate that Isolyser might have an
interest in acquiring Microtek. Mr. Vought responded by indicating that Microtek
would not be willing to enter into any negotiations regarding such acquisition
unless Isolyser were to provide Microtek with a written offer at a price level
sufficient to warrant Microtek's hiring of a financial advisor to evaluate the
offer. At a teleconference meeting of the Microtek Board on February 13, 1996,
Mr. Vought advised the directors of the contact from Mr. Taylor. The Microtek
Board, after discussing such matters in detail, requested further presentations
from management regarding such a proposed transaction at its scheduled quarterly
meeting on February 20, 1996. At the meeting on February 20, 1996, the Microtek
Board decided to permit Isolyser to clarify its interest in purchasing Microtek
at a sufficiently high price to warrant allowing Isolyser due diligence access
to Microtek.
In order to be responsive to Microtek's request to provide a written offer
at a specific price level to acquire Microtek, Mr. Taylor requested that
Microtek provide certain non-public information in order that Isolyser might
complete its evaluation of Microtek. On February 21, 1996, Microtek entered into
18
<PAGE>
a confidentiality agreement with Isolyser relating to Microtek furnishing to
Isolyser certain non-public information regarding Microtek. As part of that
confidentiality agreement, Isolyser agreed that, without the prior written
consent of Microtek, it would not, for a period of three years, seek control of
Microtek. On February 29, 1996, informal meetings were held among Isolyser
representatives and Microtek representatives regarding such non-public
information.
On March 1, 1996, Isolyser engaged Morgan Keegan to serve as Isolyser's
financial advisor in connection with the proposed acquisition of Microtek and,
in that capacity, to assist Isolyser in developing an appropriate value range
for such acquisition, negotiate with Microtek and its representatives and, if
requested by Isolyser's Board of Directors, provide its opinion as to the
fairness, from a financial point of view, of the Merger to Isolyser's
shareholders. On March 4, 1996, Isolyser sent to Microtek a proposed letter of
intent to acquire the Common Stock of Microtek in a merger transaction providing
for a fixed exchange ratio of .965 shares of Isolyser Common Stock for each
outstanding share of Microtek Common Stock. Based on then current trading
prices, this ratio resulted in an acquisition consideration of $16.50 per share
of Microtek Common Stock. The Microtek Board met on March 4, 1996 to consider
the letter of intent. The Microtek Board determined that a fixed exchange ratio
would not be in the best interest of Microtek stockholders due to the perceived
volatility of the Isolyser Common Stock sale price (which on Friday, March 1,
1996 closed in Nasdaq trading at $16.50). At such meeting, the Microtek Board
decided to retain Goldman Sachs as its financial advisor to evaluate the
proposed offer and to assist Microtek in its due diligence investigation of
Isolyser and in its negotiation of improved terms for the proposed fixed
exchange ratio. Goldman Sachs thereafter contacted Isolyser's financial advisor
to discuss certain adjustments to the exchange ratio and a termination right in
favor of Microtek in the event that the Isolyser Common Stock price traded below
a specified level. Goldman Sachs and Microtek management reported to the
Microtek Board the proposed resolution of these issues at a teleconference
meeting on March 8, 1996. Based upon the proposed resolution, Microtek furnished
to Isolyser a proposed draft of the Merger Agreement on March 10, 1996. Also, on
March 8, 1996, Microtek executed a confidentiality agreement with Isolyser
(substantially identical to the agreement executed by Isolyser in favor of
Microtek) relating to Isolyser furnishing to Microtek certain non-public
information and Microtek requested certain non-public information regarding
Isolyser.
During the week of March 11, representatives of Isolyser and Microtek
negotiated the terms of the Merger Agreement, subject to the approval of the
Boards of Directors of Isolyser and Microtek. During the week of March 11, 1996,
Isolyser's legal counsel, financial advisors and independent accountants
conducted various limited due diligence investigations of Microtek. At a meeting
on March 12, 1996, Isolyser representatives gave a detailed due diligence
presentation to the Microtek Board. The respective Boards of Directors of
Isolyser and Microtek, together with their respective financial advisors and
legal counsel, met on Friday, March 15, 1996, to consider the proposed Merger
and Merger Agreement, at which time the Boards of Isolyser and Microtek
respectively authorized their execution and delivery of the Original Merger
Agreement. After the close of the market on Friday, March 15, 1996, the Original
Merger Agreement was executed by Microtek and Isolyser, and a public
announcement of the Original Merger Agreement and the proposed Merger was made
before the commencement of trading on Monday, March 18, 1996. As executed on
March 15, 1996, the Original Merger Agreement provided that (i) the Exchange
Ratio would be equal to $16.50 divided by an average of closing prices of
Isolyser Common Stock on Nasdaq over a specified time period (the "Determination
Price), (ii) if the average closing price was below $14.50 (the "Collar's
Floor"), the Determination Price would nevertheless be $14.50, (iii) if the
average closing price was above $18.50 (the "Collar's Ceiling"), the
Determination Price would nevertheless be $18.50 and (iv) Microtek could elect
to terminate the Original Merger Agreement if the average closing price was
below $13.00 (the "Termination Price"), with the average closing price in each
case being calculated based upon the average closing price per share of Isolyser
Common Stock as reported on Nasdaq over the 20 trading days immediately
preceding the second trading day prior to the Effective Date.
19
<PAGE>
Following the execution and delivery of the Original Merger Agreement,
Isolyser filed with the Commission a registration statement on Form S-4
containing a proxy statement/ prospectus for use in connection with the
transactions contemplated by the Original Merger Agreement. That registration
statement was declared effective by the Commission on May 24, 1996 and the proxy
statement/ prospectus included therein was mailed to the Microtek stockholders
on May 28, 1996 for a proposed meeting of the Microtek stockholders on June 28,
1996. The parties therefore anticipated that the average closing price would be
calculated based on the closing sale prices of Isolyser Common Stock on Nasdaq
for those trading days beginning May 29, 1996 and ending June 25, 1996.
The average closing price of Isolyser Common Stock on Nasdaq for those
trading days from May 29, 1996 through June 25, 1996 was $12.29, with a high
closing price on May 30, 1996 of $13.88 and a low closing price on June 21, 1996
of $11.00. In recognition of the possibility that the average closing price of
Isolyser Common Stock could fall below $13.00 per share, Mr. Vought contacted
Mr. Taylor on June 6, 1996 to advise Mr. Taylor of Microtek's continuing support
of the Merger and Microtek's objective to reduce the Collar's Floor and the
Termination Price. Mr. Taylor confirmed to Mr. Vought Isolyser's support of the
Merger, and referred any discussions relative to the Exchange Ratio and
Termination Price to Morgan Keegan as Isolyser's financial advisor. During the
week of June 10, 1996, the respective financial advisors of Isolyser and
Microtek discussed possible modifications of the Collar's Floor, Collar's
Ceiling and the Termination Price. After consideration of the Isolyser Common
Stock trading prices during the week of June 10, 1996, the parties' respective
counsel was requested to prepare draft modifications to the Original Merger
Agreement for consideration by the parties, and the parties' respective
financial advisors were requested to analyze proposed modifications to the
Exchange Ratio from a financial point of view to respectively advise the Boards
of Isolyser and Microtek on such modifications. The Boards of Isolyser and
Microtek, together with their respective financial advisors and legal counsel,
separately met on Friday, June 21, 1996 and Sunday, June 23, 1996, respectively,
to consider the proposed amendments to the Original Merger Agreement, at which
time the Boards of Isolyser and Microtek respectively authorized their execution
and delivery of an amendment to the Original Merger Agreement (the "First
Amended Merger Agreement"). Following the Board meetings, the First Amended
Merger Agreement was executed by Microtek and Isolyser, and a public
announcement thereof was made on Monday, June 24, 1996, before the opening of
the Nasdaq market trading.
As executed on June 23, 1996, the First Amended Merger Agreement in
pertinent part provided for (i) a Collar's Ceiling of $15.00, (ii) a Collar's
Floor of $10.00, and (iii) a Termination Price of $10.00. Following the
execution and delivery of the First Amended Merger Agreement, Isolyser filed
with the Commission a new registration statement on Form S-4 containing a joint
proxy statement/prospectus for use in connection with the transactions
contemplated by the First Amended Merger Agreement. The parties anticipated
mailing the joint proxy statement/prospectus during late July for a meeting in
late August. During the first three weeks of July, the closing price of Isolyser
Common Stock on Nasdaq ranged from $8.88 to $12.50.
Following Isolyser's announcement on July 24, 1996, of its operating results
for the three-month and six-month periods ended June 30, 1996, the closing price
of the Isolyser Common Stock fell from $9.50 on July 23, 1996 to $8.88 on July
24, 1996. On July 25, 1996, Mr. Taylor and Mr. Vought discussed by telephone
proposed modifications of the First Amended Merger Agreement to fix the Exchange
Ratio at an unspecified amount and delete the provisions of the First Amended
Merger Agreement permitting either Isolyser or Microtek to terminate the First
Amended Merger Agreement if the average closing price of the Isolyser Common
Stock as reported by Nasdaq for the 20 trading days preceding the fifth trading
day prior to the Effective Date was less than $10.00. The parties' respective
counsel was requested to prepare draft modifications of the First Amended Merger
Agreement for consideration by the parties, and the parties' respective
financial advisors were requested to analyze the proposed modifications to the
Exchange Ratio from a financial point of view to respectively advise the Boards
of Isolyser and Microtek on such modifications. The Boards of Isolyser and
Microtek, together with their financial advisors and legal counsel, separately
met on Monday, July 29,
20
<PAGE>
1996, to consider the proposed amendments to the First Amended Merger Agreement,
at which time the Boards of Isolyser and Microtek respectively authorized their
execution and delivery of the Merger Agreement. Following the Board meetings,
the Merger Agreement was executed by Microtek and Isolyser, and a public
announcement thereof was made on Tuesday, July 30, 1996 before the opening of
the Nasdaq market trading.
ISOLYSER'S REASONS FOR THE MERGER
In approving the Original Merger Agreement, the First Amended Merger
Agreement and the Merger Agreement, the Isolyser Board considered the following
business issues which had been the subject of negotiations during the week of
March 11, 1996, June 11 to June 21, 1996 and the days preceding the execution of
the Merger Agreement: (i) the method of establishing the consideration payable
in respect of the Merger and the historical trading prices of Isolyser and
Microtek Common Stock; (ii) the amount of debt payable by Microtek and the
potential increase in such debt to the extent permitted by the Merger Agreement;
(iii) the accounting treatment for the transaction and estimated transaction
costs; (iv) the various representations and warranties of Microtek and the
disclosures of Microtek contained in the Merger Agreement and related disclosure
schedules; (v) the covenants of Isolyser, including, without limitation, the
indemnification provisions contained in the Merger Agreement to indemnify the
directors and officers of Microtek and restrictions on the number of shares
issuable by Isolyser without the consent of Microtek; (vi) the respective
termination rights contained in the Merger Agreement; (vii) the provisions in
the Merger Agreement limiting Microtek's Board in negotiating with third parties
in the event of an unsolicited Acquisition Proposal and the contingent
obligation of Microtek to pay Isolyser $2.5 million under certain circumstances
related to such an Acquisition Proposal; and (viii) the absence of any
indemnification provisions by the shareholders of Microtek in favor of Isolyser.
After consideration of these and other issues, the Isolyser Board unanimously
determined at its special meetings held on March 15, 1996, June 21, 1996 and
July 29, 1996, that the Merger and the Merger Agreement (or the Original Merger
Agreement and First Amended Merger Agreement, as the case may be) were in the
best interests of Isolyser and Isolyser's shareholders and, therefore, approved
the Merger Agreement. At its special meetings held on June 21, 1996 and July 29,
1996, the Isolyser Board further unanimously determined to recommend to the
Isolyser shareholders that they approve the Merger Proposal.
Isolyser considered a number of factors in the course of its deliberations
at its Board meetings held on March 15, 1996, June 21, 1996 and July 29, 1996,
but did not assign any relative or specific weight to the factors considered or
give prominence to any specific factor or group of factors. In addition to the
business issues described in the preceding paragraph, the material factors
considered were as follows: (i) the conversion expertise of Microtek in
manufacturing its infection and fluid control products, and related benefits to
Isolyser in Isolyser's growth strategy to vertically integrate its capabilities
in manufacturing OREX-Registered Trademark- Degradables-TM-; (ii) the relative
market position of Microtek as a low cost manufacturer and supplier of film
products used in the health care marketplace; (iii) the expertise of Microtek's
personnel in selling and marketing its products in the health care marketplace;
(iv) the gross margins enjoyed by Microtek on its products and the volume of
such products which might be included in Isolyser's procedure trays; (v) the
international sales generated by Microtek and potential improved access to such
international markets which could be afforded Isolyser as a result of the
Merger; (vi) the complementary nature of Microtek's management to Isolyser's
management; (vii) Microtek's sales increased 12% in 1995 over 1994; (viii)
Microtek's operating income increased 213% in 1995 over 1994; (ix) Microtek
would be expected to contribute positively to Isolyser's net operating results
following consummation of the Merger; (x) the stockholders and option holders of
Microtek would hold up to approximately 26% of the shares of common stock of
Isolyser outstanding immediately following the Merger assuming the exercise of
all outstanding options to purchase shares of Isolyser Common Stock; (xi) the
historical trading price of Microtek's and Isolyser's Common Stock; and (xii)
the presentation of Isolyser's financial advisor, Morgan Keegan, and its written
opinion (summarized below under "-- Opinion of Isolyser's Financial Advisor")
delivered in connection with Isolyser's Board approval of the First Amended
Merger Agreement and verbally confirmed
21
<PAGE>
in connection with the Board's approval of the Merger Agreement to the effect
that, subject to the assumptions made, matters considered and limits of review
as set forth in such opinion, the number of Isolyser shares to be issued in the
Merger was fair to the shareholders of Isolyser from a financial point of view.
The Isolyser Board of Directors believes that each of these factors supports
its recommendation that the Isolyser shareholders authorize consummation of the
Merger by approving the Merger Proposal.
MICROTEK'S REASONS FOR THE MERGER
At meetings held on March 15, 1996, June 23, 1996 and July 29, 1996, the
Microtek Board discussed with Goldman Sachs and reviewed with legal counsel the
terms of the Original Merger Agreement, the First Amended Merger Agreement and
the Merger Agreement, respectively, including the representations, warranties,
covenants and closing conditions contained therein. At the meeting of the Board
held on March 15, 1996, Goldman Sachs made a presentation to the Microtek Board
and delivered its opinion that, as of March 15, 1996, the exchange ratio
pursuant to the Original Merger Agreement was fair to the holders of the shares
of Microtek Common Stock. At the meeting of the Board held on June 23, 1996,
Goldman Sachs made a presentation to the Microtek Board and delivered its
opinion that, as of June 23, 1996, the exchange ratio pursuant to the First
Amended Merger Agreement was fair to the holders of the shares of Microtek
Common Stock. At the meeting of the Board held on July 29, 1996, Goldman Sachs
made a presentation to the Microtek Board and delivered its opinion that, as of
July 29, 1996, the Exchange Ratio pursuant to the Merger Agreement was fair to
the holders of the shares of Microtek Common Stock.
At the March 15, 1996, June 23, 1996 and July 29, 1996 meetings, the
Microtek Board unanimously determined that the Merger was advisable and in the
best interests of Microtek stockholders and approved the Original Merger
Agreement, the First Amended Merger Agreement and Merger Agreement,
respectively.
In reaching its conclusion to enter into the Merger Agreement and to
recommend adoption of the Merger Agreement by the Microtek stockholders, the
Microtek Board considered the following factors:
(i) An assessment of Microtek's strategic alternatives, which included
remaining a publicly owned independent company. In this regard, the Microtek
Board of Directors concluded, following extensive analysis and discussion
with its legal and financial advisors and among the directors, that the
terms of the Merger Agreement provided the best means for holders of
Microtek Common Stock to maximize the value of their holdings;
(ii) The belief that the Merger will result in a strong combined entity
with complementary businesses, corporate goals and management philosophies;
(iii) Information relating to the financial performance, prospects and
business operations of each of Microtek and Isolyser (which information
included the historical financial information contained in the periodic
public reports of Microtek and Isolyser and the descriptions of their lines
of business contained in such reports);
(iv) The terms and conditions of the Merger Agreement, including the
right of Microtek to negotiate with and provide information to third parties
and terminate the Merger Agreement in the event of an unsolicited
Acquisition Proposal, if such action is required in the exercise of the
fiduciary duties of the Microtek Board of Directors (if the foregoing
termination provision is exercised, Microtek would be obligated to pay
Isolyser $2.5 million (see " -- Fees and Expenses") which the Microtek Board
of Directors did not view as unreasonably precluding any third party from
proposing an alternative transaction);
(v) The presentations of Microtek's financial advisor, Goldman Sachs,
and its written opinions to the effect that, as of March 15, 1996, the
exchange ratio pursuant to the Original Merger Agreement was fair to the
holders of shares of Microtek Common Stock; that as of June 23, 1996,
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the exchange ratio pursuant to the First Amended Merger Agreement was fair
to the holders of shares of Microtek Common Stock; and that as of July 29,
1996, the Exchange Ratio pursuant to the Merger Agreement was fair to the
holders of the shares of Microtek Common Stock (for a summary of Goldman
Sachs' written opinion dated July 29, 1996, including the assumptions made,
matters considered and limits of review, see "-- Opinion of Microtek's
Financial Advisor"). The full text of the opinion of Goldman Sachs dated
July 29, 1996 is attached as Annex C hereto and is incorporated herein by
reference;
(vi) The trading price of the Microtek Common Stock since completion of
Microtek's initial public offering and that the Merger consideration
represents a premium of approximately 78% over the highest price in fiscal
1995 and approximately 59% over the closing sale price of $10.38 for the
Microtek Common Stock on Nasdaq on February 7, 1996, the day before Microtek
became aware of Isolyser's possible interest in pursuing the proposed
Merger; and
(vii) The prices paid in other recent comparable acquisition
transactions.
The Microtek Board of Directors believes that each of these factors supports
its recommendation that the Microtek stockholders approve and adopt the Merger
Agreement and approve the terms of the Merger.
The Microtek Board believes that Microtek and the Microtek stockholders will
receive reasonable protection from a change in circumstances relating to
Isolyser between the date of the Joint Proxy Statement/Prospectus and the
Effective Date through the inclusion in the Merger Agreement of a condition to
the closing of the Merger to the effect that, since December 31, 1995, no event
shall have occurred which would have a material adverse effect on the business,
operations, assets or financial condition of Isolyser or its subsidiaries, taken
as a whole.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Microtek Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination that
the terms of the Merger Agreement are fair to, and in the best interests of,
Microtek and its stockholders.
THE MICROTEK BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT MICROTEK
STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
OPINION OF ISOLYSER'S FINANCIAL ADVISOR
Morgan Keegan was retained by Isolyser to act as its financial advisor in
connection with the Merger and to render an opinion to the Board of Directors of
Isolyser as to the fairness, from a financial point of view, to the shareholders
of Isolyser of the consideration to be paid by Isolyser pursuant to the Merger
Agreement. Morgan Keegan was selected by Isolyser based on Morgan Keegan's
experience, expertise and familiarity with Isolyser and its business.
Morgan Keegan is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for various
purposes. Morgan Keegan has previously rendered investment banking services to
Isolyser, including advising Isolyser with respect to the acquisition of White
Knight Healthcare, Inc. in 1995, acting as managing underwriter of Isolyser's
initial public offering in 1994 and lead manager of a follow-on offering of
Isolyser Common Stock in 1995. On March 15, 1996, Morgan Keegan delivered its
written opinion dated March 15, 1996, to the Isolyser Board of Directors to the
effect that, as of that date, the consideration to be paid by Isolyser pursuant
to the Original Merger Agreement was fair, from a financial point of view, to
the shareholders of Isolyser. On June 21, 1996, Morgan Keegan
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delivered its written opinion dated June 21, 1996, to the Isolyser Board to the
effect that, as of that date, the consideration to be paid by Isolyser pursuant
to the First Amended Merger Agreement was fair, from a financial point of view,
to the shareholders of Isolyser.
On July 29, 1996, at a meeting called to consider the Merger Agreement and
the Merger, representatives of Morgan Keegan made an oral presentation to the
Isolyser Board of Directors with respect to various aspects of the Merger,
including the financial terms and conditions of the Merger. In addition, Morgan
Keegan orally (i) reviewed with the Isolyser Board its written opinion, dated
June 21, 1996, to the Isolyser Board to the effect that, as of such date, the
consideration to be paid by Isolyser pursuant to the First Amended Merger
Agreement (which included an Exchange Ratio of up to 1.65, which is the Exchange
Ratio provided by the Merger Agreement) was fair, from a financial point of
view, to the shareholders of Isolyser and (ii) confirmed that the Isolyser Board
could rely upon such opinion in connection with its consideration of the Merger
Agreement.
THE FULL TEXT OF THE JUNE 21, 1996 WRITTEN OPINION OF MORGAN KEEGAN, WHICH
SETS FORTH THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, OTHER MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN ARRIVING AT SUCH OPINION,
IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX B. ISOLYSER
STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY AND THE SUMMARY OF
SUCH OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION. MORGAN KEEGAN'S OPINION IS DIRECTED ONLY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE ISOLYSER SHAREHOLDERS OF THE
CONSIDERATION TO BE PAID BY ISOLYSER PURSUANT TO THE FIRST AMENDED MERGER
AGREEMENT, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED MERGER OR ANY
RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER
OF MICROTEK AS TO HOW SUCH STOCKHOLDER SHOULD VOTE OR OTHERWISE.
In arriving at its opinion, Morgan Keegan reviewed an unexecuted draft of
the First Amended Merger Agreement dated June 20, 1996 (which, for purposes of
its analysis, it assumed that any further revisions, including the filling in of
blank spaces and the attachment of final exhibits and appendices, would not
materially alter the terms and provisions of such documents and that such
documents would be executed as finalized); held discussions with various members
of management and representatives of Isolyser and Microtek concerning each
company's historical and current operations, financial condition and prospects;
reviewed historical consolidated financial and operating data that was publicly
available or furnished to it by Isolyser and Microtek; reviewed internal
financial analyses, financial and operating forecasts, reports and other
information prepared by officers and representatives of Isolyser and Microtek;
reviewed certain publicly available information with respect to certain other
companies that it believed to be comparable to Microtek and the trading markets
for such other companies' securities; reviewed certain publicly available
information concerning the terms of certain other transactions that it deemed
relevant to its inquiry; and conducted such other financial studies, analyses
and investigations as it deemed appropriate for the purposes of its opinion.
In connection with its review and analysis and in arriving at its opinion,
Morgan Keegan did not assume responsibility for independent verification of any
of the information provided to or otherwise reviewed by Morgan Keegan and relied
upon its being complete and accurate in all respects. Morgan Keegan also assumed
the correctness of and relied upon the representations and warranties of
Isolyser and Microtek contained in the First Amended Merger Agreement. Morgan
Keegan also relied upon the managements of Isolyser and Microtek as to the
reasonableness and achievability of the financial and operating projections and
the assumptions and bases therefore provided to it, and assumed that such
projections, including without limitation, cost savings and operating synergies
from the Merger, reflected the best currently available estimates and judgments
of the managements of Isolyser and Microtek, respectively, and that such
projections and forecasts would be realized in the amounts and time periods then
estimated by the managements of Isolyser and Microtek. Morgan Keegan was not
engaged to assess the achievability of such projections or the assumptions on
which they were based and expressed no view as to such projections or
assumptions. Morgan Keegan was not engaged to, and did not conduct a physical
inspection or appraisal of any of the assets, properties or facilities of either
Isolyser or Microtek, nor was it furnished with any such evaluation or
appraisal. Morgan Keegan assumed that the conditions to the Merger as set forth
in the First Amended Merger Agreement would
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be satisfied; and that the Merger would be consummated on a timely basis in the
manner contemplated by the First Amended Merger Agreement and that, as
contemplated by the First Amended Merger Agreement, the Merger would be
accounted for as a pooling of interests. Morgan Keegan expressed no opinion as
to the price or trading range at which shares of Isolyser Common Stock will
trade after the date of its opinion, or upon completion of the Merger.
In connection with its presentations to the Isolyser Board of Directors on
June 21, 1996 and July 29, 1996, and in preparing its opinions for the Isolyser
Board of Directors, Morgan Keegan performed a variety of financial and
comparative analyses, including those described below.
CONTRIBUTION ANALYSIS. Morgan Keegan analyzed the pro forma contribution of
each of Isolyser and Microtek to the 1995 and projected 1996 and 1997 operating
results of a combined Isolyser and Microtek. Morgan Keegan calculated that
Microtek would have contributed 25.7%, 21.6% and 16.3% to pro forma combined
1995, 1996 and 1997 sales; 41.6%, 33.4% and 23.0% to pro forma combined 1995,
1996, and 1997 gross profit; 100.6%, 40.7% and 23.6% to pro forma combined 1995,
1996 and 1997 operating cash flow; 260.4%, 52.5% and 24.1% to pro forma combined
1995, 1996 and 1997 operating income; and 381.4%, 47.7% and 21.3% to pro forma
combined 1995, 1996 and 1997 net income. Morgan Keegan then calculated the
percentage ownership by Microtek shareholders of the combined company based on
the 1.65 Exchange Ratio as 21.3% and concluded that from Isolyser's
shareholders' perspective, Microtek's percentage contribution to sales, gross
profit, operating cash flow, operating income and net income of the combined
company compares favorably with the percentage ownership of the combined company
proposed as transaction consideration.
COMPARABLE COMPANY ANALYSIS. Morgan Keegan reviewed and compared certain
actual and forecasted financial, operating and stock market information of
Microtek to seven publicly traded companies in the healthcare industry
considered by Morgan Keegan to be comparable to Microtek. These companies
included Arrow International, Inc., Hosposable Products, Inc., Isolyser, Maxxim
Medical, Inc., Medex, Inc., Medical Action Industries, Inc., and Tecnol Medical
Products, Inc. Morgan Keegan calculated a range of market multiples for the
comparable companies by dividing adjusted market value (market capitalization
based on the closing price per share on June 20, 1996 plus debt less cash) by
each such company's sales, operating cash flow, operating income; and by
dividing market value by each such company's net income, tangible book value,
and projected 1996 earnings per share. This analysis indicated that the median
multiple for sales was .83x, for operating cash flow was 9.9x, for operating
income was 15.0x, for net income was 31.8x, for tangible book value was 1.9x and
for earnings per share was 28.9x. This compared to corresponding multiples for
Microtek for sales of 2.44x, for operating cash flow of 11.5x, for operating
income of 14.9x, for net income of 21.6x and for tangible book value being not
meaningful. Morgan Keegan also calculated ranges of indicative equity values for
Microtek based upon the comparable company multiples, and for Microtek assuming
a 30% control premium. The median indicative equity values were $14.5 million in
respect of sales, $68.0 million in respect of operating cash flow, $82.3 million
in respect of operating income, $111.5 million in respect of net income, and
$96.6 million in respect of projected 1996 net income. Morgan Keegan concluded
that, based on this analysis, Microtek had an implied equity value range of $68
to $97 million.
MERGERS AND ACQUISITIONS TRANSACTION ANALYSIS. Morgan Keegan reviewed
overall merger and acquisition activity in the healthcare industry and selected
ten transactions occurring between 1992 and June, 1996 with publicly available
financial information to analyze on the basis of the purchase prices and
multiples paid or proposed consideration to be paid. Such analysis indicated
median adjusted market values as multiples of latest 12 months sales, operating
cash flow and operating income of 0.96x, 9.2x and 11.3x, respectively; and
median market values as multiples of net income and tangible book value of 20.1x
and 3.1x, respectively. Morgan Keegan applied these multiples to Microtek and
calculated median indicative equity values of $10.7 million in respect of sales,
$42.8 million in respect of operating cash flow, $39.5 million in respect of
operating income, $54.3 million in respect of net income, and for tangible book
value being not meaningful. Morgan Keegan also reviewed the premiums paid in the
selected transactions. Such analysis indicated that the per share
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value of the consideration paid represented a median premium of 48.8% over the
market price of the acquired company's common stock four weeks prior to the
first trading day following announcement of the transaction. Applying this
median premium to Microtek yielded an indicative equity value of $86.6 million.
Morgan Keegan concluded that, based upon this analysis, Microtek had implied
equity value in the range of $40 to $54 million. In Morgan Keegan's judgment,
the application of merger and acquisition transaction multiples to the pro forma
results of Microtek's latest 12 months ended February 29, 1996 understates
value.
No company or transaction used in the comparable companies and comparable
transactions analyses for comparative purposes is identical to Microtek.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning the differences in financial and
operating characteristics of the companies and other factors. Mathematical
analysis (such as determining the average or median) is not, in itself, a
meaningful method of using comparable company or transaction data.
DISCOUNTED CASH FLOW ANALYSIS Morgan Keegan prepared a discounted cash flow
analysis of the projected free cash flow of Microtek for the years 1996 through
2000, based upon five year projections provided by Microtek's management. Using
this information, Morgan Keegan estimated the net present value of Microtek's
projected cash flows by applying discount rates ranging from 13.0% to 17.0%.
Morgan Keegan also determined the residual value of Microtek by applying a range
of terminal operating cash flow multiples of from 7.5x to 10.5x to Microtek's
projected cash flows and discounting these terminal values using discount rates
ranging from 13.0% to 17.0%. The sum of the present value of the free cash flows
and terminal values yielded an implied equity value range for Microtek of $104
million to $174 million.
PRO FORMA EARNINGS PER SHARE ANALYSIS. Morgan Keegan also analyzed the
effect of the Merger on the financial projections of Isolyser assuming a $16.50
price per share for Microtek Common Stock. Isolyser's stand alone projections
for 1996 and 1997 were compared with the pro forma combined company projections
for earnings per share and other measures of profitability. The pro forma net
income per share figures were then compared to Isolyser's projected earnings per
share to determine the degree of dilution, if any, to Isolyser shareholders
subsequent to the Merger. This analysis indicated that the Merger was accretive
to earnings per share.
The foregoing summary of Morgan Keegan's presentation and analyses does not
purport to be a complete description of such presentation to the Isolyser Board
of Directors or of the analyses performed by Morgan Keegan. The preparation of a
fairness opinion is not necessarily susceptible to partial analysis or summary
description. Morgan Keegan believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its analyses,
without considering all analyses, or of the above summary, without considering
all factors and analyses, would create an incomplete view of the process
underlying the analyses presented to the Isolyser Board of Directors and its
opinion. In addition, Morgan Keegan may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations resulting
from any particular analysis described above should not be taken to represent
the actual value of Microtek or the combined company.
In performing its analyses, Morgan Keegan made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Isolyser or Microtek. The
analyses performed by Morgan Keegan are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Morgan Keegan's analysis of the fairness, from a financial point of
view, to the shareholders of Isolyser of the consideration to be paid by
Isolyser pursuant to the First Amended Merger Agreement and the Merger Agreement
and were discussed with Isolyser's Board of Directors at the June 21, 1996 and
July 29, 1996 meetings. The analyses do not purport to be appraisals or to
reflect prices at which a company might actually be sold or the prices at which
any securities may trade at the present time or at any
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time in the future. In addition, as described above, Morgan Keegan's
presentation to Isolyser's Board of Directors and opinion was one of many
factors taken into consideration by the Isolyser Board of Directors in making
its determination to approve the Merger Agreement and the Merger.
In addition to rendering its opinions, as noted above, Morgan Keegan has in
the past provided investment banking services to Isolyser, for which it received
customary fees. Morgan Keegan was also engaged by Isolyser in February, 1996 to
perform investment banking services and act as financial advisor with respect to
other possible acquisition transactions. In the ordinary course of its business,
Morgan Keegan makes a market in Isolyser Common Stock and may trade such
securities for its own account and for the account of its customers and may at
any time hold a short or long position in such securities.
Pursuant to an engagement letter with Isolyser, Morgan Keegan has received a
fee of $300,000 for rendering its opinions with respect to the Merger, and will
receive a fee of $350,000 upon consumation of the Merger in connection with its
advisory service. Isolyser has also agreed to reimburse Morgan Keegan for its
reasonable out-of-pocket expenses and to indemnify Morgan Keegan against certain
liabilities, including liabilities under the federal securities laws.
