<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Ammendment No. 1 to Application or report Filed
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report: July 1, 1996
UROHEALTH SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation)
1-11150 98-0122944
(Commission (IRS Employer
file number) Identification Number)
5 CIVIC PLAZA, SUITE 100
NEWPORT BEACH, CALIFORNIA
92660
(Address of principal executive offices) (Zip code)
(714) 668-5858
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
ACQUISITION OF CERTAIN ASSETS OF OR CONCEPTS, INC.
On June 5, 1996, Urohealth Systems, Inc. ("Urohealth") acquired certain assets
of O.R. Concepts, Inc. pursuant to an Asset Purchase Agreement dated June 5,
1996 among Urohealth, O.R. Concepts, Inc., a Texas Corporation, and Vital Signs,
Inc., a New Jersey Corporation. The acquired assets are used in the development,
manufacture, and marketing of laparoscopic surgery products and accessories.
The purchase price for the acquired assets was $2,786,000, payable in cash upon
the closing of the transaction. The purchase price was funded using a portion of
the proceeds from the sale of Urohealth's 8.75% Convertible Subordinated
Debentures issued May 13, 1996.
ACQUISITION OF THE INTERMED GROUP, INC.
On July 1, 1996, Urohealth acquired The Intermed Group, Inc., a Delaware
Corporation ("Intermed"), pursuant to the terms of the Agreement and Plan of
Merger dated as of June 1, 1996 between Urohealth, Urohealth, Inc. (California),
and Intermed. Intermed is engaged in the development, manufacture, and marketing
of disposable medical products.
Under the terms of the agreement, Intermed was merged into Urohealth, Inc.
(California), and each outstanding share of common stock of Intermed was
converted into the right to receive .1242575 shares of Urohealth Common Stock,
plus cash in the amount of $1.21. Upon consummation of the merger, approximately
149,306 shares of Urohealth Common Stock were issued and cash of $1,462,412 was
paid in exchange for all of the outstanding shares of Intermed common stock. The
cash portion of the purchase price was funded using a portion of the proceeds
from the sale of Urohealth's 8.75% Convertible Subordinated Debentures issued
May 13, 1996.
ACQUISITION OF RICHARD-ALLAN MEDICAL INDUSTRIES, INC.
Urohealth Systems, Inc. ("Urohealth") entered into an Agreement and Plan of
Merger with Richard-Allan Medical Industries, Inc.("Richard-Allan"), an Illinois
corporation. Completion of the merger is probable pending funding of a $35
million bank credit facility to finance the cash portion of the purchase price.
The purchase price totalling $55.5 million consists of $27.5 million in cash
payable at closing, $27.5 million of Urohealth common stock valued at $13.1914
per share and approximately $500,000 in direct acquisition costs. In addition,
the Company will acquire the real estate on which the Richard-Allan facility is
located from a partnership for $4.5 million, consisting of a cash payment of
$1.5 million and a note for the balance of the purchase price. Richard-Allan
manufactures and markets surgical operating room supplies.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Financial statements of Richard-Allan for the years ended
June 30, 1995, 1994 and 1993, together with Reports of
Independent Accountants
(b) Pro Forma Financial Information
Unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 1996
Unaudited Pro Forma Condensed Combined Statement of
Operations
for the nine months ended March 31, 1996
Notes to Unaudited Pro Forma Condensed Combined
Consolidated Financial Statements
(c) Exhibits
The following exhibits are filed as a part of this report:
Exhibit
Number Description
- ---------- -------------------------------------------------------------------
2.1* Asset Purchase Agreement dated June 5, 1996, by and between
Urohealth Systems, Inc., O.R. Concepts, Inc., and Vital Signs, Inc.
2.2* Agreement and Plan of Merger dated as of June 1, 1996 between
Urohealth Systems, Inc., Urohealth, Inc. (California), and The
Intermed Group Inc.
2.3 Agreement and Plan of Merger dated as of July 5, 1996 between
Urohealth Systems, Inc., Urohealth, Inc. (California), and
Richard-Allan Medical Industries, Inc..
* Filed previously
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UROHEALTH SYSTEMS, INC.
