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EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 4, 1997,
by and among Urohealth Systems, Inc., a Delaware corporation ("Urohealth"),
Urohealth, Inc. (California), a California corporation and a wholly owned
subsidiary of Urohealth ("Urohealth Sub"), and X-Cardia Corporation, a
California corporation ("X-Cardia"). Urohealth Sub and X-Cardia are sometimes
hereinafter referred to collectively as the "Constituent Corporations," or
individually as a "Constituent Corporation."
WHEREAS, the respective Boards of Directors of Urohealth Sub
and X-Cardia deem it advisable and in the best interests of their respective
shareholders that Urohealth acquire X-Cardia by the merger of X-Cardia with
and into Urohealth Sub upon the terms and subject to the conditions set forth
herein (the "Merger"); and
WHEREAS, for federal income tax purposes, it is intended
that the Merger shall qualify as a reorganization within the meaning of
Section 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986,
as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
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1.1 The Merger. Subject to the terms and conditions of
this Agreement, at the Effective Time (as defined in Section 1.2 hereof) of
the Merger, X-Cardia shall be merged with and into Urohealth Sub, with
Urohealth Sub being the surviving corporation in the Merger (the "Surviving
Corporation") and the separate existence of X-Cardia shall thereupon cease.
The Merger shall have the effects set forth in Section 1107 of the California
General Corporation Law (the "CGCL").
1.2 Effective Time of the Merger. The Merger shall
become effective upon the completion of the filing of a properly executed
Merger Agreement substantially in the form of Exhibit A hereto with the
Secretary of State of the State of California. When used in this Agreement,
the term "Effective Time" with respect to the Merger shall mean the date and
time at which such Merger Agreement is successfully filed.
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ARTICLE II
UROHEALTH AND THE SURVIVING CORPORATION
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2.1 Articles of Incorporation of the Surviving
Corporation. The Articles of Incorporation of Urohealth Sub shall be the
Articles of Incorporation of the Surviving Corporation of the Merger.
2.2 Bylaws of the Surviving Corporation. The Bylaws of
Urohealth Sub as in effect at the Effective Time shall be the Bylaws of the
Surviving Corporation until thereafter amended in accordance with applicable
law.
2.3 Directors and Officers of the Surviving Corporation.
(a) The directors of Urohealth Sub at
the Effective Time shall be the initial directors of the Surviving Corporation
and shall hold office from the Effective Time until their respective successors
are duly elected or appointed and qualified in the manner provided in the
Articles of Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by law.
(b) The officers of Urohealth Sub at the Effective Time
shall be the initial officers of the Surviving Corporation and shall hold
office from the Effective Time until removed or until their respective
successors are duly elected or appointed and qualified in the manner provided
in the Articles of Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by law.
ARTICLE III
CONVERSION OF SHARES
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3.1 Exchange Ratio. At the Effective Time,
by virtue of the Merger and without any action on the part of any holder of
shares of X-Cardia Common Stock:
(a) Each share of Series A Preferred Stock
and each share of Common Stock of X-Cardia ("X-Cardia Share") issued and
outstanding immediately prior to the Effective Time (other than Excluded Shares
as defined in Section 3.9 below) shall be converted at the Effective Time into
the right to receive (i) that number of shares of Urohealth Common Stock
("Urohealth Shares") equal to $12.0 million divided by the average of the
closing prices of a Urohealth Share on The Nasdaq Stock Market for the period
beginning five trading days prior to the date hereof and ending five trading
days after the date hereof (the "Average Market Value") divided by the number
of outstanding X-Cardia Shares and X-Cardia shares deemed to be outstanding
(the "X-Cardia Outstanding Shares") at the Effective Time (the "Exchange
Ratio") and (ii) the right to receive a pro rata portion of the Earn-Out
Consideration (as defined in Section 3.2) and the Milestone Payments (as
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defined in Section 3.3). The Urohealth Shares, the Earn-Out Consideration and
the Milestone Payments to be issued and paid with respect to the X-Cardia
Outstanding Shares, are referred to herein as the "Merger Consideration." For
purposes of calculating the number of X-Cardia outstanding Shares the following
shall be deemed to be outstanding: (i) all of the X-Cardia Shares which are
subject to outstanding options or warrants at the Effective Time; and (ii) all
of the X-Cardia Shares which are issuable in connection with the exercise of
the Call Option or the Put Option of X-Cardia for the shares of capital stock
of Cybro Medical, Ltd. ("Cybro") not currently owned by X-Cardia.
(b) At the Effective Time, all X-Cardia
Shares shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each certificate previously representing
any X-Cardia Shares shall thereafter represent the right to receive the Merger
Consideration into which such X-Cardia Shares have been converted.
Certificates representing X-Cardia Shares shall be exchanged for certificates
representing whole Urohealth Shares issued in consideration therefor upon the
surrender of such certificate in accordance with the provisions hereof. If,
prior to the Effective Time, X-Cardia or Urohealth should split or combine the
X-Cardia Shares or the Urohealth Shares, or pay a stock dividend or other stock
distribution in X-Cardia Shares or Urohealth Shares, then the Exchange Ratio
will be appropriately adjusted to reflect such split, combination, dividend or
other distribution. If prior to any date on which a Milestone Payment or
Earn-Out Consideration is due, Urohealth should split or combine the Urohealth
Shares, or pay a stock dividend or other stock distribution in Urohealth
Shares, then the Average Market Value used in connection with calculating the
number of Urohealth Shares issuable will be appropriately adjusted to reflect
such split, combination, dividend or other distribution. In the event of a
recapitalization or merger in which Urohealth is not the surviving corporation,
any Milestone Payments or Earn-Out Consideration payable after the date of such
recapitalization or merger, and which would otherwise be payable in Urohealth
Shares, shall be paid by delivering the number and type of shares of any
successor or surviving corporation or such other consideration into which
Urohealth Shares were converted in such recapitalization or merger.
(c) Each X-Cardia Share held in the treasury
of X-Cardia or by any subsidiary of X-Cardia shall be canceled and retired and
cease to exist, and no Merger Consideration shall be issued in exchange
therefor. All Urohealth Shares owned by X-Cardia or any subsidiary shall
become treasury stock of Urohealth.
(d) Each share of Common Stock of Urohealth Sub
issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and exchangeable for one share of common stock of
the Surviving Corporation of the Merger.
3.2 Earn-out Consideration. The X-Cardia
Shareholders shall be entitled to receive and Urohealth shall pay additional
consideration (the "Earn-Out Consideration") with respect to the X-Cardia
Outstanding Shares after the Effective Time based on the sales of the X-Cardia
Products for the four-year period after the first commercial release of an
X-Cardia Product. For purposes of this Section 3.2, the term "X-Cardia
Products" means any product currently under development by X-Cardia or its
subsidiary, Cybro, or any product developed by Urohealth, its subsidiaries or
licensees after the Effective Time using or otherwise incorporating the
technology owned by X-Cardia or its subsidiary as of the Effective Time. For
purposes of this Section 3.2. the "FIRST COMMERCIAL RELEASE" of an X-Cardia
Product shall be deemed to be the first day of the calendar quarter immediately
following the calendar quarter in which gross sales of X-Cardia Products
exceeds $1,000,000. The Earn-Out Consideration shall be equal to 12% of the
gross sales revenues of X-Cardia Products, less discounts,
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rebates and other promotional allowances actually given and actual product
returns; provided that the 12% shall be reduced to 6% with respect to products
not covered by any claims of any patents at the time of such sale. The
Earn-Out Consideration shall be payable 50% in cash, subject to the limitations
in Section 3.4 below, and 50% by delivery of Urohealth Shares. Earn-Out
Consideration shall be calculated on a quarterly basis, and shall be payable
within 45 days after the end of each fiscal quarter of Urohealth. The Earn-Out
Consideration shall be payable to the X-Cardia Shareholders (as defined below)
pro rata in proportion to their ownership interest at the Effective Time in the
Outstanding X-Cardia Shares. Any portion of Earn-Out Consideration paid in
Urohealth Shares shall be paid by delivering a number of Urohealth Shares with
a value equal to the amount of the Earn-Out Consideration payment then due
based on the average market value of a Urohealth Share during the period
beginning five trading days prior to the last day of the fiscal quarter to
which such payment relates and ending five trading days after the last day of
the fiscal quarter. Accompanying each payment of Earn-Out Consideration
hereunder shall be a report setting forth the calculation of the Earn-Out
Consideration. Not more often than once in any fiscal year of Urohealth, the
X-Cardia Shareholders or their designated representatives acting through the
Representative (as defined below) shall have the right to review the books and
records of Urohealth, during normal business hours and with five days' prior
notice relating to the calculation of the Earn-Out Consideration.
3.3 Milestone Payments. In addition, the
X-Cardia Shareholders shall be entitled to receive and Urohealth shall pay
additional consideration (the "Milestone Payments") with respect to the
X-Cardia Outstanding Shares after the Effective Time based on successfully
achieving the Milestones described on Exhibit B hereto. Each Milestone Payment
as specified on Exhibit B shall be paid by delivery of cash or Urohealth Shares
in the amounts set forth on Exhibit B. Any Milestone Payment paid in Urohealth
Shares shall be paid by delivering Urohealth Shares with a market value based
on the Average Market Value equal to the amount of the Milestone Payment then
due.
3.4 Limitation on Cash Payments. In no event will the
amount of the Earn-Out Consideration and Milestone Payments paid in cash
pursuant to Section 3.2 or Section 3.3 exceed (i) number of Urohealth Shares
issued at the Effective Time times (ii) the closing price of a Urohealth Share
at the Effective Time. Urohealth agrees that as soon as reasonably practicable
after the Effective Time it will cause to be filed one or more registration
statements on Form S-3 under the Securities Act to register any Urohealth Shares
that are to be issued in satisfaction of Earn-Out Consideration payments or
Milestone Payments pursuant to Section 3.2 or 3.3, respectively.