OPINION OF MICROTEK'S FINANCIAL ADVISOR
On March 15, 1996, Goldman Sachs delivered its written opinion to the Board
of Directors of Microtek that, as of the date of such opinion, the Exchange
Ratio pursuant to the Original Merger Agreement was fair to the holders of
shares of Microtek Common Stock. On June 23, 1996, Goldman Sachs delivered its
written opinion to the Board of Directors of Microtek that, as of the date of
such opinion, the exchange ratio pursuant to the First Amended Merger Agreement
was fair to the holders of shares of Microtek Common Stock. On July 29, 1996,
Goldman Sachs delivered its written opinion to the Board of Directors of
Microtek that, as of the date of such opinion, the Exchange Ratio pursuant to
the Merger Agreement is fair to the holders of the Microtek Common Stock.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED JULY 29, 1996,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX C TO THIS
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS
OF MICROTEK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) the Registration Statement on Form S-4 of which
this Joint Proxy Statement/Prospectus forms a part; (iii) the Annual Reports to
Stockholders and Annual Reports on Form 10-K of Microtek for the four fiscal
years ended November 30, 1995 and for Isolyser for the year ended December 31,
1995; Forms S-1, effective October 20, 1994, and November 17, 1995, of Isolyser
and the Prospectus utilized in connection therewith; (iv) certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of Microtek and of
Isolyser; (v) certain other communications from Microtek and Isolyser to their
respective stockholders; and (vi) certain internal financial analyses and
forecasts for Microtek and Isolyser prepared by their respective managements.
Goldman Sachs also held discussions with members of the senior management of
Microtek and of Isolyser regarding the past and current business operations,
financial condition, and future prospects of their respective companies. In
addition, Goldman Sachs reviewed the reported price and trading activity for the
shares of Microtek Common Stock and the shares of Isolyser Common Stock,
compared certain financial and stock market information for Microtek and for
Isolyser with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the medical device and hospital supply industry
specifically and in other industries generally and performed such other studies
and analyses as it considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In that regard, Goldman Sachs assumed, with the consent
of Microtek, that the financial forecasts for the Company and Isolyser,
including, without limitation, projected cost savings and operating synergies
resulting
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from the Merger have been reasonably prepared on a basis reflecting the best
currently available judgments and estimates of Microtek and of Isolyser and that
such financial forecasts will be realized in the amounts and at the times
contemplated thereby. In addition, Goldman Sachs has not made an independent
evaluation or appraisal of the assets and liabilities of Microtek or of Isolyser
or any of their subsidiaries and Goldman Sachs has not been furnished with any
such evaluation or appraisal. Goldman Sachs assumed, with the consent of
Microtek, that the consummation of the Merger will be accounted for as a pooling
of interests under generally accepted accounting principles.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to Microtek's
Board of Directors on July 29, 1996. Goldman Sachs utilized substantially the
same type of financial analyses in connection with providing its written
opinions dated March 15, 1996 and June 23, 1996.
(i) INDEXED COMMON STOCK PRICE HISTORY. Goldman Sachs reviewed the
indexed historical trading prices for the shares of Microtek Common Stock
during the period since the initial public offering of Microtek on October
6, 1992 as compared to the Standard & Poor's 500 index, the Standard &
Poor's Healthcare index, the indexed historical trading prices for the
shares of Isolyser Common Stock and a composite index comprised of five
other comparable publicly traded corporations: Circon Corporation, CONMED
Corporation, MAXXIM Medical, Inc., Sterile Concepts Holdings, Inc. and
Tecnol Medical Products, Inc. (the "Selected Companies"). The Selected
Companies were chosen because they are publicly-traded companies with
operations that for purposes of analysis may be considered similar to
Microtek.
(ii) SELECTED COMPANIES ANALYSIS. Goldman Sachs reviewed and compared
certain financial information relating to Microtek and Isolyser to
corresponding financial information, ratios and public market multiples for
the Selected Companies. Goldman Sachs calculated and compared various
financial multiples and ratios. The multiples of Microtek and Isolyser were
calculated using a price of $13.25 per share of Microtek Common Stock and
$10.13 per share of Isolyser Common Stock, the closing prices of such shares
on Nasdaq on July 26, 1996 (the last trading day prior to the date of the
fairness opinion). The multiples and ratios for Microtek were based on the
most recently available public information and information provided by
Microtek's management, and the multiples and ratios for Isolyser were based
on the most recently available public information and information provided
by Isolyser's management and the multiples for each of the Selected
Companies were based on the most recent publicly available information. With
respect to the Selected Companies, Goldman Sachs considered levered market
capitalization (i.e., market value of common equity plus estimated market
value of debt less cash) as a multiple of last twelve months' ("LTM") sales,
as a multiple of LTM earnings before interest, taxes, depreciation and
amortization ("EBITDA") and as a multiple of LTM earnings before interest
and taxes ("EBIT"). For fiscal 1995 results, Goldman Sachs' analyses of the
Selected Companies indicated levered multiples of LTM sales, which ranged
from 0.7x to 2.7x, with a mean of 1.5x and a median of 1.1x, LTM EBITDA,
which ranged from 6.1x to 11.2x, with a mean of 9.0x and a median of 9.4x,
and LTM EBIT, which ranged from 9.2x to 14.6x, with a mean of 12.2x and a
median of 11.9x, compared to levered multiples of 2.5x, 11.9x and 15.4x,
respectively, for Microtek and a levered multiple of 2.3x sales for Isolyser
(with Isolyser's EBITDA and EBIT being not meaningful). For fiscal 1995
results, Goldman Sachs also considered for the Selected Companies LTM price/
earnings multiples ("P/E"), which ranged from 14.5x to 23.6x, with a mean of
18.0x and a median of 17.0x, compared to 28.2x for Microtek (with Isolyser's
LTM P/E being not meaningful); estimated calendar year 1996 and 1997 P/E
(provided by Institutional Brokers Estimate System ("IBES")), which ranged
from 12.3x to 17.9x for estimated calendar year 1996, with a mean of 15.2x
and a median of 15.3x, and 10.6x to 14.0x for estimated calendar year 1997,
with a mean and a median of 12.2x, compared, for Microtek, to 20.4x for
estimated calendar year 1996 and 9.8x for estimated calendar year 1997 and,
for Isolyser, to 168.8x for estimated calendar year 1996 and 18.8x for
estimated calendar year 1997 based on Isolyser's management's estimates; LTM
EBITDA margins, LTM EBIT margins and LTM net income margins, which ranged
from 8.7% to
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24.8% for LTM EBITDA margins, with a mean of 16.4% and a median of 13.5%,
compared to 21.3% for Microtek (with Isolyser's LTM EBITDA margins being not
meaningful), 7.1 to 19.7% for LTM EBIT margins, with a mean of 12.2% and a
median of 8.5%, compared to 16.4% for Microtek (with Isolyser's LTM EBIT
margins being not meaningful), and 3.3% to 11.3% for LTM net income margins,
with a mean of 6.6% and a median of 3.9%, compared to 8.4% for Microtek
(with Isolyser's LTM net income margins being not meaningful); a five-year
compound annual growth rate of earnings per share ("EPS") for the five
fiscal years ending in 2000 (provided by IBES in the case of the Selected
Companies and Isolyser, and Microtek management in the case of Microtek as
no public estimates were available) ranging from 14.0% to 20.0%, with a mean
of 17.4% and a median of 18.0%, compared to 42.9% for Microtek and 50.0% for
Isolyser; net debt to net capitalization ratios, which ranged from (6.0)% to
48.8%, with a mean of 26.8% and a median of 36.1%, compared to 47.8% for
Microtek and (11.3%) for Isolyser; and a ratio of the 1997 estimated P/E
compared to the IBES estimated EPS growth rate ranging from 0.6x to 0.8x,
with a mean and a median of 0.7x, compared to 0.2x for Microtek and 0.4x for
Isolyser.
(iii) PRO FORMA MERGER ANALYSIS. Goldman Sachs prepared pro forma
analyses of the financial impact of the Merger. Using earnings estimates for
Microtek and Isolyser prepared by their respective managements for the years
1996 and 1997, Goldman Sachs compared the EPS of Isolyser Common Stock, on a
stand alone basis, to the EPS of the common stock of the combined companies
on a pro forma basis. Goldman Sachs performed this analysis based on a fixed
exchange ratio of 1.65 and on a range of per share prices from $8.75 to
$16.25 of Isolyser Common Stock under the following two scenarios: The first
scenario relied on the Isolyser managements' estimates (and Microtek
managements' estimates of Microtek net income) and combined Microtek and
Isolyser as currently existing; the second scenario relied on Isolyser
management's estimates (and Microtek managements' estimates of Microtek net
income) and combined Microtek and Isolyser as currently existing, but
included the realization of $3.5 million in pre-tax cost savings and
operating synergies achieved in 1997. Based on such analyses, in the first
scenario the proposed transaction would be accretive to Isolyser's
stockholders on an EPS basis in the estimated year 1996 and marginally
dilutive to Isolyser's stockholders on an EPS basis in estimated year 1997,
and in the second scenario the proposed transaction would be accretive to
Isolyser's stockholders on an EPS basis in estimated years 1996 and 1997.
(iv) CONTRIBUTION ANALYSIS. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including, among other
things, revenues; gross profit; EBIT; net income; selling, general, and
administration expenses; net debt; and total assets) for Microtek, Isolyser
and the pro forma combined entity resulting from the Merger based on
Microtek's managements' financial forecasts for Microtek and Isolyser's
managements' financial forecasts for Isolyser. Goldman Sachs analyzed the
relative income statement contribution of Microtek and Isolyser to the
combined companies on a pro forma basis. This analysis indicated that
Microtek would have contributed 28.5% to combined revenues in 1995 and an
estimated 24.1% in 1996 decreasing to an estimated 9.9% in 2000, 46.1% to
combined gross profit in 1995 and an estimated 39.8% in 1996 decreasing to
an estimated 13.5% in 2000, (385.2)% to combined EBIT (such contribution
being negative because Isolyser had negative EBIT for 1995) in 1995 and an
estimated 91.6% in 1996 decreasing to an estimated 12.7% in 2000, (424.0)%
to combined net income (such contribution being negative because Isolyser
had negative net income in 1995) in 1995 and an estimated 84.5% in 1996
decreasing to an estimated 12.4% in 2000, and 32.3% to combined selling,
general and administration expenses in 1995 and an estimated 25.6% in 1996
decreasing to an estimated 13.2% in 2000. Goldman Sachs also analyzed the
relative balance sheet contribution of Microtek and Isolyser to the combined
companies on a pro forma basis. This analysis indicated that, based on
fiscal year 1995, Microtek would have contributed (239.3)% to combined net
cash (such contribution being negative because Isolyser had net cash in
1995) and 17.8% of the total assets to the combined entity.
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(v) SELECTED TRANSACTIONS ANALYSIS. Goldman Sachs analyzed certain
information relating to selected transactions in the medical device and
hospital supply industry since 1988 (the "Selected Transactions"). Such
analysis indicated that for the Selected Transactions (i) levered aggregate
consideration as a multiple of LTM sales ranged from 0.4x to 2.7x, with a
mean of 1.3x and a median of 1.1x, (ii) aggregate equity consideration as a
multiple of LTM net income ranged from 20.8x to 50.0x, with a mean of 36.1x
and a median of 35.3x, (iii) levered aggregate consideration as a multiple
of LTM EBIT ranged from 7.2x to 32.9x, with a mean of 15.3x and a median of
13.2x, and (iv) the percentage premium paid ranged from 15.7% to 100.0%,
with a mean of 52.3% and a median of 45.2%.
(vi) ANALYSIS AT VARIOUS PRICES. Goldman Sachs calculated alternative
values for the levered aggregate consideration and the aggregate equity
consideration based upon per share values of Isolyser Stock ranging from
$8.75 to $16.25 per share of Isolyser Common Stock.
Those calculations yielded levered aggregate consideration values
ranging from $76.6 million to $142.3 million for Microtek, assuming $22.9
million in net debt, and total values delivered for each share of Microtek
Common Stock ranging from $14.44 to $26.81 per such share. The multiples and
ratios for Microtek for actual 1995 were based on public filings of
Microtek; for estimated fiscal year 1996, on Microtek's management or, where
noted, IBES estimates; and for estimated fiscal year 1997 on Microtek's
management estimates.
Goldman Sachs considered the levered aggregate consideration as a
multiple of actual 1995, LTM through May 31, 1996 and estimated fiscal 1996
and 1997 net sales, EBITDA and EBIT of Microtek. Goldman Sachs' analyses
indicated levered aggregate consideration multiples of actual 1995 net sales
that ranged from 3.3x to 5.5x, actual 1995 EBITDA that ranged from 17.6x to
29.2x and actual 1995 EBIT that ranged from 22.7x to 37.7x; of LTM net sales
that ranged from 2.8x to 4.7x, LTM EBITDA that ranged from 11.3x to 18.7x
and LTM EBIT that ranged from 16.4x to 27.3x; of estimated fiscal 1996 net
sales that ranged from 2.3x to 3.8x, estimated fiscal 1996 EBITDA that
ranged from 9.2x to 15.3x and estimated fiscal 1996 EBIT that ranged from
11.9x to 19.8x; and of estimated fiscal 1997 net sales that ranged from 1.9x
to 3.2x, estimated fiscal 1997 EBITDA that ranged from 6.6x to 11.0x and
estimated fiscal 1997 EBIT that ranged from 8.0x to 13.2x.
Goldman Sachs also considered the aggregate equity consideration as a
multiple of actual 1995, LTM through February 29, 1996 and estimated fiscal
1996 and 1997 net income (based on management estimates), estimated fiscal
1996 net income (based on IBES estimates) and actual 1995 book value per
share of Microtek Common Stock. Goldman Sachs' analyses indicated aggregate
equity consideration multiples of actual 1995 net income of Microtek that
ranged from 33.2x to 61.7x; of LTM net income that ranged from 24.6x to
45.7x; of management estimated 1996 net income of Microtek that ranged from
19.3x to 35.8x; of IBES estimated 1996 net income of Microtek that ranged
from 25.6x to 47.6x; of management estimated 1997 net income of Microtek
that ranged from 11.4x to 21.2x; and of Microtek's actual 1995 book value
per share that ranged from 3.7x to 6.8x.
(vii) DISCOUNTED CASH FLOW ANALYSIS. Goldman Sachs performed a discounted
cash flow analysis based on the Microtek management's estimates for Microtek
as currently existing. Goldman Sachs calculated a net present value of free
cash flows for the years 1996 through 2000 using discount rates ranging from
14% to 24%. Goldman Sachs calculated Microtek's terminal values in the year
2000 based on multiples ranging from 2.00x sales to 3.00x sales. These
terminal values were then discounted to present value using discount rates
from 14% to 24%.
Using the foregoing terminal values and discounted cash flows for
Microtek, the implied per share values ranged from $9.68 to $23.53.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth
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above, without considering the analyses as a whole, could create an incomplete
view of the processes underlying Goldman Sachs' opinion. In arriving at its
fairness determination, Goldman Sachs considered the results of all such
analyses. No company or transaction used in the above analyses as a comparison
is identical to Microtek or Isolyser or the contemplated transaction. The
analyses were prepared solely for purposes of Goldman Sachs' providing its
opinion to Microtek's Board of Directors as to the fairness of the Exchange
Ratio pursuant to the Merger Agreement to the holders of shares of Microtek
Common Stock and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. Analyses based
upon forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control the parties or
their respective advisors, none of Microtek, Isolyser, Goldman Sachs or any
other person assumes responsibility if future results are materially different
from those forecast.
As described above, Goldman Sachs' opinion to the Board of Directors of
Microtek was one of many factors taken into consideration by the Microtek Board
of Directors in making its determination to approve the Merger Agreement. The
foregoing summary does not purport to be a complete description of the analyses
performed by Goldman Sachs and is qualified by reference to the written opinion
of Goldman Sachs set forth in Annex C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Microtek selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the Merger.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Microtek and/or Isolyser for its own account and for the account
of customers.
Pursuant to a letter agreement dated April 15, 1994 (the "First Engagement
Letter"), Microtek engaged Goldman Sachs to act as its financial advisor in
connection with the possible sale of Microtek. Pursuant to a letter agreement
dated March 14, 1996 (the "Second Engagement Letter"), which amended and
supplemented the First Engagement Letter, Microtek engaged Goldman Sachs to act
as its financial advisor in connection with the Merger. Pursuant to the terms of
the Second Engagement Letter, Microtek has agreed to pay Goldman Sachs upon
consummation of the Merger a transaction fee of $1.5 million. Microtek has
agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses,
including attorney's fees, and to indemnify Goldman Sachs against certain
liabilities, including certain liabilities under the federal securities laws.
INTEREST OF CERTAIN PERSONS IN THE MERGER
MICROTEK STOCK OPTIONS. Each of Messrs. Lester J. Berry, Kimber L. Vought
and Dan R. Lee (directors and/or executive officers of Microtek) is a party to
option agreements with Microtek pursuant to which he has options to acquire
shares of Microtek Common Stock. See "Option Proposal" for additional
information regarding options held by such individuals. If the Merger is
consummated, Isolyser will assume all outstanding options granted by Microtek
(including those described above) and such optionees will then have options to
purchase Isolyser Common Stock. The result of such assumption will be that the
exercise price for each of the above-referenced options will likely be less than
the market price of Isolyser Common Stock, and that the options, if exercised,
would likely be more valuable immediately after the Merger than they were
immediately prior to the announcement of the Merger. In addition, the option
agreements pursuant to which each of the officers, employees and consultants of
Microtek is a party contain change of control provisions and, as a result of
those
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provisions, all of the options held by the officers and employees of Microtek
(including Messrs. Berry, Vought and Lee) will become fully exercisable upon
consummation of the Merger. See "-- Treatment of Outstanding Microtek Options."
EMPLOYMENT OF MICROTEK DIRECTORS AND EXECUTIVE OFFICERS. Messrs. Berry,
Vought and Lee are expected to remain as employees of Microtek after the Merger.
None of these individuals, however, has entered into, and none are expected to
enter into, an employment agreement with Isolyser. After the Merger, each of
these individuals will be eligible to participate in benefit plans provided for
the officers of Isolyser and its subsidiaries.
INDEMNIFICATION. The Merger Agreement provides that (i) Isolyser will
indemnify the present and former officers and directors of Microtek in certain
circumstances; (ii) Isolyser will not amend or repeal any provisions of the
Certificate of Incorporation or Bylaws of Microtek in any manner which would
adversely affect the indemnification provisions contained in the Merger
Agreement; and (iii) for a period of two years from the Effective Date, Microtek
shall maintain directors' and officers' liability insurance covering the
directors and officers covered on the date of the Merger Agreement by Microtek's
directors' and officers' liability insurance policy or cause Isolyser's
directors' and officers' liability insurance policy to cover such persons,
except that neither Microtek nor Isolyser shall be required, in the aggregate,
to expend in premiums for such insurance an amount greater than double the rate
paid by Microtek for the policy period immediately preceding the date of
execution of the Merger Agreement and except that Isolyser shall have no
liability or obligation to maintain such insurance to the extent that any such
policy is not reasonably available on the terms required by the Merger
Agreement. See "-- Certain Covenants."
CHANGE OF CONTROL PROVISIONS. Employment agreements entered into by
Microtek with Mr. Berry, John N. Jordan, the president of the Medi-Plast
division of Microtek, and Joe Prince, the executive vice president, corporate
development of Microtek, contain certain change of control provisions which will
come into effect upon consummation of the Merger. In consideration of Mr.
Berry's agreement to delete certain provisions in his employment agreement
providing for certain cash payments upon a change of control, Mr. Berry's
employment agreement was amended in January 1994 to provide that Microtek would
pay to Mr. Berry a bonus to the extent he did not receive a profit of $300,000
before taxes on his stock option to purchase 40,000 shares of Microtek Common
Stock at an exercise price of $5.25 per share in the event of the consummation
of certain defined change of control transactions which would include the
Merger. Accordingly, it would be anticipated that Mr. Berry would realize in
excess of $300,000 of profit before taxes if he were able to liquidate his stock
options concurrently with the consummation of the Merger. Mr. Berry has agreed
that the relevant time to calculate his profit on his stock options for the
purpose of said provisions of his employment agreement is the date of closing of
the Merger, regardless of when he liquidates his options. Each of Messrs. Jordan
and Prince are parties to employment agreements with Microtek entered into
concurrently with Microtek's acquisition of substantially all of the assets of
Medi-Plast on November 30, 1995, providing for a base salary of $140,000 per
year, bonuses in such amounts as may be established by Microtek's Board of
Directors from time to time in its discretion, insurance (including, without
limitation, major medical, life and disability insurance) and other fringe
benefits in accordance with Microtek's standard insurance practices for
executives and as may be authorized and adopted from time to time by Microtek.
In the event either of Messrs. Jordan or Prince elect to resign their employment
within six months following the Effective Date, they are entitled to their
respective salary, bonus and other benefits over the remaining term of their
respective employment agreements, which expire on November 29, 1998. Microtek is
currently completing separation agreements with Messrs. Jordan and Prince by
means of which Microtek and Isolyser anticipate incurring compensation expenses
in connection with the Merger approximating amounts payable under such
employment agreements.
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EFFECTIVE DATE AND CONSEQUENCES OF THE MERGER
If approved by the requisite vote of the stockholders of Microtek and
Isolyser, and if all other conditions to the consummation of the Merger are
satisfied or waived, the Merger will become effective, unless the Merger
Agreement is terminated as provided therein, upon the making of certain filings
with the Secretary of State of the State of Delaware pursuant to the Delaware
General Corporation Law (the "DGCL"). At the Effective Date, the Isolyser
Subsidiary will be merged with and into Microtek, which will be the surviving
corporation in the Merger, and the separate corporate existence and identity of
the Isolyser Subsidiary will cease. The corporate existence and identity of
Microtek will continue unaffected by the Merger, although it will become a
wholly-owned subsidiary of Isolyser.
It is currently contemplated that the Effective Date of the Merger will
occur as promptly as practicable after the approval of the Merger by the
Isolyser and Microtek stockholders at the Isolyser and Microteck Special
Meetings, subject to the conditions described under "-- Conditions to Merger."
Upon completion of the Merger, each Microtek Share will be converted into the
right to receive the number of Isolyser Shares described above under "--
General." The directors of the Isolyser Subsidiary will be the directors of
Microtek after the Effective Date. The current officers of Microtek are expected
to remain as the officers of Microtek.
In the event that either the Microtek or Isolyser stockholders fail to
approve the Merger Agreement, Microtek will continue to pursue its business
strategy, including seeking suitable acquisition candidates to provide Microtek
with access to new markets and customers.
EXCHANGE OF CERTIFICATES REPRESENTING MICROTEK SHARES
Instructions with regard to the surrender of Microtek stock certificates,
together with a letter of transmittal to be used for this purpose, will be
mailed to Microtek stockholders as promptly as practicable after the Effective
Date. In order to receive certificates evidencing the Isolyser Shares, the
stockholders of Microtek will be required to surrender their stock certificates
after the Effective Date, together with a duly completed and executed letter of
transmittal, to SunTrust Bank, which will act as Exchange Agent (the "Exchange
Agent") in connection with the Merger. Promptly after the Effective Date,
Isolyser will deposit in trust with the Exchange Agent certificates representing
the number of whole Isolyser Shares to which the holders of Microtek Shares are
entitled to receive in the Merger together with cash sufficient to pay for
fractional shares. Upon receipt of such stock certificates and letter of
transmittal, the Exchange Agent will issue a stock certificate evidencing the
Isolyser Shares to the registered holder or his transferee for the number of
Isolyser Shares such person is entitled to receive as a result of the Merger,
together with cash in lieu of any fractional share. No interest will be paid or
accrued on the amounts payable upon the surrender of Microtek stock
certificates.
STOCKHOLDERS OF MICROTEK SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES FOR
EXCHANGE UNTIL THE INSTRUCTIONS AND LETTER OF TRANSMITTAL ARE RECEIVED.
If any certificate for the Isolyser Shares is to be issued or any cash
payment for a fractional share is to be made to a person other than the person
in whose name the certificate for the Microtek Shares surrendered in exchange
therefor is registered, it will be a condition of such issuance or payment that
the stock certificate so surrendered be properly endorsed and otherwise in
proper form for transfer, and that the person requesting such issuance or
payment (i) pay in advance any transfer or other taxes required by reason of the
issuance of certificates for the Isolyser Shares or a check representing cash
for a fractional share to a person other than the registered holder of the
Microtek stock certificate surrendered or (ii) establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
After the Effective Date, there will be no further transfers on the stock
transfer books of Microtek of the Microtek Shares that were outstanding
immediately prior to the Effective Date. If a certificate
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representing such shares is presented for transfer, subject to compliance with
the requisite transmittal procedures, it will be cancelled and exchanged for the
applicable number of Isolyser Shares and cash for any fractional share amount.
Each certificate representing Microtek Shares immediately prior to the
Effective Date will, at the Effective Date, be deemed for all purposes to
represent only the right to receive the number of whole shares of the Isolyser
Shares (and the right to receive cash in lieu of any fraction of an Isolyser
Share) into which the Microtek Shares represented by such certificate were
converted in the Merger.
Until a certificate which formerly represented Microtek Shares is actually
surrendered for exchange and received by the Exchange Agent, the holder thereof
will not be entitled to vote in the holder's name or receive any dividends or
other distributions with respect to Isolyser Common Stock payable to holders of
record after the Effective Date. Subject to applicable law, upon surrender of
Microtek stock certificates such dividends or other distributions will be
remitted (without interest) to the record holder of certificates for the
Isolyser Shares issued in exchange therefor.
Any certificates for the Isolyser Shares and cash sufficient to pay for
fractional shares delivered or made available to the Exchange Agent and not
exchanged for Microtek stock certificates within six months after the Effective
Date will be returned by the Exchange Agent to Isolyser, which will thereafter
act as Exchange Agent. None of Isolyser, Microtek or the Exchange Agent will be
liable to a holder of Microtek Shares for any of the Isolyser Shares, dividends
or other distributions thereon or cash in lieu of fractional shares delivered to
a public official pursuant to applicable abandoned property, escheat or similar
laws.
NO FRACTIONAL SHARES
No fractional shares of Isolyser Common Stock will be issued in connection
with the Merger. All fractional shares of Isolyser Common Stock to which a
holder of Microtek Shares immediately prior to the Effective Date would
otherwise be entitled at the Effective Date will be aggregated. If a fractional
share results from such aggregation, the Microtek stockholder will be entitled
to receive from Isolyser an amount in cash equal to $10.00 multiplied by the
fraction of a share of Isolyser Common Stock which the Microtek stockholder
would otherwise have received. Except for such payment, no Microtek stockholder
will be entitled to any dividends or other distributions or other rights of
stockholders with respect to any fractional interest.
TREATMENT OF OUTSTANDING MICROTEK OPTIONS
At March 15, 1996, a total of 711,429 shares of Microtek Common Stock were
reserved for issuance upon the exercise of options outstanding under the Option
Plan. Isolyser has agreed to assume all of Microtek's obligations under the
Option Plan in accordance with its terms and conditions as in effect at the
Effective Date, except that (i) all actions to be taken thereunder by the Board
of Directors of Microtek or a committee thereof shall be taken by the Board of
Directors of Isolyser or a committee thereof, (ii) each option shall thereafter
evidence the right to purchase only the number of whole Isolyser Shares (to the
nearest whole share) which would have been issued if the Microtek Shares
represented by the option had been outstanding at the Effective Date, (iii) the
exercise price for each share of Isolyser Common Stock issued upon the exercise
of options will be equal to the option price per share in effect immediately
prior to the Effective Date divided by the Exchange Ratio. In accordance with
the terms of options outstanding under the Option Plan, such options shall
become immediately exercisable upon the Effective Date.
CONDITIONS TO THE MERGER
In addition to customary conditions, the obligations of Isolyser, Microtek
and the Isolyser Subsidiary to consummate the Merger are subject to the
satisfaction, or where permitted, waiver of, certain other conditions, including
(a) the absence of any action, suit or proceeding to restrain, modify, enjoin or
prohibit the carrying out of the transactions contemplated by the Merger
Agreement; (b) receipt of certain governmental approvals; and (c) the receipt of
officer certificates.
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In addition, Isolyser's obligation to consummate the Merger is subject to
various additional conditions, including (a) approval of the Merger Proposal by
majority vote of the shares of Isolyser Common Stock voting on such proposal at
the Isolyser Meeting, (b) the absence of any material adverse change with
respect to Microtek, (c) receipt of a satisfactory letter from Microtek's
independent accountants with respect to certain financial information of
Microtek, and (d) the receipt of a letter from an independent accountant for
Isolyser dated the Effective Date stating that such firm concurs that the Merger
will qualify as a pooling-of-interests transaction, subject to certain
assumptions.
Microtek's obligation to consummate the Merger is subject to various
additional conditions, including (a) approval and adoption of the Merger
Agreement by the affirmative vote of a majority of the Microtek Shares; (b) the
authorization for listing on Nasdaq of the Isolyser Shares to be issued in the
Merger and upon the exercise of the Options; (c) the absence of any stop order
suspending the effectiveness of the Registration Statement or preventing the use
thereof or of any related prospectus; (d) the receipt by Microtek of an opinion
of Arnall Golden & Gregory, counsel for Isolyser, that subject to certain
exceptions and assumptions, no gain or loss will be recognized by the Microtek
stockholders as a result of the Merger; and (e) the absence of any material
adverse change with respect to Isolyser.
Each of Microtek and Isolyser maintain credit facilities with Chemical Bank
for certain revolving credit and term loans containing covenants prohibiting the
Merger absent obtaining the prior written consent of Chemical Bank. Unless
waived, the obligations of Microtek and Isolyser under the Merger Agreement are
respectively conditioned upon procuring such consent. Although each of Microtek
and Isolyser anticipate obtaining such consent based upon preliminary
conversations with Chemical Bank, there can be no assurance that such consent
will be obtained. In addition, the credit facility maintained by Microtek
includes provisions for a pre-payment penalty in the amount of $480,000 upon
termination of such credit facility at any time prior to November 30, 1996. Each
of Microtek and Isolyser will request that such pre-payment penalty be waived in
connection with this transaction, although there can be no assurance that such
pre-payment penalty, or other amounts, will not be required to be paid in
connection with such credit facilities and the consummation of the Merger.
AMENDMENT OF THE MERGER AGREEMENT; WAIVER OF CONDITIONS
The respective Boards of Directors of Isolyser, the Isolyser Subsidiary and
Microtek may, by written agreement, at any time before or after the approval of
the Merger Agreement by the Microtek or Isolyser stockholders (or both), amend
the Merger Agreement, provided that after such stockholder approval no amendment
or modification may be made that would adversely affect the Microtek or Isolyser
stockholders or alter or change the number of Isolyser Shares to be received in
exchange for the Microtek Shares without the further approval of such
stockholders. Each party may, to the extent legally permitted, extend the time
for the performance of any of the obligations of any other party to the Merger
Agreement, waive any inaccuracies in the representations or warranties of any
other party contained in the Merger Agreement, waive compliance or performance
by any other party with any covenants, agreements or obligations contained in
the Merger Agreement or waive the satisfaction of any condition that is
precedent to its performance under the Merger Agreement.
TERMINATION OF MERGER AGREEMENT
The Merger Agreement may be terminated and the Merger abandoned, at any time
prior to the Effective Date, whether before or after the approval by the
Microtek or Isolyser stockholders (or both), (i) by the mutual consent of
Isolyser and Microtek; (ii) by Isolyser if there has been a material
misrepresentation or breach of warranty in the representations and warranties of
Microtek made in the Merger Agreement or there has been a material failure by
Microtek to comply with its obligations under the Merger Agreement, subject to
certain exceptions; (iii) by Microtek if there has been a material
misrepresentation or breach of warranty in the representations and warranties of
Isolyser made in the Merger Agreement or there has been a material failure by
Isolyser to comply with its obligations under the Merger Agreement, subject to
certain exceptions; (iv) by either Isolyser or Microtek if all conditions to
that party's obligation to consummate the Merger have not been satisfied
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or waived by September 30, 1996, unless such failure of consummation is due to
the failure of the terminating party to perform or observe the covenants,
agreements, and conditions hereof to be performed or observed by it; (v) by
either Isolyser or Microtek if the consummation of the Merger would violate any
nonappealable final order, decree or judgment of any court or governmental body
or agency having competent jurisdiction; (vi) by Microtek, if in the exercise of
the good faith judgment of its Board of Directors (which judgment is based upon
the advice of independent, outside legal counsel) as to its fiduciary duties to
its stockholders such termination is required by reason of an Acquisition
Proposal; or (vii) by Isolyser, if the Microtek Board of Directors withdraws or
materially modifies or changes its recommendation to the stockholders of
Microtek to approve the Merger Agreement and the Merger.