(Registrant)
August 9, 1996 By /s/ Charles A. Laverty
- ------------------- --------------------------
Date Charles A. Laverty
Chief Executive Officer
4
<PAGE> 5
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
Board of Directors
Richard-Allan Medical Industries, Inc.
We have audited the accompanying consolidated balance sheets of Richard-Allan
Medical Industries, Inc. and Subsidiary as of June 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Richard-Allan
Medical Industries, Inc. and Subsidiary at June 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
\s\ Ernst & Young LLP
---------------------
January 10, 1996, except Note F, as to
which the date is May 1, 1996, and Note
K, as to which the date is July 5, 1996
<PAGE> 6
[BDO SELDMAN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Richard-Allan Medical Industries, Inc.
Richland, Michigan
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flow of Richard-Allan Medical Industries, Inc.
for the year ended June 30, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of its operations
and its cash flows for the year ended June 30, 1993, in conformity with
generally accepted accounting principles.
/s/ BDO Seldman, LLP
Certified Public Accountants
August 23, 1993,
except for Note B,
as to which the date is August 8, 1996
<PAGE> 7
Richard-Allan Medical Industries, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30
1995 1994
-----------------------------
<S> <C> <C>
ASSETS (NOTE F)
Current assets:
Cash and cash equivalents $ 3,002,661 $ 83,399
Accounts receivable, less allowance for doubtful accounts
of $8,000 2,992,947 2,706,357
Stock subscription receivable (Note C) -- 660,000
Refundable income taxes -- 7,184
Inventories (Note D) 1,721,966 1,377,197
Prepaid expenses 130,603 87,050
Current assets of discontinued operations (Note B) 168,404 1,387,947
----------- -----------
Total current assets 8,016,581 6,309,134
Property and equipment:
Land 86,391 86,391
Building 67,315 65,162
Machinery and equipment 5,779,181 5,595,632
Furniture and fixtures 1,112,445 956,008
Property under capital lease (Note E) 508,798 508,798
Leasehold improvements 328,777 302,508
Computer software 319,409 308,079
Automotive 90,660 90,551
----------- -----------
8,292,976 7,913,129
Less accumulated depreciation and amortization 4,034,276 3,710,952
----------- -----------
4,258,700 4,202,177
Fixed assets of discontinued operations - net (Note B) -- 226,235
Other assets 26,735 4,579
----------- -----------
$12,302,016 $10,742,125
=========== ===========
</TABLE>
8
<PAGE> 8
<TABLE>
<CAPTION>
JUNE 30
1995 1994
-------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks issued against future deposits $ -- $ 445,000
Accounts payable 3,182,358 1,576,821
Compensation and commissions 577,504 654,450
Income taxes payable 2,100,000 --
Other current liabilities 548,660 103,325
Current liabilities of discontinued operations (Note B) -- 963,241
Current maturities of long-term debt 135,716 620,907
============ ============
Total current liabilities 6,544,238 4,363,744
Long-term debt, less current maturities (Note F) 2,157,157 6,302,009
Commitments and Contingencies (Notes E and J)
Stockholders' equity (Note F):
Preferred stock $5 par value:
authorized--150,000 shares
issued--9,634 shares (1994--11,734) 48,170 58,670
Common stock $1 par value:
authorized--50,000 shares
issued--4,660 shares (1994--5,808) 4,660 5,808
Paid-in capital 998,867
Common stock subscriptions (Note C) 660,000
Retained earnings (deficit) 3,604,837 (1,563,137)
Treasury stock, at cost:
9,634 shares preferred stock and
128 shares common stock
(1994--11,734 and 143, respectively) (80,184) (97,641)
Foreign currency translation adjustments 23,138 13,805
------------ ------------
Total stockholders' equity 3,600,621 76,372
============ ============
$ 12,302,016 $ 10,742,125
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 9
Richard-Allan Medical Industries, Inc. and Subsidiary
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
------------------------------------------------
<S> <C> <C> <C>
Net sales $19,597,872 $16,851,666 $13,177,527