3.5 Stock Options, Warrants, Debentures and
Other Agreements. As of the Effective Time, any stock options, warrants,
convertible securities or other contractual commitments to purchase or issue
X-Cardia Shares that are outstanding both as of the date hereof and at the
Effective Time (whether or not contingent or otherwise requiring further
stockholder approval) shall be assumed by Urohealth and converted into an
Option, warrant, convertible security or other contractual commitment as the
case may be, to purchase or issue, on the same terms and conditions (including,
without limitation, the date and exercise provisions) as were applicable prior
to the Effective Time, the number of Urohealth Shares equal to the number of
X-Cardia Shares subject to such stock option, warrant, convertible security or
other contractual commitment multiplied by the Exchange Ratio, at an exercise
price per Urohealth Share equal to the former exercise price per X-Cardia
Share under such stock option, warrant, convertible security or other
contractual commitment immediately prior to the Effective Time (without taking
into account any antidilution formula) divided by the Exchange Ratio. In
addition, each holder of
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any stock option, warrant, convertible security or other contractual commitment
to purchase or issue X-Cardia Shares that is converted into the right to
acquire Urohealth Shares shall also be entitled to a pro rata portion of the
Milestone Payments and Earn-Out Consideration paid or earned prior to the date
of exercise or conversion. No stock option or warrant shall be converted into
an option or warrant to purchase a partial Urohealth Share. Except as provided
above, the converted stock options, warrants, convertible securities or other
contractual commitments shall be assumed by Urohealth under their same terms
and conditions, but shall not be subject to further stockholder approval.
Urohealth agrees that as soon as reasonably practicable after the Effective
Time it will cause to be filed one or more Registration Statements on Form S-8
under the Securities Act, or amendments to any existing Registration Statements
on Form S-8 covering stock options and warrants, to register the Urohealth
Shares issuable upon exercise of the aforesaid converted options or warrants,
and at or prior to the Effective Time, Urohealth shall take all corporate
action necessary to reserve for issuance a sufficient number of Urohealth
Shares for delivery upon exercise of the options and warrants, conversion of
convertible securities or otherwise pursuant to other contractual commitments
assumed pursuant to this Section 3.5. The consummation of the Merger shall not
be treated as a termination of employment for purposes of the option plans.
3.6 Contingent Shares. Pursuant to that
certain Option Agreement, dated January 2, 1997, among X-Cardia and certain
shareholders of Cybro, an aggregate of up to 199,980 X-Cardia Shares are
issuable (the "Cybro Contingent Shares") for all of the 1,010 Cybro shares not
currently owned by X-Cardia upon achievement of certain objectives by Cybro
(the "Cybro Objectives") as more fully described in Section l(d) of the Option
Agreement. In the event that Urohealth is not required to issue Merger
Consideration for the Cybro Contingent Shares as described in the Option
Agreement, or issues fewer than the maximum number provided for therein and
herein, then the Merger Consideration not so issued shall be reallocated among
the holders of the X-Cardia Outstanding Shares pro rata in proportion to their
ownership interest at the Effective Time.
3.7 Exchange of Certificates.
(a) Exchange Agent. As of the Effective
Time, (i) X-Cardia shall deliver to Urohealth certificates representing all of
the X-Cardia Outstanding Shares together with the Representation Letters (as
defined below) and (ii) Urohealth shall deliver to ▇▇▇▇▇▇ Godward LLP, for the
benefit of the X-Cardia Shareholders, certificates representing the Urohealth
Shares (together with any cash to be paid in lieu of fractional Shares) in
exchange for Outstanding X-Cardia Shares.
(b) Representations by Holders of X-Cardia
Common Stock. Each holder of X-Cardia Shares will be required to execute and
deliver a "Representation Letter" in the form of Exhibit C hereto in order to
receive the Merger Consideration in exchange for such holder's certificates
representing X-Cardia Shares.
3.8 No Further Ownership Rights in X-Cardia
Common Stock. The rights to the Merger Consideration issued upon conversion of
shares of X-Cardia Common Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of X-Cardia Common Stock.
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3.9 Dissenting Shares. If holders of X-Cardia Shares are
entitled to dissent from the Merger and demand appraisal of any such X-Cardia
Shares in accordance with the provisions of the CGCL concerning the right of
such holders to dissent from the Merger and demand appraisal of their shares
("Dissenting Holders"), any X-Cardia Shares held by a Dissenting Holder as to
which appraisal has been so demanded ("Excluded Shares") shall not be converted
as described in Section 3. 1, but shall from and after the Effective Time
represent only the right to receive such consideration as may be determined to
be due to such Dissenting Holder pursuant to the CGCL; provided, however, that
each X-Cardia Share held by a Dissenting Holder who shall, after the Effective
Time, withdraw his demand for appraisal or lose his right of appraisal with
respect to such X-Cardia Shares, in either case pursuant to the CGCL, shall not
be deemed Excluded Shares but shall be deemed to be converted, as of the
Effective Time, into the right to receive Urohealth Shares in accordance with
the Exchange Ratio.
3.10 No Fractional Shares.
(a) No certificates or scrip representing
fractional Urohealth Shares shall be issued upon the surrender for exchange of
X-Cardia Shares and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a shareholder of Urohealth.
(b) Urohealth shall pay or cause to be paid
to each holder of X-Cardia Shares an amount in cash equal to the product
obtained by multiplying the fractional share interest to which such holder
would otherwise be entitled to by the closing price on The Nasdaq Stock Market
- National Market of a Urohealth Share on the trading day immediately preceding
the Effective Time.
3.11 Closing. The closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Urohealth, ▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
at 10:00 a.m., local time, on or prior to the fifth business day (the "Closing
Date") after the day on which all of the conditions set forth in Article VIII
hereof are satisfied or waived, or at such other date, time and place as the
parties shall agree.
3.12 Supplementary Action. If at any time
after the Effective Time, any further assignments or assurances in law or any
other things are necessary or desirable to vest or to perfect or confirm of
record in the Surviving Corporation the title to any property or rights of
either Constituent Corporation, or otherwise to carry out the provisions of
this Agreement, the officers and directors of the Surviving Corporation are
hereby authorized and empowered on behalf of the Constituent Corporations, in
the name of and an behalf of either Constituent Corporation as appropriate, to
execute and deliver any and all things necessary or proper to vest or to
perfect or confirm title to such property or rights in the Surviving
Corporation, and otherwise to carry out the purposes and provisions of this
Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF UROHEALTH AND UROHEALTH SUB
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Urohealth and Urohealth Sub represent and
warrant to X-Cardia, except as disclosed to X-Cardia in writing prior to the
execution of this Agreement, as follows:
4.1 Organization. Urohealth is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the corporate power to carry on its
business as it is now being conducted or presently proposed to be conducted.
Urohealth is duly qualified as a foreign corporation to do business, and is in
good standing (to the extent the concept of good standing exists), in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified will not have a material adverse effect on the
financial condition of Urohealth and its subsidiaries taken as a whole (a
"Material Adverse Effect"). Urohealth Sub is a corporation duly organized,
validly existing and in good standing (to the extent the concept of good
standing exists) under the laws of its jurisdiction of incorporation or
organization, has the corporate power to carry on its business as it is now
being conducted or presently proposed to be conducted and is duly qualified to
do business, and is in good standing (to the extent the concept of good standing
exists), in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so duly organized, validly existing
and in good standing, to have such corporate power or to be so qualified will
not have a Material Adverse Effect.
4.2 Authority Relative to this Agreement.
Each of Urohealth and Urohealth Sub has the corporate power to enter into this
Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement by Urohealth and Urohealth Sub and the consummation
by each of them of the transactions contemplated hereby have been duly
authorized by all requisite corporate action, and no other corporate
proceedings on the part of either such company are necessary to approve this
Agreement or the transactions contemplated hereby.
4.3 Reports and Financial Statements.
Urohealth has filed all reports required to be filed by it with the Securities
and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), since January 1, 1995, (collectively,
the "SEC Reports"), and has previously furnished or made available to X-Cardia
true and complete copies of all such SEC Reports. None of the SEC Reports, as
of their respective dates (as amended through the date hereof), contained any
untrue statement of a material fact or omitted 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. Each of
the balance sheets (including the related notes) included in the SEC Reports
fairly presents in all material respects the consolidated financial position of
Urohealth and its subsidiaries as of the respective dates thereof, and the
other related statements (including the related notes) included therein fairly
present in all material respects the results of operations and cash flows of
Urohealth and its subsidiaries for the respective periods or as of
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the respective dates set forth therein, all in conformity with generally
accepted accounting principles consistently applied during the periods
involved, except as otherwise noted therein and subject, in the case of the
unaudited interim financial statements, to normal year-end adjustments and any
other adjustments described therein and the absence of any notes thereto.
4.4 Compliance With Applicable Law.
Urohealth holds all material licenses, franchises, permits, variances,
exemptions, orders, approvals and authorizations necessary for the lawful
conduct of its business under and pursuant to, and the business of Urohealth is
not being conducted in violation of, any provision of any federal, state, local
or foreign statute, law ordinance, rule, regulation, judgment, decree, order,
concession, grant, franchise, permit or license or other governmental
authorization or approval applicable to Urohealth, except in each case were the
failure to so hold, or the violation of, would not constitute a Material
Adverse Effect.
4.5 FDA Matters. Neither the Food and Drug
Administration nor any comparable state agency has within the past two years
notified, nor to the best knowledge of Urohealth intends to notify, Urohealth
of any violation of the Federal Food, Drug, and Cosmetic Act, the regulations
promulgated thereunder or any comparable state law or regulation with respect
to the manufacture or sale of Urohealth products, the likely result of which
would be a Material Adverse Effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF X-CARDIA
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X-Cardia represents and warrants to Urohealth
and Urohealth Sub, except as disclosed to Urohealth in writing prior to the
execution of this Agreement, as follows:
5.1 Organization. X-Cardia and Cybro is
each a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has the corporate power to
carry on its business as it is now being conducted or presently proposed to be
conducted.
5.2 Subsidiaries. Except for Cybro, X-Cardia has no
subsidiaries and does not own any interest in any partnership, joint venture or
other entity.