If Isolyser or Microtek terminates the Merger Agreement as provided above,
there will be no liability on the part of any party or its officers, directors
or stockholders, except as described in "-- Fees and Expenses" below.
FEES AND EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such costs or expenses. Notwithstanding the
foregoing, if (a) Microtek terminates the Merger Agreement because its Board of
Directors, in the exercise of its good faith judgment (based upon advice of
independent, outside legal counsel) as to its fiduciary duties to its
stockholders determines such termination is required by reason of an Acquisition
Proposal; (b) the Merger Agreement is terminated by Isolyser because the
Microtek Board of Directors withdraws or materially modifies or changes its
recommendation to the stockholders of Microtek to approve the Merger Agreement
and the Merger; or (c) on or before September 30, 1996, Microtek enters into a
definitive agreement with respect to an Acquisition Proposal, and such
transaction (including any revised transaction based upon the Acquisition
Proposal) is thereafter consummated (whether before or after September 30,
1996), then, upon the occurrence of (a), (b) or (c) above, Microtek shall pay to
Isolyser a fee equal to the sum of $2.5 million.
CERTAIN COVENANTS
The Merger Agreement provides that Microtek will not directly or indirectly
(i) solicit or initiate discussions with or (ii) enter into any negotiations or
agreements with, or furnish any information that is not publicly available to,
any third party concerning an Acquisition Proposal involving Microtek; provided,
however, that Microtek may take the actions prohibited by (ii) above if such
action is taken by, or upon the authority of, the Microtek Board in the exercise
of its good faith judgment as to its fiduciary duties to the Microtek
stockholders, which judgment is based upon the written advice of independent,
outside legal counsel. Microtek has agreed to notify Isolyser promptly in
writing if Microtek receives any inquiries or proposals with respect to an
Acquisition Proposal.
Under the Merger Agreement, Microtek is generally obligated prior to the
Effective Date to conduct its operations in the ordinary and usual course of
business consistent with past and current practices, to notify Isolyser of
changes in the normal course of its business and to refrain from taking certain
actions without the consent of Isolyser, including, among other matters, issuing
stock (subject to certain exceptions), declaring dividends, or entering into
transactions outside the ordinary course of business.
Microtek and Isolyser have agreed in the Merger Agreement to indemnify after
the Effective Date Microtek's current and former officers and directors for
claims made against such persons because they were a director, officer, employee
or agent of Microtek or its subsidiaries or serving at the request of Microtek
or any subsidiary as a director, officer, employee or agent of another entity;
provided, however, Microtek and Isolyser will have no obligation to indemnify
such a person (a) if a court determines (and such determination becomes final
and non-appealable) that the indemnification is prohibited by law or (b) if
Isolyser asserts that Microtek breached a representation or warranty in the
Merger Agreement with respect to the same matters for which indemnification is
being sought, except if such person proves that he
36
<PAGE>
or she had no actual knowledge of such breach at the Effective Date. Isolyser
will not amend or repeal any provisions of the Certificate of Incorporation or
Bylaws of Microtek in any manner which would adversely affect the
indemnification provisions contained in the Merger Agreement. For a period of
two years from the Effective Date, Microtek shall maintain directors and
officers liability insurance covering the directors and officers covered on the
date of the Merger Agreement by Microtek's directors' and officers' liability
insurance policy or cause Isolyser's directors' and officers' liability
insurance policy to cover such persons, except that neither Microtek nor
Isolyser, shall be required to expend in premiums for such insurance an amount
greater than the rate paid by Microtek for the policy period immediately
preceding the date of execution of the Merger Agreement and except that Isolyser
shall have no liability or obligation to maintain such insurance to the extent
that any such policy is not reasonably available on the terms required by the
Merger Agreement.
CERTAIN REGULATORY MATTERS
Consummation of the Merger is conditioned upon receipt by Isolyser and
Microtek of such regulatory and other approvals as are required under applicable
law, including certain approvals from the Commission. Other than these approvals
and the matters described below, Isolyser and Microtek know of no such
regulatory or other approvals required by law.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), certain acquisition transactions, including the proposed Merger, may not
be consummated unless certain information has been furnished to the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Justice
Department (the "Antitrust Division") and certain waiting period requirements
have expired or been terminated. In accordance with the HSR Act, Isolyser and
Microtek have filed Notification and Report Forms and certain supplementary
materials with the Antitrust Division and the FTC for review in connection with
the proposed Merger, and all waiting period requirements under the HSR Act have
expired.
POTENTIAL RESALES OF ISOLYSER SHARES RECEIVED IN THE MERGER
The Isolyser Shares to be issued to Microtek stockholders in connection with
the Merger will be freely transferable under the Securities Act, except for
shares issued to any person who, at the time of the Isolyser and Microtek
Special Meetings, may be deemed to be an "affiliate" of Microtek, Isolyser or
the Isolyser Subsidiary within the meaning of Rule 145 under the Securities Act.
In general, affiliates of Microtek, Isolyser or the Isolyser Subsidiary include
any person or entity who controls, is controlled by or is under common control
with Microtek, Isolyser or the Isolyser Subsidiary. Rule 145, among other
things, imposes certain restrictions upon the resale of securities received by
affiliates in connection with certain reclassifications, mergers, consolidations
or asset transfers. The Isolyser Shares received by affiliates of Microtek,
Isolyser or the Isolyser Subsidiary in the Merger will be subject to the
applicable resale limitations of Rule 145.
Additionally, consistent with the requirements of a pooling-of-interests
transaction, affiliates of Isolyser and Microtek will be restricted from
disposing of any Isolyser Common Stock for the period beginning 30 days prior to
the Effective Date until the publication of financial statements by Isolyser
which include at least 30 days of post-Merger operating results. The Merger
Agreement provides that Isolyser shall receive a written undertaking from the
directors, executive officers and certain stockholders of Microtek not to sell
any Microtek Shares (and Isolyser Shares acquired in the Merger) owned directly
or indirectly by them until after the publication of these post-Merger financial
statements.
NASDAQ LISTING OF THE ISOLYSER SHARES
Isolyser will apply for listing on Nasdaq of the Isolyser Shares to be
issued in connection with the Merger and upon the exercise of Microtek options
assumed by Isolyser pursuant to the Merger Agreement. It is expected that such
shares shall be approved for listing on Nasdaq, subject to notice of issuance.
See "-- Conditions to Merger."
37
<PAGE>
ACCOUNTING TREATMENT
Isolyser intends to account for the business combination of Isolyser and
Microtek in its financial statements by the pooling-of-interests method of
accounting. Receipt by Isolyser of a letter from the independent certified
public accountants for Isolyser confirming the appropriateness of this
accounting treatment is a condition precedent to the Merger. Under this method
of accounting, as of the Effective Date, the assets and liabilities of Microtek
would be added to those of Isolyser at their recorded book values and the
stockholders' equity accounts of Isolyser and Microtek would be combined in
Isolyser's consolidated balance sheet. Additionally, all prior period balance
sheets of Isolyser would be restated and combined with those of Microtek in the
same manner. Under the pooling-of-interests basis of accounting, revenues and
expenses of both Isolyser and Microtek for all periods prior to the Effective
Date and for all periods thereafter are combined and reported as operations of
the combined enterprises as if the Merger had taken place prior to the periods
covered by such consolidated financial statements and to reflect the accounting
policies of Isolyser. See "-- Conditions to Merger."
The unaudited pro forma condensed consolidated financial information
contained in this Joint Proxy Statement/Prospectus has been prepared using: (i)
the pooling-of-interests basis of accounting to account for the Merger, and (ii)
the purchase accounting basis to account for Isolyser's completed acquisitions
of White Knight and SafeWaste and Microtek's completed acquisition of Medi-Plast
and Venodyne. Under the purchase basis of accounting, an acquiring enterprise
allocates the cost of an acquired enterprise to the assets acquired and the
liabilities assumed based upon their fair values as of the effective date of the
acquisition. The excess, if any, of the cost of the acquired enterprise over the
sum of the amounts assigned to identifiable assets less liabilities assumed is
treated as goodwill. Financial statements issued after consummation of an
acquisition accounted for as a purchase would reflect such values and prior
period financial statements would not be restated retroactively to reflect the
historical financial position or results of operations of the acquired company.
See "Summary" and "Pro Forma Condensed Consolidated Financial Information."
The terms of the outstanding Microtek options provide that such options
shall become fully exercisable without regard to any vesting criteria specified
in such options upon the occurrence of the Effective Date. Such vesting will
result in the elimination of certain performance-based vesting criteria
contained in stock options issued to each of Messrs. Vought and Lee for the
purchase of 25,000 shares of Microtek Common Stock at an exercise price of $5.75
per share. Applicable accounting standards require that the elimination of such
vesting criteria be accounted for as compensation expense by Microtek to Messrs.
Vought and Lee in an amount equal to the difference between the aggregate fair
market value of the shares underlying such stock options as of the Effective
Date and the aggregate exercise price set forth in such stock options. Such
charges in excess of amounts previously recognized by Microtek through February
29, 1996 will be reflected on Isolyser's consolidated statement of operations
for the period in which the Effective Date occurs. Other extraordinary charges
are expected to be recognized and reflected on Isolyser's consolidated statement
of operations for the period in which the Effective Date occurs. See "Isolyser
and Microtek Pro Forma Combined Financial Information."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is a condition to the obligation of Microtek to consummate the Merger
that Microtek receive an opinion from Arnall, Golden & Gregory, tax counsel for
Isolyser, to the effect that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
and no gain or loss will be recognized by a Microtek stockholder as a result of
the Merger with respect to shares of Microtek Common Stock converted solely into
Isolyser Common Stock. The effects of any cash received in lieu of fractional
share interests are discussed below.
Assuming that certain representations to be made by Microtek and Isolyser
are true as of the Effective Date, Arnall, Golden & Gregory will be of the
opinion that the Merger will qualify as a reorganization under the Code with the
consequences set forth above. The opinion will be subject to
38
<PAGE>
the qualification that there exists no plan or intention by the Microtek
stockholders to sell or otherwise dispose of fifty percent (50%) or more of the
Isolyser Common Stock received by all former Microtek stockholders in the
Merger. Assuming that the Merger so qualifies, the tax basis of the Isolyser
Shares received by Microtek stockholders in the Merger will be the same, in each
instance, as the tax basis of the Microtek Shares surrendered in exchange
therefor, excluding any basis allocable to fractional share interests in
Isolyser Common Stock for which cash is received. In addition, the holding
period of the Isolyser Shares received in the Merger by Microtek stockholders
will include the period during which the shares of Microtek surrendered in
exchange therefor were held, provided that such shares of Microtek Common Stock
were held as capital assets at the Effective Date.
Holders of Microtek Common Stock who receive cash in the Merger as a result
of the rounding off of fractional share interests in Isolyser Common Stock will
be treated, in each instance, as having received the fractional share interests
and then as having sold such interests for the cash received. This sale will
result in the recognition of gain or loss for federal income tax purposes,
measured by the difference between the amount of cash received and the portion
of the basis of the share of Microtek Common Stock allocable to such fractional
share interests. Such gain or loss will be capital gain or loss, provided that
such share of Microtek Common Stock was held as a capital asset at the Effective
Date, and will be long-term capital gain or loss if such share of Microtek
Common Stock has been held for more than one year.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER
TO VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. THE
DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A
PARTICULAR MICROTEK STOCKHOLDER SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN
FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE
COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS AND STOCKHOLDERS
WHO ACQUIRED THEIR SHARES AS COMPENSATION, NOR ANY CONSEQUENCES ARISING UNDER
THE LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. THE DISCUSSION IS BASED
UPON THE CODE, TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND
COURT DECISIONS AS OF THE DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO
CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS
DISCUSSION. MICROTEK STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER
TO THEM.
NO APPRAISAL RIGHTS
Pursuant to Delaware law, no holder of record of the Microtek Shares who
objects to the Merger shall have appraisal or dissenters' rights in connection
with the Merger. Pursuant to Georgia law, no holder of record of Isolyser Common
Stock who objects to the Merger Proposal shall have appraisal or dissenters'
rights in connection with the Merger.
39
<PAGE>
ISOLYSER AND MICROTEK
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial statements give effect
to the Merger of Isolyser and Microtek under the pooling of interests method of
accounting. The unaudited pro forma combined balance sheet as of March 31, 1996
gives effect to the Merger as though it had been consummated on that date. The
unaudited pro forma combined balance sheet as of March 31, 1996 also gives
effect to Microtek's acquisition of Venodyne on April 27, 1996 as if such
acquisition had occurred on February 29, 1996. The unaudited pro forma combined
statements of operations for the years ended December 31, 1993, 1994 and 1995
and for the three-months ended March 31, 1996 give effect to the Merger as if it
had occurred at the beginning of the earliest year presented. For the year ended
December 31, 1995, the unaudited pro forma statement of operations also gives
effect to Isolyser's acquisitions of SafeWaste on May 31, 1995 and White Knight
effective September 1, 1995 and Microtek's acquisitions of Medi-Plast on
November 30, 1995 and Venodyne on April 27, 1996 as if such acquisitions had
occurred at the beginning of Isolyser's and Microtek's fiscal years, January 1,
1995 and December 1, 1994, respectively. For the three-months ended March 31,
1996, the unaudited pro forma statement of operations also gives effect to
Microtek's acquisition of Venodyne as if such acquisition had occurred at
December 1, 1994. For purposes of these unaudited pro forma combined financial
statements, the balance sheet and statements of operations data combine
Microtek's balance sheet as of February 29, 1996 and its statements of
operations for the years ended November 30, 1993, 1994 and 1995, respectively,
as Microtek's fiscal year ends on November 30.
The unaudited combined pro forma financial statements have been prepared by
both Isolyser and Microtek based upon their respective consolidated financial
statements and certain assumptions. Pro forma per share amounts are based on the
Exchange Ratio of 1.65 shares of Isolyser Common Stock for each share of
Microtek Common Stock. The unaudited pro forma combined statements of operations
do not reflect estimated Merger expenses (estimated at approximately $2,750,000)
or any operating synergies or cost savings which may result from the Merger. In
addition to the assumptions relating to the Merger, the unaudited pro forma
combined statement of operations for the year ended December 31, 1995 and for
the three-months ended March 31, 1996 also includes assumptions related to the
amortization of intangibles, depreciation, financing costs, income taxes and the
issuance of common stock resulting from Isolyser's acquisitions of SafeWaste and
White Knight and Microtek's acquisitions of Medi-Plast and Venodyne accounted
for using the purchase method of accounting. See "Isolyser -- Pro Forma Combined
Financial Information" and "Microtek -- Pro Forma Combined Financial
Information."
The unaudited pro forma combined financial statements also should be read in
conjunction with the historical consolidated financial statements and notes
thereto in Isolyser's and Microtek's separate Annual Reports on Form 10-K for
the year ended December 31, 1995 and November 30, 1995, respectively, and
Quarterly Reports on Form 10-Q for the three-months ended March 31, 1996 and
February 29, 1996, respectively, incorporated by reference herein, the
historical financial statements of SafeWaste and White Knight included in
Isolyser's current reports on Form 8-K filed with the Commission on June 15,
1995 and October 3, 1995, respectively, incorporated by reference herein, and
the historical financial statements of Medi-Plast and Venodyne included in
Microtek's Annual Report on Form 10-K for the year ended November 30, 1995,
incorporated by reference herein.
The pro forma information is not necessarily indicative of the operating
results and financial position that would have been reported had the Merger and
the SafeWaste, White Knight, Medi-Plast and Venodyne acquisitions occurred at
the pro forma dates specified, nor is it necessarily indicative of future
results.
40
<PAGE>
ISOLYSER AND MICROTEK
UNAUDITED COMBINED PRO FORMA BALANCE SHEET
MARCH 31, 1996
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
MICROTEK
WITH PRO FORMA PRO FORMA
ISOLYSER VENODYNE ADJUSTMENTS COMBINED
------------- ------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 45,755 $ 667 $ 3(2) $ 46,425
Accounts receivable, net............................. 18,619 7,222 (89)(2) 25,691
(61)(3)
Inventories, net..................................... 38,551 11,905 12(2) 50,468
Prepaid inventories.................................. 973 973
Deferred income taxes................................ 2,393 208 2,601
Prepaid expenses and other assets.................... 2,194 544 2,738
------------- ------------ ------------ -------------
Total current assets............................... 108,485 20,546 (135) 128,896
------------- ------------ ------------ -------------
Property and equipment, net............................ 58,035 5,581 134(2) 63,750
Deposits on machinery and equipment.................... 3,532 3,532
Intangible assets, net................................. 37,102 26,382 240(2) 63,724
Investments in joint ventures.......................... 404 100 (300)(2) 204
Other assets, net...................................... 597 597
------------- ------------ ------------ -------------
Total assets....................................... $ 208,155 $ 52,609 $ (61) $ 260,703
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft....................................... $ 1,889 $ 1,889
Accounts payable..................................... 12,455 $ 2,887 $ (61)(3) 15,281
Accrued compensation................................. 2,463 280 2,743
Other accrued liabilities............................ 1,531 890 2,750(5) 5,418
247(4)
Current portion of long term debt.................... 1,513 2,500 4,013
------------- ------------ ------------ -------------
Total current liabilities.......................... 19,851 6,557 2,936 29,344
------------- ------------ ------------ -------------
Long term debt......................................... 9,899 23,959 33,858
Deferred income taxes.................................. 3,728 231 3,959
Other liabilities...................................... 270 270
------------- ------------ ------------ -------------
Total liabilities.................................. 33,748 30,747 2,936 67,431
------------- ------------ ------------ -------------
Shareholders' equity:
Common stock......................................... 31 48 (40)(6) 39
Additional paid in capital........................... 181,202 20,214 (1,273)(6) 200,597
454(4)
Retained earnings (deficit).......................... (4,429) 3,333 (2,750)(5) (4,547)
(701)(4)
Unearned shares -- ESOP.............................. (420) (420)
------------- ------------ ------------ -------------
176,804 23,175 (4,310) 195,669
Less: shares held in treasury........................ (2,397) (1,313) 1,313(6) (2,397)
------------- ------------ ------------ -------------
Total shareholders' equity......................... 174,407 21,862 (2,997) 193,272
------------- ------------ ------------ -------------
Total Liabilities and Shareholders' Equity............. $ 208,155 $ 52,609 $ (61) $ 260,703
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
</TABLE>
41
<PAGE>
ISOLYSER AND MICROTEK
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ISOLYSER MICROTEK ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.............................................. $ 11,831 $ 26,938 $ 38,769
Cost of goods sold..................................... 6,971 13,866 20,837
------------ ------------ ------------ ------------
Gross profit......................................... 4,860 13,072 17,932
------------ ------------ ------------ ------------
Operating expenses:
Selling and marketing expenses....................... 2,494 6,988 9,482
General and administrative expenses.................. 1,227 2,576 3,803
Research and development............................. 587 333 920
Amortization of intangibles.......................... 291 1,067 1,358
------------ ------------ ------------ ------------
Total operating expenses........................... 4,599 10,964 15,563
------------ ------------ ------------ ------------
Income from operations................................. 261 2,108 2,369
Interest income........................................ 799 799
Interest expense....................................... (348) (348)
Other income........................................... 22 22
------------ ------------ ------------ ------------
Income before income tax provision and extraordinary
item.................................................. 1,060 1,782 2,842
Income tax provision................................... 424 775 1,199
------------ ------------ ------------ ------------
Income before extraordinary item....................... $ 636 $ 1,007 $ 1,643
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income before extraordinary item per common and common
equivalent share...................................... $ 0.04 $ 0.20 $ 0.07
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common and common equivalent
shares outstanding.................................... 16,053 5,059 3,288(6) 24,400
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
42
<PAGE>
ISOLYSER AND MICROTEK
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ISOLYSER MICROTEK ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.............................................. $ 46,625 $ 26,894 $ (136)(3) $ 73,383
Cost of goods sold..................................... 35,117 14,947 $ (136)(3) 49,928
------------ ------------ ------------ ------------
Gross profit......................................... 11,508 11,947 23,455
------------ ------------ ------------ ------------
Operating expenses:
Selling and marketing expenses....................... 7,528 6,572 14,100
General and administrative expenses.................. 4,161 3,230 7,391
Research and development............................. 1,045 201 1,246
Amortization of intangibles.......................... 1,103 402 1,505
Restructuring charge................................. 140 140
------------ ------------ ------------ ------------
Total operating expenses........................... 13,837 10,545 24,382
------------ ------------ ------------ ------------
Income (loss) from operations.......................... (2,329) 1,402 (927)
Interest income........................................ 1,356 1,356
Interest expense....................................... (321) (373) (694)
------------ ------------ ------------ ------------
Income (loss) before income tax provision and
cumulative effect of change in accounting principle... (1,294) 1,029 (265)
Income tax provision................................... 11 444 455
------------ ------------ ------------ ------------
Income (loss) before cumulative effect of change in
accounting principle.................................. $ (1,305) $ 585 $ $ (720)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income (loss) before cumulative effect of change in
accounting principle per common and common equivalent
share................................................. $ (0.11) $ 0.11 $ (0.03)
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common and common equivalent
shares outstanding.................................... 18,684 5,058 3,288(6) 27,030
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
43
<PAGE>
ISOLYSER AND MICROTEK
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
MICROTEK
PRO FORMA ISOLYSER WITH
WITH SAFEWASTE AND MEDI-PLAST PRO FORMA PRO FORMA
WHITE KNIGHT AND VENODYNE ADJUSTMENTS COMBINED
------------------ ------------ ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales......................................... $ 113,179 $ 39,164 $ (599)(3) $ 151,744
Cost of goods sold................................ 86,678 20,267 (599)(3) 106,346
---------- ------------ ----------- -------------
Gross profit.................................... 26,501 18,897 45,398
---------- ------------ ----------- -------------
Operating expenses:
Selling and marketing expenses.................. 18,299 7,662 25,961
General and administrative expenses............. 7,993 4,644 139(2) 12,776
Research and development........................ 959 314 1,273
Amortization of intangibles..................... 3,304 1,065 77(2) 4,446
---------- ------------ ----------- -------------
Total operating expenses...................... 30,555 13,685 216 44,456
---------- ------------ ----------- -------------
Income (loss) from operations..................... (4,054) 5,212 (216) 942
Interest income................................... 2,050 10 2,060
Interest expense.................................. (1,531) (1,604) (3,135)
Losses of joint ventures.......................... (214) (91) 216(2) (89)
Other income...................................... 8 8
---------- ------------ ----------- -------------
Income (loss) before income tax provision
(benefit)........................................ (3,749) 3,535 (214)
Income tax provision (benefit).................... (400) 1,365 965
---------- ------------ ----------- -------------
Net income (loss)................................. $ (3,349) $ 2,170 $ $ (1,179)
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
Net income (loss) per common and common equivalent
share............................................ $ (0.13) $ 0.44 $ (0.03)
---------- ------------ -------------
---------- ------------ -------------
Weighted average number of common and common
equivalent shares outstanding.................... 25,884 4,927 3,203(6) 34,014
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
</TABLE>
44
<PAGE>
ISOLYSER AND MICROTEK
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE-MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
MICROTEK
WITH PRO FORMA PRO FORMA
ISOLYSER VENODYNE ADJUSTMENTS COMBINED
---------- ------------ ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales......................................... $ 31,008 $ 10,199 $ (154)(3) $ 41,053
Cost of goods sold................................ 23,880 5,171 (154)(3) 28,897
-------- ------------ ----------- -------------
Gross profit.................................... 7,128 5,028 12,156
-------- ------------ ----------- -------------
Operating expenses:
Selling and marketing expenses.................. 4,963 1,874 6,837
General and administrative expenses............. 2,049 1,164 64(2) 3,277
Research and development........................ 297 34 331
Amortization of intangibles..................... 807 308 29(2) 1,144
-------- ------------ ----------- -------------
Total operating expenses...................... 8,116 3,380 93 11,589
-------- ------------ ----------- -------------
Income (loss) from operations..................... (988) 1,648 (93) 567
Interest income................................... 641 641
Interest expense.................................. (229) (376) (605)
Losses of joint ventures.......................... (67) (46) 93(2) (20)
-------- ------------ ----------- -------------
Income (loss) before income tax provision
(benefit)........................................ (643) 1,226 583
Income tax provision (benefit).................... (266) 496 230
-------- ------------ ----------- -------------
Net income (loss)................................. $ (377) $ 730 $ $ 353
-------- ------------ ----------- -------------
-------- ------------ ----------- -------------
Net income (loss) per common and common equivalent
share............................................ $ (0.01) $ 0.15 $ 0.01
-------- ------------ -------------
-------- ------------ -------------
Weighted average number of common and common
equivalent shares outstanding.................... 30,500 4,991 3,244(6) 38,735
-------- ------------ ----------- -------------
-------- ------------ ----------- -------------
</TABLE>
45
<PAGE>
ISOLYSER AND MICROTEK
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(1) The unaudited pro forma combined financial statements give effect to the
Merger of Isolyser and Microtek under the pooling of interests method of
accounting. The unaudited pro forma combined statement of operations for the
year ended December 31, 1995 also gives effect to Isolyser's acquisitions of
SafeWaste on May 31, 1995 and White Knight effective September 1, 1995 and
Microtek's acquisitions of Medi-Plast on November 30, 1995 and Venodyne on
April 27, 1996, as if such acquisitions had occurred at the beginning of
Isolyser's and Microtek's fiscal years, January 1, 1995 and December 1,
1994, respectively. The unaudited pro forma combined statement of operations
for the three months ended March 31, 1996 also gives effect to Microtek's
acquisition of Venodyne as if such acquisition had occurred at December 1,
1994. The unaudited pro forma combined balance sheet also gives effect to
Microtek's acquisition of Venodyne on April 27, 1996 as if such acquisition
occurred on February 29, 1996. For purposes of these unaudited pro forma
combined financial statements, the balance sheet and statement of operations
data combine Microtek's balance sheet as of February 29, 1996 and its
statements of operations for the years ended November 30, 1993, 1994 and
1995, and for the three months ended February 29, 1996, respectively, as
Microtek's fiscal year ends on November 30.
(2) To consolidate the accounts of the joint venture between Isolyser and
Microtek.
(3) To eliminate inter-company trade transactions and balances between Isolyser
and Microtek.
(4) Reflects additional compensation expense of $454,000, before income tax
benefit of $173,000, resulting from the accelerated vesting of certain
performance based stock options held by certain officers of Microtek. The
related stock option agreements provide for complete vesting upon a change
in control of Microtek. Also reflects currently anticipated severance
expense of $677,000, before income tax benefit of $257,000, resulting from
the Merger.
(5) Reflects estimated Merger expenses of $2,750,000. These expenses include
investment banking, legal, accounting and miscellaneous transaction costs of
the Merger, and are excluded from the pro forma statements of operations.
Plans for the integration and consolidation of the companies' operations are
currently being developed, but associated costs are not presently estimable.
The accounting policies utilized by Isolyser and Microtek are currently
being studied from a conformity perspective; however, the impact of any
potential adjustment is not presently expected to be material.
(6) Reflects the assumed issuance of shares of Isolyser's $.001 par value common
stock in exchange for all outstanding common shares of Microtek as of March
31, 1996, utilizing the Exchange Ratio of 1.65-for-one, and the assumed
cancellation of Microtek common shares held in treasury. Upon consummation
of the Merger, all rights to shares of Microtek common stock pursuant to
Microtek issued stock options shall immediately convert to equivalent rights
with respect to Isolyser common stock utilizing the Exchange Ratio.
46
<PAGE>
ISOLYSER
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined statement of operations for the
year ended December 31, 1995 gives effect to Isolyser's acquisition of SafeWaste
on May 31, 1995 and of White Knight effective September 1, 1995 as if such
acquisitions had occurred on January 1, 1995. Both of these acquisitions have
been accounted for using the purchase method of accounting.
The pro forma combined financial statement should be read in conjunction
with the historical consolidated financial statements of Isolyser included in
its Annual Report on Form 10-K for the year ended December 31, 1995,
incorporated by reference herein, and the historical financial statements of
SafeWaste and White Knight included in Isolyser's current reports on Form 8-K
filed with the Commission June 15, 1995, as amended on July 17, 1995, and
October 3, 1995, respectively, incorporated by reference herein.
The pro forma information is not necessarily indicative of the results that
would have been reported had such transactions occurred on January 1, 1995, nor
is it necessarily indicative of future results.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
INTER-COMPANY PRO FORMA PRO FORMA
ISOLYSER SAFEWASTE (1) WHITE KNIGHT (1) ELIMINATIONS (2) ADJUSTMENTS (3) COMBINED
-------- ------------- ---------------- ----------------- --------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales........... $ 75,414 $ 260 $38,590 $(1,085) $113,179
Cost of goods
sold............... 59,276 224 28,218 (1,085) $ 45(4) 86,678
-------- ------ -------- ------- ------- ---------
Gross profit...... 16,138 36 10,372 (45) 26,501
-------- ------ -------- ------- ------- ---------
Operating expenses:
Selling and
marketing
expenses......... 12,763 67 5,469 18,299
General and
administrative
expenses......... 6,038 187 2,019 (251)(5) 7,993
Research and
development...... 959 959
Amortization of
intangibles...... 1,901 10 85 1,308(6) 3,304
-------- ------ -------- ------- ------- ---------
Total operating
expenses....... 21,661 264 7,573 1,057 30,555
-------- ------ -------- ------- ------- ---------
Income (loss) from
operations......... (5,523) (228) 2,799 (1,102) (4,054)
Interest income..... 3,205 3 (1,158)(7) 2,050
Interest expense.... (830) (3) (1,153) 455(8) (1,531)
Equity in losses of
joint ventures..... (169) (28) (17)(9) (214)
-------- ------ -------- ------- ------- ---------
Income (loss) before
income tax
provision
(benefit).......... (3,317) (256) 1,646 (1,822) (3,749)
Income tax provision
(benefit).......... (465) 632 (567)(10) (400)
-------- ------ -------- ------- ------- ---------
Net income (loss)... $ (2,852) $(256) $ 1,014 $ $(1,255) $ (3,349)
-------- ------ -------- ------- ------- ---------
-------- ------ -------- ------- ------- ---------
Net loss per common
and common
equivalent share... $ (.11) $ (.13)
-------- ---------
-------- ---------
Weighted average
number of common
and common
equivalent shares
outstanding........ 25,575 25,884(11)
-------- ---------
-------- ---------
</TABLE>
47
<PAGE>
ISOLYSER
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) Reflects for the year ended December 31, 1995, the historical operating
results of SafeWaste through May 31, 1995, and White Knight through August
31, 1995.
(2) Eliminates inter-company sales by SafeWaste and White Knight to Isolyser.
(3) Effective September 1, 1995, Isolyser acquired White Knight. The purchase
price of White Knight included the payment of $22,500,000 in cash and the
issuance of $7,000,000 in Isolyser Common Stock to the shareholders of White
Knight, and the payment of approximately $1,388,000 in expenses. The cash
portion of the purchase price is also subject to certain closing date
adjustments, which Isolyser expects to resolve in 1996.
Based on a purchase price allocation, White Knight's historical accounts
were adjusted to reflect (i) a $1,468,000 increase in inventories, (ii) a
$2,943,000 increase in property and equipment, (iii) a $21,512,000 increase
in intangible assets, (iv) a net $2,592,000 increase in deferred income tax
liabilities, resulting from the fact that the tax basis of the acquired net
assets of White Knight will not be adjusted as a result of the acquisition,
and (iv) a net $874,000 increase in other liabilities. The $21,512,000
adjustment to intangible assets consisted of $4,124,000 allocated to
customer lists and $17,388,000 allocated to goodwill. Customer lists and
goodwill are being amortized using the straight-line method over 7 and 20
years, respectively.