Cost of sales 11,514,905 9,566,117 6,708,783
------------------------------------------------
Gross profit 8,082,967 7,285,549 6,468,744
Operating expenses (income):
Selling, general and administrative (Note J): 12,756,165 8,953,156 7,064,252
Research and development 1,694,393 2,421,155 2,382,958
Distribution fees - (28,750) (1,040,000)
Loss on disposition of property 340,289 112,411 28,640
Interest income (38,976) (16,385) (23,847)
Interest expense 794,149 602,295 336,251
Other 40,520 51,454 (84,653)
------------------------------------------------
15,586,540 12,095,336 8,663,601
------------------------------------------------
Loss from continuing operations before
income taxes (7,503,573) (4,809,787) (2,194,857)
Income taxes (credits) (Note I) (3,265,674) (742,337) (745,000)
------------------------------------------------
Loss from continuing operations (4,237,899) (4,067,450) (1,449,857)
Discontinued operations (Note B):
Income from operations, less applicable income taxes
of $524,000 (1994--$734,000;
1993--$754,000) 1,008,008 1,427,192 1,465,428
Gain on sale, less applicable income taxes
of $4,845,000 9,404,807 - -
------------------------------------------------
10,412,815 1,427,192 1,465,428
================================================
Net income (loss) $ 6,174,916 $(2,640,258) $ 15,571
================================================
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 10
Richard-Allan Medical Industries, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON RETAINED
PREFERRED COMMON PAID-IN STOCK EARNINGS
STOCK STOCK CAPITAL SUBSCRIPTIONS (DEFICIT)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of July 1, 1992 $ 79,670 $ 4,705 $ - $ - $ 1,075,434
Net income - - - - 15,571
Retirement of pledged treasury stock (10,500) (15) - - (6,942)
Foreign currency translation adjustments - - - - -
---------------------------------------------------------------
Balance as of June 30, 1993 69,170 4,690 - - 1,084,063
Net loss - - - - (2,640,258)
Issuance of 1,133 shares of common stock - 1,133 998,867 - -
Retirement of pledged treasury stock (10,500) (15) - - (6,942)
Common stock subscription by officer (Note C) - - - 660,000 -
Foreign currency translation adjustments - - - - -
---------------------------------------------------------------
Balance as of June 30, 1994 58,670 5,808 998,867 660,000 (1,563,137)
Net income - - - - 6,174,916
Issuance of 221 shares of common stock - 221 999,779 (660,000) -
Purchase of 1,354 shares of common stock - (1,354) (1,998,646) - (1,000,000)
Retirement of pledged treasury stock (10,500) (15) - - (6,942)
Foreign currency translation adjustments - - - - -
---------------------------------------------------------------
Balance as of June 30, 1995 $ 48,170 $ 4,660 $ - $ - $ 3,604,837
===============================================================
</TABLE>
<TABLE>
<CAPTION>
FOREIGN
CURRENCY TOTAL
TREASURY TRANSLATION STOCKHOLDERS'
STOCK ADJUSTMENTS EQUITY
---------------------------------------
<S> <C> <C> <C>
Balance as of July 1, 1992 $(132,555) $187,632 $1,214,886
Net income - - 15,571
Retirement of pledged treasury stock 17,457 - -
Foreign currency translation adjustments - (203,756) (203,756)
-------------------------------------
Balance as of June 30, 1993 (115,098) (16,124) 1,026,701
Net loss - - (2,640,258)
Issuance of 1,133 shares of common stock - - 1,000,000
Retirement of pledged treasury stock 17,457 - -
Common stock subscription by officer (Note C) - - 660,000
Foreign currency translation adjustments - 29,929 29,929
-------------------------------------
Balance as of June 30, 1994 (97,641) 13,805 76,372
Net income - - 6,174,916
Issuance of 221 shares of common stock - - 340,000
Purchase of 1,354 shares of common stock - - (3,000,000)
Retirement of pledged treasury stock 17,457 - -
Foreign currency translation adjustments - 9,333 9,333
-------------------------------------
Balance as of June 30, 1995 $ (80,184) $ 23,138 $ 3,600,621
=====================================
</TABLE>
( ) Denotes deduction.
See accompanying notes to consolidated financial statements.