5.3 Capitalization. As of the date hereof,
the authorized capital stock of X-Cardia is as set forth in Schedule 5.3 hereto
which identifies each holder of X-Cardia Shares (each an "X-Cardia Shareholder"
and collectively, the "X-Cardia Shareholders"). As of the date hereof, the
number of X-Cardia Shares which are issued and outstanding is as set forth in
Schedule 5.3 hereto. All of the issued and outstanding X-Cardia Shares are
validly issued, fully paid and nonassessable and free of preemptive rights or
similar rights created by statute, the Articles of Incorporation or Bylaws of
X-Cardia or any agreement to which X-Cardia is a party or by which it is bound.
Except as set forth on Schedule 5.3, there are not as of the date of this
Agreement any shares of capital stock of X-Cardia issued or outstanding or any
options, warrants, subscriptions, calls, rights, convertible securities or
other agreements or commitments obligating X-Cardia to issue, transfer or sell
any shares of its capital stock. As of the date hereof, no bonds, debentures,
notes or other indebtedness having the right to vote (or convertible into or
exercisable for securities having the right to vote) on any matters on which
shareholders of X-Cardia may vote were issued and outstanding with respect to
X-Cardia.
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5.4 Authority Relative to this Agreement.
X-Cardia has the corporate power to enter into this Agreement and to carry out
its obligations hereunder. The execution and delivery of this Agreement by
X-Cardia and the consummation by X-Cardia of the transactions contemplated
hereby have been duly authorized by the Board of Directors and shareholders of
X-Cardia, and no other corporate proceedings on the part of it is necessary to
approve this Agreement or the transactions contemplated hereby.
5.5 Consents and Approvals; No Violations.
Except for the filing of the Merger Agreement with the California Secretary of
State and obtaining a tax clearance certificate from the California Franchise
Tax Board, no filing with, and no permit, authorization, consent or approval
of, any public body or authority is necessary for the consummation by X-Cardia
of the transactions contemplated by this Agreement. Neither the execution and
delivery of this Agreement by X-Cardia, nor the consummation by X-Cardia of the
transactions contemplated hereby, nor compliance by X-Cardia with any of the
provisions hereof, will (a) result in any breach of the Articles of
Incorporation or Bylaws of X-Cardia, (b) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, agreement or other instrument or obligation to which
X-Cardia is a party or by which it or any of its properties or assets may be
bound or (c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to X-Cardia or any of its properties or assets.
5.6 Financial Statements. X-Cardia has
furnished to Urohealth X-Cardia's unaudited balance sheet, dated December 31,
1996 and the unaudited statements Of Profits and losses for the one-year period
ended December 31, 1996 (the "X-Cardia Financial Statements"). The X-Cardia
Financial Statements fairly present the financial position of X-Cardia as of
the date thereof and the results of operations for the periods then ended, all
in conformity with generally accepted accounting principles.
5.7 Contingencies. (a) There are no express
or implied product warranties that are obligations of X-Cardia, (b) X-Cardia
has received no complaints with respect to any product of X-Cardia, (c) neither
the Food and Drug Administration ("FDA") nor any comparable state agency has
within the past two years notified, nor to the best knowledge of X-Cardia
intends to notify, X-Cardia of any violation of the Federal Food, Drug and
Cosmetic Act, the regulations promulgated thereunder or any comparable state
law or regulation with respect to the manufacture or sale of any X-Cardia
product and, (d) there are no contingent obligations of X-Cardia not reflected
in the X-Cardia Financial Statements.
5.8 Absence of Certain Changes or Events.
Since December 31, 1996, X-Cardia has operated its business only in the
ordinary course and there has not been:
(a) any occurrence, event or condition which
has had or could have a material adverse effect,
(b) any damage, destruction or loss in
excess of $10,000, whether or not covered by insurance, affecting its
properties or business,
(c) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the X-Cardia Shares,
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(d) any increase in compensation or benefits
expense to X-Cardia, any increase in the compensation or other benefits payable
or to become payable by X-Cardia to its directors, officers or key employees,
any increase in the payment or arrangement made to, for, or with any such
officers or key employees,
(e) any change in accounting principles or
methods followed by X-Cardia or any change in depreciation or amortization
policies, or
(f) any pending or threatened labor
difficulties affecting X-Cardia or efforts to unionize X-Cardia's employees.
5.9 Title to Property; Encumbrances.
X-Cardia owns all assets and rights necessary to conduct the business of
X-Cardia as presently conducted. X-Cardia has good and marketable title to, or
other full legal right to use, all properties and assets (real, personal and
mixed, tangible and intangible), including, without limitation, all such
properties and assets that it purports to own or has a legal right to use, as
reflected on the balance sheet of X-Cardia dated December 31, 1996 (the
"Balance Sheet") or acquired after December 31, 1996, X-Cardia does not own any
real property. None of such properties or assets reflected on the Balance
Sheet or acquired after December 31, 1996, is subject to any encumbrance
except, (i) encumbrances set forth on Schedule 5.9, (ii) statutory encumbrances
not yet delinquent, (iii) encumbrances that do not individually or in the
aggregate impair or materially interfere with the conduct of X-Cardia's present
business operations and (iv) encumbrances for taxes not yet delinquent or the
validity of which are being contested in good faith by appropriate actions,
which taxes, if any, have been listed on Schedule 5.9. For purposes of this
Agreement, "encumbrance" means any claim, charge, encumbrance, security
interest, lien, option, pledge, rights of others or restriction (whether on
voting, sale, transfer, disposition or otherwise), whether imposed by
agreement, understanding, law, equity or otherwise, except those arising under
any applicable federal or state securities laws. Schedule 5.9 contains a true
and complete list and description of all items of equipment, furniture and
fixtures, computer hardware and software, and motor vehicles owned or leased by
X-Cardia (the "Equipment"), and indicates whether each such item of personal
property is owned or leased. The Equipment taken as a whole is in generally
good operating condition, except for ordinary wear and tear, currently useable
for its intended purposes and is not materially obsolete.
5.10 Litigation. As of the date of this Agreement,
(i) there is no action, suit, judicial or administrative proceeding,
arbitration or investigation pending or, to the best knowledge of X-Cardia,
threatened against or involving X-Cardia or any of its properties or rights,
before any court, arbitrator, or administrative or governmental body; (ii)
there is no judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against X-Cardia; and (iii) X-Cardia is not in violation of any
term of any judgments, decrees, injunctions or orders outstanding against it.
5.11 Contracts. Each of the contracts,
instruments, mortgages, notes, security agreements, leases, agreements or
understandings to which X-Cardia is a party or by which X-Cardia or any of its
properties or assets is bound and which provide for annual aggregate payments
in excess of $10,000 is listed on Schedule 5. 11.
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5.12 Employee Plans.
(a) General. Except as set forth in
Schedule 5.12, X-Cardia is not and never has been a party to, a participant in
or a sponsor of: (i) any profit sharing, deferred compensation, bonus, stock
option, stock purchase, pension, retainer, consulting, retirement, welfare or
incentive plan or agreement, (ii) any plan providing for "fringe benefits" to
its employees, including, but not limited to, vacation, sick leave, medical and
insurance, (iii) any employment agreement not terminable upon notice at the
will of either party with or without cause, (iv) any severance plans or
severance agreements providing for severance benefits in excess of $5,000, or
(v) any other "employee benefit plan" (within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA") (collectively,
"Employee Plans"). True, correct and complete copies of all Employee Plans
listed in Schedule 5.12, and all related summary plan descriptions, have been
delivered to Urohealth.
(b) Employee Benefit Plans. With respect to
the Employee Plans listed on Schedule 5.12 which are "employee benefit plans"
(within the meaning of Section 3(3) of ERISA), X-Cardia is in compliance with
the applicable provisions of such plans and of ERISA (as amended through the
date of this Agreement). There are no actions, suits or claims (other than
routine claims for benefits) pending or threatened against such plans or the
assets of such plans and, to the best of X-Cardia's knowledge, no facts exist
which X-Cardia believes will give rise to any actions, suits or claims (other
than routine claims for benefits) against such plans or the assets of such
plans. There are no actions, suits or claims pending or threatened against
X-Cardia regarding any employment agreement or alleged employment agreement
and, to the best of X-Cardia's knowledge, no facts exist which X-Cardia
believes will give rise to any such action, suit or claim.
(c) Pension and Profit Sharing Plans. No
plan listed in Schedule 5.12 is an "employee pension benefit plan" (within the
meaning of Section 3(2) of ERISA).
(d) Common Control Plans. There are no
trades or businesses (whether or not incorporated) which are members of a group
of which X-Cardia is a member and which are under common control within the
meaning of Section 414 of the Code and the regulations thereunder.
(e) No Multiemployer Plans. No plan listed
in Schedule 5.12 is a "multiemployer plan" (within the meaning of Section 3(37)
of ERISA). X-Cardia has never contributed to or had an obligation to
contribute to any "multiemployer plan."
5.13 Taxes. For the purposes of this
section, the term "tax" shall include all taxes, charges, withholdings, fees,
levies, penalties, additions, interest or other assessments imposed by any
United States federal, state or local authority or any other taxing authority
on X-Cardia or any of its Tax Affiliates as to their respective income, profit,
franchise, gross receipts, payroll, sales, employment, worker's compensation,
use, property, withholding, excise, occupancy, environmental, and other taxes,
duties or assessments of any nature whatsoever. X-Cardia has filed or caused
to be filed timely all federal, state, local and foreign tax returns required
to be filed by each of it and any member of its consolidated, combined, unitary
or similar group (each such member a "Tax Affiliate"). Such returns, reports
and other information are accurate and complete in all material respects.
X-Cardia has paid or caused to be paid all taxes shown to be due in respect of
the periods for which returns are due.
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5.14 Compliance With Applicable Law. X-Cardia holds
all licenses, franchises, permits, variances, exemptions, orders, approvals and
authorizations necessary for the lawful conduct of its business under and
pursuant to, and the business of X-Cardia is not being conducted in violation
of, any provision of any federal, state, local or foreign statute, law,
ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or other governmental authorization or approval
applicable to X-Cardia.