Through borrowings under its credit facility and from existing cash
balances, Isolyser repaid $13,455,000 of White Knight's long-term
indebtedness, including $9,276,000 of revolving credit borrowings from a
bank and $4,179,000 of subordinated notes payable.
(4) Reflects an increase in depreciation expense as a result of the purchase
price adjustment to property and equipment.
(5) Reflects the elimination of salaries and benefits paid to employees of
White Knight who were terminated and not replaced.
(6) Reflects an increase in amortization expense as a result of the acquisition
of SafeWaste and White Knight. Amortization of goodwill arising from the
SafeWaste and White Knight acquisitions is over 10 and 20 years,
respectively. Amortization of customer lists is over 5 to 7 years.
(7) Reflects a net reduction in interest income on cash equivalents assuming
the acquisitions had occurred on January 1, 1995 and that the cash
equivalents had been used to fund the acquisitions.
(8) Reflects a reduction in interest expense for approximately $9,276,000 of
White Knight indebtedness refinanced under Isolyser's credit facilities at
lower effective interest rates.
(9) Reflects an additional expense for the amortization of the difference
between the value assigned to SafeWaste's investment in a joint venture over
its share of the underlying equity. This difference is being amortized over
5 years.
(10) Adjusts income tax benefit to reflect the pro forma effect on income tax
benefit resulting from the acquisition of SafeWaste and White Knight. The
pro forma effective tax rate differs from the federal and state statutory
tax rates due to non-deductible goodwill amortization expense arising from
Isolyser's acquisitions.
(11) Weighted average common shares outstanding is calculated assuming the
acquisitions of SafeWaste and White Knight occurred on January 1, 1995.
48
<PAGE>
MICROTEK
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet as of February 29,
1996 gives effect to Microtek's April 27, 1996 acquisition of Venodyne as if
such acquisition had occurred on February 29, 1996. The following unaudited pro
forma combined statements of operations for the year ended November 30, 1995 and
for the three-months ended February 29, 1996 gives effect to Microtek's
acquisitions of Venodyne on April 27, 1996 and Medi-Plast on November 30, 1995
as if such acquisitions had occurred on December 1, 1994. These acquisitions
have been accounted for using the purchase method of accounting.
The pro forma combined financial statements should be read in conjunction
with the historical consolidated financial statements of Microtek and the
historical financial statements of Medi-Plast and Venodyne included in
Microtek's Annual Report on Form 10-K for the year ended November 30, 1995,
incorporated by reference herein.
The pro forma combined information is not necessarily indicative of the
results that would have been reported had such transaction occurred on the pro
forma dates specified, nor is it necessarily indicative of future results.
49
<PAGE>
MICROTEK
UNAUDITED COMBINED PRO FORMA BALANCE SHEET
FEBRUARY 29, 1996
ASSETS
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MICROTEK VENODYNE (1) ADJUSTMENTS (2) COMBINED
--------- ------------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash.................................................... $ 667 $ 667
Accounts receivable, net................................ 6,269 $ 953 7,222
Inventories, net........................................ 11,595 310 11,905
Deferred income taxes................................... 208 208
Prepaid expenses and other assets....................... 522 22 544
--------- ------------- -----------
Total current assets.................................. 19,261 1,285 20,546
--------- ------------- -----------
Property and equipment, net............................... 5,394 187 5,581
Intangible assets, net.................................... 21,904 180 $ 4,298 26,382
Investment in joint venture............................... 100 100
--------- ------------- ------- -----------
Total assets.......................................... $ 46,659 $ 1,652 $ 4,298 $ 52,609
--------- ------------- ------- -----------
--------- ------------- ------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 2,747 $ 140 $ 2,887
Accrued compensation.................................... 280 280
Other accrued liabilities............................... 830 60 890
Current portion of long term debt....................... 2,500 2,500
--------- ------------- -----------
Total current liabilities............................. 6,357 200 6,557
Long term debt............................................ 18,209 $ 5,750 23,959
Deferred income taxes..................................... 231 231
--------- ------------- ------- -----------
Total liabilities..................................... 24,797 200 5,750 30,747
Shareholders' equity:
Common stock............................................ 48 48
Additional paid in capital.............................. 20,214 20,214
Retained earnings....................................... 3,333 3,333
Unearned shares -- ESOP................................. (420) (420)
Parent's equity in division............................. 1,452 (1,452) 0
--------- ------------- ------- -----------
23,175 1,452 (1,452) 23,175
Less: shares held in treasury........................... (1,313) (1,313)
--------- ------------- ------- -----------
Total shareholders' equity............................ 21,862 1,452 (1,452) 21,862
--------- ------------- ------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $ 46,659 $ 1,652 $ 4,298 $ 52,609
--------- ------------- ------- -----------
--------- ------------- ------- -----------
</TABLE>
50
<PAGE>
MICROTEK
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MICROTEK MEDI-PLAST (1) VENODYNE (1) ADJUSTMENTS COMBINED
-------- -------------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales.............................................. $ 30,059 $5,144 $3,961 $39,164
Cost of goods sold..................................... 16,276 2,780 1,594 $(383)(3) 20,267
-------- ------- ------------ ----------- ---------
Gross profit......................................... 13,783 2,364 2,367 383 18,897
-------- ------- ------------ ----------- ---------
Operating expenses:
Selling and marketing expenses....................... 5,471 1,377 1,611 (547)(4) 7,662
(250)(5)
General and administrative expenses.................. 3,326 807 629 (118)(3) 4,644
Research and development............................. 168 146 314
Amortization of intangibles.......................... 433 632(6) 1,065
-------- ------- ------------ ----------- ---------
Total operating expenses........................... 9,398 2,184 2,386 (283) 13,685
-------- ------- ------------ ----------- ---------
Income (loss) from operations.......................... 4,385 180 (19) 666 5,212
Interest income........................................ 10 10
Interest expense....................................... (549) (57) (998)(7) (1,604)
Losses of joint venture................................ (91) (91)
Other income........................................... 8 8
-------- ------- ------------ ----------- ---------
Income (loss) before income tax provision (benefit).... 3,753 123 (9) (332) 3,535
Income tax provision (benefit)......................... 1,445 (3) (77)(8) 1,365
-------- ------- ------------ ----------- ---------
Net income (loss)...................................... $ 2,308 $ 123 $ (6) $(255) $ 2,170
-------- ------- ------------ ----------- ---------
-------- ------- ------------ ----------- ---------
Net income per common and common equivalent share...... $ 0.47 $ 0.44
-------- ---------
-------- ---------
Weighted average number of common and common equivalent
shares outstanding.................................... 4,927 4,927
-------- ---------
-------- ---------
</TABLE>
51
<PAGE>
MICROTEK
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED FEBRUARY 29, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MICROTEK VENODYNE (1) ADJUSTMENTS COMBINED
------------ -------------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.............................................. $ 9,067 $ 1,132 $ 10,199
Cost of goods sold..................................... 4,715 456 5,171
------------ ------- ------------
Gross profit......................................... 4,352 676 5,028
------------ ------- ------------
Operating expenses:
Selling and marketing expenses....................... 1,460 469 $ (55)(5) 1,874
General and administrative expenses.................. 1,040 124 1,164
Research and development............................. 34 34
Amortization of intangibles.......................... 265 43(6) 308
------------ ------- --- ------------
Total operating expenses........................... 2,765 627 (12) 3,380
------------ ------- --- ------------
Income from operations................................. 1,587 49 12 1,648
Interest expense....................................... (316) (60)(7) (376)
Losses of joint venture................................ (46) (46)
------------ ------- --- ------------
Income (loss) before income tax provision.............. 1,225 49 (48) 1,226
Income tax provision (benefit)......................... 495 19 (18)(8) 496
------------ ------- --- ------------
Net income (loss)...................................... $ 730 $ 30 $ (30) $ 730
------------ ------- --- ------------
------------ ------- --- ------------
Net income per common and common equivalent share...... $ 0.15 $ 0.15
------------ ------------
------------ ------------
Weighted average number of common and common equivalent
shares outstanding.................................... 4,991 4,991
------------ ------------
------------ ------------
</TABLE>
52
<PAGE>
MICROTEK
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) Reflects the historical operating results of Medi-Plast for the twelve
months ended October 30, 1995, the historical balance sheet of Venodyne as
of February 24, 1996 and the historical operating results of Venodyne for
the year ended November 30, 1995 and the three months ended February 24,
1996.
(2) On April 27, 1996, Microtek purchased Venodyne through the issuance of a
$5.75 million note payable. The purchase price may be increased by a
contingent payment (not to exceed $1.0 million) based upon the future gross
margin from the Company's sale of Venodyne products. Goodwill of $4.3
million recorded in conjunction with the acquisition is being amortized
using the straight-line method over 25 years.
(3) Reflects a reduction in rent expense as a result of new contractual
arrangements for facilities leased from the previous owners of Medi-Plast.
(4) Reflects a reduction in compensation expense as a result of new employment
contracts entered into with certain Medi-Plast employees on November 30,
1995.
(5) Reflects the elimination of sales commissions associated with a sales
commission agreement which was terminated in conjunction with the Venodyne
acquisition.
(6) Reflects an increase in amortization expense as a result of the
acquisitions. Amortization of goodwill arising from the Medi-Plast and
Venodyne acquisitions is being amortized over 25 years.
(7) Reflects an increase in interest expense associated with debt issued in
conjunction with the acquisitions.
(8) Adjusts income tax expense to reflect the pro forma effect on income tax
expense resulting from the acquisitions, and to record income tax expense on
the pre-tax earnings of Medi-Plast. Prior to the acquisitions, Medi-Plast
was an S Corporation and accordingly was not subject to federal and state
income tax.
53
<PAGE>
COMPARATIVE RIGHTS OF ISOLYSER SHAREHOLDERS
AND MICROTEK STOCKHOLDERS
GENERAL
If the Merger is consummated, holders of Microtek Common Stock will become
holders of Isolyser Common Stock, and the rights of such former Microtek
shareholders will be governed by the laws of the State of Georgia and by the
Isolyser Articles of Incorporation, as amended (the "Isolyser Articles of
Incorporation"), and the Amended and Restated Bylaws of Isolyser (the "Isolyser
Bylaws"). The rights of Isolyser shareholders under the Georgia Business
Corporation Code ("GBCC"), the Isolyser Articles of Incorporation and the
Isolyser Bylaws differ in certain respects from the rights of Microtek
stockholders under the DGCL, the Microtek Certificate of Incorporation (the
"Microtek Certificate of Incorporation") and the Amended and Restated Bylaws of
Microtek (the "Microtek Bylaws"). Certain of these differences are summarized
below. This summary is qualified in its entirety by reference to the full text
of such documents. In addition, the following summary does not purport to be a
complete statement of the rights of Isolyser shareholders under applicable
Georgia law as compared with the rights of Microtek stockholders under
applicable Delaware Law. This summary is qualified in its entirety by reference
to the DGCL and the GBCC.
AUTHORIZED CAPITAL STOCK
Isolyser is authorized to issue up to 100,000,000 shares of Isolyser Common
Stock and up to 10,000,000 shares of Isolyser Preferred Stock, of which
31,072,545 shares of Isolyser Common Stock and no shares of Isolyser Preferred
Stock were issued and outstanding on July 8, 1996. As of July 8, 1996, 319,544
shares of Isolyser Common Stock were held in treasury. The holders of Isolyser
Common Stock are entitled to one vote per share on all matters submitted to a
vote of stockholders. Subject to the rights of any holders of Preferred Stock,
the holders of shares of Isolyser Common Stock are entitled to receive such
dividends as may be declared from time to time by Isolyser's Board of Directors
and are entitled to share ratably in all assets of Isolyser available for
distribution to shareholders upon liquidation. The Isolyser Articles of
Incorporation authorizes Isolyser's Board of Directors, without further
stockholder approval, to issue Isolyser Preferred Stock and to fix, with respect
to any series of Isolyser Preferred Stock, the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, sinking funds and other rights, preferences, privileges and
restrictions applicable to each series of Isolyser Preferred Stock issued.
Notwithstanding the foregoing, pursuant to Isolyser's acquisition of MedSurg
Industries, Inc. in December, 1993, certain shareholders of Isolyser holding in
the aggregate approximately 20% of the outstanding Isolyser Common Stock entered
into a voting agreement with MedInvest Enterprises, Inc. providing that they
would vote their shares in favor of Michael Sahady's election to the Isolyser
Board of Directors for so long as Mr. Sahady remains an executive officer of
Isolyser. Mr. Sahady resigned as an executive officer and director of Isolyser
on May 24, 1996, and such voting agreement has accordingly expired.
Microtek is authorized to issue up to 15,000,000 shares of Microtek Common
Stock and up to 1,705,290 shares of Microtek Preferred Stock, of which 4,680,585
shares of Microtek Common Stock and no shares of Microtek Preferred Stock were
issued and outstanding on July 8, 1996. Of the authorized shares of Preferred
Stock, 705,290 shares are classified as Redeemable Convertible Preferred Stock
with no par value. The remaining 1,000,000 shares of Preferred Stock may be
issued from time to time in one or more series. Each such series has such rights
as shall be stated in the resolutions providing for the issuance of such series
of Preferred Stock by the Board of Directors. The holders of Microtek Common
Stock are entitled to one vote per share on all matters to be voted on by
Microtek shareholders generally. The holders of Microtek Preferred stock are not
entitled to receive dividends unless otherwise provided by the Board of
Directors. The holders of Microtek Common Stock are entitled to receive such
dividends as may be declared from time to time by Microtek's Board of Directors
and are entitled to share ratably in all assets of Microtek available for
distribution to stockholders upon liquidation, subject to the rights of any
holders of Microtek Preferred Stock. Except
54
<PAGE>
as otherwise required by the DGCL or resolutions of Microtek's Board of
Directors authorizing the issuance of any class or series of Microtek Preferred
Stock, all rights and all voting power is vested exclusively in the holders of
Microtek Common Stock.
ANTI-TAKEOVER PROTECTION
The GBCC generally requires the affirmative vote of a majority of all votes
entitled to be cast on the matter, voting as a single group, to approve mergers
and share exchanges. Shareholders of the surviving corporation need not approve
a merger if (i) the articles of incorporation of the surviving corporation will
not differ from its articles before the merger, (ii) each shareholder of the
surviving corporation whose shares were outstanding immediately before the
effective date of the merger will hold the same number and type of shares
immediately after the merger, and (iii) the number and kind of shares
outstanding immediately after the merger, plus the number and kind of shares
issuable as a result of the merger, do not exceed the total number and kind of
shares of the surviving corporation authorized by its articles of incorporation
immediately before the merger. Neither the Isolyser Articles of Incorporation
nor the Isolyser Bylaws contain a provision which alters the GBCC voting
requirements with respect to mergers.
Under the DGCL, a merger or consolidation generally must be approved by the
affirmative vote of the holders of a majority of all of the outstanding shares
of each constituent corporation. Stockholders of the surviving corporation need
not authorize a merger if: (i) the agreement of merger does not amend in any
respect the certificate of incorporation of the surviving corporation, (ii) each
share of stock of the surviving corporation outstanding immediately prior to the
effective date of the merger is to be an identical outstanding or treasury share
of the surviving corporation after the effective date of the merger, and (iii)
either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized unissued shares or the
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger plus those initially issuable upon conversion
of any other shares, securities or obligations to be issued or delivered under
this plan do not exceed 20% of the shares of common stock of the surviving
corporation outstanding immediately prior to the effective date of the merger.
Neither the Microtek Certificate Incorporation nor the Microtek Bylaws contain a
provision which alters the DGCL voting requirements with respect to mergers.
The provision of the GBCC concerning "Business Combinations with Interested
Shareholders" (the "Business Combinations Provision") generally prohibits
certain "resident domestic (Georgia) corporations" from entering into certain
business combination transactions with any "interested shareholder" (generally
defined as any person other than the corporation or its subsidiaries
beneficially owning at least 10% of the voting stock of the corporation), unless
(a) the corporation's board of directors approves the business combination or
the transaction that resulted in the interested shareholder becoming an
interested shareholder prior to the date the interested shareholder became an
interested shareholder; (b) the interested shareholder acquired 90% or more of
the outstanding voting stock of the corporation (excluding shares owned by
Isolyser's officers, directors, affiliates, subsidiaries and certain employee
stock plans) as part of the transaction in which it became an interested
shareholder; or (c) after the date the interested shareholder became an
interested shareholder, it acquired 90% or more of the outstanding voting stock
of the corporation (excluding shares owned by Isolyser's officers, directors,
affiliates, subsidiaries and certain employee stock plans) and a majority of the
remaining outstanding voting stock (excluding shares owned by Isolyser's
officers, directors, affiliates, subsidiaries and certain employee stock plans)
approved the business combination. A Georgia corporation's bylaws must specify
that all requirements of the Business Combinations Provision apply to the
corporation in order for the Business Combinations Provision to apply. The
Isolyser Bylaws do contain a provision electing to be governed by the Business
Combinations Provision.
55
<PAGE>
The GBCC also contains a provision concerning "Fair Price Requirements" (the
"Fair Price Provision") which imposes certain requirements on "business
combinations" of a Georgia corporation with any person who is an "interested
shareholder" of that corporation. Under the Fair Price Provision, business
combinations with interested shareholders must meet one of three criteria
designed to protect the minority shareholders: (i) the transaction must be
unanimously approved by the "continuing directors" of the corporation (generally
directors who served prior to the time the interested shareholder acquired 10%
ownership and who are unaffiliated with the interested shareholder); or (ii) the
transaction must be approved by two-thirds of the continuing directors and a
majority of shares held by shareholders other than the interested shareholder;
or (iii) the terms of the transactions must meet specified fair pricing criteria
and certain other tests. A Georgia corporation's bylaws must specify that all
requirements of the Fair Price Provision apply to the corporation in order for
the Fair Price Provision to apply. The Isolyser Bylaws do contain a provision
electing to be governed by the Fair Price Provision.
In addition to the DGCL's general requirements, Section 203 of the DGCL,
"Business Combinations with Interested Stockholders," prohibits a corporation
that does not opt out of its provisions from entering into certain business
combination transactions with "interested stockholders" (generally defined to
include persons beneficially owning 15% or more of the corporation's outstanding
capital stock) unless certain supermajority votes are obtained. Microtek has not
opted out of Section 203 in its Certificate of Incorporation and consequently is
subject to the restrictions contained in Section 203. Microtek has represented
to Isolyser that the provisions of Section 203 are inapplicable to the Merger
and the transactions contemplated by the Merger Agreement.
APPRAISAL RIGHTS
The GBCC grants shareholders the right to dissent and receive payment of the
fair value of their shares in the event of certain amendments or changes to the
articles of incorporation adversely affecting their shares, or certain business
transactions, including certain mergers. This right is not available when the
affected shares are listed on a national securities exchange or held of record
by more than 2,000 shareholders unless (a) the articles of incorporation or a
resolution of the board of directors approving the transaction provide
otherwise, or (b) in a plan of merger or share exchange, the holders of such
shares are required to accept anything other than shares of the surviving
corporation or another publicly held corporation, except for payments in lieu of
fractional shares. The Isolyser Articles of Incorporation do not modify this
limitation on dissenters' appraisal rights.
Under the DGCL, stockholders have dissenters' rights similar to the rights
of shareholders of Georgia corporations described above. In addition, under the
DGCL, stockholders of corporations being acquired pursuant to a merger have the
right to serve upon the corporation a written demand for appraisal of their
shares when the stockholders receive any form of consideration for their shares
other than (a) shares of the surviving corporation, (b) shares of any other
corporation listed on a national securities exchange or held of record by more
than 2,000 shareholders, or (c) cash in lieu of fractional shares or any
combination thereof. Stockholders who perfect their appraisal rights are
entitled to receive cash from the corporation equal to the value of their shares
as established by judicial appraisal. Corporations may enlarge these statutory
rights by including in their certificate of incorporation a provision allowing
appraisal rights in any merger in which the corporation is a constituent
corporation. The Microtek Certificate of Incorporation contains no provision
enlarging such appraisal rights.
AMENDMENTS TO CERTIFICATE OR ARTICLES OF INCORPORATION
Under the GBCC, the board of directors may adopt certain amendments to the
articles of incorporation, including, among others, amendments to (a) delete the
names and addresses of the initial directors, initial registered agent or
registered office, (b) change each issued and unissued authorized share of an
outstanding class of stock into a greater number of whole shares if the
corporation has only shares of that class outstanding, (c) change the corporate
name, (d) extend the corporation's duration if it was incorporated at a time the
law required limited duration, or (e) change
56
<PAGE>
or eliminate the par value of each issued and unissued share of an outstanding
class if the corporation has only shares of that class outstanding. All other
amendments must be approved by the board of directors and by the shareholders by
a majority of the votes entitled to be cast on the amendment by each voting
group entitled to vote on the amendment, with each class voting separately. The
Isolyser Articles of Incorporation do not modify this voting requirement.
The DGCL permits a corporation to amend its certificate of incorporation so
long as the amended certificate of incorporation contains only provisions which
would be lawful and proper to insert in an original certificate of incorporation
filed at the time the amendment is filed. Without limiting the general power of
amendment, the DGCL specifically allows a corporation to amend its certificate
of incorporation so as to (a) change its corporate name, (b) change the nature
of its business or its corporate powers and purposes, (c) increase, decrease or
reclassify its authorized capital stock, (d) cancel or otherwise affect the
right of the holders of the shares of any class to receive accrued, undeclared
dividends, (e) create a new class of stock, or (f) change the duration of the
corporate charter. All amendments must be approved by the board of directors and
the stockholders by the affirmative vote of a majority of the outstanding stock
entitled to vote thereon, and a majority of the outstanding stock of each class
entitled to vote thereon as a class. Microtek's Certificate of Incorporation
does not provide for any super majority voting requirement with respect to any
amendment to Microtek's Certificate of Incorporation.
AMENDMENTS TO BYLAWS
The GBCC permits a corporation's board of directors to amend, repeal or
adopt bylaws, unless (a) the articles of incorporation reserve this power
exclusively to the shareholders or (b) the shareholders expressly reserve the
power to amend or repeal a particular bylaw. The shareholders alone may amend,
repeal or adopt bylaws limiting the authority of the board of directors or
establishing staggered terms for directors. In addition, the board of directors
may not amend, repeal or adopt a bylaw fixing a greater shareholder quorum or
voting requirement. The Isolyser Bylaws provide that the Board of Directors has
the power to alter, amend or repeal the Bylaws or adopt new Bylaws, but any of
such Bylaws may be altered, amended or repealed, or new Bylaws adopted by the
Shareholders. The Shareholders may prescribe that any Bylaws adopted by them
shall not be changed by the Board of Directors. Action taken by the Shareholders
with respect to the Bylaws shall be taken by affirmative vote of a majority of
such Shareholders entitled to elect Directors and present at a duly convened
Shareholders' meeting. Action taken by the Board of Directors with respect to
the Bylaws must be by affirmative vote of a majority of all Directors then
holding office.
Under the DGCL, the power to adopt, amend or repeal bylaws rests with those
stockholders entitled to vote, provided that any corporation's certificate of
incorporation may additionally confer such power upon the directors. Conferring
the power to adopt, amend or repeal bylaws upon the directors may not divest,
nor limit, the stockholders' power to adopt, amend or repeal bylaws. The
Microtek Certificate of Incorporation does not authorize Microtek's Board of
Directors to adopt, alter, amend, or repeal the Microtek Bylaws. The Microtek
Bylaws may be amended or repealed at any meeting of stockholders where a quorum
is present; however, notice of such meeting of stockholders must disclose the
substance of the proposed amendment or repeal.
PREEMPTIVE RIGHTS
Under the GBCC, the shareholders of all corporations do not have preemptive
rights except to the extent the articles of incorporation so provide. The
shareholders of corporations in existence on July 1, 1989 whose: (i)
shareholders had such rights as of that date; or (ii) articles of incorporation
have been restated or amended on or after July 1, 1989, with notice to the
shareholders that such restatement or amendment would cause the shareholders of
the corporation to have preemptive rights, shall have preemptive rights unless
the articles of incorporation expressly provide otherwise. Isolyser was
incorporated in 1987; however, its articles of incorporation expressly
eliminated preemptive rights. Consequently, holders of shares of Isolyser Common
Stock do not have preemptive rights.
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The DGCL does not automatically confer preemptive rights on stockholders',
therefore, stockholders have no preemptive rights unless and except to the
extent the corporation's certificate of incorporation expressly grants such
rights. The Microtek Certificate of Incorporation does not contain a provision
expressly granting preemptive rights. Consequently, holders of shares of
Microtek capital stock do not have preemptive rights.
STOCKHOLDER ACTION WITHOUT MEETING
Under the GBCC, any action required or permitted to be taken by vote may be
taken without a meeting by written consent, setting forth the action so taken
and signed by the holders of all of the shares entitled to vote on the action,
provided that the articles of incorporation may permit action by written consent
of the holders of less than all outstanding shares. The Isolyser Articles of
Incorporation do not contain a provision that permits action by less than
unanimous written consent.
Unless a corporation's certificate of incorporation otherwise provides, the
DGCL permits any action required to be taken at an annual or special meeting of
stockholders to be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes necessary to authorize or take such action at a meeting where all shares
entitled to vote thereon were present and voted, and shall be delivered to the
corporation in accordance with the DGCL. Microtek's Bylaws allow the
stockholders to take action without a meeting if all the stockholders who would
have been entitled to vote, or less than all such stockholders but not less than
the holders of a majority of the stock entitled to vote thereon if such meeting
were held, consent in writing to such corporate action; provided that the
written consent shall be signed by the holders of stock having not less than the
minimum number of votes that would be necessary to take such action at a meeting
at which all shares entitled to vote thereon were present and provided that
prompt notice must be given to all stockholders of the taking of corporate
action without a meeting and by less than unanimous consent.
STOCKHOLDER ACTION -- QUORUM REQUIREMENT
According to the GBCC, shares entitled to vote as a separate group may take
action on a matter at a meeting only if a quorum of those shares exist with
respect to that matter. Unless a corporation's articles of incorporation or the
GBCC provides otherwise, a majority of the votes entitled to be cast on the
matter by the voting group constitutes a quorum of that voting group for action
on that matter. The GBCC further provides that if a quorum exists, action on a
matter (other than the election of directors) by a voting group is approved if
the votes cast within the voting group favoring the action exceed the votes cast
opposing the action unless the GBCC, the articles of incorporation, or a
provision of the bylaws adopted by the shareholders in accordance with the GBCC
or any successor statute, requires a greater number of affirmative votes.
According to the GBCC, unless otherwise provided in the articles of
incorporation, directors are elected by a plurality of votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present. The
articles of incorporation or a bylaw adopted according to the GBCC may provide
for a greater or lesser quorum (but not less than one-third of the votes
entitled to be cast) or a greater voting requirement for shareholders (or voting
groups of shareholders) than is provided for in the GBCC; however, an amendment
to the articles of incorporation or bylaws that changes or deletes a greater
quorum or voting requirement must meet the same quorum requirement and be
adopted by the same vote and voting groups required to take action under the
quorum and voting requirements prescribed in the provision being amended.
Neither the Isolyser Articles of Incorporation nor the Isolyser Bylaws modify
the GBCC's quorum or voting requirements for shareholder action. See "--
Amendments to Certificate or Articles of Incorporation" and "-- Amendments to
Bylaws."
The DGCL allows a corporation's certificate of incorporation or bylaws to
specify the number of shares and/or the amount of other securities having voting
power whose holders shall be present or represented by proxy at any meeting in
order to constitute a quorum for, and the votes that shall be necessary for, the
transaction of any business, but requires the quorum to consist of at least
one-third
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of the shares entitled to a vote at the meeting. Absent specifications in the
certificate of incorporation or bylaws of the corporation, a majority of the
shares entitled to vote, present in person or represented by proxy, constitutes
a quorum at a stockholders' meeting, and in all matters other than the election
of directors, the affirmative vote of a majority of shares present in person or
represented by proxy at the meeting and entitled to vote will be the action of
the stockholders. Directors are elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election. Where a separate vote by class or classes is required, a
majority of the outstanding shares of such class or classes, present in person
or represented by proxy, constitutes a quorum entitled to take action with
respect to the vote on that matter, and the affirmative vote of the majority of
shares of the class or classes present in person or represented by proxy at the
meeting and entitled to vote is the act of the class. The Microtek Certificate
of Incorporation contains no provisions modifying the DGCL quorum and voting
requirements for stockholder action. See "-- Amendments to Certificate of
Articles of Incorporation" and "-- Amendments to Bylaws".
ANNUAL MEETING OF STOCKHOLDERS
The GBCC provides that the corporation shall hold a meeting of shareholders
at a time stated in or fixed in accordance with the bylaws. The Isolyser Bylaws
state that the annual meeting of shareholders will be held following the close
of each fiscal year on the date and at the time designated, from time to time,
by Isolyser's Board of Directors.
The DGCL requires a corporation to hold an annual meeting of stockholders to
elect directors and transact any other proper business as the bylaws designate.
The Microtek Bylaws state that the annual meeting of stockholders will be held
on the first Monday in August in each year if not a legal holiday and if a legal
holiday, then on the next full business day at 11:00 a.m., unless the Board of
Directors provides otherwise.
SPECIAL MEETINGS OF STOCKHOLDERS
The GBCC permits the board of directors or any person specified in the
corporation's articles of incorporation or bylaws to call special meetings of
shareholders. A special meeting may also be called by the holders of at least
25%, or such greater or lesser percentages as the articles of incorporation or
bylaws provide, of all of the votes entitled to be cast on any issue proposed to
be considered at a special meeting. The Isolyser Bylaws provide that a special
meeting may be called only by (a) the Board of Directors; (b) the President; (c)
the Secretary; (d) two or more Directors; or (e) the holders of at least 25% of
all the votes entitled to be cast on any issue proposed to be considered at the
special meeting. The Isolyser Bylaws require that written notice of the time,
place and specific purpose or purposes for which the meeting is called be
delivered not less than ten nor more than sixty days before the date of the
meeting, either personally or by first class mail to each shareholder of record
entitled to vote at such meeting.
Under the DGCL, special meetings of stockholders may be called by the board
of directors or those persons authorized by the corporation's certificate of
incorporation or the bylaws. The Microtek Bylaws authorize Microtek's Board of
Directors to call a special meeting and provide that a special meeting may also
be called by the President, or by stockholders owning a majority in amount of
the entire capital stock of Microtek. Such request shall state the specific
purpose or purposes of the special meeting. Written notice of the time, place
and specific purposes of such meeting must be given by mail to each stockholder
entitled to vote at the meeting not less than ten nor more than sixty days prior
to the scheduled date of the special meeting.
CUMULATIVE VOTING
Neither the GBCC nor the DGCL grant shareholders the right to cumulate their
votes for directors unless the certificate or articles of incorporation so
provide. Neither the Microtek Certificate of Incorporation nor the Isolyser
Articles of Incorporation authorize cumulative voting.
NUMBER AND ELECTION OF DIRECTORS
Under the GBCC, a board of directors must consist of one or more
individuals, with the number specified in or affixed in accordance with the
articles of incorporation or bylaws. The articles of
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incorporation or bylaws may authorize the shareholders or the board of directors
to fix or change the number of directors or may establish a variable range for
the size of the board of directors by fixing a minimum and maximum number of
directors. The GBCC further permits the articles of incorporation or a bylaw
adopted by the shareholders to divide the directors into two or three classes,
with each class as nearly equal in number as possible. The term of office of one
class of directors shall expire each year, and no two classes' terms of office
shall expire in the same year. The Isolyser Bylaws set the number of directors
between three and twenty, with the specific number to be determined by
Isolyser's Board of Directors.
Under the DGCL, the number of directors shall be fixed or determined in the
manner the bylaws provide, unless the corporation's certificate of incorporation
fixes the number of directors, in which case the number of directors may only be
changed by amending the certificate of incorporation. The DGCL permits the
certificate of incorporation or bylaws to divide the directors into one, two or
three classes, with the term of office of one class of directors to expire each
year and the terms of office of no two classes to expire during the same year.