11
<PAGE> 11
Richard-Allan Medical Industries, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 6,174,916 $(2,640,258) $ 15,571
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 809,698 491,842 409,209
Gain on sale of discontinued operations (14,249,807) - -
Provision for losses on accounts receivable - - 2,866
Loss on disposition of property 340,289 112,411 28,640
Changes in operating assets and liabilities:
Receivables 579,552 (281,404) (1,103,393)
Income taxes 2,107,184 (4,684)
Inventories (430,261) (284,630) (238,985)
Other operating assets (18,836) 202 (56,370)
Accounts payable and other
operating liabilities 565,685 453,252 1,192,058
-----------------------------------------------
Net cash provided by (used in) operating activities (4,121,580) (2,148,585) 244,912
INVESTING ACTIVITIES
Capital expenditures (1,045,311) (1,638,494) (1,152,484)
Proceeds from sale of discontinued operations, net
of expenses 14,745,502 - -
-----------------------------------------------
Net cash provided by (used in) investing activities 13,700,191 (1,638,494) (1,152,484)
FINANCING ACTIVITIES
Principal payments under capital lease obligations (75,403) (61,585) (45,497)
Principal payments under long-term debt (4,025,003) (118,118) (17,688)
Net borrowings (repayment) under revolving
line-of-credit agreement (3,631,845) 1,131,845 620,000
Proceeds from issuance of long-term debt 3,102,208 2,360,000 200,000
Proceeds from issuance of common stock 1,000,000 1,000,000 -
Repurchase of common stock (3,000,000) (513,235) (247,275)
-----------------------------------------------
Net cash provided by (used in) financing activities (6,630,043) 3,798,907 509,540
Effect of exchange rate changes on cash and
cash equivalents (29,306) 52,288 (4,129)
-----------------------------------------------
Increase (decrease) in cash and cash equivalents 2,919,262 64,116 (402,161)
Cash and cash equivalents at beginning of year 83,399 19,283 421,444
-----------------------------------------------
Cash and cash equivalents at end of year $ 3,002,661 $ 83,399 $ 19,283
===============================================
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 12
Richard-Allan Medical Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1995
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Richard-Allan Medical Industries, Inc. and Subsidiary (the Company) manufactures
and markets surgical operating room supplies. The Company markets these products
both domestically and abroad through the use of a direct sales force and foreign
distributors. A division that manufactures and markets diagnostic reagents used
primarily in hospital laboratories was sold in 1995 (see Note B).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Richard-Allan Medical Industries (U.K.) Ltd.
(subsidiary). All material intercompany balances and transactions are
eliminated.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all liquid investments with a maturity of three months or
less when purchased to be cash equivalents.
13
<PAGE> 13
Richard-Allan Medical Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial statements of the subsidiary have been translated into U.S.
dollars in accordance with FASB Statement No. 52, Foreign Currency Translation.
All balance sheet accounts have been translated using the exchange rates in
effect at the balance sheet date, and operations statement accounts have been
translated using the average exchange rates for the year. The gains and losses
resulting from the changes in exchange rates from year to year have been
reported as a separate component of stockholders' equity.
The effect of transaction gains and losses on the statements of operations is
insignificant for all years presented.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by the
last-in, first-out (LIFO) method for U.S. inventories which approximate 92% and
88% of total inventories at June 30, 1995 and 1994, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets.
INCOME TAXES
Deferred income taxes are provided on the difference in earnings determined for
tax and financial reporting purposes. Deferred income taxes have been calculated
under the liability method in accordance with FASB Statement No. 109, Accounting
for Income Taxes.
Income taxes have not been provided on the undistributed earnings of
Richard-Allan Medical Industries (U.K.) Ltd. as it is the Company's intention to
indefinitely reinvest such earnings in the subsidiary's operations and not to
transfer them in the form of a taxable transaction.
14
<PAGE> 14
Richard-Allan Medical Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are charged against income as incurred.
REVENUE RECOGNITION
Revenue from sales of manufactured products is recognized upon shipment to
customers (see Note H).
ADVERTISING EXPENSE
Advertising and promotion costs are expensed as incurred.
RECLASSIFICATIONS
Certain amounts for 1994 and 1993 have been reclassified to conform with the
1995 presentation.