5.15 X-Cardia Proprietary Rights.
(a) X-Cardia has included in Schedule 5.15
a listing of all X-Cardia's domestic or foreign federal, state and foreign
registrations of trademarks and of other marks, trade names or other trade
rights, and all pending applications for any such registrations and all of
X-Cardia's patents and copyrights and all pending applications therefor, all
other trademarks and other marks, trade names and other trade rights in which
X-Cardia has any interest whatsoever and all other trade secrets, designs,
plans, specifications, technical information and other X-Cardia proprietary
rights, whether or not registered, created or used by or on behalf of X-Cardia
(collectively "X-Cardia Proprietary Rights"). Such listing (the "X-Cardia
Proprietary Rights List") also sets forth: (i) for each patent and registered
design, the number, normal expiration date and subject matter for each country
in which such patent or registered design has been issued, (ii) for each patent
application and registered design application, the application number, date of
filing and subject matter for each country, (iii) for each trademark, the
trademark application serial number or the trademark registration number, the
trademark class of goods covered and the trademark expiration date for each
country in which a trademark has been registered, (iv) for each service ▇▇▇▇,
the service ▇▇▇▇ serial number or the service ▇▇▇▇ registration number, the
service ▇▇▇▇ class of goods covered and the service ▇▇▇▇ expiration date for
each country in which a service ▇▇▇▇ has been registered and (v) for each
copyright, the copyright number and date of filing for each country in which a
copyright has been filed.
(b) (i) No person has a right to receive
a royalty or similar payment in respect of any X-Cardia Proprietary Rights
whether or not pursuant to any contractual arrangements entered into by
X-Cardia. X-Cardia has no licenses granted, sold or otherwise transferred by
or to it nor other agreements to which it is a party relating in whole or in
part to any of the X-Cardia Proprietary Rights.
(ii) X-Cardia owns and has the sole
right to use each of the X-Cardia Proprietary Rights. Except for applications
pending, all of the patents, registered designs and trademarks listed in the
X-Cardia Proprietary Rights List have been duly issued and all of the other
X-Cardia Proprietary Rights exist, are registered and are subsisting. All of
the pending patent applications have been duly filed. None of the X-Cardia
Proprietary Rights is involved in any pending or threatened litigation.
X-Cardia has not received any notice of invalidity or infringement of any
rights of others with respect to such trademarks. To the best of X-Cardia's
knowledge, no other person (x) has the right to use any such trademarks on the
goods on which they are now being used either in identical form or in such near
resemblance thereto as to be likely, when applied to the goods of any such
person, to cause confusion with the trademarks or to cause a mistake or to
deceive, (y) has notified X-Cardia that it is claiming any ownership of or
right to use such X-Cardia Proprietary Rights, or (z) is infringing upon any
such X-Cardia Proprietary Rights in any way. To the best of X-Cardia's
knowledge, X-Cardia's use of the X-Cardia Proprietary Rights is not infringing
upon or otherwise violating the rights of any third party in or to such
X-Cardia Proprietary Rights, and no proceedings have been instituted against or
notices received by X-Cardia that are presently outstanding alleging that
X-Cardia's use of the X-Cardia
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Proprietary Rights infringes upon or otherwise violates any rights of a third
party in or to such X-Cardia Proprietary Rights. To the best of X-Cardia's
knowledge, (a) the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated by this Agreement will not
adversely affect the validity and enforceability of the X-Cardia Proprietary
Rights and (b) there are not, and it is reasonably expected that after the
Effective Time there will not be, any restrictions on Urohealth Sub's right to
sell products manufactured by or for Urohealth Sub which relate to the X-Cardia
Proprietary Rights.
5.16 Indebtedness to and from Related
Parties. X-Cardia is not indebted to any of its shareholders, directors,
officers, employees or agents except for amounts due as normal salaries, wages
and in reimbursement of ordinary expenses on a current basis. No shareholder,
director, officer, employee or agent of X-Cardia is indebted to X-Cardia except
for advances of business expenses on a current basis. Any contract between
X-Cardia and any of its shareholders, any party related to such shareholders,
or any affiliate or related party of such shareholders or X-Cardia, including
without limitation any leases of real property between or among any such
parties, is based on the fair market value of the consideration involved in
such contract, when compared to similar contracts between unrelated third
parties.
5.17 Insurance. Schedule 5.17 contains an accurate
and complete listing (showing type of insurance, amount, insurance company,
annual premium, and special exclusions and deductibles) of all policies of
fire, liability, workers' compensation and other forms of insurance owned or
held by X-Cardia. All such policies (i) are in full force and effect, (ii) are
sufficient for compliance with all requirements of law and of all agreements to
which X-Cardia is a party, (iii) will remain in full force and effect through
the respective dates set forth in Schedule 5.17, and (iv) will not in any way
be affected by or terminate or lapse by reason of the transactions contemplated
by this Agreement.
5.18 Overtime, Past Wages, Vacation and Minimum
Wages. No present or former employee of X-Cardia has any claims against
X-Cardia (whether under federal or state law, any employment agreement or
otherwise) on account of or for (a) overtime pay, other than overtime pay for
the current payroll period, (b) wages or salary (excluding bonuses and amounts
accruing under pension and profit sharing plans) for any period other than the
current payroll period, (c) vacation, time off (except for sick time) or pay in
lieu of vacation or time off (except for sick time), other than that earned in
respect of the current fiscal year or accrued in the ordinary course in
accordance with generally accepted accounting principles, or (d) any violation
of any statute, ordinance or regulation relating to minimum wages or maximum
hours of work.
5.19 Books of Account and Reports.
X-Cardia's books of account reflect all of its items of income and expense, and
substantially all of its assets, liabilities and accruals, and are prepared and
maintained in form and substance adequate for preparing audited financial
statements in accordance with generally accepted accounting principles applied
on a consistent basis. X-Cardia has filed all reports required by any law or
regulation to be filed by it and it has duly paid or accrued on its books of
account all applicable duties and charges due (or assessed against it) pursuant
to such reports. X-Cardia's minute books accurately reflect all significant
actions taken by the shareholders and Board of Directors of X-Cardia. The
stock certificate books of X-Cardia accurately reflect all transactions in its
capital stock of all classes.
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5.20 Bank Account. Schedule 5.20 sets forth
(i) an accurate list of each bank, trust company, savings institution or other
financial institution with which X-Cardia has an account or safe deposit box
and the names and identification of all persons authorized to draw thereon or
to have access thereto, and (ii) the name of each person holding a power of
attorney or agency authority from X-Cardia and a summary of the terms thereof.
5.21 Hazardous Wastes. X-Cardia has not
used, generated, manufactured, produced, installed, released, discharged,
stored, treated or disposed of any "Hazardous Materials," as defined below, on,
under, in or about the site of any property occupied, leased, owned or
otherwise used by X-Cardia or transported any Hazardous Materials to or from
any such property in violation of any Environmental Law. The term "Hazardous
Materials" means any pesticides, fungicides, solvents, herbicides, flammable
explosives, asbestos, radioactive materials, toxic substances or related
injurious material, whether injurious by themselves or in combination with
other materials, and any waste material which is regulated by any governmental
entity, including but not limited to, any material or substance which is
defined, designated or listed as a "hazardous waste," "hazardous material,"
"hazardous substance," "extremely hazardous waste," "restricted hazardous
waste," or "toxic substance" under any provision of any Environmental Law. The
term "Environmental Law" means any state or federal law governing, or intended
to protect, the environment or governing the use, generation, manufacture,
production, installation, release, discharge, storage, treatment or disposition
of any Hazardous Materials, including but not limited to (i) Section 311 of the
Clean Water Act, 33 U.S.C. Section 1251 et seq. or Section 307 of the Clean
Water Act, (ii) the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq., (iii) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., (iv) the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., or (v)
the regulations adopted and publications promulgated pursuant to such laws.
5.22 Distributions. Since December 31,
1996, X-Cardia has not made distribution of cash or property to any of its
shareholders, including the payment of any dividend, loan, bonus, advance,
compensation, or any other transfer of anything of value, other than salary and
other payments consistent with pre-existing employment and fringe benefit
arrangements, reimbursement of ordinary business expenses incurred and loans or
advances which have been repaid by such shareholder on or prior to the date
hereof.
5.23 Accuracy of information Furnished.
No representation or warranty of X-Cardia contained in this Agreement or any
other document, certificate or written statement furnished or to be furnished
to Urohealth by X-Cardia for use in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
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ARTICLE VI
ADDITIONAL AGREEMENTS
---------------------
6.1 Expenses. Whether or not the Merger
is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby and thereby shall be paid by
the party incurring such expenses.
6.2 Registration Rights. UROHealth shall
file with the Securities and Exchange Commission (the "Commission") no later
than the earlier of (i) 30 days after the Effective Time and, (ii) March 15,
1997 a Registration Statement on Form S-3 covering the sale of the Urohealth
Shares delivered to the X-Cardia Shareholders hereunder. Urohealth represents
and warrants to X-Cardia that it currently satisfies the requirements of the
Securities and Exchange Commission with respect to the use of Form S-3 to
register Urohealth Shares. Urohealth shall use its best efforts to have such
registration declared effective and to keep such registration statement
effective until such time as the Urohealth Shares can be sold by the X-Cardia
Shareholders pursuant to the terms of Rule 144 under the Securities Act.
Notwithstanding the foregoing, each of the X-Cardia Shareholders agrees to not
distribute or sell Urohealth Shares pursuant to such registration statement
during the 30 days prior to, and for up to 90 days after, any public equity
offering by Urohealth (so long as the officers and directors of Urohealth are
similarly restricted) and in no event shall any X-Cardia Shareholder sell any
Urohealth Shares prior to March 15, 1997. The registration rights are more
fully described in the Representation Letter attached hereto as Exhibit C.