The Microtek Bylaws currently set the number of directors at no fewer than
five and no more than nine, with Microtek's Board of Directors or shareholders,
at any annual or special meeting, to fix the exact number. Moreover, any holders
of Microtek Preferred Stock issued in the future will have those rights
regarding the election of directors as are fixed by Microtek's Board of
Directors at that time. Currently, the Board consists of seven members.
REMOVAL OF DIRECTORS
Under the GBCC, except as the articles of incorporation otherwise provide, a
corporation's shareholders may remove any director, with or without cause, by
the vote of the holders of a majority of the outstanding shares of the
corporation entitled to vote. The GBCC permits the articles of incorporation or
a bylaw adopted by the shareholders to govern the removal of directors.
Directors elected to staggered terms may be removed only for cause, unless the
articles of incorporation or a bylaw adopted by the shareholders provide
otherwise. Neither the Isolyser Articles of Incorporation nor the Isolyser
Bylaws alter the provisions of the GBCC with respect to removal of directors.
The DGCL permits any director or the entire board of directors to be
removed, with or without cause, by the holders of a majority of the stock
entitled to vote for directors, except (a) if the corporation's board of
directors is classified, stockholders of the corporation may only effect removal
for cause unless the certificate of incorporation otherwise provides; or (b) if
the corporation's board of directors is voted for cumulatively, if less than the
entire board is to be removed, no director may be removed without cause if the
votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire board of directors, or, if there
be classes of directors, at an election of the class of directors of which he is
a part. The Microtek Bylaws allow for the removal of any director or the entire
board of directors, with or without cause, at any time by the holders of the
majority of the shares then entitled to vote an election of directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the GBCC, a corporation may indemnify any director or officer made a
party to a proceeding if such director or officer acted in a manner he believed
in good faith to be in or not opposed to the best interests of the corporation
and, in the case of any criminal proceeding, had no reasonable cause to believe
his conduct was unlawful. A corporation may not indemnify a director in a
derivative proceeding, or in a proceeding by or in the right of the corporation,
in which the director is adjudged liable to the corporation, or in connection
with any other proceeding in which he is adjudged liable on the basis he
improperly received a personal benefit. The corporation may not indemnify a
director unless a determination is made that he has met the applicable standard
of conduct. The corporation is required to indemnify a director to the extent
that the director has been successful, on the merits or otherwise, in the
defense of any proceeding to which he was a party because of his status as a
director of the corporation. The GBCC also provides that a company's Articles of
Incorporation or a Bylaw or agreement approved by shareholders may provide a
director with additional indemnification without
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regard to certain of the aforementioned limitations. The Isolyser Bylaws, as
approved by Isolyer's shareholders, provide that Isolyser's directors and
officers will be indemnified to the fullest extent permitted and in the manner
required under the GBCC.
The DGCL allows corporations to indemnify their directors and officers
against civil and criminal liabilities incurred if the directors and officers
acted in good faith and in a manner the directors and officers reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action, if they had no reasonable cause to believe
their conduct was unlawful. The Microtek Certificate of Incorporation and the
Microtek Bylaws provide that Microtek's directors and officers will be
indemnified to the fullest extent permitted and in the manner required by the
DGCL.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
Under the GBCC, the articles of incorporation may limit a director's
personal liability to the corporation or its shareholders for monetary damages
for breach of the duty of care or other duty as a director, except (a) for any
appropriation, in violation of his duties, of any business opportunity of the
corporation, (b) for acts or omissions involving the director's intentional
misconduct or a knowing violation of law, (c) for unlawful distributions of the
corporation's assets, or (d) for any transaction from which the director
received an improper personal benefit. No such provision shall eliminate or
limit a director's liability for any act or omission occurring prior to the date
the provision becomes effective.
The Isolyser Articles of Incorporation limit a director's personal liability
to Isolyser or its shareholders for monetary damages for breaches of the duty of
care or the director's other duties to the extent permissible under the GBCC.
The DGCL allows a corporation's certificate of incorporation to eliminate or
limit a director's personal liability to the corporation or its stockholders for
monetary damages for the director's breach of his fiduciary duty as a director.
However, the corporation may not eliminate or limit a director's liability (a)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) for an unlawful
payment of dividends or an unlawful stock purchase or redemption or (d) for any
transaction from which the director derived any improper personal benefit. No
provision may retroactively eliminate or limit a director's liability.
The Microtek Certificate of Incorporation limits a director's personal
liability to Microtek or its stockholders for monetary damages to the full
extent permitted by the DGCL, and states that any repeal or modification of the
DGCL provision will be prospective only, and will not adversely affect any
limitation on the personal liability existing at or before the time of such
repeal or modification applicable to any Microtek director.
OPTION PROPOSALS
ISOLYSER'S OPTION PROPOSAL
In April 1992, the Board of Directors and shareholders of Isolyser adopted a
Stock Option Plan (the "Plan"). The Plan currently provides for the issuance of
options to purchase up to 3,600,000 shares of Isolyser Common Stock (subject to
appropriate adjustments in the event of stock splits, stock dividends and
similar dilutive events). On July 17, 1996, the Board of Directors of Isolyser
approved, adopted and recommended to the shareholders an amendment to the Plan
providing for an increase, contingent upon consummation of the Merger, of
800,000 in the number of shares of Isolyser Common Stock available under the
Plan for grant of options or alternate rights to 4,400,000 shares, and certain
other technical amendments to the Plan (the "Isolyser Option Proposal"). The
technical amendments to the Plan included in the Isolyser Option Proposal
provide, consistent with the recent modifications to Rule 16 under the Exchange
Act, for (i) authority of the Board of Directors or a committee thereof to grant
permission to transfer options granted under the Plan and (ii) dispensing with
the Plan's
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requirement for shareholder approval to increase the number of shares of
Isolyser Common Stock available under the Plan. Options may be granted under the
Plan to those employees, officers or directors of, and consultants and advisors
to, Isolyser, who, in the opinion of Isolyser's Board of Directors, are in a
position to contribute materially to Isolyser's continued growth and development
and to its long-term financial success. Isolyser estimates that, as of the date
of this Joint Proxy Statement/Prospectus, approximately 1,400 employees
(including officers), six directors and 22 consultants and advisors of Isolyser
are eligible to participate in the Plan. The Plan is administered by a committee
of the Board appointed by Isolyser's Board of Directors, which may be the entire
Board of Directors. Isolyser's Compensation Committee has been designated by the
Board of Directors as the committee to administer the Plan. The purposes of the
Plan are to ensure the retention of existing executive personnel, key employees
and consultants of Isolyser, to attract and retain new executive personnel, key
employees and consultants and to provide additional incentives by permitting
such individuals to participate in the ownership of Isolyser.
Options granted to employees may either be incentive stock options (as
defined in the Code) or nonqualified stock options. The exercise price of the
options shall be determined by the Board of Directors or the Compensation
Committee at the time of grant, provided that the exercise price may not be less
than the fair market value of Isolyser's Common Stock on the date of grant as
determined in accordance with the limitations set forth in the Code. The terms
of each option and the period over which it vests are determined by the
Compensation Committee, although no option may be exercised more than ten years
after the date of grant and all options become exercisable upon certain events
defined to constitute a change of control. To the extent that the aggregate fair
market value, as of the date of grant, of shares with respect to which incentive
stock options become exercisable for the first time by an optionee during the
calendar year exceeds $100,000, the portion of such option which is in excess of
the $100,000 limitation will be treated as a nonqualified stock option. In
addition, if an optionee owns more than 10% of the total voting power of all
classes of Isolyser's stock at the time the individual is granted an incentive
stock option, the purchase price per share cannot be less than 110% of the fair
market value on the date of grant and the term of the incentive stock option
cannot exceed five years from the date of grant. Upon the exercise of an option,
payment may be made by cash, check or, if provided in the option agreement, by
delivery of shares of Isolyser's Common Stock having a fair market value equal
to the exercise price of the options, or any other means that the Board or the
committee determines. Options are non-transferable during the life of the option
holder. The Plan also permits the grant of alternate rights defined as the right
to receive an amount of cash or shares of Isolyser Common Stock having an
aggregate fair market value equal to the appreciation in the fair market value
of a stated number of shares of Isolyser Common Stock from the grant date to the
date of exercise. No alternate rights have been granted under the Plan.
An optionee will not be subject to tax at the time a nonqualified option is
granted; however, an optionee who exercises a nonqualified option will include
in income as of the date of exercise the difference between (a) the fair market
value of Isolyser Common Stock as of the date of exercise and (b) the amount
paid for Isolyser Common Stock upon exercise of the option. The optionee's
federal income tax cost basis for the Isolyser Common Stock will be the amount
paid for the Isolyser Common Stock plus the income recognized. If an optionee
uses Isolyser Common Stock in full or partial payment of the exercise price of a
nonqualified option, then the exchange should not affect the federal income tax
treatment of the exercise. The optionee will realize no gain or loss with
respect to the Common Stock so used. The net additional shares of Isolyser
Common Stock received upon such exercise by the optionee will have a federal
income tax cost basis equal to the ordinary income recognized as a result of the
option exercise (plus the amount of any cash used in the option exercise) and a
holding period commencing upon the date such income is recognized. Subsequent
sale of such Common Stock will result in a capital gain or loss equal to the
difference between the optionee's federal income tax cost basis for the Isolyser
Common Stock and the sale price. Isolyser will be entitled to a federal income
tax deduction, as of the date the optionee recognizes ordinary income, in the
amount of the ordinary income recognized by the optionee. In addition, Isolyser
may be required to withhold income tax and employment tax with respect to the
ordinary income recognized by the
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optionee at the time of exercise. The federal income tax consequences of the
issuance and exercise of incentive stock options are generally the same as those
for nonqualified stock options, except that (subject to the satisfaction of
certain holding period requirements) the optionee generally does not recognize
ordinary income for the difference between the fair market value of Isolyser
Common Stock at the time of exercise and the exercise price for such Isolyser
Common Stock (but the difference may be a preference for alternative minimum tax
purposes) and Isolyser receives no deduction therefor.
Assuming consummation of the Merger, additional options will become
outstanding under the Plan as a result of the assumption of the Microtek stock
options. As of July 1, 1996, Microtek had outstanding under its Option Plan
options to purchase a total of 627,730 shares (47,295 of which shares are
subject to Microtek stockholder approval) of Microtek Common Stock at exercise
prices ranging between $1.36 and $6.25 per share. Based on the 1.65 to 1.00
Exchange Ratio under the Merger Agreement such Microtek options would be
converted upon consummation of the Merger into options to purchase up to a total
of 1,035,755 shares of Isolyser Common Stock under the Plan at exercise prices
ranging between $0.83 and $3.79 per share; the current executive officers of
Microtek would hold options to purchase up to an aggregate of 653,903 shares of
Isolyser Common Stock (namely, Kimber L. Vought, chief executive officer of
Microtek, will hold options to purchase a total of 171,608 and 107,250 shares of
Common Stock at exercise prices of $0.83 and $3.49 per share, respectively; Dan
R. Lee, chief financial officer of Microtek, will hold options to purchase
251,295 and 41,250 shares of Common Stock at exercise prices of $0.83 and $3.49
per share, respectively; and Lester J. Berry, executive vice president of
Microtek, will hold options to purchase 66,000 and 16,500 shares of Common Stock
at exercise prices of $3.19 and $2.73 per share, respectively); and the non-
executive officer employee group of Microtek would hold options to purchase up
to an aggregate of 381,852 shares of Isolyser Common Stock.
As of July 1, 1996, options to purchase 2,113,329 shares of Isolyser Common
Stock were outstanding under the Plan and approximately 1,189,000 shares of
Isolyser Common Stock were available for future grants of options or alternate
rights under the Plan. Options for the purchase of an aggregate of 800,000
shares of Isolyser Common Stock have been granted under the Plan to the
executive officers of Isolyser, as a group. The Chief Executive Officer and the
other four most highly compensated executive officers of Isolyser for 1995 hold
options under the Plan to purchase an aggregate of 559,000 shares of Isolyser
Common Stock. No director who is not also an executive officer of Isolyser holds
options under the Plan.
The approval of the Plan amendment requires the affirmative vote of the
holders of a majority of the shares of Isolyser Common Stock present or
represented by properly executed and delivered proxies at the Isolyser Meeting.
THE ISOLYSER BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENT TO THE STOCK OPTION PLAN DESCRIBED HEREIN. PROXIES SOLICITED BY THE
ISOLYSER BOARD OF DIRECTORS WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY
OTHERWISE.
MICROTEK'S OPTION PROPOSAL
In 1990, Microtek established the Option Plan to encourage the ownership of
Microtek Common Stock by Microtek employees. All employees are eligible to
participate in the Option Plan, subject to length of service criteria. The
intention of Microtek in administering the Option Plan is to provide employees
with an ongoing incentive to increase earnings and productivity, to acknowledge
superior service contributions by employees and to recognize promotions of
employees. Each option granted pursuant to the Option Plan intended to qualify
as an incentive stock option under Section 422 of the Code must have an exercise
price equal to the fair market value of the Microtek Common Stock on the date of
grant. All other options may be granted at such exercise prices as the Board
shall determine. Pursuant to the November 1995 recommendation of Microtek's
Compensation Committee, the Microtek Board amended the Option Plan, subject to
the approval of the Microtek stockholders, to increase the number of shares of
Microtek Common Stock subject to the plan from 883,302 shares to
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1,083,302 shares (the "Microtek Option Proposal"). Approval of this amendment
requires the affirmative vote of the holders of a majority of the shares of
Microtek Common Stock represented at the Microtek Meeting. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE OPTION PROPOSAL. As of the
date of the Microtek Board resolution to recommend the Microtek Option Proposal
to the Microtek Stockholders, the members of the Microtek Board beneficially
owned in excess of 50% of the shares of Common Stock to be represented at the
Microtek Meeting and have advised Microtek that they will vote in favor of the
Microtek Option Proposal.
As of March 15, 1996 (and provided the Microtek Option Proposal is
approved), options to purchase an aggregate of 930,597 shares of Microtek Common
Stock (net of options cancelled) had been granted pursuant to the Option Plan,
options to purchase 219,168 shares had been exercised and options to purchase
711,429 shares remained outstanding. As a result, no shares remain available for
additional option grants under the Option Plan; however, options to purchase an
additional 47,295 shares of Common Stock have been granted, subject to obtaining
stockholder approval of the Microtek Option Proposal. If the Merger Agreement is
approved by the Microtek stockholders and the Merger is consummated, no
additional options will be granted under the Option Plan. In addition, the
Merger Agreement prohibits the further grant of options by Microtek prior to the
Merger.
As of March 15, 1996, the following executive officers had been granted
options under the Option Plan in the amounts indicated: Kimber L. Vought, Chief
Executive Officer, 204,005 shares (including options to purchase 22,045 shares
granted subject to stockholder approval); Dan R. Lee, Vice President-Chief
Operating and Financial Officer, 208,300 shares and Lester J. Berry, Executive
Vice President, 50,000 shares.
The following discussion addresses certain anticipated federal income tax
consequences to recipients of awards made under the Option Plan. It is based on
the Code and interpretations thereof as in effect on the date of this Proxy
Statement/Prospectus.
An optionee to whom a nonqualified stock option is granted will not
recognize income as a result of the grant of the option. However, upon exercise
of the nonqualified stock option, the optionee will generally recognize ordinary
compensation income equal to the excess, if any, of the fair market value of the
shares received pursuant to exercise of the option (the "Option Shares") over
the exercise price. Taxation will be deferred until the date of exercise of a
nonqualified stock option, subject to certain exceptions, if either (i) the
Option Shares are subject to restrictions imposed by the Committee which could
result in a substantial risk of their forfeiture or (ii) the optionee is subject
to the forfeiture provisions of Section 16(b) of the Exchange Act, unless, in
either event, the optionee makes an election pursuant to Section 83(b) of the
Code (an "83(b) Election"), within 30 days of receipt of the Option Shares, to
be taxed on the date of receipt of the Option Shares. If no 83(b) Election is
made, the optionee will recognize ordinary compensation income at the time the
Option Shares are no longer subject to such restrictions or the optionee is no
longer subject to Section 16(b) liability as a result of the transfer of the
Option Shares, in an amount equal to the excess of the value of the Option
Shares at such time over the amount paid for them. The optionee's tax basis for
the Option Shares will be equal to the exercise price paid by the optionee plus
the amount includable in the optionee's gross income as compensation, and the
optionee's holding period for the Option Shares will commence on the date on
which the Option Shares are acquired.
An optionee to whom an incentive stock option which qualifies under Section
422 of the Code is granted generally will not recognize income at the time of
grant of the Incentive Stock Option or at the time of its exercise. However, the
excess of the fair market value of the Shares subject to the option (the
"Incentive Shares") over the exercise price of the option at the time of its
exercise is an adjustment to taxable income in determining an optionee's
alternative minimum taxable income and ultimately his alternative minimum tax
(AMT). As a result, this adjustment could cause the optionee to be subject to
AMT or increase the optionee's AMT liability.
If an optionee who has exercised an incentive stock option does not sell the
Incentive Shares until more than one year after exercise and more than two years
after the date of grant, such optionee will
64
<PAGE>
normally recognize long term capital gain or loss equal to the difference, if
any, between the selling price of the Incentive Shares and the exercise price.
If the optionee sells the Incentive Shares before the time periods expire (a
"disqualifying disposition") he or she will recognize ordinary compensation
income equal to the lesser of (i) the difference, if any, between the fair
market value of the Incentive Shares on the date of exercise and the exercise
price of the option, and (ii) the difference, if any, between the selling price
for the Incentive Shares and the exercise price of the option. Any other gain or
loss on such sale will normally be capital gain or loss. The tax basis of the
Incentive Shares to the optionee, for purposes of computing such other gain or
loss, should be equal to the exercise price paid (plus, in the case of an early
disposition, the amount includable in the optionee's gross income as
compensation, if any).
With respect to either nonqualified or incentive stock options, if an
optionee delivers shares of the issuing company's common stock in part or full
payment of the option price, the optionee generally will be treated as having
exchanged such shares for an equivalent number of the shares received upon
exercise of the option (the "Exchange Shares"), and no gain or loss will be
recognized with respect to the shares surrendered to the company in payment of
the option price. In such a case, the optionee will have a tax basis in the
Exchange Shares which is the same as the optionee's tax basis in the shares of
stock delivered in payment of the option price. The remaining Shares received
upon exercise of the option (other than the Exchange Shares) will, in the case
of nonqualified stock options, have a tax basis equal to the income recognized
on the exercise of the option plus any cash consideration paid by the optionee
pursuant to the exercise of the option, and in the case of incentive stock
options, will have a tax basis equal to any cash consideration paid by the
optionee pursuant to the exercise of the option.
The discussion set forth above is intended only as a summary and does not
purport to be a complete enumeration or analysis of all potential tax effects
relevant to recipients of awards under the Option Plan. It is strongly
recommended that all award recipients consult their own tax advisors concerning
the federal, state and local income and other tax considerations relating to
such awards and rights thereunder. In particular, it is recommended that each
award recipient consult his or her own tax advisor as to the AMT consequences of
an award, the special tax considerations for an award recipient who is subject
to Section 16(b), whether it would be beneficial to make a Section 83(b)
Election, whether to exchange shares in order to exercise an option, and as to
any state tax consequences relating to awards under the Option Plan.
The Option Plan may establish for officers and directors of Microtek an
exemption from the provisions of Section 16(b) of the Exchange Act for the
grants of options. Section 16(b) provides for recovery by Microtek of profits
made by officers and directors on short-term trading in shares of common stock
of Microtek. Grants of options to purchase common stock under the Option Plan by
officers and employee-directors of Microtek may be entitled to an exemption from
the operation of Section 16(b), provided certain conditions are met under the
rules and regulations of the Commission.
The following table sets forth certain information with respect to options
which have been granted subject to stockholder approval pursuant to the Option
Plan to the following:
AMENDED PLAN BENEFITS
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF OPTIONS
- ------------------------------------------------------- ------------------
<S> <C>
Kimber L. Vought 22,045
Dan R. Lee 0
Lester J. Berry 0
Executive Group 22,045
Non-Executive Director Group 0
Non-Executive Officer Employee Group 25,250
</TABLE>
The exercise price of all options referenced above was set at the fair
market value of the Microtek Common Stock on the date of grant.
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<PAGE>
LEGAL MATTERS
The validity of the shares of Isolyser Common Stock to be issued in
connection with the Merger is being passed upon for Isolyser by Arnall Golden &
Gregory, Atlanta, Georgia.
EXPERTS
The consolidated financial statements and the related financial statement
schedule of Isolyser as of December 31, 1994 and 1995 and for each of the three
years in the period ended December 31, 1995 incorporated in this joint proxy
statement/prospectus by reference from Isolyser's Annual Report on Form 10-K for
the year ended December 31, 1995 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report which is incorporated by
reference herein and have been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Microtek as of November 30, 1994
and 1995, and for each of the years in the three-year period ended November 30,
1995 have been incorporated by reference herein in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of such firm as experts in accounting
and auditing.
The financial statements of Medi-Plast as of December 31, 1993 and 1994 and
for each of the years in the two-year period ended December 31, 1994 have been
incorporated in this joint proxy statement/prospectus by reference in reliance
upon the report of Olin J. Harrell, CPA, independent certified public
accountant, incorporated by reference herein, in reliance upon the authority of
such accountant as an expert in accounting and auditing.
The statement of divisional assets, liabilities and parent's equity of
Venodyne as of February 24, 1996, and the related statements of divisional
income and cash flows for the 11 month period then ended, have been incorporated
in this joint proxy statement/prospectus by reference in reliance upon the
report of Wolf & Company, P.C., independent auditors, incorporated by reference
herein, in reliance upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of White Knight as of December 31,
1993 and 1994 and for each of the years in the three-year period ended December
31, 1994, and the statements of operations and accumulated deficit and cash
flows of CliniTech (a former division of Sterile Concepts) for the year ended
September 30, 1992 and for the period from October 1, 1992 to February 8, 1993,
incorporated in this joint proxy statement/prospectus by reference to Isolyser's
Current Report on Form 8-K filed with the Commission on October 3, 1995, have
been so incorporated in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of SafeWaste as of December 31, 1994 and for the
year then ended incorporated in this joint proxy statement/prospectus by
reference from Isolyser's Current Report on Form 8-K filed with the Commission
on June 15, 1995 have been audited by Ernst & Young LLP, independent auditors,
as stated in their report, which is incorporated by reference herein, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
STOCKHOLDERS' PROPOSALS
If the Merger does not occur, Microtek will have an annual meeting of
stockholders in late 1996. If an annual meeting of Microtek stockholders is to
occur in 1996, any proposals from stockholders to be presented for consideration
for inclusion in the proxy material in connection with such annual meeting must
be submitted in accordance with the rules of the Commission and received by the
Secretary of Microtek at Microtek's principal executive offices no later than
the close of business on September 30, 1996.
66
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
ISOLYSER COMPANY, INC.
(A GEORGIA CORPORATION)
MMI MERGER CORP.
(A DELAWARE CORPORATION)
AND
MICROTEK MEDICAL, INC.
(A DELAWARE CORPORATION)
Dated: March 15, 1996
As Amended: June 23, 1996
and July 29, 1996
<PAGE>
This Agreement and Plan of Merger (the "Agreement") is made and dated as of
the 15th day of March, 1996, and is amended as of the 23rd day of June, 1996 and
the 29th day of July, 1996, among Isolyser Company, Inc., a Georgia corporation
("ICI"); MMI Merger Corp., a Delaware corporation (the "Merger Corp."), which is
wholly owned, directly or indirectly, by ICI; and Microtek Medical, Inc., a
Delaware corporation ("MMI").
In consideration of the mutual covenants and agreements contained herein,
the parties hereto covenant and agree as follows:
ARTICLE 1.
THE MERGER
1.1. MERGER. In accordance with the provisions of the business corporation
laws of the State of Delaware, at the Effective Date (as hereinafter defined),
Merger Corp. shall be merged (the "Merger") into MMI, and MMI shall be the
surviving corporation (the "Surviving Corporation") and as such shall continue
to be governed by the laws of the State of Delaware.
1.2. CONTINUING OF CORPORATE EXISTENCE. Except as may otherwise be set
forth herein, the corporate existence and identity of MMI, with all its
purposes, powers, franchises, privileges, rights and immunities, shall continue
unaffected and unimpaired by the Merger, and the corporate existence and
identity of Merger Corp., with all its purposes, powers, franchises, privileges,
rights and immunities, at the Effective Date shall be merged with and into that
of MMI, and the Surviving Corporation shall be vested fully therewith and the
separate corporate existence and identity of Merger Corp. shall thereafter cease
except to the extent continued by statute.
1.3. EFFECTIVE DATE. The Merger shall become effective upon the occurrence
of the filing of the certificate of merger (the "Effective Date") with the
Secretary of State of the State of Delaware on the Closing Date (as defined
herein) pursuant to the provisions of the Delaware General Corporation Law
("DGCL").
1.4. CORPORATE GOVERNMENT.
(a) The Certificate of Incorporation of Merger Corp, as in effect on the
Effective Date, shall continue in full force and effect and shall be the
Certificate of Incorporation of the Surviving Corporation.
(b) The Bylaws of Merger Corp., as in effect as of the Effective Date,
shall continue in full force and effect and shall be the Bylaws of the
Surviving Corporation.
(c) The members of the Board of Directors of the Surviving Corporation
shall be the persons holding such offices in Merger Corp. as of the
Effective Date, and the officers of the Surviving Corporation shall be the
persons holding such offices in MMI as of the Effective Date.
1.5. RIGHTS AND LIABILITIES OF THE SURVIVING CORPORATION. The Surviving
Corporation shall have the following rights and obligations:
(a) The Surviving Corporation shall have all the rights, privileges
immunities and powers and shall be subject to all the duties and liabilities
of a corporation organized under the laws of the State of Delaware.
(b) The Surviving Corporation shall possess all of the rights,
privileges immunities and franchises, of either a public or private nature,
of MMI and Merger Corp. and all property, real, personal and mixed, and all
debts due on whatever account, including subscription to shares, and all
other choses in action, and every other interest of or belonging or due to
MMI and Merger Corp. shall be taken and deemed to be transferred or invested
in the Surviving Corporation without further act or deed.
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<PAGE>
(c) At the Effective Date, the Surviving Corporation shall thenceforth
be responsible and liable for all liabilities and obligations of MMI and
Merger Corp. and any claim existing or action or proceeding pending by or
against Merger Corp. or MMI may be prosecuted as if the Merger had not
occurred, or the Surviving Corporation may be substituted in its place.
Neither the rights of creditors nor any liens upon the property of Merger
Corp. or MMI shall be impaired by the Merger.
1.6. CLOSING. Consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Arnall Golden &
Gregory in Atlanta, Georgia, commencing at 10:00 a.m., local time, on the date
(i) on which the Special Meetings of MMI's and ICI's stockholders described in
Section 5.8 occur or (ii) as soon as possible thereafter when each of the other
conditions set forth in Articles 6 and 7 have been satisfied or waived, and
shall proceed promptly to conclusion, or at such other place, time and date as
shall be fixed by mutual agreement between ICI and MMI. The day on which the
Closing shall occur is referred to herein as the "Closing Date." Each party will
cause to be prepared, executed and delivered the Certificate of Merger to be
filed with the Secretary of State of Delaware and all other appropriate and
customary documents as any party or its counsel may reasonably request for the
purpose of consummating the transactions contemplated by this Agreement. All
actions taken at the Closing shall be deemed to have been taken simultaneously
at the time the last of any such actions is taken or completed.
1.7. TAX CONSEQUENCES. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a)(1)(A), by virtue of Section
368(a)(2)(E), of the Internal Revenue Code of 1986, as amended (the "Code"), and
that this Agreement shall constitute a "plan of reorganization" for the purposes
of Section 368 of the Code.
1.8. POOLING OF INTERESTS. It is the intention of the parties hereto that
the Merger will be treated for financial reporting purposes as a pooling of
interests.
ARTICLE 2.
CONVERSION OF SHARES; TREATMENT OF OPTIONS
2.1. CONVERSION OF SHARES. The manner and basis of converting shares of
the common stock, $.01 par value, of MMI (the "MMI Common Stock") into Common
Stock, $.001 par value, of ICI ("ICI Common Stock"), shall be as follows:
(a) Except as provided in Section 2.3, each share of MMI Common Stock
which shall be outstanding immediately prior to the Effective Date shall at
the Effective Date, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive 1.65
shares of ICI Common Stock (such number being referred to herein as the
"Exchange Ratio").
(b) Each share of MMI Common Stock held in the treasury of MMI and each
share of MMI Common Stock owned by ICI or any direct or indirect
wholly-owned subsidiary of ICI or of MMI shall automatically be canceled and
extinguished without any conversion thereof and no payment will be made with
respect thereto.
(c) Each share of Common Stock, $.001 par value, of Merger Corp. which
shall be outstanding immediately prior to the Effective Date shall at the
Effective Date, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into one share of newly issued MMI
Common Stock.
2.2. FRACTIONAL SHARES. No scrip or fractional shares of ICI Common Stock
shall be issued in the Merger, nor will any outstanding fractional share
interest entitle the owner thereof to vote, to receive dividends or to exercise
any other right of a stockholder of the Surviving Corporation. All fractional
shares of ICI Common Stock to which a holder of MMI Common Stock immediately
prior to the Effective Date would otherwise be entitled at the Effective Date
shall be aggregated. If a fractional
A-2
<PAGE>
share results from such aggregation, such stockholder shall be entitled, after
the later of (a) the Effective Date or (b) the surrender of such stockholder's
"Certificate" (as defined in Section 2.5) or Certificates that represent such
shares of MMI Common Stock, to receive from ICI an amount in cash in lieu of
such fractional share, equal to such fraction multiplied by $10.00. ICI will
make available to the "Exchange Agent" (as defined in Section 2.5) the cash
necessary for the purpose of paying cash for fractional shares.
2.3. DISSENTING SHARES. To the extent that appraisal rights are available
under the DGCL, shares of MMI Common Stock that are issued and outstanding
immediately prior to the Effective Date and that have not been voted for
adoption of the Merger and with respect of which appraisal rights have been
properly demanded in accordance with the applicable provisions of the DGCL
("Dissenting Shares") shall not be converted into the right to receive the
consideration provided for in Sections 2.1 and 2.2 at or after the Effective
Date unless and until the holder of such shares withdraws his demand for such
appraisal (in accordance with the applicable provisions of the DGCL) or becomes
ineligible for such appraisal. If a holder of Dissenting Shares withdraws his
demand for such appraisal (in accordance with the applicable provisions of the
DGCL) or becomes ineligible for such appraisal, then, as of the Effective Date
or the occurrence of such event, whichever later occurs, such holder's
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the consideration provided for in
Sections 2.1 and 2.2. If any holder of MMI Common Stock shall assert the right
to be paid the fair value of such MMI Common Stock as described above, MMI shall
give ICI prompt written notice thereof and ICI shall have the right to
participate in and direct all negotiations and proceedings with respect to any
such demands. MMI shall not, except with the prior written consent of ICI,
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for payment. After the Effective Date, ICI will cause the Surviving
Corporation to pay its statutory obligations to holders of Dissenting Shares.
2.4. STOCK OPTIONS.
(a) At the Effective Date, all options (the "Options") then outstanding
under MMI's 1990 Incentive Stock Option Plan (the "MMI Stock Option Plan")
shall remain outstanding following the Effective Date. At the Effective
Date, such Options shall, by virtue of the Merger and without any further
action on the part of MMI or the holder of any such Option, be assumed by
ICI in accordance with their terms and conditions as in effect at the
Effective Date (and the terms and conditions of the MMI Stock Option Plan),
except that (i) each such Option shall be exercisable for that whole number
of shares of ICI Common Stock (to the nearest whole share) into which the
number of shares of MMI Common Stock subject to such Option immediately
prior to the Effective Date would be converted under Section 2.1; (ii) the
option price per share of the MMI Common Stock shall be an amount equal to
the option price per share of MMI Common Stock subject to such Option in
effect immediately prior to the Effective Date divided by the Exchange Ratio
(the price per share, as so determined, being rounded upward to the nearest
full cent); and (iii) all actions to be taken thereunder by the Board of
Directors of MMI or a committee thereof shall be taken by the Board of
Directors of ICI or a committee thereof. No payment shall be made for
fractional interests. From and after the date of this Agreement, no
additional options shall be granted by MMI under the MMI Stock Option Plan
or otherwise.