NOTE B--DISCONTINUED OPERATIONS
In May 1995, the Company sold the assets and operations of its laboratory
products division. The proceeds from the sale, net of expenses, were
approximately $14.7 million. The 1995 consolidated statement of operations
excludes sales and expenses of the laboratory products division from continuing
operations, and prior years' results have been restated to conform with this
presentation. Net sales of the laboratory products division totaled $7,829,000
from July 1994 through May 1995, $9,014,000 for the year ended June 30, 1994 and
$8,921,000 for the year ended June 30, 1993. The assets and liabilities of the
laboratory products division have been segregated in the consolidated balance
sheets as of June 30, 1995 and 1994.
15
<PAGE> 15
Richard-Allan Medical Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
NOTE C--STOCK SUBSCRIPTION RECEIVABLE
The stock subscription receivable represents a commitment by a stockholder
during fiscal 1994 to purchase common stock in an amount sufficient to maintain
compliance with debt covenants. The amount of the stock purchase was determined
after June 30, 1994 based on financial statement amounts, and the stock purchase
occurred on August 30, 1994. Accordingly, the purchase is recorded as a current
stock subscription receivable in the June 30, 1994 balance sheet, with a related
increase in stockholders' equity, and is a noncash financing activity for
purposes of the 1994 consolidated statement of cash flows.
NOTE D--INVENTORIES
Inventories from continuing operations are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30
1995 1994
----------------------------
<S> <C> <C>
Raw materials and work in process $ 694,714 $ 612,366
Finished goods 1,027,252 764,831
----------------------------
$1,721,966 $1,377,197
============================
</TABLE>
If the first-in, first-out method of valuation had been used for all inventories
by the Company, inventories would have been approximately $237,000 and $189,000
higher than reported at June 30, 1995 and 1994, respectively.
16
<PAGE> 16
Richard-Allan Medical Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
NOTE E--LEASES
The Company leases certain land, manufacturing and office facilities and
equipment under noncancelable leases. As of June 30, 1995, future net minimum
lease payments under the capital leases and future minimum rental payments
required under operating leases that have initial or remaining noncancelable
terms in excess of one year were as follows:
<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR CAPITAL LEASES LEASES
--------------------------------------------------------------------------
<S> <C> <C>
1996 $ 83,000 $19,000
1997 32,000 10,000
1998 - 7,000
1999 - 1,000
------------------------
Total minimum lease payments 115,000 $37,000
=======
Less amount representing interest 16,000
---------
Present value of net minimum lease payments $ 99,000
=========
</TABLE>
The Company pays property taxes, insurance and maintenance expenses for the
building and land, which are leased from Newhauser Associates, a related party.
Future minimum lease payments are subject to annual adjustments based on cost of
living indices. Additional lease payments resulting from such adjustments
totaled approximately $93,000 in 1995, $91,000 in 1994 and $85,000 in 1993.
Total lease expense was approximately $254,000, $299,000 and $250,000 in 1995,
1994 and 1993, respectively.
17
<PAGE> 17
Richard-Allan Medical Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
NOTE F--LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
JUNE 30
1995 1994
----------------------------
<S> <C> <C>
Notes payable to bank:
Revolving credit agreement $1,678,891 $3,631,845
Term loans - 1,204,000
Subordinated 12% unsecured note payable to the
estate of a former stockholder for redemption of
stock, maturing in annual installments of $41,963
through July 1997 83,925 125,889
Subordinated unsecured stockholder notes, including
interest payable monthly at rates ranging from prime
plus 3% to 200% of the prime rate - 1,340,000
12% and 10% unsecured notes payable, maturing at
various dates through July 2000 351,600 346,600
Non-interest-bearing note (discounted to present value
at a rate of 10%), secured by pledged shares of
treasury stock held in escrow to a former
stockholder for redemption of stock, maturing in
monthly installments varying from $3,000 to $3,500
through October 1, 1999 79,344 100,066
Present value of lease payments under capitalized
leases (see Note E) 99,113 174,516
----------------------------
2,292,873 6,922,916
Less current maturities 135,716 620,907
----------------------------
Total long-term debt $2,157,157 $6,302,009
============================
</TABLE>
18
<PAGE> 18
Richard-Allan Medical Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
NOTE F--LONG-TERM DEBT (CONTINUED)
Effective May 1, 1996, the Company renegotiated the terms of its bank financing
agreement. Under the terms of the amended agreement, the Company has a $3.1
million revolving line of credit, with interest payable monthly at the bank's
prime rate (9% at June 30, 1995) plus 1.5%. Approximately $1.4 million of
additional borrowings were available under the line at June 30, 1995, subject to
an asset-based lending formula.