6.3 Prosecution of Patents. Urohealth acknowledges
that a significant portion of the Merger Consideration hereunder is contingent
upon the successful issuance of patents (the "Patents") with respect to certain
X-Cardia technology and, therefore Urohealth agrees to pursue the prosecution
of the Patents in good faith, and to consult regularly with the Representative
on any material decisions regarding the Patents, including decisions regarding
amendments to the claims thereof. Urohealth currently intends to continue to
use the patent counsel currently being used by X-Cardia in connection with the
continued prosecution of the Patents after the Effective Time and agrees not to
change patent counsel without the consent of the Representative which consent
may not be unreasonably withheld.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
--------------------------------------
7.1 Conduct of Business. X-Cardia agrees on
its own behalf and on behalf of its subsidiaries that, during the period from
the date of this Agreement and continuing until the Effective Time:
(a) the respective businesses of X-Cardia
and its subsidiaries shall be conducted only in the ordinary and usual course
of business and consistent with past practices;
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(b) X-Cardia and its subsidiaries shall
not (i) sell or pledge or agree to sell or pledge any stock owned by it in any
of its subsidiaries; (ii) amend its Certificate or Articles of Incorporation,
as applicable, or Bylaws; or (iii) split, combine or reclassify any shares of
its outstanding capital stock or declare, set aside or pay any dividend or
other distribution payable in cash, stock or property in respect of its capital
stock, or directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or other securities or shares of the capital stock
or other securities of any of its subsidiaries;
(c) X-Cardia and its subsidiaries shall
not (i) authorize for issuance, issue, sell, pledge, dispose of, encumber,
deliver or agree or commit to issue, sell, pledge, or deliver any additional
shares of, or rights of any kind to acquire any shares of, its capital stock of
any class or exchangeable into shares of stock of any class or any voting debt
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise); (ii) acquire, dispose of,
transfer, lease, license, mortgage, pledge or encumber any fixed or other
substantial assets other than in the ordinary course of business and consistent
with past practices; (iii) incur, assume or prepay any material indebtedness,
liability or obligation or any other material liabilities or issue any debt
securities other than in the ordinary course of business and consistent with
past practices; (iv) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations
of any other person (other than a subsidiary) in a material amount other than
in the ordinary course of business and consistent with past practices; (v) make
any loans, advances or capital contributions to, or investments in, any other
person, other than to subsidiaries, other than in the ordinary course of
business and consistent with past practices; (vi) fail to maintain adequate
insurance consistent with past practices for their businesses and properties;
or (vii) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing.
(d) X-Cardia shall use its best efforts to
preserve intact the business organization of X-Cardia and its subsidiaries, to
keep available the services of its and their present officers and key
employees, and to preserve the goodwill of those having business relationships
with it and their respective subsidiaries; and
(e) X-Cardia and its subsidiaries shall
use all reasonable efforts to prevent any representation or warranty of
X-Cardia herein from becoming untrue or incorrect in any material respect.
7.2 Compensation Plans. During the period from the
date of this Agreement and continuing until the Effective Time, X-Cardia agrees
as to itself and its subsidiaries that it will not, without the prior written
consent of Urohealth (except as required by applicable law or pursuant to
existing contractual arrangements) (a) enter into, adopt or amend any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment, severance or other employee benefit plan, agreement,
trust, plan, fund or other arrangement between X-Cardia and one or more of its
officers, directors or employees, in each case so as to increase the benefits
thereunder (collectively, "Compensation Plans"), (b) grant or become obligated
to grant any increase in the compensation or fringe benefits of directors,
officers or employees (including any such increase pursuant to any Compensation
Plan) or any increase in the compensation payable or to become payable to any
officer, except, with respect to employees other than officers, for increases
in compensation in the ordinary course of business consistent with past
practice, or enter into any contract, commitment or
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arrangement to do any of the foregoing, except for normal increases and
non-stock benefit changes in the ordinary course of business consistent with
past practice, (c) institute any new employee benefit, welfare program or
Compensation Plan, (d) make any change in any Compensation Plan or other
employee welfare or benefit arrangement or enter into any employment or similar
agreement or arrangement with any employee, or (e) enter into or renew any
contract, agreement, commitment or arrangement providing for the payment to any
director, officer or employee of X-Cardia of compensation or benefits
contingent, or the terms of which are materially altered in favor of such
individual upon the occurrence of any of the transactions contemplated by this
Agreement.
7.3 Legal Conditions to Merger. Each of X-Cardia
and Urohealth shall, and shall cause its subsidiaries to, use all reasonable
efforts (a) to take, or cause to be taken, all actions necessary to comply
promptly with all legal requirements which may be imposed on such party or its
subsidiaries with respect to the Merger and to consummate the transactions
contemplated by this Agreement, subject to the appropriate vote or consent of
shareholders and (b) to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any governmental entity and or any other public or private third party which is
required to be obtained or made by such party or any of its subsidiaries in
connection with the Merger and the transactions contemplated by this Agreement.
Each party will promptly cooperate with and furnish information to the other in
connection with any such burden suffered by, or requirement imposed upon, any
of them or any of their subsidiaries in connection with the foregoing.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
----------------------------------------
8.1 Conditions to Both X-Cardia's and
Urohealth's Obligation to Effect the Merger. The respective obligations of
X-Cardia and Urohealth to effect the transactions contemplated herein shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any one of which may be waived by mutual agreement:
(a) No preliminary or permanent injunction
or other order by any federal, state or foreign court of competent jurisdiction
which prohibits the consummation of the Merger shall have been issued and
remain in effect. No statute, rule, regulation, executive order, stay, decree,
or judgment shall have been enacted, entered, issued, promulgated or enforced
by any court or governmental authority which prohibits or restricts the
consummation of the Merger. Other than the filing of the Merger Agreement with
the Secretary of State for the State of California, all authorizations,
consents, orders or approvals of, or declarations or filings with, and all
expirations of waiting periods imposed by any governmental entity (all of the
foregoing, "Consents") which are necessary for the consummation of the Merger,
other than Consents the failure to obtain which would have no material adverse
effect on the consummation of the Merger or on the Surviving Corporation shall
have been filed, occurred or been obtained (all such permits, approvals,
filings and consents and the lapse of all such waiting periods being referred
to as the "Requisite Regulatory Approvals") and all such Requisite Regulatory
Approvals shall be in full force and effect. All state securities or blue sky
permits and other authorizations necessary to issue the Urohealth Shares in
exchange for the X-Cardia Shares and to consummate the Merger shall have been
received.
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(b) There shall not be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, by any federal or state governmental entity which, in
connection with the grant of a Requisite Regulatory Approval, imposes any
condition or restriction upon the Surviving Corporation, Urohealth or their
subsidiaries (or, in the case of any disposition of assets required in
connection with such Requisite Regulatory Approval, upon either X-Cardia or
Urohealth or their subsidiaries), including, without limitation, requirements
relating to the disposition of assets, which in any such case would so
materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement as to render inadvisable the
consummation of the Merger.
(c) Holders of fewer than 5% of the
X-Cardia Shares shall have indicated their intention to dissent from the Merger
under the CGCL.
8.2 Conditions to Obligations of Urohealth and
Urohealth Sub. The obligation each of Urohealth and Urohealth Sub to effect
the Merger shall be further subject to the satisfaction at or prior to the
Effective Time of the following additional conditions, which may be waived by
Urohealth.
(a) The representations and warranties of
X-Cardia contained in this Agreement shall be true and correct at and as of the
Effective Time as if made at and as of such time. X-Cardia shall have
delivered to Urohealth and Urohealth Sub a certificate of its President as to
the satisfaction of this condition.
(b) Urohealth shall have received the
opinion of ▇▇▇▇▇▇ Godward LLP, counsel to X-Cardia dated the Closing Date and
covering the matters set forth in Exhibit D.
(c) X-Cardia shall have obtained the
consent or approval of each person whose consent or approval shall be required
in connection with the transactions contemplated hereby under any loan or
credit agreement, note, mortgage, indenture, lease, license or other agreement
or instrument.
(d) Each of the X-Cardia Shareholders
shall have delivered to Urohealth a Representation Letter.
(e) The Second Closing under that certain
Convertible Note and Common Stock Purchase Agreement, dated September 30,1996,
among X-Cardia and the Purchasers designated therein shall have occurred, the
outstanding Convertible Notes of X-Cardia shall have been converted into Common
Stock of X-Cardia and the Purchasers shall have agreed to termination of the
Investor Rights and Co-Sale Agreement concurrently with the consummation of the
Merger.
(f) X-Cardia shall have exercised its Call
Option under that certain Option Agreement, dated January 2, 1997, and acquired
the remaining outstanding Cybro shares not currently owned by X-Cardia on or
prior to the Closing Date and each Cybro shareholder shall have agreed to
accept the Merger Consideration rather than X-Cardia Shares for shares issuable
under the Option Agreement upon achievement of certain objectives set forth
therein.
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(g) Consent of Chief Scientist of Israel in
the form attached hereto as Exhibit 8.2(g) or confirmation to the reasonable
satisfaction of Urohealth the such consent is not required.
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(h) Agreements from ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ not to sell more than 20% of the Urohealth Shares received by
them hereunder for a period of 120-days after the Effective Time.
8.3 Conditions to-Obligations of X-Cardia.
The obligation of X-Cardia to effect the Merger shall be further subject to the
satisfaction at or prior to the Effective Time of the following additional
conditions, which may be waived by X-Cardia:
(a) The representations and warranties of
Urohealth and Urohealth Sub contained in this Agreement shall be true and
correct at and as of the Effective time as if made at and as of such time.
Urohealth and Urohealth Sub shall have delivered to X-Cardia a certificate of
its President or any Vice President as to the satisfaction of this condition.
(b) Urohealth shall have obtained the consent or
approval of each person whose consent or approval shall be required in
connection with the transactions contemplated hereby under any loan or credit
agreement, note, mortgage, indenture, lease, license or other agreement or
instrument.
(c) X-Cardia shall have received the opinion
of the general counsel of Urohealth, dated the Closing Date, and covering
substantially the same matters set forth in Exhibit D hereto.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
9.1 Termination. This Agreement may be
terminated and the Merger contemplated hereby abandoned at any time prior to
the Effective Time, whether before or after approval by the shareholders of the
Urohealth Sub and X-Cardia:
(a) By mutual written consent of Urohealth
and X-Cardia.