(b) It is intended that the assumed Options, as set forth herein, shall
not give to any holder thereof any benefits in addition to those which such
holder had prior to the assumption of the Option. ICI shall take all
necessary corporate action necessary to reserve for issuance a sufficient
number of shares of ICI Common Stock for delivery upon exercise of the
Options. Prior to or as soon as practicable after the Effective Date, ICI
shall file a registration statement, or an amendment to an existing
registration statement, under the Securities Act of 1933, as amended (the
"Securities Act"), on Form S-8 (or other successor form) with respect to the
shares of ICI Common Stock subject to such Options and shall use its best
efforts to maintain the effectiveness
A-3
<PAGE>
of such registration statement for so long as ICI shall be obligated to file
reports under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). In addition, ICI will cause such shares to be listed on the NMS.
(c) Approval by the stockholders of MMI of this Agreement shall
constitute authorization and approval of any and all of the actions
described in this Section 2.4.
2.5. EXCHANGE AGENT.
(a) ICI shall authorize SunTrust Bank, Atlanta, Georgia, to serve as
exchange agent hereunder (the "Exchange Agent"). Promptly after the
Effective Date, ICI shall deposit or shall cause to be deposited in trust
with the Exchange Agent certificates representing the number of whole shares
of ICI Common Stock to which the holders of MMI Common Stock (other than
holders of Dissenting Shares) are entitled pursuant to this Article 2,
together with cash sufficient to pay for fractional shares then known to ICI
(such cash amounts and certificates being hereinafter referred to as the
"Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions received from ICI, deliver the number of shares of ICI Common
Stock and pay the amounts of cash provided for in this Article 2 out of the
Exchange Fund. Additional amounts of cash, if any, needed from time to time
by the Exchange Agent to make payments for fractional shares shall be
provided by ICI and shall become part of the Exchange Fund. The Exchange
Fund shall not be used for any other purpose, except as provided in this
Agreement, or as otherwise agreed to by ICI, Merger Corp. and MMI prior to
the Effective Date.
(b) As soon as practicable after the Effective Date, the Exchange Agent
shall mail and otherwise make available to each record holder (other than
holders of Dissenting Shares) who, as of the Effective Date, was a holder of
an outstanding certificate or certificates which immediately prior to the
Effective Date represented shares of MMI Common Stock (the "Certificates"),
a form of letter of transmittal and instructions for use in effecting the
surrender of the Certificates for payment therefor and conversion thereof,
which letter of transmittal shall comply with all applicable rules of the
NMS. Delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent and the form of letter of transmittal shall so reflect.
Upon surrender to the Exchange Agent of a Certificate, together with such
letter of transmittal duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor (i) one or more certificates as
requested by the holder (properly issued, executed and countersigned, as
appropriate) representing that number of whole shares of ICI Common Stock to
which such holder of MMI Common Stock shall have become entitled pursuant to
the provisions of this Article 2, and (ii) as to any fractional share, a
check representing the cash consideration to which such holder shall have
become entitled pursuant to Section 2.2, and the Certificate so surrendered
shall forthwith be cancelled. No interest will be paid or accrued on the
cash payable upon surrender of the Certificates. ICI shall pay any transfer
or other taxes required by reason of the issuance of a certificate
representing shares of ICI Common Stock; provided, however, that such
certificate is issued in the name of the person in whose name the
Certificate surrendered in exchange therefor is registered; provided
further, however, that ICI shall not pay any transfer or other tax if the
obligation to pay such tax under applicable law is solely that of the
stockholder or if payment of any such tax by ICI otherwise would cause the
Merger to fail to qualify as a tax free reorganization under the Code. If
any portion of the consideration to be received pursuant to this Article 2
upon exchange of a Certificate (whether a certificate representing shares of
ICI Common Stock or a check representing cash for a fractional share) is to
be issued or paid to a person other than the person in whose name the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such issuance and payment that the Certificate so surrendered
shall be properly endorsed or otherwise in proper form for transfer as the
Exchange Agent may require and that the person requesting such exchange
shall pay in advance any transfer or other taxes required by reason of the
issuance of a certificate representing shares of ICI Common Stock or a check
representing cash for a fractional share to such other person, or establish
to the satisfaction of the Exchange Agent that such tax
A-4
<PAGE>
has been paid or that no such tax is applicable. From the Effective Date
until surrender in accordance with the provisions of this Section 2.5, each
Certificate (other than Certificates representing treasury shares of MMI and
Certificates representing Dissenting Shares) shall represent for all
purposes only the right to receive the consideration provided in Sections
2.1 and 2.2. No dividends that are otherwise payable on ICI Common Stock
will be paid to persons entitled to receive ICI Common Stock until such
persons surrender their Certificates. After such surrender, there shall be
paid to the person in whose name ICI Common Stock shall be issued any
dividends on such ICI Common Stock that shall have a record date on or after
the Effective Date and prior to such surrender. If the payment date for any
such dividend is after the date of such surrender, such payment shall be
made on such payment date. In no event shall the persons entitled to receive
such dividends be entitled to receive interest on such dividends. All
payments in respect of shares of MMI Common Stock that are made in
accordance with the terms hereof shall be deemed to have been made in full
satisfaction of all rights pertaining to such securities.
(c) In the case of any lost, mislaid, stolen or destroyed Certificates,
the holder thereof may be required, as a condition precedent to the delivery
to such holder of the consideration described in this Article 2, to deliver
to ICI a bond in such reasonable sum as ICI may direct as indemnity against
any claim that may be made against the Exchange Agent, ICI or the Surviving
Corporation with respect to the Certificate alleged to have been lost,
mislaid, stolen or destroyed.
(d) After the Effective Date, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of MMI Common
Stock that were outstanding immediately prior to the Effective Date. If,
after the Effective Date, Certificates are presented to the Surviving
Corporation for transfer, they shall be cancelled and exchanged for the
consideration described in this Article 2.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of MMI for six months after the Effective Date shall be
returned to ICI, upon demand, and any holder of MMI Common Stock who has not
theretofore complied with Section 2.5(b) shall thereafter look only to ICI
for issuance of the number of shares of ICI Common Stock and other
consideration to which such holder has become entitled pursuant to this
Article 2; provided, however, that neither the Exchange Agent nor any party
hereto shall be liable to a holder of shares of MMI Common Stock for any
amount required to be paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.6. ADJUSTMENT. If, between the date of this Agreement and the Closing
Date or the Effective Date, as the case may be, (i) the outstanding shares of
MMI Common Stock or ICI Common Stock shall have been changed into a different
number of shares or a different class by reason of any classification,
recapitalization, split-up, combination, exchange of shares, or readjustment or
a stock dividend thereon shall be declared with a record date within such period
or (ii) MMI shall have issued additional shares of MMI Common Stock (other than
upon the exercise of employee stock options granted prior to the date hereof) or
options or warrants to purchase the same, or securities convertible into the
same, the number of shares of ICI Common Stock issued pursuant to the Merger
shall be adjusted to accurately reflect such change (it being acknowledged that
MMI elsewhere herein covenants not to take any of the actions described in (i)
or (ii) above).
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF MMI
Except as set forth on "MMI's Disclosure Schedule" (which term shall mean
the written information delivered by MMI to ICI prior to the execution of this
Agreement; provided, that information shall be deemed to be disclosed in
accordance with a given provision of this Agreement only to the extent that
specific written reference to such provision of this Agreement is made in
connection with the disclosure of such information at the time of such
delivery), MMI hereby represents and warrants to ICI and Merger Corp. as
follows:
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<PAGE>
3.1. ORGANIZATION AND GOOD STANDING OF MMI. Each of MMI and the "MMI
Subsidiaries" (as defined in Section 3.2) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. Accurate and complete copies of MMI's certificate of
incorporation and bylaws, in each case as in effect on the date hereof, have
heretofore been delivered to ICI.
3.2. CAPITAL STOCK OF MMI SUBSIDIARIES AND OTHER OWNERSHIP
INTERESTS. MMI's Disclosure Schedule sets forth a true and complete list of all
corporations, partnerships and other entities in which MMI owns any equity
interest (the "MMI Subsidiaries"), the jurisdiction in which each MMI Subsidiary
is incorporated or organized, and all shares of capital stock or other ownership
interests authorized, issued and outstanding of each MMI Subsidiary. The shares
of capital stock or other equity interests of each MMI Subsidiary have been duly
authorized and are validly issued, fully paid and nonassessable and free of any
preemptive right. All shares of capital stock or other equity interests of each
MMI Subsidiary owned by MMI or any of its subsidiaries are set forth on MMI's
Disclosure Schedule and are owned by MMI, either directly or indirectly as set
forth in MMI's Disclosure Schedule, free and clear of all liens, encumbrances,
equities or claims.
3.3. FOREIGN QUALIFICATION. MMI and each of the MMI Subsidiaries are duly
qualified or licensed to do business and are in good standing as a foreign
corporation in every jurisdiction where the failure so to qualify could have a
material adverse effect on (a) the business, operations, prospects, assets or
financial condition of MMI and the MMI Subsidiaries taken as a whole or (b) the
validity or enforceability of, or the ability of MMI to perform its obligations
under, this Agreement and the other documents contemplated hereby (an "MMI
Material Adverse Effect").
3.4. CORPORATE POWER AND AUTHORITY. Each of MMI and the MMI Subsidiaries
has the corporate power and authority and all licenses and permits required by
governmental authorities to own, lease and operate its properties and assets and
to carry on its business as currently being conducted. MMI has the corporate
power and authority to execute and deliver this Agreement and the agreements,
documents and instruments contemplated hereby and, subject to the approval of
this Agreement and the Merger by its stockholders, to perform its obligations
under this Agreement and the other documents executed or to be executed by MMI
in connection with this Agreement and to consummate the Merger. The execution,
delivery, and performance by MMI of this Agreement and the other documents
executed or to be executed by MMI in connection with this Agreement have been
duly authorized by all necessary corporate action.
3.5. BINDING EFFECT. This Agreement and the other documents executed or to
be executed by MMI in connection with this Agreement have been or will have been
duly executed and delivered by MMI and are or will be, when executed and
delivered, the legal, valid and binding obligations of MMI enforceable in
accordance with their terms except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of public
policy.
3.6. ABSENCE OF RESTRICTIONS AND CONFLICTS. Subject only to the approval
of the adoption of this Agreement and the Merger by MMI's stockholders as
described in Section 5.8 and the following sentence of this Section, the
execution, delivery and performance of this Agreement and the other documents
executed or to be executed by MMI in connection with this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement and the fulfillment of and compliance with the terms and conditions of
this Agreement do not and will not, with the passing of time or the giving of
notice or both, violate or conflict with, constitute a breach of or default
under, result in the loss of any material benefit under, permit or result in the
acceleration or termination of any obligation under, or result in the creation
of any lien, security interest, charge or encumbrance
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upon any of the properties or assets of MMI or any of the MMI Subsidiaries
under, (i) any term or provision of the Articles or Certificate of Incorporation
or Bylaws of MMI or any MMI Subsidiary, (ii) any "MMI Material Contract" (as
defined in Section 3.13), (iii) any judgment, decree, permit, concession,
license, or order of any court or governmental authority or agency to which MMI
or any MMI Subsidiary is a party or by which MMI, any MMI Subsidiary or any of
their respective properties is bound or (iv) any statute, law, regulation or
rule applicable to MMI or any MMI Subsidiary. Except for compliance with the
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"), the Securities Act, the Exchange Act, and applicable state
securities laws, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental agency or public or
regulatory unit, agency, body or authority is required in connection with the
execution, delivery or performance of this Agreement by MMI, the consummation by
MMI of the transactions contemplated hereby or the ownership and operation by
MMI of its business and properties after the Effective Date in substantially the
same manner as now owned and operated.
3.7. CAPITALIZATION OF MMI.
(a) The authorized capital stock of MMI consists of 15,000,000 shares of
common stock, $.01 par value, and 1,000,000 shares of preferred stock, no
par value. As of the date hereof, there were (i) 4,596,886 shares of MMI
Common Stock issued and outstanding (not including 236,064 shares held in
the treasury), (ii) no shares of preferred stock, and (iii) 711,429 shares
of MMI Common Stock reserved for issuance upon the exercise of outstanding
Options granted under the MMI Option Plan, the terms of which are summarized
in MMI's Disclosure Schedule. No subsidiary of MMI holds any shares of the
capital stock of MMI. Since February 29, 1996, MMI has not (i) issued any
shares of capital stock except pursuant to the exercise of then outstanding
Options in accordance with their terms or (ii) repurchased or redeemed any
shares of MMI capital stock.
(b) All of the issued and outstanding shares of MMI Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights.
(c) To MMI's knowledge, there are no voting trusts, stockholder
agreements or other voting arrangements by the stockholders of MMI.
(d) Except as set forth in subsection (a) above, there is no outstanding
subscription, contract, convertible or exchangeable security, option,
warrant, call or other right obligating MMI or any of MMI Subsidiaries to
issue, sell, exchange or otherwise dispose of, or to purchase, redeem or
otherwise acquire, shares of, or securities convertible into or exchangeable
for, capital stock of MMI or MMI Subsidiaries.
3.8 MMI SEC REPORTS. MMI has made available to ICI and Merger Corp. (i)
MMI's Annual Reports on Form 10-K, including all exhibits filed thereto and
items incorporated therein by reference, (ii) MMI's Quarterly Reports on Form
10-Q, including all exhibits thereto and items incorporated therein by
reference, (iii) proxy statements relating to MMI's meetings of stockholders and
(iv) all other reports or registration statements (as amended or supplemented
prior to the date hereof), filed by MMI with the Securities and Exchange
Commission (the "SEC") since December 31, 1993, including all exhibits thereto
and items incorporated therein by reference (items (i) through (iv) being
referred to as the "MMI SEC Reports"). As of their respective dates, the MMI SEC
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Since December 31, 1993, MMI has filed all forms, reports and
documents with the SEC required to be filed by it pursuant to the federal
securities laws and the SEC rules and regulations thereunder, each of which
complied as to form, at the time such form, report or document was filed, in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act and the applicable rules and regulations thereunder.
3.9. FINANCIAL STATEMENTS AND RECORDS OF MMI. MMI has made available to
ICI and Merger Corp. true, correct and complete copies of (i) the consolidated
balance sheets of MMI and the MMI
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Subsidiaries as of November 30, 1994 and 1995 and the consolidated statements of
income, stockholders' equity and cash flows for the fiscal years then ended,
including the notes thereto, in each case examined by and accompanied by the
report of KPMG Peat Marwick L.L.P. and (ii) the unaudited balance sheet of MMI
and the MMI Subsidiaries as of February 29, 1996, and the related unaudited
statements of income, stockholders' equity and cash flows for the fiscal quarter
then ended (collectively the "MMI Financial Statements"). The MMI Financial
Statements have been prepared from, and are in accordance with, the books and
records of MMI and the MMI Subsidiaries and present fairly, in all material
respects, the assets, liabilities and financial position of MMI as of the dates
thereof and the results of operations and changes in financial position thereof
for the periods then ended, in each case in conformity with generally accepted
accounting principles, consistently applied, except as noted therein. Since
November 30, 1995, there has been no change in accounting principles applicable
to, or methods of accounting utilized by, MMI, except as noted in the MMI
Financial Statements. The statements of income and cash flow contained in the
MMI Financial Statements do not contain any material items of special or
nonrecurring income, except as specifically identified therein. On or before the
20th day of each calendar month following the date of this Agreement, MMI shall
deliver to ICI unaudited financial statements (including a balance sheet and
statements of income and cash flow) as of the end of the previous month and for
the year to date. The books and records of MMI have been and are being
maintained in accordance with good business practice, reflect only valid
transactions, are complete and correct in all material respects, and present
fairly in all material respects the basis for the financial position and results
of operations of MMI set forth in the MMI Financial Statements.
3.10. ABSENCE OF CERTAIN CHANGES. Since February 29, 1996, MMI and the MMI
Subsidiaries have not, except as may result from the transactions contemplated
by this Agreement:
(a) suffered any change in the business, results of operations, working
capital, assets, liabilities or condition (financial or otherwise) or the
manner of conducting the business of MMI and MMI Subsidiaries taken as a
whole, except as reflected on the MMI Financial Statements and except for
such changes that would not have an MMI Material Adverse Effect;
(b) suffered any damage or destruction to or loss of the assets of MMI
or any MMI Subsidiary, whether or not covered by insurance, which property
or assets are material to the operations or business of MMI and MMI
Subsidiaries taken as a whole;
(c) forgiven, compromised, canceled, released, waived or permitted to
lapse any material rights or claims;
(d) entered into or terminated any material agreement, commitment or
transaction, or agreed or made any changes in material leases or agreements,
or suffered any of the foregoing to occur, other than renewals or extensions
thereof and leases, agreements, transactions and commitments entered into in
the ordinary course of business (excluding the pending asset acquisitions
described in the MMI Disclosure Schedule);
(e) written up, written down or written off the book value of any
material amount of assets;
(f) declared, paid or set aside for payment any dividend or distribution
with respect to MMI's capital stock;
(g) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of MMI's capital stock or
securities (other than shares issued upon exercise of the Options) or any
rights to acquire such capital stock or securities, or agreed to changes in
the terms and conditions of any such rights outstanding as of the date of
this Agreement;
(h) increased the compensation of or paid any bonuses to any employees
or contributed to any employee benefit plan, other than in accordance with
established policies, practices or requirements and as provided in Section
5.1 hereof;
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(i) entered into any employment, consulting, compensation or collective
bargaining agreement with any person or group, or experienced any
resignations of, or had any terminations or disputes involving the
employment or contract relationship with any of its employees or sales
representatives which could have a MMI Material Adverse Effect on the
Surviving Corporation;
(j) entered into, adopted or amended any employee benefit plan;
(k) entered into any transaction other than in the ordinary course of
business; or
(l) entered into any agreement to do any of the foregoing.
3.11. NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of MMI or the MMI Subsidiaries of any nature, whether absolute,
accrued, contingent or otherwise, other than the liabilities and obligations
that are fully reflected, accrued or reserved against in the MMI Financial
Statements, for which the reserves are appropriate and reasonable, or incurred
in the ordinary course of business and consistent with past practices since
February 29, 1996.
3.12. TAX RETURNS; TAXES. Each of MMI and the MMI Subsidiaries have duly
and timely filed all federal, state, county, local and foreign tax returns and
reports required to be filed by it, including those with respect to income,
payroll, property, withholding, social security, unemployment, franchise, excise
and sales taxes and all such returns and reports are true and correct in all
material respects; have either paid in full all taxes that have become due as
reflected on any return or report and any interest and penalties with respect
thereto or have fully accrued on its books or have established adequate reserves
for all taxes payable but not yet due; and have made cash deposits with
appropriate governmental authorities representing estimated payments of taxes,
including income taxes and employee withholding tax obligations. No extension or
waiver of any statute of limitations or time within which to file any return has
been granted to or requested by MMI or the MMI Subsidiaries with respect to any
tax. No unsatisfied deficiency, delinquency or default for any tax, assessment
or governmental charge has been claimed, proposed or assessed against MMI or the
MMI Subsidiaries, nor has MMI or the MMI Subsidiaries received notice of any
such deficiency, delinquency or default. There is no audit, examination,
deficiency or refund litigation or matter in controversy with respect to any
taxes. MMI and the MMI Subsidiaries have no material tax liabilities other than
those reflected on the MMI Financial Statements and those arising in the
ordinary course of business since February 29, 1996. MMI will make available to
ICI true, complete and correct copies of MMI's consolidated federal tax returns
for the last five years and make available such other tax returns requested by
ICI.
3.13. MATERIAL CONTRACTS. MMI will furnish or make available accurate and
complete copies of the MMI Material Contracts (as defined herein) applicable to
MMI or any of the MMI Subsidiaries to ICI. All of the MMI Material Contracts are
valid, binding and enforceable. There is not under any of the MMI Material
Contracts any existing breach, default or event of default by MMI or any of the
MMI Subsidiaries nor event that with notice or lapse of time or both would
constitute a breach, default or event of default by MMI or any of the MMI
Subsidiaries nor does MMI know of, and MMI has not received notice of, or made a
claim with respect to, any breach or default by any other party thereto which
would, severally or in the aggregate, have an MMI Material Adverse Effect. As
used herein, the term "MMI Material Contracts" shall mean all contracts and
agreements filed, or required to be filed, as exhibits to MMI's Annual Report on
Form 10-K for the year ended November 30, 1995, any contracts and agreements
entered into since November 30, 1995 which would be required to be filed as an
exhibit to MMI's Annual Report on Form 10-K for the year ending November 30,
1996, any note, bond, mortgage, indenture, license agreement, lease, employment
agreement or other instrument or obligation to which any of MMI or the MMI
Subsidiaries is a party or by which any of them or any of their properties or
assets may be subject. Except as set forth in the MMI Disclosure Schedule,
neither MMI nor any MMI Subsidiary is a party to any legally binding contract to
sell or purchase goods or services which is not terminable on less than six
months notice; any power of attorney; any agreement containing covenants by it
not to compete or restricting the customers from whom or the area in which it
may solicit or conduct its business; any contract arrangement or commitment for
the acquisition of any other business or assets not made in the ordinary course
of business; any contracts, arrangements
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or commitments for capital expenditures in excess of $50,000 in the aggregate;
and any contract, arrangement or commitment for payment of severance or other
fees to any existing or former employee, consultant or sales representative.
3.14. LITIGATION AND GOVERNMENT CLAIMS. Except as disclosed in the MMI SEC
Reports, there is no pending suit, claim, action or litigation, whether civil,
criminal or administrative, arbitration or other proceeding or governmental
investigation or inquiry, or any pending change in any environmental, zoning or
building laws, regulations or ordinances against MMI or the MMI Subsidiaries to
which their businesses or assets are subject which would, severally or in the
aggregate, have an MMI Material Adverse Effect. To the knowledge of MMI, there
are no such proceedings threatened or contemplated, or any unasserted claims
(whether or not the potential claimant may be aware of the claim) of any nature
that might be asserted against MMI or the MMI Subsidiaries which would,
severally or in the aggregate, have an MMI Material Adverse Effect. Neither MMI
nor any MMI Subsidiary is subject to any judgment, decree, injunction, rule or
order of any court, or any governmental restriction applicable to MMI or any MMI
Subsidiary which is reasonably likely (i) to have an MMI Material Adverse Effect
or (ii) to cause a material limitation on ICI's ability to operate the business
of MMI after the Closing.
3.15. COMPLIANCE WITH LAWS. MMI and the MMI Subsidiaries each have all
material authorizations, approvals, licenses and orders to carry on their
respective businesses as they are now being conducted, to own or hold under
lease the properties and assets they own or hold under lease and to perform all
of their obligations under the agreements to which they are a party, except for
instances which would not have an MMI Material Adverse Effect. MMI and the MMI
Subsidiaries have been and are in compliance with all applicable laws,
regulations and administrative orders of any country, state or municipality or
of any subdivision of any thereof to which their respective businesses and their
employment of labor or their use or occupancy of properties or any part hereof
are subject, the failure to obtain or the violation of which would have an MMI
Material Adverse Effect.
3.16. EMPLOYEE BENEFIT PLANS. Each employee benefit plan, as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), of MMI or the MMI Subsidiaries (collectively the "MMI
Employee Plans") complies in all material respects with all applicable
requirements of ERISA and the Code, and other applicable laws. None of the MMI
Employee Plans is an employee pension benefit plan subject to Title IV or Part 3
of Subtitle B of Title I of ERISA or a multiemployer plan, as such terms are
defined in ERISA. Neither MMI nor any MMI Subsidiary, nor any of their
respective directors, officers, employees or agents has, with respect to any MMI
Employee Plan, engaged in any "prohibited transaction," as such term is defined
in the Code or ERISA, nor has any MMI Employee Plan engaged in such prohibited
transaction which could result in any taxes or penalties or other prohibited
transactions, which in the aggregate could have an MMI Material Adverse Effect.
3.17. LABOR RELATIONS. Each of MMI and the MMI Subsidiaries is in
compliance in all respects with all laws (including Federal and state laws and
the laws of another country or governmental entity thereof) respecting
employment and employment practices, terms and conditions of employment, wages
and hours, and is not engaged in any unfair labor or unlawful employment
practice, except in any case which would not have an MMI Material Adverse
Effect. There is no unlawful employment practice discrimination charge pending
before the EEOC or EEOC recognized state "referral agency." There is no unfair
labor practice charge or complaint against MMI or any of the MMI Subsidiaries
pending before the National Labor Review Board. There is no labor strike,
dispute, slowdown or stoppage actually pending or, to the knowledge of MMI,
threatened against or involving or affecting MMI or any of the MMI Subsidiaries
and no National Labor Review Board representation question exists respecting
their respective employees. No grievances or arbitration proceeding is pending
and no written claim therefor exists. There is no collective bargaining
agreement that is binding on MMI or any of the MMI Subsidiaries.
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3.18. INTELLECTUAL PROPERTY. MMI and the MMI Subsidiaries own or have
valid, binding and enforceable rights to use all patents, trademarks, trade
names, service marks, service names, copyrights, applications therefor and
licenses or other rights in respect thereof ("MMI Intellectual Property") used
or held for use in connection with the business of MMI or the MMI Subsidiaries,
without any conflict with the rights of others, except for such conflicts as do
not have an MMI Material Adverse Effect. Neither MMI nor any of the MMI
Subsidiaries has received any notice from any other person pertaining to or
challenging the right of MMI or any of the MMI Subsidiaries to use any MMI
Intellectual Property or any trade secrets, proprietary information, inventions,
know-how, processes and procedures owned or used or licensed to MMI or the MMI
Subsidiaries.
3.19. PROPERTIES. MMI and the MMI Subsidiaries have good and marketable
title, free and clear of all liens, claims or encumbrances (other than for the
MMI Material Contracts) to all of their material properties and assets whether
tangible or intangible, real, personal or mixed, reflected on the MMI Financial
Statements as being owned by MMI or the MMI Subsidiaries. All buildings and all
fixtures, equipment and other property and assets which are material to its
business held under leases or subleases by any of MMI or the MMI Subsidiaries
are held under valid instruments enforceable in accordance with their respective
terms. Substantially all of MMI's and MMI Subsidiaries' equipment and properties
have been well maintained and are in good and serviceable condition, reasonable
wear and tear excepted.
3.20. INSURANCE. MMI and each of the MMI Subsidiaries is presently
insured, and during each of the past five (5) calendar years has been insured
for reasonable amounts against such risks as companies engaged in similar
business would, in accordance with good business practice, customarily be
insured. At all times since the date of this Agreement, MMI has maintained in
effect its directors' and officers' liability insurance policy.
3.21. ENVIRONMENTAL MATTERS. MMI and the MMI Subsidiaries are in
compliance with all applicable federal, state, local and foreign laws relating
to emissions, discharges and releases of hazardous materials into the
environment and the generation, treatment, storage, transportation and disposal
of hazardous waste, including, without limitation, any applicable provisions of
the Resource Conservation and Recovery Act of 1976 or the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, except as would
not cause a MMI Material Adverse Effect. There are no conditions at, on, under
or related to any real property owned or operated by MMI or the MMI Subsidiaries
which presently or potentially poses a significant hazard to human health or the
environment, and there has been no production, use, treatment, storage,
transportation or disposal by MMI or any of the MMI Subsidiaries of any
Hazardous Substance (as hereinbelow defined) nor any release or threatened
release by MMI or any MMI subsidiary of any Hazardous Substance. No Hazardous
Substance is now or ever has been stored by MMI or the MMI Subsidiaries in
underground tanks, pits or surface impoundments. For purposes of the foregoing,
the term "Hazardous Substance" means any hazardous or toxic substance, material
or waste (including, without limitation, petroleum products and by-products)
which is regulated by any applicable federal, state, local or foreign authority.
3.22. REGISTRATION OBLIGATIONS. Neither MMI nor any of the MMI
Subsidiaries is under any obligation, contingent or otherwise, which will
survive the Merger to register any of its securities under the Securities Act.
3.23. STATE TAKEOVER LAWS. MMI and the MMI Subsidiaries have taken all
steps to exempt the transactions contemplated by this Agreement, and this
Agreement is not subject to, any applicable state takeover law including,
without limitation, DGCL Section 203.
3.24. ACCOUNTING, TAX AND REGULATORY MATTERS. Neither MMI nor any of the
MMI Subsidiaries has taken or agreed to take any action or has any knowledge of
any fact or circumstances that would prevent the transactions contemplated
hereby from qualifying for pooling of interest accounting treatment or as a
reorganization within the meaning of Section 368 of the Code.
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3.25. ACCURACY OF DISCLOSURES. None of the information supplied by MMI or
any MMI Subsidiary for inclusion in the Registration Statement or Proxy
Statement (as such terms are defined in Section 5.7) will, in the case of the
Proxy Statement or any amendments or supplements thereto, at the time of mailing
of the Proxy Statement and any amendments or supplements thereto, and at the
time of the meeting of stockholders of MMI in accordance therewith, or, in the
case of the Registration Statement at the time it becomes effective and at the
Effective Date, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act, and the rules and
regulations promulgated thereunder. The Proxy Statement will comply as to form
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder.
3.26. BROKERS AND FINDERS. None of MMI, the MMI Subsidiaries or, to MMI's
knowledge, any of their respective officers, directors and employees has
employed any broker, finder or investment bank or incurred any liability for any
investment banking fees, financial advisory fees, brokerage fees or finders'
fees in connection with the transactions contemplated hereby, except that MMI
has engaged Goldman, Sachs & Co. as financial advisor pursuant to a written
agreement, a true and complete copy of which has been delivered to ICI. Other
than the foregoing arrangements and other than certain fees that may be paid to
ICI's financial advisor as contemplated by Section 4.24 hereof, MMI is not aware
of any claim for payment of any finder's fees, brokerage or agent's commissions
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby. MMI has
delivered to ICI all contracts, agreements and documents, including summaries of
oral agreements, that relate to the engagement of and the payment of fees to its
financial advisors.
3.27. OPINION OF FINANCIAL ADVISOR. MMI has received (and upon receipt
thereof will promptly deliver to ICI a photocopy thereof) the opinion of its
financial advisor (addressed solely to the MMI Board of Directors and not to be
relied upon by any other person) to the effect that, as of the date of amendment
of this Agreement, the Exchange Ratio is fair to the holders of MMI Common
Stock.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF ICI AND MERGER CORP.
Except as set forth on "ICI's Disclosure Schedule" (which term shall mean
the written information delivered by ICI to MMI prior to the execution of this
Agreement; provided, that information shall be deemed to be disclosed in
accordance with a given provision of this Agreement only to the extent that
specific written reference to such provision of this Agreement is made in
connection with the disclosure of such information at the time of such
delivery), ICI and Merger Corp. hereby represent and warrant to MMI as follows:
4.1. ORGANIZATION AND GOOD STANDING OF ICI. Each of ICI, Merger Corp. and
the ICI Subsidiaries (as defined in Section 4.2) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Accurate and complete copies of ICI's
articles of incorporation and bylaws, in each case as in effect on the date
hereof, have heretofore been delivered to MMI.
4.2. CAPITAL STOCK OF ICI SUBSIDIARIES AND OTHER OWNERSHIP
INTERESTS. ICI's Disclosure Schedule sets forth a true and complete list of all
corporations, partnerships and other entities in which ICI owns any equity
interest (the "ICI Subsidiaries"), the jurisdiction in which each ICI Subsidiary
is incorporated or organized, and all shares of capital stock or other ownership
interests authorized, issued and outstanding of each ICI Subsidiary. The shares
of capital stock or other equity interests of each ICI Subsidiary have been duly
authorized and are validly issued, fully paid and nonassessable.
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4.3. FOREIGN QUALIFICATION. ICI and each of the ICI Subsidiaries are duly
qualified or licensed to do business and are in good standing as a foreign
corporation in every jurisdiction where the failure so to qualify could have a
material adverse effect on (a) the business, operations, prospects, assets or
financial condition of ICI and the ICI Subsidiaries taken as a whole or (b) the
validity or enforceability of, or the ability of ICI to perform its obligations
under, this Agreement and the other documents contemplated hereby (an "ICI
Material Adverse Effect").