All borrowings under the amended bank financing agreement are required to be
paid in full on September 1, 1996, and the bank has stated its intention to call
the debt on that date. This arrangement provides a grace period for the Company
to achieve compliance with certain financial covenants included in the agreement
by that date. The Company is currently in violation of financial covenants
related to, among others, minimum working capital requirements. The bank
financing agreement also restricts the payment of any dividends, other than
dividends payable in Company-owned stock, on any shares of its capital stock.
The bank borrowings are collateralized by substantially all assets of the
Company, a personal guarantee of and life insurance policy on the principal
stockholder, a $1 million guarantee by a former officer and stockholder of the
Company, and a co-guarantee by Newhauser Associates. The Company is a
co-guarantor of a $1.4 million bank construction loan held by Newhauser
Associates that also expires on September 1, 1996.
Required principal payments on borrowings for the four years following 1996 are
$1,946,392 in 1997, $59,795 in 1998, $18,192 in 1999 and $132,778 in 2000.
Interest paid totaled $792,000 in 1995, $608,000 in 1994 and $298,000 in 1993.
NOTE G--EMPLOYEE BENEFIT PLAN
The Company has a qualified profit-sharing plan covering employees with more
than one year of service, who may elect to defer up to 15% of their
compensation. The Company contributes 35% of the participant's deferred salary
to the plan, up to 6% of compensation, and makes additional contributions to the
plan at its discretion. The amount of Company contributions to the plan was
approximately $88,000 in 1995, $16,500 in 1994 and $31,800 in 1993.
19
<PAGE> 19
Richard-Allan Medical Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
NOTE H--DISTRIBUTION AGREEMENTS
Certain international sales of the Company are transacted under the terms of
international distribution agreements with foreign companies which the Company
entered into in 1992, 1993 and 1994. The agreements appoint the distributor to
sell and service all existing and future product lines of the Company in a
particular territory. In exchange for these exclusive distribution rights, which
range from six to twenty years, and for initial services provided by the Company
for the distributor at the time the agreements were entered into, the
distributors paid fees to the Company totaling $28,800 in 1994, $1,040,000 in
1993 and $688,000 in 1992, and agreed to market no competing products in the
territory during the term of the agreement.
NOTE I--INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30
1995 1994
---------------------------
<S> <C> <C>
Deferred tax assets:
Accruals $ 358,000 $ 124,000
Book over tax depreciation 61,000 62,000
Inventory capitalization for tax purposes 51,000 51,000
Net operating loss carryforwards - 938,000
Research and development credit carryforwards - 228,000
Other 15,000 49,000
---------------------------
$ 485,000 $ 1,452,000
===========================
Valuation allowance for deferred tax assets $(485,000) $(1,452,000)
===========================
</TABLE>
The Company had no deferred income tax liabilities at June 30, 1995 or 1994.
20
<PAGE> 20
Richard-Allan Medical Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
NOTE I--INCOME TAXES (CONTINUED)
Significant components of the income tax provision (credit) from continuing
operations are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
Current:
Federal $(3,265,674) $(734,000) $(754,000)
State - - -
Foreign - (8,337) 9,000
-----------------------------------------
$(3,265,674) $(742,337) $(745,000)
=========================================
Deferred:
Federal $ - $ - $ -
State - - -
Foreign - - -
-----------------------------------------
$ - $ - $ -
=========================================
</TABLE>
The income tax provision (credit) from continuing operations at the Company's
effective tax rate differed from the income tax provision (credit) from
continuing operations at the statutory rate, as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
Tax provision (credit) at the expected federal
statutory rate $(2,551,215) $(1,635,328) $(746,251)
Add (deduct):
Valuation allowance (855,252) 900,522 -
Other 140,793 (7,531) 1,251
=========================================
Tax provision (credit) $(3,265,674) $ (742,337) $(745,000)
=========================================
</TABLE>
In 1995, the Company utilized approximately $938,000 and $228,000 of net
operating loss tax benefit and research and development credit carryforwards,
respectively.