(b) By Urohealth or X-Cardia if the Merger
shall not have been consummated on or before March 31, 1997.
(c) By X-Cardia or Urohealth, if any court
of competent jurisdiction in the United States or other United States
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and
such order, decree, ruling or any other action shall have become final and
non-appealable.
9.2 Effect of Termination. In the event of
termination of this Agreement as provided above, this Agreement shall forthwith
become of no further effect. Nothing contained in this Section 8.2 shall
relieve any party from liability for willful breach of this Agreement that in
this Section 8.2 shall relieve any Party results in termination of this
Agreement.
9.3 Amendment. This Agreement may be
amended by action taken at any time before or after approval hereof by the
shareholders of the parties, but, after any such approval, no amendment shall
be made which alters the Exchange Ratio or which in any way materially
adversely
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affects the rights of such shareholders, without the further approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
9.4 Waiver. At any time prior to the Effective
Time, the parties hereto may (a) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. Such waiver shall
not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
ARTICLE X
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
-------------------------------
l0.1 Survival of Representations, Warranties and
Agreements.
(a) The representations, warranties or
agreements contained herein shall survive beyond the Effective Time for a
period of two years after the Effective Time (the "Termination Date").
(b) The Surviving Corporation, Urohealth, Urohealth
Sub and each of their officers, directors, employees, agents, representatives
and affiliates (collectively, the "Indemnitees") and individually each an
"Indemnitee") will be entitled to be indemnified and held harmless against and
in respect of any claims, damages, losses, costs, expenses, liabilities
(absolute, accrued, contingent or otherwise), and reasonable legal fees and
expenses (collectively, "Losses") incurred or suffered by any Indemnitee,
directly or indirectly caused by or arising out of or related to any untruth,
inaccuracy, error in, or breach of, any representation or warranty of X-Cardia
contained in this Agreement, when made or deemed to be made
(c) Each of the X-Cardia Shareholders,
acting through the Representative, (as defined below), will be entitled to be
indemnified and held harmless against and in respect of any Losses incurred or
suffered by the X-Cardia Shareholders, directly or indirectly caused by or
arising out of or related to any untruth, inaccuracy, error in, or breach of
any representation or warranty of Urohealth contained in this Agreement, when
made or deemed to be made.
(d) In no event shall the
indemnification obligations Pursuant to Section 10.1 (b) above exceed in the
aggregate the consideration received by the X-Cardia Shareholders pursuant to
Article III hereof, provided, further, that all claims for indemnification
pursuant to Section 10.1(b) (except claims for fraud) shall be made exclusively
against amounts of Merger Consideration not yet received by the X-Cardia
Shareholders. Such obligations shall be several, and not joint, in proportion
with each X-Cardia Shareholder's ownership of X-Cardia Shares at the Effective
Time. In satisfaction of the indemnification obligations of any X-Cardia
Shareholder pursuant to Section 10.1(b), Urohealth shall offset amounts
otherwise due such X-Cardia Shareholder as Earn-Out Consideration or Milestone
Payments against such indemnification obligations. Any amounts of Earn-Out
Consideration or
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Milestone Payments against which Urohealth has asserted offset rights to
satisfy indemnification obligations arising under Section 10.1(b) and to which
the Representative shall reasonably object, shall be placed into an escrow
account by Urohealth pending resolution of the disputed indemnification claim.
(e) If any claim for indemnification
hereunder shall be made by an Indemnitee, such Indemnitee shall notify ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, as representative of the X-Cardia Shareholders (the
"Representative"), of the existence of such claim and the basis therefor;
provided, that any failure to so notify the Representative shall not relieve
the obligations of the X-Cardia Shareholders to indemnify an Indemnitee
hereunder unless such X-Cardia Shareholder has been materially prejudiced by
the lack of notice. The X-Cardia Shareholders, acting through the
Representative, shall be entitled to assume the defense of any action against
an Indemnitee on which an indemnification claim is based with counsel
reasonably satisfactory to Indemnitee. If any claim for indemnification
hereunder shall be made by an X-Cardia Shareholder, such shareholder shall
notify Urohealth, through the Representative, of the existence of such claim
and the basis therefore; provided, that any failure to so notify Urohealth
shall not relieve the obligations of Urohealth to indemnify an X-Cardia
Shareholder hereunder unless Urohealth has been materially prejudiced by the
lack of notice. Urohealth shall be entitled to assume the defense of any
action against an X-Cardia Shareholder on which an indemnification claim is
based with counsel reasonably satisfactory to the Representative.
ARTICLE XI
GENERAL PROVISIONS
------------------
11.1 Brokers. X-Cardia represents and
warrants to Urohealth and Urohealth Sub that no broker, finder or financial
advisor is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of X-Cardia. Urohealth represents
and warrants to X-Cardia that, except for ▇▇▇▇▇ ▇▇▇▇▇▇▇, Inc., no broker,
finder or financial advisor is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Urohealth or
Urohealth Sub.
11.2 Notices. All notices, claims, demands
and other communications hereunder shall be in writing and shall be deemed
given if delivered personally or by telex or telecopy or mailed by registered
or certified mail (postage prepaidsreturn receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to X-Cardia, to:
X-Cardia Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
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▇▇▇▇▇▇ Godward LLP
Five Palo Alto Square
▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq,
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Urohealth or Urohealth Sub, to:
Urohealth Systems, Inc.
▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
11.3 Descriptive Headings. . The headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
11.4 Entire Agreement; Assignment. This
Agreement (including the Schedules, Exhibits, and other documents and
instruments referred to herein) constitute the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, among the
parties or any of them, with respect to the subject matter hereof, and shall
not be assigned by operation of law or otherwise.
11.5 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California without giving effect to the provisions thereof relating to
conflicts of law. In any action to enforce the terms or provisions of this
Agreement, the prevailing party in such action shall be entitled to recover
reasonably attorneys' fees and expenses in connection with any such action.
11.6 Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be deemed to be an
original but all of which shall constitute one and the same agreement.
11.7 Validity. The invalidity or
unenforceability of any provision of this Agreement shall not effect the
validity or enforceability of any other provisions of this Agreement, which
shall remain in full force and effect.
11.8 Investigation. The respective representations
and warranties of Urohealth or X-Cardia contained herein or in the certificates
or other documents delivered prior to the Closing shall not be deemed waived or
otherwise affected by any investigation made by the other.
11.9 Binding. This Agreement shall be binding on the
successors and assigns of the parties.
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IN WITNESS WHEREOF, each party has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
UROHEALTH SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer
UROHEALTH, INC. (CALIFORNIA),
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
X-CARDIA CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and Chief Executive
Officer
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Exhibit A
Form of Merger Agreement
------------------------
MERGER AGREEMENT
THIS MERGER AGREEMENT is executed as of _____________, 1997 by
and among X-Cardia Corporation, a California corporation (the "Merging
Corporation"), Urohealth Inc. (California), a California corporation (the
"Surviving Corporation") which corporations are hereinafter sometimes referred
to jointly as the "Constituent Corporations," and Urohealth Systems, Inc., a
Delaware corporation ("Parent").
RECITALS
A. The Merging Corporation is a corporation
duly organized and existing under the laws of the State of California. The
Surviving Corporation is a corporation duly organized and existing under the
laws of the State of California and the Parent is a corporation duly organized
and existing under the laws of the State of
B. The Merging Corporation has authorized capital
stock consisting of__________ shares of Common Stock, no par value, of which
_______________ shares are now duly issued and outstanding.
C. The Surviving Corporation has authorized
capital stock consisting of the following two classes: 660,000 shares of
preferred stock, without par value, and 10,000,000 shares of common stock,
without par value.
D. The Merging Corporation and the
Surviving Corporation desire to effect a statutory merger of the Merging
Corporation into the Surviving Corporation in the manner herein set forth, and
the Board of Directors of the Constituent Corporations have duly adopted
resolutions approving this Merger Agreement (this "Agreement").
E. The Merging Corporation, the -Surviving
Corporation and. Parent have entered into that certain Agreement and Plan of
Merger dated as of February__,1997 pursuant to which the parties agreed,
subject to the satisfaction of the conditions specified therein to the merger
of the Merging Corporation with and into the Surviving Corporation and the
conversion in the merger of each issued and outstanding share of Common Stock
of the Merging Corporation into shares of Parent Common Stock and the right to
receive certain cash payments.
In consideration of the foregoing premises, and
the mutual covenants and agreements herein contained, it is hereby agreed as
follows-.
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ARTICLE I
PARTIES TO THE MERGER
Section 1 The Merging Corporation. The
name of the corporation proposing to merge into the Surviving Corporation is
X-Cardia Corporation.
Section 2 The Surviving Corporation. The
name of the corporation into which the Merging Corporation proposes to merge is
Urohealth, Inc. (California) and Urohealth, Inc. (California) will be the
corporation surviving the merger.
Section 3 Parent. The Surviving
Corporation is a wholly-owned subsidiary of Parent, and cash and shares of
Parent Common Stock will be issued in the merger to the holders of Common Stock
of the Merging Corporation.
ARTICLE 11
TERMS AND CONDITIONS OF THE MERGER
SECTION I GENERAL. Upon the Effective
Date of the Merger (as defined below), (a) the Merging Corporation shall merge
into the Surviving Corporation, which shall survive the merger and continue to
be a California corporation; (b) the shares of common stock of the Surviving
Corporation outstanding upon the Effective Date of the Merger shall be and
remain outstanding shares of common stock of the Surviving Corporation in
accordance with their terms; (c) the separate existence of the Merging
Corporation shall cease, as provided by the General Corporation Law of the
State of California (the "CGCL"); and (d) the name of the Surviving Corporation
shall remain "Urohealth, Inc. (California)."
SECTION 2 EFFECTIVE DATE. The "Effective
Date" with respect to the Merger contemplated by this Agreement shall be the
date on which this Agreement is filed with the California Secretary of State.