4.4. CORPORATE POWER AND AUTHORITY. Each of ICI and the ICI Subsidiaries
has the corporate power and authority and all licenses and permits required by
governmental authorities to own, lease and operate its properties and assets and
to carry on its business as currently being conducted. Each of ICI and Merger
Corp. has the corporate power and authority to execute and deliver this
Agreement and, except as set forth in ICI's Disclosure Schedule and subject to
obtaining any requisite ICI shareholder approval required for listing ICI Common
Stock on NMS, to perform its obligations under this Agreement and the other
documents executed or to be executed by ICI in connection with this Agreement
and to consummate the Merger. Except as set forth in the preceding sentence, the
execution, delivery, and performance by ICI and Merger Corp. of this Agreement
and the other documents executed or to be executed by ICI or Merger Corp., as
applicable, in connection with this Agreement have been duly authorized by all
necessary corporate action.
4.5. BINDING EFFECT. This Agreement and the other documents executed or to
be executed by ICI and Merger Corp. in connection with this Agreement have been
or will have been duly executed and delivered by ICI and Merger Corp. and are or
will be, when executed and delivered, the legal, valid and binding obligations
of ICI and Merger Corp., enforceable in accordance with their terms except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of public
policy.
4.6. ABSENCE OF RESTRICTIONS AND CONFLICTS. The consummation of the Merger
and the other transactions contemplated by this Agreement and the fulfillment of
and compliance with the terms and conditions of this Agreement do not and will
not, with the passing of time or the giving of notice or both, violate or
conflict with, constitute a breach of or default under, result in the loss of
any material benefit under, permit or result in the acceleration or termination
of any obligation under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of ICI or
any of the ICI Subsidiaries under, (i) any term or provision of the Articles or
Certificate of Incorporation or Bylaws of ICI or any ICI Subsidiary, (ii) any
"ICI Material Contract" (as defined in Section 4.13), (iii) any judgment,
decree, permit, concession, license or order of any court or governmental
authority or agency to which ICI or any ICI Subsidiary is a party or by which
ICI, any ICI Subsidiary or any of their respective properties is bound, or (iv)
any statute, law, regulation or rule applicable to ICI or any ICI Subsidiary.
Except for compliance with the applicable requirements of the HSR Act, the
Securities Act, the Exchange Act, the NMS and applicable state securities laws,
no consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental agency or public or regulatory unit, agency, body
or authority is required in connection with the execution, delivery or
performance of this Agreement by ICI, the consummation by ICI of the
transactions contemplated hereby or the ownership and operation of MMI by ICI
after the Effective Date in substantially the same manner as now owned and
operated.
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4.7. CAPITALIZATION OF ICI.
(a) The authorized capital stock of ICI consists of 100,000,000 shares
of ICI Common Stock, $.001 par value; and 10,000,000 shares of preferred
stock, no par value. As of the date hereof, there are (i) 30,546,186 shares
of Common Stock outstanding, (ii) no shares of the Preferred Stock
outstanding, and (iii) 2,756,886 shares reserved for issuance upon the
exercise of outstanding options (the "ICI Options") granted under ICI's
stock option plans.
(b) All of the issued and outstanding shares of ICI Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights.
(c) To ICI's knowledge, there are no voting trusts, stockholder
agreements or other voting arrangements by the stockholders of ICI.
(d) Except as set forth in subsection (a) above, there is no outstanding
subscription, contract, convertible or exchangeable security, option,
warrant, call or other right obligating ICI or any of the ICI Subsidiaries
to issue, sell, exchange or otherwise dispose of, or to purchase, redeem or
otherwise acquire, shares of, or securities convertible into or exchangeable
for, capital stock of ICI or the ICI Subsidiaries.
4.8. ICI SEC REPORTS. ICI has made available to MMI (i) ICI's Annual
Reports on Form 10-K, including all exhibits filed thereto and items
incorporated therein by reference, (ii) ICI's Quarterly Reports on Form 10-Q,
including all exhibits thereto and items incorporated therein by reference,
(iii) proxy statements relating to ICI's meetings of stockholders and (iv) all
other reports or registration statements (as amended or supplemented prior to
the date hereof), filed by ICI with the SEC since December 31, 1993, including
all exhibits thereto and items incorporated therein by reference (items (i)
through (iv) being referred to as the "ICI SEC Reports"). As of their respective
dates, the ICI SEC Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Since December 31, 1993, ICI has filed all material
forms, reports and documents with the SEC required to be filed by it pursuant to
the federal securities laws and the SEC rules and regulations thereunder, each
of which complied as to form, at the time such form, report or document was
filed, in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and the applicable rules and regulations
thereunder.
4.9. FINANCIAL STATEMENTS AND RECORDS OF ICI. ICI has made available to
MMI true, correct and complete copies of (i) the consolidated balance sheets of
ICI and the ICI Subsidiaries as of December 31, 1994 and 1995, and the
consolidated statements of income, stockholders' equity and cash flows for the
fiscal years then ended, including the notes thereto, in each case examined by
and accompanied by the report of Deloitte & Touche LLP, and (ii) the unaudited
consolidated balance sheet of ICI and the ICI Subsidiaries as of March 31, 1996
and related the unaudited consolidated statements of income, shareholders'
equity and cash flow for the quarter then ended (collectively, the "ICI
Financial Statements"). The ICI Financial Statements have been prepared from,
and are in accordance with, the books and records of ICI and the ICI
Subsidiaries and present fairly, in all material respects, the assets,
liabilities and financial position of ICI as of the dates thereof and the
results of operations and changes in financial position thereof for the periods
then ended, in each case in conformity with generally accepted accounting
principles, consistently applied, except as noted therein. Since December 31,
1995, there has been no change in accounting principles applicable to, or
methods of accounting utilized by, ICI, except as noted in the ICI Financial
Statements or as is required under generally accepted accounting principles. The
statements of income and cash flow contained in the ICI Financial Statements do
not contain any material items of special or nonrecurring income, except as
specifically identified therein. On or before the 20th day of each calendar
month following the date of this Agreement, ICI shall deliver to MMI unaudited
financial statements (including a balance sheet and statements of income and
cash flow) as of the end of the previous month and for the year to date. The
books and records of ICI have been and are being maintained in accordance with
good business
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practice, reflect only valid transactions, are complete and correct in all
material respects, and present fairly in all material respects the basis for the
financial position and results of operations of ICI set forth in the ICI
Financial Statements.
4.10. ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, ICI and the ICI
Subsidiaries have not, except as may result from the transactions contemplated
by this Agreement:
(a) suffered any material adverse change in the business, results of
operations, working capital, assets, liabilities or condition (financial or
otherwise) or the manner of conducting the business of ICI and ICI
Subsidiaries taken as a whole, except as reflected on the ICI Financial
Statements and except for such changes that would not have an ICI Material
Adverse Effect;
(b) suffered any damage or destruction to or loss of the assets of ICI
or any ICI Subsidiary, whether or not covered by insurance, which would be
expected to result in an ICI Material Adverse Effect;
(c) forgiven, compromised, canceled, released, waived or permitted to
lapse any material rights or claims;
(d) entered into or terminated any material agreement, commitment or
transaction, or agreed or made any changes in material leases or agreements,
or suffered any of the foregoing to occur, other than renewals or extensions
thereof and leases, agreements, transactions and commitments entered into in
the ordinary course of business, except in any such case as does not have an
ICI Material Adverse Effect;
(e) written up, written down or written off the book value of any
material amount of assets;
(f) declared, paid or set aside for payment any dividend or distribution
with respect to ICI's capital stock;
(g) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of ICI's capital stock or
securities (other than shares issued upon exercise of the ICI Options) or
any rights to acquire such capital stock or securities, or agreed to changes
in the terms and conditions of any such rights outstanding as of the date of
this Agreement, except as provided in Section 5.2 hereof;
(h) increased the compensation of or paid any bonuses to any employees
or contributed to any employee benefit plan, other than in accordance with
established policies, practices or requirements and except as provided in
Section 5.2 hereof;
(i) entered into any employment, consulting, compensation or collective
bargaining agreement with any person or group, except in any such case which
does not have an ICI Material Adverse Effect on the Surviving Corporation;
(j) entered into, adopted or amended any employee benefit plan except
in any such case as does not have an ICI Material Adverse Effect; or
(k) entered into any agreement to do any of the foregoing.
4.11. NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of ICI or the ICI Subsidiaries of any nature, whether absolute,
accrued, contingent or otherwise, other than:
(a) the liabilities and obligations that are fully reflected, accrued or
reserved against in the ICI Financial Statements, for which the reserves are
appropriate and reasonable, or incurred in the ordinary course of business
and consistent with past practices since December 31, 1995; or
(b) liabilities or obligations not inconsistent with the terms of
Section 5.2.
4.12. TAX RETURNS; TAXES. Each of ICI and the ICI Subsidiaries have duly
and timely filed all federal, state, county, local and foreign tax returns and
reports required to be filed by it, including those with respect to income,
payroll, property, withholding, social security, unemployment, franchise, excise
and sales taxes and all such returns and reports are true and correct in all
material respects;
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have either paid in full all taxes that have become due as reflected on any
return or report and any interest and penalties with respect thereto or have
fully accrued on its books or have established adequate reserves for all taxes
payable but not yet due; and have made cash deposits with appropriate
governmental authorities representing estimated payments of taxes, including
income taxes and employee withholding tax obligations. Except as set forth in
ICI's Disclosure Schedule, no unsatisfied deficiency, delinquency or default for
any tax, assessment or governmental charge has been claimed, proposed or
assessed against ICI or the ICI Subsidiaries, nor has ICI or the ICI
Subsidiaries received notice of any such deficiency, delinquency or default.
Except as set forth in ICI's Disclosure Schedule, there is no audit,
examination, deficiency or refund litigation or matter in controversy with
respect to any taxes. ICI and the ICI Subsidiaries have no material tax
liabilities other than those reflected on the ICI Financial Statements and those
arising in the ordinary course of business since March 31, 1996. ICI will make
available to MMI true, complete and correct copies of ICI's consolidated federal
tax returns for the last five years and make available such other tax returns
requested by MMI.
4.13. MATERIAL CONTRACTS. ICI will furnish or make available accurate and
complete copies of the ICI Material Contracts to MMI. All of the ICI Material
Contracts are valid, binding and enforceable. There is not under any of the ICI
Material Contracts any existing breach, default or event of default by ICI or
any of the ICI Subsidiaries nor event that with notice or lapse of time or both
would constitute a breach, default or event of default by ICI or any of the ICI
Subsidiaries nor does ICI know of, and ICI has not received notice of, or made a
claim with respect to, any breach or default by any other party thereto which
would, severally or in the aggregate, have an ICI Material Adverse Effect. As
used herein, the term "ICI Material Contracts" shall mean all of contracts and
agreements filed, or required to be filed, as exhibits to ICI's Annual Report on
Form 10-K for the year ended December 31, 1995 and any contract or agreement
entered into since December 31, 1995 which would be required to be filed as an
exhibit to ICI's Annual Report on Form 10-K for the year ending December 31,
1996, any note, bond, mortgage, indenture, license agreement, lease, employment
agreement or other instrument or obligation to which any of ICI or the ICI
Subsidiaries is a party or by which any of them or any of their properties or
assets may be subject.
4.14. LITIGATION AND GOVERNMENT CLAIMS. Except as disclosed in the ICI SEC
Reports, there is no pending suit, claim, action or litigation, whether civil,
criminal or administrative, arbitration or other proceeding or governmental
investigation or inquiry, or any pending change in any environmental, zoning or
building laws, regulations or ordinances against ICI or the ICI Subsidiaries to
which their businesses or assets are subject which would, severally or in the
aggregate, reasonably be expected to result in an ICI Material Adverse Effect.
To the knowledge of ICI, there are no such proceedings threatened or
contemplated, or any unasserted claims (whether or not the potential claimant
may be aware of the claim) of any nature that might be asserted against ICI or
the ICI Subsidiaries which would, severally or in the aggregate, have an ICI
Material Adverse Effect. Neither ICI nor any ICI Subsidiary is subject to any
judgment, decree, injunction, rule or order of any court, or any governmental
restriction applicable to ICI or any ICI Subsidiary which is reasonably likely
(i) to have an ICI Material Adverse Effect or (ii) to cause a material
limitation on ICI's ability to operate the business of MMI after the Closing.
4.15. COMPLIANCE WITH LAWS. ICI and the ICI Subsidiaries each have all
material authorizations, approvals, licenses and orders to carry on their
respective businesses as they are now being conducted, to own or hold under
lease the properties and assets they own or hold under lease and to perform all
of their obligations under the agreements to which they are a party, except for
instances which would not have an ICI Material Adverse Effect. ICI and the ICI
Subsidiaries have been and are in compliance with all applicable laws,
regulations and administrative orders of any country, state or municipality or
of any subdivision of any thereof to which their respective businesses and their
employment of labor or their use or occupancy of properties or any part hereof
are subject, the failure to obtain or the violation of which would have an ICI
Material Adverse Effect.
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4.16. EMPLOYEE BENEFIT PLANS. Each employee benefit plan, as such term is
defined in Section 3(3) of ERISA, of ICI or the ICI Subsidiaries (collectively
the "ICI Employee Plans") complies in all material respects with all applicable
requirements of ERISA and the Code and other applicable laws. None of the ICI
Employee Plans is an employee pension benefit plan subject to Title IV or Part 3
of Subtitle B of Title I of ERISA or a multiemployer plan, as such terms are
defined in ERISA. Neither ICI nor any ICI Subsidiary, nor any of their
respective directors, officers, employees or agents has, with respect to any ICI
Employee Plan, engaged in any "prohibited transaction," as such term is defined
in the Code or ERISA, nor has any ICI Employee Plan engaged in such prohibited
transaction which could result in any taxes or penalties or other prohibited
transactions, which in the aggregate could have an ICI Material Adverse Effect.
4.17. LABOR RELATIONS. Each of ICI and the ICI Subsidiaries is in
compliance in all respects with all federal and state laws respecting employment
and employment practices, terms and conditions of employment, wages and hours,
and is not engaged in any unfair labor or unlawful employment practice, except
in any case which would not have an ICI Material Adverse Effect. There is no
unlawful employment practice discrimination charge pending before the EEOC or
EEOC recognized state "referral agency." There is no unfair labor practice
charge or complaint against ICI or any of the ICI Subsidiaries pending before
the National Labor Review Board. There is no labor strike, dispute, slowdown or
stoppage actually pending or, to the knowledge of ICI, threatened against or
involving or affecting ICI or any of the ICI Subsidiaries and no National Labor
Review Board representation question exists respecting their respective
employees. No grievances or arbitration proceeding is pending and no written
claim therefor exists, except in any case which would not have an ICI Material
Adverse Effect.
4.18. INTELLECTUAL PROPERTY. ICI and the ICI Subsidiaries own or have
valid, binding and enforceable rights to use all patents, trademarks, trade
names, service marks, service names, copyrights, applications therefor and
licenses or other rights in respect thereof ("ICI Intellectual Property") used
or held for use in connection with the business of ICI or the ICI Subsidiaries,
without any conflict with the rights of others, except for such conflicts as do
not have an ICI Material Adverse Effect. Neither ICI nor any of the ICI
Subsidiaries has received any notice from any other person pertaining to or
challenging the right of ICI or any of the ICI Subsidiaries to use any ICI
Intellectual Property or any trade secrets, proprietary information, inventions,
know-how, processes and procedures owned or used or licensed to ICI or the ICI
Subsidiaries, except with respect to rights the loss of which, individually or
in the aggregate, would not have an ICI Material Adverse Effect.
4.19. PROPERTIES. ICI and the ICI Subsidiaries have good and marketable
title, free and clear of all liens, claims or encumbrances (other than for the
ICI Material Contracts) to all of their material properties and assets whether
tangible or intangible, real, personal or mixed, reflected on the ICI Financial
Statements as being owned by ICI or the ICI Subsidiaries. All buildings and all
fixtures, equipment and other property and assets which are material to its
business held under leases or subleases by any of ICI or the ICI Subsidiaries
are held under valid instruments enforceable in accordance with their respective
terms. Substantially all of ICI's and ICI Subsidiaries' equipment and properties
have been well maintained and are in good and serviceable condition, reasonable
wear and tear excepted.
4.20. INSURANCE. ICI and each of the ICI Subsidiaries is presently
insured, and during each of the past five (5) calendar years has been insured
for reasonable amounts against such risks as companies engaged in similar
business would, in accordance with good business practice, customarily be
insured.
4.21. ENVIRONMENTAL MATTERS. ICI and the ICI Subsidiaries are in
compliance with all applicable federal, state, local and foreign laws relating
to emissions, discharges and releases of hazardous materials into the
environment and the generation, treatment, storage, transportation and disposal
of hazardous waste, including, without limitation, any applicable provisions of
the Resource Conservation and Recovery Act of 1976 or the Comprehensive
Environmental Response, Compensation and
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Liability Act of 1980, except as would not cause an ICI Material Adverse Effect.
There are no conditions at, on, under or related to any real property owned or
operated by ICI or the ICI Subsidiaries which presently or potentially poses a
significant hazard to human health or the environment, and there has been no
production, use, treatment, storage, transportation or disposal by ICI or any of
the ICI Subsidiaries of any Hazardous Substance (as hereinbelow defined) nor any
release or threatened release by ICI or any ICI subsidiary of any Hazardous
Substance. No Hazardous Substance is now or ever has been stored by ICI or the
ICI Subsidiaries in underground tanks, pits or surface impoundments. For
purposes of the foregoing, the term "Hazardous Substance" means any hazardous or
toxic substance, material or waste (including, without limitation, petroleum
products and by-products) which is regulated by any applicable federal, state,
local or foreign authority.
4.22. ACCOUNTING, TAX AND REGULATORY MATTERS. Neither ICI nor any of the
ICI Subsidiaries has taken or agreed to take any action or has any knowledge of
any fact or circumstances that would prevent the transactions contemplated
hereby from qualifying for pooling of interest accounting treatment or as a
reorganization within the meaning of Section 368 of the Code.
4.23. ACCURACY OF DISCLOSURES. None of the information supplied by ICI or
any ICI Subsidiary for inclusion in the Registration Statement or Proxy
Statement will, in the case of the Proxy Statement or any amendments or
supplements thereto, at the time of mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the meeting of
stockholders of MMI in accordance therewith, or, in the case of the Registration
Statement at the time it becomes effective and at the Effective Date, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement will comply as to form in all material
respects with the provisions of the Securities Act, and the rules and
regulations promulgated thereunder. The Proxy Statement will comply as to form
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder.
4.24. BROKERS AND FINDERS. None of ICI, the ICI Subsidiaries or, to ICI's
knowledge, any of their respective officers, directors and employees has
employed any broker, finder or investment bank or incurred any liability for any
investment banking fees, financial advisory fees, brokerage fees or finders'
fees in connection with the transactions contemplated hereby, except that ICI
has engaged Morgan Keegan & Company, Inc. as its financial advisor. Other than
the foregoing arrangements and other than certain fees that may be paid to MMI's
financial advisors as contemplated by Section 3.26 hereof, ICI is not aware of
any claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
ARTICLE 5.
CERTAIN COVENANTS AND AGREEMENTS
5.1. CONDUCT OF BUSINESS BY MMI. From the date hereof to the Effective
Date, MMI will, and will cause each MMI Subsidiary to, except as required in
connection with the Merger and the other transactions contemplated by this
Agreement and except as otherwise disclosed in MMI's Disclosure Schedule or
consented to in writing by ICI:
(a) Carry on its business in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any
new line of business or enter into any agreement, transaction or activity or
make any commitment except those in the ordinary and regular course of
business and not otherwise prohibited under this Section 5.1;
(b) Neither change nor amend its Certificate or Articles of
Incorporation or Bylaws;
(c) Other than pursuant to the exercise of the Options outstanding on
the date hereof, not issue, sell or grant options, warrants or rights to
purchase or subscribe to, or enter into any arrangement or contract with
respect to the issuance or sale of any of the capital stock of MMI or
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any of the MMI Subsidiaries or rights or obligations convertible into or
exchangeable for any shares of the capital stock of MMI or any of the MMI
Subsidiaries and not alter the terms of any presently outstanding options or
the MMI Stock Option Plan or make any changes (by split-up, combination,
reorganization or otherwise) in the capital structure of MMI or any of MMI's
Subsidiaries;
(d) Not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of
MMI and not redeem, purchase or otherwise acquire any shares of the capital
stock or other securities of MMI or any of the MMI Subsidiaries or rights or
obligations convertible into or exchangeable for any shares of the capital
stock or other securities of MMI or any of the MMI Subsidiaries or
obligations convertible into such, or any options, warrants or other rights
to purchase or subscribe to any of the foregoing;
(e) Not acquire or enter into any agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity or
product line (other than the pending asset acquisitions described in the MMI
Disclosure Schedule);
(f) Use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of MMI and the MMI
Subsidiaries, to keep the officers and employees of MMI and the MMI
Subsidiaries available to MMI and to preserve the relationships of MMI and
the MMI Subsidiaries with suppliers, customers and others having business
relations with any of them, except for such instances which would not have
an MMI Material Adverse Effect;
(g) Not (i) create, incur or assume any long-term debt (including
obligations in respect of capital leases which individually or in the
aggregate involve annual payments in excess of $10,000) or, except in the
ordinary course of business under existing lines of credit, create, incur or
assume any short-term debt for borrowed money, (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person other
than MMI Subsidiaries, (iii) make any loans or advances to any other person
other than the MMI Subsidiaries, except in the ordinary course of business
and consistent with past practice, or (iv) make any capital contributions
to, or investments in, any person other than the MMI Subsidiaries; provided,
however, that MMI may incur long-term debt under its credit facility with
Chemical Bank, as may be amended upon terms not materially less favorable to
MMI in connection with the pending asset acquisitions described in the MMI
Disclosure Schedule up to an aggregate principal amount of $10.0 million; or
(h) Not (i) enter into, modify or extend in any manner the terms of any
employment, severance or similar agreements with officers, directors,
employees and sales representatives, (ii) grant any increase in the
compensation of officers or directors, whether now or hereafter payable or
(iii) grant any increase in the compensation of any other employees except
for compensation increases in the ordinary course of business and consistent
with past practice.
In connection with the continued operation of the business of MMI and the
MMI Subsidiaries between the date of this Agreement and the Effective Date, MMI
shall confer in good faith and on a regular and frequent basis with one or more
representatives of ICI designated in writing to report operational matters of
materiality and the general status of ongoing operations. In addition, MMI will
allow ICI employees or agent to be present at MMI's business locations to
observe the business and operations of MMI and the MMI Subsidiaries. MMI agrees
to participate in the staff meetings of ICI as may be requested by ICI. MMI
acknowledges that ICI does not and will not waive any rights it may have under
this Agreement as a result of such consultations nor shall ICI be responsible
for any decisions made by MMI's officers and directors with respect to matters
which are the subject of such consultation.
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5.2. CONDUCT OF BUSINESS BY ICI. From the date hereof to the Effective
Date, ICI will, and will cause Merger Corp. and each of the ICI Subsidiaries to,
except as required in connection with the Merger and the other transactions
contemplated by this Agreement and except as otherwise disclosed in ICI's
Disclosure Schedule or consented to in writing by MMI:
(a) Carry on its businesses in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any
new line of business;
(b) Except in instances which would not have an ICI Material Adverse
Effect, neither change nor amend its Certificate or Articles of
Incorporation or Bylaws;
(c) Other than pursuant to the exercise of ICI Options outstanding on
the date hereof, not issue, sell or grant options (other than employee stock
options granted under ICI's existing stock option plans as such plans may
hereafter be amended), warrants or rights to purchase or subscribe to, or
enter into any arrangement or contract with respect to the issuance or sale
of more than 500,000 shares of the capital stock of ICI or rights or
obligations convertible into or exchangeable for any shares of the capital
stock of ICI;
(d) Not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of
ICI and not redeem, purchase or otherwise acquire any shares of the capital
stock or other securities of ICI or rights or obligations convertible into
or exchangeable for any shares of the capital stock or other securities of
ICI or obligations convertible into such, or any options, warrants or other
rights to purchase or subscribe to any of the foregoing;
(e) Use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of ICI and the ICI
Subsidiaries, to keep the executive officers of ICI and the ICI Subsidiaries
available to ICI and to preserve the relationships of ICI and the ICI
Subsidiaries with suppliers, customers and others having business relations
with any of them, except for such instances which would not have an ICI
Material Adverse Effect;
(f) Not (i) create, incur or assume any long-term debt or, except in the
ordinary course of business under existing lines of credit, create, incur or
assume any short-term debt for borrowed money, (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person other
than ICI Subsidiaries (except in the ordinary course of business and
consistent with past practice), (iii) make any loans or advances to any
other person other than the ICI Subsidiaries, except in the ordinary course
of business and consistent with past practice, or (iv) make any capital
contributions to, or investments in, any person other than the ICI
Subsidiaries, except in each case where such action would not have an ICI
Material Adverse Effect; or
(g) Except in instances which would not have an ICI Material Adverse
Effect, not enter into, modify or extend in any manner the terms of any
employment, severance or similar agreements with officers and directors nor
grant any increase in the compensation of officers, directors or employees,
whether now or hereafter payable (except for compensation increases in the
ordinary course of business and consistent with past practice).
In connection with the continued operation of the business of ICI and the
ICI Subsidiaries between the date of this Agreement and the Effective Date, ICI
shall confer in good faith and on a regular and frequent basis with one or more
representatives of MMI designated in writing to report operational matters of
materiality and the general status of ongoing operations. ICI acknowledges that
MMI does not and will not waive any rights it may have under this Agreement as a
result of such consultations nor shall MMI be responsible for any decisions made
by ICI's officers and directors with respect to matters which are the subject of
such consultation.
5.3. NOTICE OF ANY MATERIAL CHANGE. Each of MMI and ICI shall, promptly
after the first notice or occurrence thereof but not later than the Closing
Date, advise the other in writing of any event or
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the existence of any state of facts that would (i) make any of its
representations and warranties in this Agreement untrue in any material respect,
or (ii) otherwise constitute an MMI Material Adverse Effect or ICI Material
Adverse Effect, as the case may be.
5.4. INSPECTION AND ACCESS TO INFORMATION.
(a) Between the date of this Agreement and the Effective Date, each
party hereto will, and will cause each of its subsidiaries to, provide each
other party and its accountants, counsel and other authorized
representatives full access, during reasonable business hours and under
reasonable circumstances to any and all of its premises, properties,
contracts, commitments, books, records and other information (including tax
returns filed and those in preparation) and will cause their respective
officers to furnish to the other party and its authorized representatives
any and all financial, technical and operating data and other information
pertaining to its business, as each other party shall from time to time
request.
(b) Those certain letter agreements dated February 22, 1996 and March 8,
1996 relative to, without limitation, the protection of the confidential
information of MMI (the "MMI CA") and ICI (the "ICI CA"), respectively,
shall remain in full force and effect except as modified by the terms of
this Agreement. In the event of any inconsistency between the terms of the
MMI CA and the ICI CA, on the one hand, and this Agreement, on the other
hand, this Agreement shall control.
5.5. ANTITRUST LAWS. As soon as practicable, each of ICI and MMI shall
make any and all filings which are required under the HSR Act. Each of ICI and
MMI will assist the other as may be reasonably requested in connection with the
preparation of such filings.
5.6. POOLING. From and after the date hereof and until the Effective Date,
neither ICI nor MMI nor any of their respective subsidiaries or other affiliates
shall (i) knowingly take any action, or knowingly fail to take any action, that
would jeopardize the treatment of the Merger as a "pooling of interest" for
accounting purposes or (ii) knowingly take any action, or knowingly fail to take
any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a)(2)(E) of the Code.
5.7. REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) ICI shall promptly prepare and file a registration statement on Form
S-4 (which registration statement, in the form it is declared effective by
the SEC, together with any and all amendments and supplements thereto and
all information incorporated by reference therein, is referred to herein as
the "Registration Statement") under and pursuant to the provisions of the
Securities Act for the purpose of registering ICI Common Stock to be issued
in the Merger. ICI will use its reasonable efforts to receive and respond to
the comments of the SEC, and each of ICI and MMI shall promptly mail to
their respective stockholders the proxy statement in its definitive form
contained in the Registration Statement (the "Proxy Statement"). Such Proxy
Statement shall also serve as the prospectus to be included in the
Registration Statement. In addition, MMI shall cause its auditors to prepare
and deliver such reports and consents as ICI may reasonably require for
inclusion in the Registration Statement and such other filings as ICI deems
necessary, including, without limitation, such auditors' consent to the
incorporation by reference of such auditors' reports into ICI's registration
statements on Form S-8.
(b) Each of ICI and MMI agrees to provide as promptly as practicable to
the other such information concerning its business and financial statements
and affairs as, in the reasonable judgment of the other party, may be
required or appropriate for inclusion in the Registration Statement and the
Proxy Statement or in any amendments or supplements thereto, and to cause
its counsel and auditors to cooperate with the other's counsel and auditors
in the preparation of the Registration Statement and the Proxy Statement.
(c) At the time the Registration Statement becomes effective and at the
Effective Date, as such Registration Statement is then amended or
supplemented, and at the time the Proxy Statement is mailed to ICI's and
MMI's respective stockholders, such Registration Statement and
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Proxy Statement will (i) not contain any untrue statement of a material
fact, or omit to state any material fact required to be stated therein as
necessary, in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (ii) comply in
all material respects with the provisions of the Securities Act and Exchange
Act, as applicable, and the rules and regulations thereunder; provided,
however, no representation is made by ICI or MMI with respect to statements
made in the Registration Statement and Proxy Statement based on information
supplied by the other party expressly for inclusion or incorporation by
reference in the Proxy Statement or Registration Statement or information
omitted with respect to the other party.
5.8. STOCKHOLDERS' MEETING.
(a) Each of MMI and ICI shall call a meeting of its stockholders to be
held as soon as practicable after the date hereof for the purpose of voting
upon matters relating to this Agreement.
(b) MMI will use its reasonable efforts to hold its stockholders'
meeting as promptly as practicable as may be directed by ICI and to obtain
stockholder approval and will, through its Board of Directors, recommend to
its stockholders approval of the Merger and this Agreement at the
stockholders' meeting; provided, however, that such recommendation is
subject to any action taken by, or upon the authority of, the Board of
Directors of MMI in the exercise of its good faith judgment as to its
fiduciary duties to the stockholders of MMI exercised in accordance with the
provisions of Section 5.13.
(c) ICI will use its reasonable efforts to hold its stockholders'
meeting as promptly as practicable for the purpose of acting upon matters
relating to this Agreement and will, through its Board of Directors,
recommend to its stockholders approval of the issuance of ICI Common Stock
as set forth in this Agreement; provided, however, that such recommendation
is subject to any action taken by, or upon the authority of, the Board of
Directors of ICI in the exercise of its good faith judgment as to its
fiduciary duties to the stockholders of ICI.
5.9. LISTING APPLICATION. ICI will file a listing application with the NMS
to approve for listing, subject to official notice of issuance, the shares of
ICI Common Stock to be issued in the Merger. ICI shall use its reasonable
efforts to cause the shares of ICI Common Stock to be issued in the Merger to be
approved for listing on the NMS, subject to official notice of issuance, prior
to the Effective Date.
5.10. AFFILIATES. At least 30 days prior to the Closing Date, MMI shall
deliver to ICI a letter identifying all persons who are, at the time the Merger
is submitted to a vote to the stockholders of MMI, "affiliates" of MMI for
purposes of Rule 145 under the Securities Act. Each person who is identified as
an "affiliate" in such letter will deliver to ICI on or before 30 days prior to
the Closing Date a written statement, in form satisfactory to ICI and MMI, that
such person will not offer to sell, transfer or otherwise dispose of any of the
shares of MMI Common Stock or ICI Common Stock issued to such person, except (i)
in accordance with the applicable provisions of the Securities Act and the rules
and regulations thereunder and (ii) until such time as financial results
covering at least 30 days of combined operations of ICI and MMI have been
published (the "Publication Date"). ICI hereby covenants to file a Form 8-K or
10-Q (as applicable) satisfying such publication requirement as soon as
practicable after the completion of any month which contains at least 30 days of
combined operations. ICI shall be entitled to place legends on any certificates
of ICI Common Stock issued to such affiliates to restrict transfer of such
shares as set forth above.