ARTICLE III
CONVERSION OF CAPITAL STOCK
At the Effective Date, by virtue of the Merger
and without any action on the part of any holder of shares of Common Stock of
the Merging Corporation:
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(a) Each share of common stock of the
Merging Corporation ("Merging Corporation Share") issued and outstanding
immediately prior to the Effective Date shall be converted at the Effective
Date into the right to receive (i)____shares of Parent Common Stock ("Parent
Shares") at the Effective Date (the "Stock Consideration") and (ii) the right
to receive the Earn-Out Consideration and the Milestone Payments per share of
common stock of the Merging Corporation (the "Cash Merger Consideration"
together with the Stock Consideration, the "Merger Consideration"). For
purposes of this Agreement, Earn-Out shall mean (to come] and Milestone
Payments shall mean [to come].
(b) At the Effective Date, all Merging
Corporation Shares shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each certificate previously
representing any Merging Corporation Shares shall thereafter represent the
right to receive the Merger Consideration. Certificates representing Merging
Corporation Shares shall be exchanged for certificates representing whole
Parent Shares issued in consideration therefor and the Cash Merger
Consideration upon the surrender of such certificate in accordance with the
provisions hereof.
(c) Each Merging Corporation Share held in
the treasury of Merging Corporation or by any subsidiary of Merging Corporation
shall be canceled and retired and cease to exist, and no Parent Shares shall be
issued in exchange therefor. All Parent Shares owned by Merging Corporation or
any subsidiary shall become treasury stock of Parent.
ARTICLE IV
ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation of the Surviving
Corporation on the Effective Date shall remain the Articles of Incorporation of
the Surviving Corporation after the Merger, and the Bylaws of the Surviving
Corporation in effect on the Effective Date shall remain the Bylaws of the
Surviving Corporation after the Merger,
ARTICLE V
DIRECTORS AND OFFICERS
The directors and officers of the Surviving Corporation
in office on the Effective Date shall remain the directors and officers of the
Surviving Corporation after the Merger, each to hold office until a successor
shall have been elected and qualified or, if earlier, until such director or
of-officer shall have resigned or been removed from office.
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ARTICLE VI
CORPORATE APPROVALS AND TERMINATION
SECTION 1 CORPORATE APPROVALS. Pursuant to
Section Section 1201 of the CGCL, this Agreement and related matters have been
approved in accordance with such provisions.
SECTION 2 TERMINATION. At any time prior to the
Effective Date, this Agreement may be terminated and abandoned by the Merging
Corporation by appropriate resolution of its Board of Directors. In the event
of such termination and abandonment, this Agreement shall become void and
neither the Merging Corporation nor the Surviving Corporation or their
respective shareholders, directors or officers may be held liable in respect of
such termination or abandonment.
ARTICLE VII
MISCELLANEOUS
Section 1 Further Assurances. If at any
time the Surviving Corporation shall consider or be advised that any further
assignment, assurance or other action is necessary or desirable to vest in the
Surviving Corporation the title to any property or right of the Merging
Corporation or otherwise to carry out the purposes of this Agreement, the
proper officers and directors of the Merging Corporation shall execute and make
all such proper assignments or assurances and take such other actions. The
proper officers and directors of the Surviving Corporation are hereby
authorized in the name of the Merging Corporation, or otherwise, to take any
and all such action on behalf of the Merging Corporation.
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IN WITNESS WHEREOF, this Agreement has been executed as of the
date first written above.
X-CARDIA CORPORATION,
a California corporation
By
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
By:
-------------------------
Secretary
UROHEALTH, INC. (CALIFORNIA)
a California corporation
By:
---------------------------------
Name:
Title:
By:
------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Secretary
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Exhibit B
Milestone Payments
Description of Milestone Amount of Payment
------------------------ -----------------
Notice of Allowance by the United States Patent and Trademark Office of one $l8,000,000 (1)
or more of the independent claims included in the basic X-Cardia
patent Nos. 08/634, 758, 08/726, 822 and F&N Docket No. XCC - 001
CIP 2, or amended claims substantially equivalent in scope and breadth
to those claims covering the measurement of cardiac output on an
endotrachael tube utilizing biompedance technology (Patent Application
No. _________________)
Presentation of data from 18 human subjects using any X-Cardia product $ 3,000,000 (2)
demonstrating correlation between that product and a ▇▇▇▇-▇▇▇▇ catheter
or between that product and any substantially equivalent accepted cardiac
output measurement method and the clinical condition of the patient.
-------------------
(1) Payable $16.5 million in cash and $1.5 million by delivery of
Urohealth Shares.
(2) Payable by delivery of Urohealth Shares.
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Exhibit C
REPRESENTATION LETTER
---------------------
_____________, 1997
Urohealth Systems, Inc.
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger dated as of
1997 (the "Merger Agreement") by and among Urohealth Systems, Inc., a Delaware
corporation ("Urohealth"), Urohealth, Inc. (California), a California
corporation and wholly owned subsidiary of Urohealth ("Urohealth Sub"), and
X-Cardia Corporation, a California corporation ("X-Cardia"). Pursuant to the
Merger Agreement, X-Cardia will merge with and into Urohealth Sub (the it
Merger").
I have been informed that a condition to the consummation of the
Merger is that each X-Cardia Shareholder deliver to Urohealth a letter
agreement in the form of this letter and each of the X-Cardia Shareholders is
delivering this letter in reliance upon Urohealth's agreement to the
registration rights conferred upon the X-Cardia Shareholders herein.
I represent and warrant to, and agree with, Urohealth and Urohealth
Sub as follows:
1. I am acquiring the shares of Urohealth Common Stock
solely for my own account, for investment and not with a view to or for sale in
connection with any distribution of such Urohealth Common Stock or any portion
thereof and not with any present intention of selling, offering to sell, or
otherwise disposing of or distributing the Urohealth Common Stock or any
portion thereof, other than pursuant to and in accordance with paragraph 7
below. I represent that the entire legal and beneficial interest of the
Urohealth Common Stock I am acquiring is being acquired for, and will be held
for, my account only and neither in whole nor in part for any other person.
2. I have heretofore discussed or had the opportunity to
discuss Urohealth's plans, operations and financial condition with one or more
officers of Urohealth. I have had access to and have carefully reviewed all
information that I deem necessary and appropriate to enable me to evaluate the
financial risk involved in making an investment in the Urohealth Common Stock.
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3. Urohealth has disclosed to me in writing, and I agree
to be bound by, the following restrictions:
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(a) The sale of the shares of Urohealth Common Stock
has not been registered under the Act, or qualified under the California
Corporate Securities Law of 1968 (the "Law") and such shares of Urohealth
Common Stock must be held indefinitely unless a sale or transfer of the
Urohealth Common Stock is subsequently registered under the Act and qualified
under the Law or exemptions there-from are available;
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(b) Any certificates representing the shares of
Urohealth Common Stock will bear the following legend restricting transfer:
"The securities represented hereby have not been
registered under the Securities Act of 1933, as amended
(the "Act"), nor have they been registered or
qualified under the securities laws of any state. No
transfer of such securities will be permitted unless a
registration statement under the Act is in effect as to
such transfer, the transfer is made in accordance with
Rule 1.44 under the Act, or in the opinion of counsel
(which may be counsel for the Company) registration
under the Act is unnecessary in order for such transfer
to comply with the Act and with applicable state
securities laws."; and
(c) Urohealth will make a notation in its stock
records of the aforementioned restrictions on transfer.
4. Subject to the provisions of paragraph 7 below, I
understand that the shares of Urohealth Common Stock are restricted securities
within the meaning of Rule 144 promulgated under the Act; that exemption from
registration under Rule 144 will not be available in any event for at least two
(2) years from the date of issuance of the shares of Urohealth Common Stock to
me, and even then will not be available unless (a) a public trading market then
exists for the securities of Urohealth, (b) adequate information concerning
Urohealth is then available to the public, and (c) the other terms and
conditions of Rule 144 are complied with; and that any sale of the Urohealth
Common Stock may be made by me only in accordance with such terms and
conditions or pursuant to an effective registration statement under the
Securities Act of 1933.
5. I hereby represent that I have, and as of the effective
time of the Merger, will have, no present plan or intention (a "Plan") to Sell
(as hereafter defined) a number of shares of Common Stock of Urohealth Systems,
Inc. received by me pursuant to the Merger Agreement ("Urohealth Shares") that
would reduce my ownership of Urohealth Shares below the Fifty Percent Ownership
Requirement (as defined below). I hereby further represent that (a) I am not
aware of, or participating in, any Plan on the part of X-Cardia Shareholders to
Sell Urohealth Shares that would reduce the aggregate ownership of Urohealth
Shares by former owners of shares of X-Cardia Common Stock below the Fifty
Percent Ownership Requirement; (b) I did not acquire my ownership interest in
X-Cardia in anticipation of the Merger; and (c) there has been no transfer or
Sale of shares of X-Cardia Common Stock by me and there will be no transfer or
Sale prior to the closing date of the Merger.
a. For purposes of these representations
the term Urohealth Shares includes any securities that may be
paid as a dividend or otherwise distributed thereon or with respect thereto or
issued or delivered in exchange or substitution therefor.
b. For purposes of these representations,
the term Sell means to sell, transfer, exchange, pledge (other
than in a preexisting bona fide margin account) or otherwise dispose of,
including a distribution by a partnership to its partners, or a corporation to
its shareholders, or any other transaction which results in a reduction in the
risk of ownership (including, without limitation, short sales, put and call
options, and equity swaps) of any of the Urohealth Shares, and any such action
shall be referred to as a Sale of the affected shares.