5.11. REASONABLE EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to the
other provisions of this Agreement, the parties hereto shall each use their
reasonable efforts to perform their obligations herein and to take, or cause to
be taken or do, or cause to be done, all things necessary, proper or advisable
under applicable law to obtain all regulatory approvals and satisfy all
conditions to the obligations of the parties under this Agreement and to cause
the Merger and the other transactions contemplated herein to be carried out
promptly in accordance with the terms hereof and shall
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cooperate fully with each other and their respective officers, directors,
employees, agents, counsel, accountants and other designees in connection with
any steps required to be taken as a part of their respective obligations under
this Agreement, including without limitation:
(a) MMI and ICI shall promptly make their respective filings and
submissions and shall take, or cause to be taken, all actions and do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to comply with the provisions of the HSR Act.
(b) Each party shall give prompt written notice to the other of (i) the
occurrence, or failure to occur, of any event which occurrence or failure
would be likely to cause any representation or warranty of MMI or ICI, as
the case may be, contained in this Agreement to be untrue or inaccurate in
any material respect at any time from the date hereof to the Effective Date
or that will or may result in the failure to satisfy any of the conditions
specified in Articles 6 and 7 and (ii) any failure of MMI or ICI, as the
case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder.
(c) MMI has obtained (and will promptly deliver copies to ICI)
agreements from Messrs. Vought, Lee and Berry and Micro Partners, L.P. and
Kitty Hawk Capital Limited Partnership, II (i) not to perfect appraisal
rights with respect to the Merger (to the extent applicable) and (ii) to
vote all shares of MMI Common Stock beneficially owned by such person in
favor of the approval of this Agreement and the Merger (which agreements
shall contain a proxy in favor of ICI with respect to the shares of MMI
Common Stock beneficially owned by such persons).
5.12. PUBLIC ANNOUNCEMENTS. The timing and content of all announcements
regarding any aspect of this Agreement or the Merger to the financial community,
government agencies, employees or the general public shall be mutually agreed
upon in advance (unless ICI or MMI is advised by counsel that any such
announcement or other disclosure not mutually agreed upon in advance is required
to be made by law or applicable stock exchange rule and then only after making a
reasonable attempt to comply with the provisions of this Section). Subject to
the preceding sentence, the parties acknowledge their respective intention to
make a public announcement of the transactions contemplated by this Agreement
promptly following the execution and delivery of this Agreement.
5.13. NO SOLICITATIONS. From the date hereof until the Effective Date or
until this Agreement is terminated or abandoned as provided in this Agreement,
neither MMI nor any of the MMI Subsidiaries shall directly or indirectly (i)
solicit, initiate or encourage discussion with or (ii) enter into negotiations
or agreements with, or furnish any information that is not publicly available
to, any corporation, partnership, person or other entity or group (other than
ICI, an affiliate of ICI or their authorized representatives pursuant to this
Agreement) concerning any proposal for a merger, sale of substantial assets,
sale of shares of stock or securities or other takeover or business combination
transaction (the "Acquisition Proposal") involving MMI or any of the MMI
Subsidiaries, and MMI will exercise its reasonable efforts to cause its
officers, directors, advisors and its financial and legal representatives and
consultants not to take any action contrary to the foregoing provisions of this
sentence; provided, however, that MMI, its officers, directors, advisors and its
financial and legal representatives and consultants shall not be prohibited from
taking any action described in (ii) above to the extent such action is taken by,
or upon the authority of, the Board of Directors of MMI in the exercise of good
faith judgment as to its fiduciary duties to the stockholders of MMI based upon
the advice of independent legal counsel in recognition of, without limitation,
the long-term corporate objectives of MMI sought to be achieved by the Merger.
MMI will notify ICI promptly in writing if MMI becomes aware that any inquiries
or proposals are received by, any information is requested from or any
negotiations or discussions are sought to be initiated with, MMI with respect to
an Acquisition Proposal, and MMI shall promptly deliver to ICI any written
inquiries or proposals received by MMI relating to an Acquisition Proposal. Each
time, if any, that the Board of Directors of MMI determines that it must enter
into negotiations with, or furnish any information that is not publicly
available to, any corporation, partnership, person or other entity or group
(other than ICI, an affiliate of ICI or their authorized representatives)
concerning any Acquisition Proposal, MMI will give ICI prompt notice of such
determination (which shall include a copy of the non-public information which
MMI has
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delivered to such other person or entity) and shall require the recipient of
such information to execute and deliver to MMI a confidentiality agreement
substantially identical to the MMI CA as a condition precedent to furnishing any
such information (failing which, without limitation of any other right of ICI,
the fifth paragraph of the MMI CA shall no longer be of any force or effect). In
the event of the execution of any Acquisition Proposal by MMI, ICI may terminate
this Agreement in the exercise of its discretion. The second preceding sentence
of this Section shall survive any termination of this Agreement.
ARTICLE 6.
CONDITIONS PRECEDENT TO OBLIGATIONS OF MMI
Except as may be waived by MMI, the obligations of MMI to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction
on or before the Closing Date of each of the following conditions:
6.1. COMPLIANCE. ICI shall have, or shall have caused to be, satisfied or
complied with and performed in all material respects all terms, covenants, and
conditions of this Agreement to be complied with or performed by ICI on or
before the Closing Date.
6.2. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by ICI in this Agreement and in all certificates and other
documents delivered by ICI to MMI pursuant hereto shall have been true and
correct in all material respects as of the date hereof, and shall be true and
correct in all material respects at the Closing Date with the same force and
effect as if such representations and warranties had been made at and as of the
Closing Date, except for changes permitted or contemplated by this Agreement and
except that if information which would constitute a breach of the
representations and warranties of ICI made in this Agreement is disclosed in the
Proxy Statement on the date such Proxy Statement is mailed to MMI's
stockholders, then MMI shall be deemed to have waived this condition to the
performance of its obligations hereunder.
6.3. MATERIAL ADVERSE CHANGES. Subsequent to December 31, 1995, there
shall not have occurred any ICI Material Adverse Effect except as set forth in
the ICI Disclosure Schedule.
6.4. NMS LISTING. ICI Common Stock issuable pursuant to the Merger and
pursuant to the exercise of the Options after the Effective Date shall have been
authorized for listing on the NMS.
6.5. CERTIFICATES. MMI shall have received a certificate or certificates,
executed on behalf of ICI by an executive officer of ICI, to the effect that the
conditions contained in Sections 6.2 and 6.3 hereof have been satisfied.
6.6. STOCKHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of all of the
outstanding shares of MMI Common Stock.
6.7. EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have become effective and no stop order shall been issued by the SEC or
any other governmental authority suspending the effectiveness of the
Registration Statement or preventing or suspending the use thereof or any
related prospectus.
6.8. CONSENTS; LITIGATION. Other than the filing of the Certificate of
Merger as described in Article 1, all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods (including the waiting period under the HSR Act) imposed by any
governmental entity, and all required third-party consents, the failure to
obtain which would have a material adverse effect on ICI and its subsidiaries,
including the Surviving Corporation and its subsidiaries, taken as a whole,
shall have been filed, occurred or been obtained. ICI shall have received all
state securities or Blue Sky permits and other authorizations necessary to issue
ICI Common Stock pursuant to the Merger and the other terms of this Agreement.
In addition, no action, suit or proceeding shall have been instituted before any
court or other governmental entity to restrain, modify, enjoin or prohibit the
carrying out of the transactions contemplated hereby.
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6.9. TAX OPINION. MMI shall have received a favorable opinion of Arnall
Golden & Gregory based upon certain factual representations of MMI, ICI and
Merger Corp. reasonably requested by such counsel, and containing such
qualifications as such counsel reasonably deems appropriate relative to factual
matters not otherwise verified to such counsel's satisfaction, to the effect
that the Merger will constitute a reorganization for federal income tax purposes
within the meaning of Section 368(a) of the Code and that accordingly:
(a) No gain or loss will be recognized by the shareholders of MMI upon
the conversion of their shares of MMI Common Stock into shares of ICI Common
Stock pursuant to the terms of the Merger (except to the extent cash is
received in lieu of fractional shares);
(b) The tax basis of the shares of ICI Common Stock received by a
shareholder of MMI on the conversion of MMI Common Stock pursuant to the
Merger will be the same as the basis of the shares of the MMI Common Stock
converted (less any portion of such basis allocable to any fractional
interest in any share of ICI Common Stock); and
(c) The holding period of the ICI Common Stock into which shares of MMI
Common Stock are converted will include the period that such shares of MMI
Common Stock were held by the holder, provided such shares were held as a
capital asset by such holder.
ARTICLE 7.
CONDITIONS PRECEDENT TO OBLIGATIONS OF ICI AND MERGER CORP.
Except as may be waived by ICI and Merger Corp., the obligations of ICI and
Merger Corp. to consummate the transactions contemplated by this Agreement shall
be subject to the satisfaction, on or before the Closing Date, of each of the
following conditions:
7.1. COMPLIANCE. MMI shall have, or shall have caused to be, satisfied or
complied with and performed in all material respects all terms, covenants, and
conditions of this Agreement to be complied with or performed by it on or before
the Closing Date.
7.2. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by MMI in this Agreement and in all certificates and other
documents delivered by MMI pursuant hereto, shall have been true and correct in
all material respects as of the date hereof, and shall be true and correct in
all material respects at the Closing Date with the same force and effect as if
such representations and warranties had been made at and as of the Closing Date,
except for changes permitted or contemplated by this Agreement and except that
if information which would constitute a breach of the representations and
warranties of MMI made in this Agreement is disclosed in the Proxy Statement on
the date such Proxy Statement is mailed to MMI's stockholders, then ICI shall be
deemed to have waived this condition to the performance of its obligations
hereunder.
7.3. MATERIAL ADVERSE CHANGES. Since February 29, 1996, there shall not
have occurred any MMI Material Adverse Effect.
7.4. CERTIFICATES. ICI shall have received a certificate or certificates,
executed on behalf of MMI by an executive officer of MMI, to the effect that the
conditions in Sections 7.2 and 7.3 hereof have been satisfied.
7.5. DISSENTERS' RIGHTS. To the extent appraisal rights are available to
MMI's stockholders in connection with the Merger, no more than 10% of the
outstanding shares of MMI Common Stock shall (a) qualify as Dissenting Shares,
(b) be subject to payment in lieu of fractional shares as provided in Section
2.2 hereof or (c) be treasury shares of MMI.
7.6. CONSENTS; LITIGATION. Other than the filing of the Certificate of
Merger as described in Article 1, all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods (including the waiting period under the HSR Act) imposed by, any
governmental entity, and all required third-party consents, the failure to
obtain which
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would have a material adverse effect on ICI and its subsidiaries, including the
Surviving Corporation and its subsidiaries, taken as a whole, shall have been
filed, occurred or been obtained. ICI shall have received all state securities
or Blue Sky permits and other authorizations necessary to issue ICI Common Stock
pursuant to the Merger and the other terms of this Agreement. In addition, no
action, suit or proceeding shall have been instituted before any court or other
governmental entity to restrain, modify, enjoin or prohibit the carrying out of
the transactions contemplated hereby.
7.7. COMFORT LETTER. ICI shall have received from KPMG Peat Marwick
L.L.P., certified public accountants for MMI, (a) "comfort" letters dated the
date of the Proxy Statement, the effective date of the Registration Statement
and the Closing Date (or such other date reasonably acceptable to ICI) with
respect to certain financial statements and other financial information included
in the Registration Statement in customary form, (b) the consents referred to in
Section 5.7(a) in respect of any filing previously or concurrently being made
with the SEC, and (c) a letter addressed to ICI and Deloitte & Touche LLP, in
form and substance reasonably satisfactory to ICI, to the effect that MMI
qualifies as an entity such that the Merger will qualify as a "pooling of
interests" transaction under generally accepted accounting principles.
7.8. POOLING LETTERS. ICI shall have received a letter from Deloitte &
Touche LLP, certified public accountants for ICI, dated the Closing Date,
addressed to ICI, in form and substance reasonably satisfactory to ICI, stating
that the Merger will qualify as a "pooling of interests" transaction under
generally accepted accounting principles.
7.9. STOCKHOLDER APPROVAL. ICI shall have obtained any shareholder
approval required for listing ICI Common Stock on NMS as a condition to the
consummation of the transactions set forth in this Agreement.
ARTICLE 8.
INDEMNIFICATION AND INSURANCE
8.1 INDEMNIFICATION. In the event of any claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any of the present or former officers or directors (the "Managers") of MMI or
any of the MMI Subsidiaries is, or is threatened to be, made a party by reason
of the fact that he or she served as a Manager of MMI or any of the MMI
Subsidiaries, or is or was serving at the request of MMI or any of the MMI
Subsidiaries as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, whether before or after
the Effective Date, MMI shall indemnify and hold harmless, and from and after
the Effective Date each of the Surviving Corporation and ICI shall indemnify and
hold harmless, as and to the full extent permitted by applicable law (including
by advancing expenses promptly as statements therefor are received), each such
Manager against any losses, claims, damages, liabilities, costs, expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any such claim, action, suit, proceeding or investigation, and
in the event of any such claim, action, suit proceeding or investigation
(whether arising before or after the Effective Date), (i) if MMI (prior to the
Effective Date) or ICI or the Surviving Corporation (after the Effective Date)
have not promptly assumed the defense of such matter, the Managers may retain
counsel satisfactory to them, and MMI, or the Surviving Corporation and ICI
after the Effective Date, shall pay all reasonable fees and expenses of such
counsel for the Managers promptly, as statements therefor are received, and (ii)
MMI, or the Surviving Corporation and ICI after the Effective Date, will use
their respective reasonable efforts to assist in the vigorous defense of any
such matter; provided that neither MMI nor the Surviving Corporation or ICI
shall be liable for any settlement effected without its prior written consent;
provided further that the Surviving Corporation and ICI shall have no obligation
under the foregoing provisions of this Section 8.1 to any Manager when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, (x) that
indemnification of such Manager in the manner contemplated hereby is prohibited
by applicable law, or (y) that MMI has breached a representation or warranty
hereunder with respect to the same
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matters for which indemnification is being sought by such Manager and such
Manager fails to prove that such Manager had no actual knowledge of such breach
at the Effective Date; and provided further that such Manager shall have
satisfied any and all applicable conditions precedent to such indemnification
under applicable law. Upon the finality of any such determination that the
Surviving Corporation or ICI is not liable for any such indemnification claims,
the Manager will reimburse ICI and the Surviving Corporation for any fees,
expenses and costs incurred by ICI or the Surviving Corporation in connection
with the defense of such claims. Any Manager wishing to claim indemnification
under this Section 8.1, upon learning of any such claim, action, suit,
proceeding or investigation, shall notify MMI and ICI, thereof (provided that
the failure to give such notice shall not affect any obligations hereunder,
except to the extent that the indemnifying party is actually and materially
prejudiced thereby). ICI further covenants not to amend or repeal any provisions
of the Certificate of Incorporation or Bylaws of MMI in any manner which would
adversely affect the indemnification or exculpatory provisions contained herein.
The provisions of this Section 8.1 are intended to be for the benefit of, and
shall be enforceable by, each indemnified party and his or her heirs and
representatives, and shall survive the Closing for a period expiring six years
from the Effective Date.
8.2. DIRECTORS' AND OFFICERS' INSURANCE. For a period of two years from
the Effective Date, the Surviving Corporation shall either, in its discretion
(x) maintain in effect MMI's current directors' and officers' liability
insurance covering those Managers who are currently covered on the date of this
Agreement by MMI's directors' and officers' liability insurance policy (a copy
of which has been heretofore delivered to ICI); PROVIDED HOWEVER, that the
Surviving Corporation may substitute for such MMI policies, policies with at
least the same coverage containing terms and conditions which are no less
advantageous to the Managers and provided that said substitution does not result
in any gaps or lapses in coverage with respect to matters occurring prior to the
Effective Date or (y) to the extent applicable, cause ICI's directors' and
officers' liability insurance, if any, then in effect to cover those persons who
are covered on the date of this Agreement by MMI's directors' and officers'
liability insurance policy with respect to those matters covered by MMI's
directors' and officers' liability insurance policy. In no event, however, shall
the Surviving Corporation or ICI be required by this Section 8.2 to expend a
premium for such insurance in an amount equal to double the rate paid by MMI for
the policy period immediately preceding the date of execution of this Agreement.
The provisions of this Section 8.2 are intended to be for the benefit of, and
shall be enforceable by, each Manager and his or her heirs and representatives.
Notwithstanding the foregoing, ICI shall have no liability or obligation under
this Section 8.2 to the extent the policy referred to in this Section is not
reasonably available on the terms set forth in this Section.
ARTICLE 9.
MISCELLANEOUS
9.1. TERMINATION. In addition to the provisions regarding termination set
forth elsewhere herein, this Agreement and the transactions contemplated hereby
may be terminated at any time on or before the Closing Date:
(a) by mutual consent of MMI and ICI;
(b) by ICI if there has been a material misrepresentation or breach of
warranty in the representations and warranties of MMI set forth herein or a
failure to perform in any material respect a covenant on the part of MMI
with respect to its representations, warranties and covenants set forth in
this Agreement, except for any such misrepresentation, breach or failure to
perform which was disclosed in the Proxy Statement on the date it is mailed
to MMI's stockholders to the extent that ICI has expressly agreed in writing
to such specific disclosure;
(c) by MMI if there has been a material misrepresentation or breach of
warranty in the representations and warranties of ICI set forth herein or a
failure to perform in any material respect a covenant on the part of ICI
with respect to its representations, warranties and covenants set forth in
this Agreement, except for any such misrepresentation, breach or failure to
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perform which was disclosed in the Proxy Statement on the date it is mailed
to MMI's stockholders to the extent that MMI has expressly agreed in writing
to such specific disclosure (and, in no event whatsoever shall MMI have any
right or remedy in respect of any breach or violation by ICI of Section
5.2(c) hereof other than to exercise any termination right of MMI under this
Section 9.1(c));
(d) by either ICI or MMI if the transactions contemplated by this
Agreement have not been consummated by September 30, 1996, unless such
failure of consummation is due to the failure of the terminating party to
perform or observe the covenants, agreements, and conditions hereof to be
performed or observed by it at or before the Closing Date (except for any
breach by ICI of Section 5.2(c) hereof);
(e) by either MMI or ICI if the transactions contemplated hereby violate
any nonappealable final order, decree or judgment of any court or
governmental body or agency having competent jurisdiction;
(f) by MMI if, in the exercise of the good faith judgment of its Board
of Directors as to its fiduciary duties to its stockholders exercised in
accordance with the provisions of Section 5.13, such termination is required
by reason of an Acquisition Proposal; or
(g) by ICI if the MMI Board of Directors withdraws or materially
modifies or changes its recommendation to the stockholders of MMI to approve
this Agreement and the Merger.
9.2. EXPENSES.
(a) Except as provided in (b) below, if the transactions contemplated by
this Agreement are not consummated, each party hereto shall pay its own
expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
(b) If, (i) this Agreement is terminated by MMI pursuant to Section
9.1(f) hereof, (ii) this Agreement is terminated by ICI pursuant to Section
9.1(g) or (iii) on or before September 30, 1996, MMI enters into a
definitive agreement with respect to an Acquisition Proposal with any
corporation, partnership, person or other entity or group (other than ICI or
any affiliate of ICI), and such transaction (including any revised
transaction based upon the Acquisition Proposal) is thereafter consummated
(whether before or after September 30, 1996), then MMI shall pay ICI a cash
fee equal to the sum of $2.5 Million, which such fee shall be payable in
same day funds to an account specified by ICI. This Section shall survive
any termination of this Agreement.
9.3. ENTIRE AGREEMENT. This Agreement, the MMI CA, the ICI CA and the
exhibits hereto contain the complete agreement among the parties with respect to
the transactions contemplated hereby and supersede all prior agreements and
understandings among the parties with respect to such transactions. Section and
other headings are for reference purposes only and shall not affect the
interpretation or construction of this Agreement. The parties hereto have not
made any representation or warranty except as expressly set forth in this
Agreement or in any certificate or schedule delivered pursuant hereto. The
obligations of any party under any agreement executed pursuant to this Agreement
shall not be affected by this section.
9.4. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS. The
representations and warranties of each party contained herein or in any exhibit,
certificate, document or instrument delivered pursuant to this Agreement, and
the covenants and agreements of the parties (other than those contained in 2.5,
8.1 and 8.2) shall not survive the Closing.
9.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
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9.6. NOTICES. All notices, demands, requests or other communications that
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery or facsimile transmission, addressed as
follows:
(i) If to ICI:
4320 International Boulevard, N.W.
Norcross, Georgia 30093
Attention: Robert L. Taylor, President and Chief Executive Officer
Facsimile: (770) 381-7581
with a copy (which shall not constitute notice) to:
Arnall Golden & Gregory
2800 One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309
Attention: Stephen D. Fox
Facsimile: (404) 873-8529
(ii) If to MMI:
Post Office Box 2487
Columbus, Mississippi 39704
Attention: Kimber L. Vought, President and Chief Executive Officer
Facsimile: (601) 329-9176
with a copy (which shall not constitute notice) to:
Crouch & Hallett, L.L.P.
717 North Harwood Street
Suite 1400
Dallas, Texas 75201
Attention: Bruce H. Hallett
Facsimile: (214) 953-0576
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request or communication that is mailed, delivered or
transmitted in the manner described above shall be deemed sufficiently given,
served, sent, and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt, the confirmation
of facsimile delivery or the affidavit of messenger being deemed conclusive
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation.
9.7. SUCCESSORS; ASSIGNMENTS. This Agreement and the rights, interests and
obligations hereunder shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, by operation of law or otherwise, by any of the parties hereto without
the prior written consent of the other.
9.8. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware (except the choice of law
rules thereof).
9.9. AMENDMENT, WAIVER AND OTHER ACTION. To the extent permitted by law,
this Agreement may be amended by a subsequent writing signed by each of ICI and
MMI upon the approval of the Boards of Directors of each of ICI and MMI;
provided, however, that the provisions hereof relating to the manner or basis in
which shares of MMI Common Stock will be exchanged for ICI Common Stock shall
not be amended after the stockholder meeting of MMI or ICI to adopt this
Agreement without
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<PAGE>
the requisite approval of the holders of issued and outstanding shares of MMI
Common Stock or ICI Common Stock, as the case may be, respectively. Prior to or
at the Effective Date, each of ICI and MMI shall have the right to waive any
default in the performance of any term of this Agreement by the other, to waive
or extend the time for the compliance or fulfillment by the other of any and all
of the other's obligations under this Agreement and to waive any or all of the
conditions precedent to its obligations under this Agreement, except any
condition which, if not satisfied, will result in the violation of any law or
applicable governmental regulation.
9.10. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance; and in lieu of
such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
9.11. NO THIRD PARTY BENEFICIARIES. Article 8 is intended for the benefit
of each "Manager" (as defined in Article 8) and may be enforced by such persons.
Other than as expressly set forth in this Section 9.11, nothing expressed or
implied in this Agreement is intended, or shall be construed, to confer upon or
give any person, firm or corporation other than the parties hereto, any rights,
remedies, obligations or liabilities under or by reason of this Agreement or
result in such person, firm or corporation being deemed a third party
beneficiary of this Agreement.
9.12. MUTUAL CONTRIBUTION. The parties to this Agreement and their counsel
have mutually contributed to its drafting. Consequently, no provision of this
Agreement shall be construed against any party on the ground that such party
drafted the provision or caused it to be drafted or the provision contains a
covenant of such party.
9.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MICROTEK MEDICAL, INC.
By:
--------------------------------------
ISOLYSER COMPANY, INC.
By:
--------------------------------------
MMI MERGER CORP.
By:
--------------------------------------
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<PAGE>
MORGAN KEEGAN & COMPANY, INC.
MORGAN KEEGAN TOWER
FIFTY FRONT STREET
MEMPHIS, TENNESSEE 38103
901/524-4100 TELEX 69-74324
WATS 800/366-7426
MEMBERS NEW YORK STOCK EXCHANGE, INC.
ANNEX B
June 21, 1996
Board of Directors
Isolyser Company, Inc.
4320 International Boulevard
Norcross, GA 30093
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Isolyser Company, Inc. (the "Company") of the
consideration to be paid by the Company in connection with its proposed
acquisition of Microtek Medical, Inc. ("Microtek" or the "Seller") (the
"Transaction") pursuant to and in accordance with the terms of that certain
Agreement and Plan of Merger (the "Agreement") proposed to be entered into by
and among the Company, a wholly owned subsidiary of the Company ("Merger Corp.")
and the Seller. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Agreement.
You have advised us that, pursuant to the Agreement, Merger Corp. will be
merged with and into the Seller, and the Seller will become a wholly owned
subsidiary of the Company. The Agreement provides that, upon consummation of the
Transaction, each issued and outstanding share of the Seller's Common Stock,
$.01 par value (the "Seller Common Stock"), will be converted into the right to
receive such number of shares of Company Common Stock, $.001 par value, as is
equal to the quotient obtained by dividing $16.50 by the Determination Price
(subject to adjustment as described in the Agreement). The shares of Company
Common Stock issuable to the holders of the issued and outstanding shares of the
Seller Common Stock pursuant to the terms of the Agreement are hereinafter
referred to collectively as the "Transaction Consideration."
Morgan Keegan & Company, Inc. ("Morgan Keegan"), as part of its investment
banking business, is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for various purposes. We have been retained by the Board of
Directors of the Company for the purpose of, and will receive a fee for,
rendering this opinion. We have not advised any party in connection with the
Transaction other than the Company and we make no recommendation to the
shareholders of the Company.
In connection with our opinion, we have (1) reviewed an unexecuted June 17,
1996 draft of the Agreement dated March 15, 1996 as amended (which, for purposes
of our analysis, we have assumed that any further revisions, including the
filling in of blank spaces and the attachment of final exhibits and appendices,
will not materially alter the terms and provisions of such documents and that
such documents will be executed as finalized); (2) held discussions with various
members of management and representatives of the Company and the Seller
concerning each company's historical and current
B-1
<PAGE>
Isolyser Company, Inc.
June 21, 1996
Page 2
operations, financial condition and prospects; (3) reviewed historical
consolidated financial and operating data that was publicly available or
furnished to us by the Company and Seller; (4) reviewed internal financial
analyses, financial and operating forecasts, reports and other information
prepared by officers and representatives of the Company and the Seller; (5)
reviewed certain publicly available information with respect to certain other
companies that we believe to be comparable to the Seller and the trading markets
for such other companies' securities; (6) reviewed certain publicly available
information concerning the terms of certain other transactions that we deemed
relevant to our inquiry; (7) conducted such other financial studies, analyses
and investigations as we deemed appropriate for the purposes of this opinion.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided us or publicly available and have assumed and relied upon
the representations and warranties of the Company and Seller contained in the
Agreement. We have not been engaged to, and have not independently attempted to,
verify any of such information. We have also relied upon the managements of the
Company and Seller as to the reasonableness and achievability of the financial
and operating projections and the assumptions and bases therefor provided to us
and, with your consent, we have assumed that such projections, including and
without limitation cost savings and operating synergies from the Transaction,
reflect the best currently available estimates and judgments of such respective
managements of the Company and Seller and that such projections and forecasts
will be realized in the amounts and time periods currently estimated by the
managements of the Company and Seller. We have not been engaged to assess the
achievability of such projections or the assumptions on which they were based
and express no view as to such projections or assumptions. In addition, we have
not conducted a physical inspection or appraisal of any of the assets,
properties or facilities of either the Company or Seller nor have we been
furnished with any such evaluation or appraisal. We have also assumed that the
conditions to the Transaction as set forth in the Agreement would be satisfied;
and that the Transaction would be consummated on a timely basis in the manner
contemplated in the Agreement and that, as contemplated by the Agreement, the
Merger will be accounted for as a pooling of interests. Our opinion is based
upon analyses of the foregoing factors in light of our assessment of general
economic, financial and market conditions as they exist and can be evaluated by
us as of the date hereof. We express no opinion as to the price or trading range
at which shares of the Company's Common Stock will trade following the date
hereof, or upon completion of the Transaction.
Morgan Keegan has provided other investment banking services to the Company,
including advising it with respect to the acquisition of White Knight
Healthcare, Inc. in 1995, acting as managing underwriter of the Company's
initial public offering in 1994 and lead manager of a follow-on offering of
Common Stock of the Company in 1995. In the ordinary course of our business, we
serve as a market maker for the Company's Common Stock and trade shares for our
own account and the accounts of our customers. Accordingly, we may at any time
hold long or short positions in the Company's Common Stock.
It is understood that this opinion is not to be quoted or referred to, in
whole or in part (including excerpts or summaries), in any filing, report,
document, release or other communication used in connection with the Transaction
(unless required to be quoted or referred to by applicable regulatory
requirements), nor shall this opinion be used for any other purposes, without
our prior written consent, which consent shall not be unreasonably withheld.
Furthermore, our opinion is directed to the Company's Board of Directors and
does not constitute a recommendation to any shareholder of the Company.
B-2
<PAGE>
Isolyser Company, Inc.
June 21, 1996
Page 3
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that, as of the date hereof, the
Transaction Consideration is fair, from a financial point of view, to the
shareholders of the Company.
Yours very truly,
/s/ MORGAN KEEGAN & COMPANY, INC.
- --------------------------------------
MORGAN KEEGAN & COMPANY, INC.
B-3
<PAGE>
[LOGO]
APPENDIX C
PERSONAL AND CONFIDENTIAL
July 29, 1996
Board of Directors
Microtek Medical, Inc.
512 Lehmberg Road
Columbus, MS 39702
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $.01 per share (the "Shares"), of
Microtek Medical, Inc. (the "Company") of the exchange ratio of 1.6500 shares of
Common Stock, par value $.001 per share (the "Isolyser Shares"), of Isolyser
Company, Inc. ("Isolyser") to be received for each Share (the "Exchange Ratio")
pursuant to the Agreement and Plan of Merger dated as of March 15, 1996, as
amended as of June 23, 1996 and as further amended on July 29, 1996, among
Isolyser, MMI Merger Corp. ("MMI"), a wholly-owned subsidiary of Isolyser, and
the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as its financial advisor
in connection with, and having participated in certain of the negotiations
leading to, the Agreement.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4, including the Joint Proxy
Statement-Prospectus relating to the Special Meetings of stockholders of the
Company and of Isolyser; Annual Reports to Stockholders and Annual Reports on
Form 10-K of the Company for the four fiscal years ended November 30, 1995, and
of Isolyser for the two years ended December 31, 1995; Form S-1 dated October
20, 1994, of Isolyser; certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of the Company and of Isolyser; certain other
communications from the Company and Isolyser to their respective stockholders;
and certain internal financial analyses and forecasts for the Company and
Isolyser prepared by
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<PAGE>
their respective managements. We also have held discussions with members of the
senior management of the Company and of Isolyser regarding the past and current
business operations, financial condition and future prospects of their
respective companies. In addition, we have reviewed the reported price and
trading activity for the Shares and for the Isolyser Shares, compared certain
financial and stock market information for the Company and for Isolyser with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the medical device and hospital supply industry specifically and
in other industries generally and performed such other studies and analyses as
we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial forecasts for the Company and Isolyser, including, without
limitation, projected cost savings and operating synergies resulting from the
Merger (as defined in the Merger Agreement) have been reasonably prepared on a
basis reflecting the best currently available judgments and estimates of the
Company and of Isolyser and that such financial forecasts will be realized in
the amounts and at the times contemplated thereby. In addition, we have not made
an independent evaluation or appraisal of the assets and liabilities of the
Company or Isolyser or any of their subsidiaries and we have not been furnished
with any such evaluation or appraisal. We have assumed, with your consent, that
the consummation of the Merger will be accounted for as a pooling of interests
under generally accepted accounting principles.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair to the holders of Shares.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
GOLDMAN, SACHS & CO.
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