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c. For purposes of these
representations, the Fifty Percent Ownership Requirement refers to ownership of
a number of Urohealth Shares having a value, as of the Effective Time of the
Merger, of at least 50 percent of the value, as of the Effective Time of the
Merger, of the shares of X-Cardia Common Stock exchanged for Urohealth Shares in
the Merger. For purposes of determining whether the Fifty Percent Ownership
Requirement has been satisfied, a former shareholder of X-Cardia shall not be
considered to have ownership of any Urohealth Shares with respect to which a
Sale has taken place. For purposes of the Fifty Percent Ownership Requirement:
Earn-Out Consideration received pursuant to Section 3.2 of the Merger Agreement
and Milestone Payments paid in cash pursuant to Section 3.3 of the Merger
Agreement shall be added to the value, as of the Effective Time of the Merger,
of the shares of X-Cardia Common Stock exchanged for Urohealth Shares in the
Merger.
d. I understand that a breach by
me of the foregoing representations could cause adverse tax consequences to
X-Cardia and/or to Urohealth and its subsidiaries and I agree to indemnify and
hold harmless on an after-tax basis Urohealth and its subsidiaries from and
against any liabilities, losses, costs and expenses, including additional taxes,
interest, penalties and additions to tax, relating solely to such a breach,
whether such are imposed on X-Cardia, imposed on Urohealth and its subsidiaries,
or are liabilities imposed on X-Cardia to which Urohealth and/or its
subsidiaries succeed in the Merger; provided, that in no event shall my
liability pursuant to this subparagraph (d) exceed the amount of the proceeds
received by me in the Merger in my capacity as a X-Cardia Shareholder, and my
obligations hereunder are several, and not joint, with the obligations of other
X-Cardia Shareholders.
6. I understand that, except as provided in paragraph 7
below, Urohealth is under no obligation to register the sale, transfer or other
disposition of the shares of Urohealth Common Stock that I will receive in
connection with the Merger or owned by me or on my behalf or to take any other
action necessary in order to obtain compliance with an exemption from
registration that may be available.
7. I understand that, in connection with the Merger and
pursuant to the terms of this Representation Letter (this "Representation
Letter"), I have been granted certain rights by Urohealth with respect to the
registration of the shares of Urohealth Common Stock which I will receive in
connection with the Merger, which rights are as follows;
(a) Registration-on form S-3. Urohealth shall file
with the Commission, no later than 30 days after the Effective Time of the
Merger, a registration statement on Form S-3 covering the sale from time to time
of all shares of Urohealth Common Stock received by me pursuant to the Agreement
(the "Registrable Securities"), and shall use its best efforts to cause such
registration statement to become effective as soon as possible thereafter.
Notwithstanding the foregoing, I agree not to distribute or sell Urohealth
Shares pursuant to such registration statement during the 30 days prior to, and
for up to 90 days after, any public equity offering by Urohealth and to not
dispose of any of the Urohealth Shares prior to March 15, 1997.
(b) Registration Procedures. In the case of a
registration effected by Urohealth pursuant to this ▇▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇▇▇ will
keep me advised in writing as to the initiation of such registration and as to
the completion thereof, at its expense, Urohealth will use its best efforts to:
(i) Keep such registration effective for the
shorter of (A) the period ending on the date two (2) years from the Closing
Date, (B) until such time as the Registrable Securities which I still own may be
sold pursuant to Rule 144, and (C) until I have completed the distribution of
all of
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the Registrable Securities, whichever first occurs. While such registration
statement is effective, Urohealth shall also use its best efforts to register
or qualify the securities covered thereby in such states as I shall reasonably
designate. After the registration ceases to be effective, Urohealth will use
its best efforts to cause Rule 144 to be available for the sale of my remaining
Urohealth Common Stock;
(ii) Prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement;
(iii) Furnish such number of prospectuses and
other documents incident thereto, including any amendment of or supplement to
the Prospectus, as I from time to time may reasonably request;
(iv) Cause all such Registrable Securities
registered hereunder to be listed on each securities exchange on which similar
securities issued by Urohealth are then listed;
(v) Provide a transfer agent and registrar
for all Registrable Securities registered pursuant to such registration
statement and CUSIP number for all such Registrable Securities, in each case not
later than the effective date of such registration;
(vi) Promptly notify me at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of material fact or
omits any fact necessary to make the statements therein not misleading, and, at
my request, Urohealth will promptly prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to State any fact necessary to make the statements
therein not misleading;
(vii) Make available for inspection by any
underwriter participating in any disposition of RegistrableSecurities pursuant
to such registration Statement and any attorney or accountant representing any
such underwriter or any holder of Registrable Securities, all financial and
other records, pertinent corporate documents and properties of Urohealth, and
cause Urohealth's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such underwriter, attorney or
accountant in connection with such registration statement; provided that
Urohealth may, as a prerequisite for such inspection or the supplying of such
information, take such action and require such written assurances as it may
reasonably deemed necessary in attempting to ensure compliance with laws and
regulations it reasonably deems applicable.
(viii) Permit me, in my sole and exclusive
judgment to participate in the preparation of such registration statements and
to propose the insertion therein of information furnished to Urohealth in
writing, which in the reasonable judgment of me and my counsel, and Urohealth
and its counsel, should be included;
(ix) In the event of the issuance of any
stop order suspending the effectiveness of a registration statement, or of any
order suspending or preventing the use of any related prospectus or suspending
the qualification of any common stock included in such registration statement
from sale in any jurisdiction, use its best efforts promptly to obtain the
withdrawal of such order; and
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(x) At my request, furnish on the
effective date of such registration statement, an opinion, dated such date, of
the counsel representing Urohealth for the purpose of such registration,
addressed to me, in which opinion such counsel shall state that: (i) such
registration became effective under the Securities Act, and (ii) to such
counsel's knowledge, no stop order suspending the effectiveness thereof has been
issued, no proceedings for that purpose have been instituted or are pending or
contemplated under the Act.
(c) Registration Expenses. Urohealth shall bear all
reasonable costs and expenses incurred with any registration pursuant to
paragraph (a) or (b) above, except that I will pay for the fees and expenses of
my counsel and my pro rata portion of the discounts, commissions or other
compensation to underwriters which I elect to use and any applicable transfer
taxes.
8. Indemnification.
(a) Urohealth agrees to indemnify, and hold harmless,
me, my employees and agents and any person who may control me (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses caused by (i) any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus, any amendment thereof or supplement thereto, or any documents
incorporated by reference therein, or (ii) any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading except insofar as the same are (x) caused by
or contained in any information furnished in writing to Urohealth by me
expressly for use therein, or (y) caused by my failure to deliver a copy of the
most current registration statement or prospectus or any amendments or
supplements thereto. In connection with an underwritten offering, Urohealth
will indemnify such underwriters, their officers, directors, employees and
agents, and each person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to my
indemnification.
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(b) In connection with any registration statement
pursuant to which I am selling Registrable Securities, I will furnish to
Urohealth in writing such information as Urohealth reasonably requests for use
in connection with any such registration statement or prospectus and, to the
extent permitted by law, will indemnify Urohealth, its directors, officers,
employees and agents, and each person who controls Urohealth (within the meaning
of the Securities Act), against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of material fact
contained in such registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto, or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission was made in reliance upon and in conformity with any
information so furnished in writing expressly for use therein by me.
(c) Any person entitled to indemnification hereunder
will (i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, pen-nit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this
Representation Letter will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director, employee or agent or controlling person of such indemnified party and
will survive the transfer of the Registrable Securities,
(e) If the indemnification provided for under this
Representation Letter is unavailable to an indemnified party under paragraph 8
hereof (other than by reason of exceptions provided in such paragraph), then
each applicable indemnifying party in lieu of indemnifying such indemnified
party shall contribute to the amount paid or payable by such indemnified party,
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party and indemnified parties in connection with the actions,
statements or omissions, as well as any other relevant equitable considerations.
The relative fault of such indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether any action in question,
including any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission of a material fact, has been taken or made by, or
relates to information supplied by, such indemnifying party or indemnified
party, and the parties relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The
amount paid or payable by a party shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
action, suit, claim, investigation or proceeding.
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The parties hereto agree that it would not be just and equitable
if contribution pursuant to this subparagraph were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this subparagraph, I shall not be required to
contribute any amount in excess of the consideration received for the shares of
Urohealth Common Stock sold by me. No person guilty of fraudulent
misrepresentation (within the meaning of Section I I (f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
9. [to apply to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇▇▇ N4cHenry only] The parties acknowledge that X-Cardia is currently
involved in the development of the technology and products for the measurement
of cardiac output with current intentions to manufacture and market such product
and products based thereon (collectively, the "Business"). I understand that a
material inducement for Urohealth entering into the Merger Agreement was its
receiving from certain of the X-Cardia Shareholders a covenant not to compete
with the Business. I agree for a period of three years (or five years, if
Urohealth enters into a five year consulting agreement with me prior to the
Closing Date) after the Effective Time of the Merger not to engage directly, or
indirectly (either as a proprietor, partner, stockholder, agent, consultant,
trustee, affiliate or otherwise) in the Business in the United States of
America. Nothing in the foregoing covenant not to compete, shall imply that I
have, under any circumstances, any right to use the rights, technology, know how
or confidential information of X-Cardia transferred to Urohealth in the Merger.
10. I understand that Urohealth and its officers and
directors will rely upon the representations made by me in this letter, and I
agree to indemnify each of them and hold them harmless with respect to any
damages, losses or expenses (including attorneys' fees) incurred by them as a
result of the inaccuracy of any representation or the breach of any agreement
contained herein.
11. I have full power and capacity to execute this
Representation Letter and to make the representations, warranties and agreements
herein. This Representation Letter shall be binding upon and enforceable
against, and inure to the benefit of, all of my administrators, executors,
representatives, heirs and successors and any pledge holding shares of Urohealth
Common Stock.
I have carefully read this letter and discussed its requirements
and other applicable limitations upon the sale, transfer or other disposition of
the shares of Urohealth Common Stock to be acquired by me in connection with the
Merger, to the extent I felt necessary, with my counsel or counsel for X-Cardia.
Very truly yours,
[Name of X-Cardia ▇▇▇▇▇▇▇▇▇▇▇]
▇▇
▇▇
Accepted and agreed to this
_____ day of _____________, 1997
UROHEALTH SYSTEMS, INC.
By:
------------------------------
Name:
Title:
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