21
<PAGE> 21
Richard-Allan Medical Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
NOTE I--INCOME TAXES (CONTINUED)
No cash was paid for purposes of federal income taxes during the years ended
June 30, 1995 and 1994. Total income taxes paid were $14,000 in 1993.
NOTE J--CONTINGENCY
The Company is subject to lawsuits and claims in the ordinary course of
business. Management believes that the ultimate resolution of such lawsuits and
claims should not have a material adverse effect on the Company's consolidated
financial position or results of operations. During fiscal 1995 the Company paid
approximately $2,000,000 in legal fees in successful defense of a patent
infringement suit initiated by a large surgical equipment manufacturer, which
has been included in selling, general and administrative expenses.
NOTE K--SUBSEQUENT EVENT
On July 5, 1996, the Company entered into a definitive agreement to be acquired
by Urohealth Systems, Inc. The sale is expected to be completed August 1, 1996,
at which time the Company is expected to become a wholly owned subsidiary of
Urohealth Systems, Inc.
Urohealth Systems, Inc. has made commitments to the Company to provide funding
for the Company's operations for a minimum of twelve months beginning on July 5,
1996.
NOTE L--SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
JUNE 30
1994 1993
-----------------------
<S> <C> <C>
Noncash investing and financing activities:
Stock subscription receivable $660,000 -
Fixed assets acquired through assumption of capital lease
obligations 52,666 $ 28,770
Other liabilities assumed in conjunction with tooling
acquisitions - 760,510
Long-term debt refinanced under
line-of-credit agreement - 880,000
</TABLE>
No noncash investing or financing activities occurred in 1995.
22
<PAGE> 22
Pro Forma Financial Information
Unaudited Pro Forma Condensed Combined Financial Statements
The following unaudited pro forma condensed combined financial
statements are presented assuming the merger of Urohealth Systems, Inc
("Urohealth" or the "Company") and Richard-Allan Medical Industries, Inc.
("Richard-Allan") has been completed pursuant to the terms of the Agreement and
Plan of Merger dated as of July 5, 1996. It is probable that this merger
transaction will be completed and accounted for as a purchase. The Company also
completed the acquisition of The Intermed Group ("Intermed") and certain assets
of OR Concepts, Inc. ("OR Concepts") on July 1, 1996 and June 5, 1996,
respectively, and were also accounted for as purchases. The pro forma condensed
combined balance sheet as of March 31, 1996 has been prepared as if the
acquisitions occurred on that date. The unaudited pro forma condensed combined
statements of operation have been prepared as if the acquisitions occurred on
July 1, 1995.
Additionally, the following unaudited pro forma condensed combined
balance sheet is presented assuming the Company's private placement of $50.0
million of convertible subordinated debentures and convertion of its convertible
note and redeemable convertible preferred stock, which occured on May 13, 1996,
had occurred on March 31, 1996.
The unaudited pro forma combined data are based on the separate
consolidated financial statements of Urohealth, Richard-Allan, Intermed and OR
Concepts giving effect to the transactions under the assumptions and adjustments
outlined in the accompanying Notes to the Unaudited Pro Forma Condensed Combined
Financial Statements . The pro forma adjustments are based upon available
information and upon certain assumptions that Urohealth management believes are
reasonable given the circumstances. The unaudited pro forma condensed combined
results of operations for the nine month fiscal period ended March 31, 1996
include the unaudited results of operations of Richard-Allan, Intermed and OR
Concepts for such period. The unaudited pro forma condensed combined financial
statements are provided for comparative purposes only and are not necessarily
indicative of the results that would have been obtained had the acquisitions
occurred on the dates indicated or that may be achieved in the future.
The Company anticipates significant costs to be incurred in connection
with the implementation of a plan of consolidation of the Richard-Allan and
Intermed operations. The expenses associated with the consolidation cannot
currently be estimated with a reasonable degree of accuracy. Therefore, these
expenses have not been reflected in the unaudited pro forma condensed combined
statements of operations as they will be recorded in a one-time charge within
three months of the consummation of the acquisitions.
The Company expects to realize cost savings and efficiencies from the
consolidation of the Richard-Allan and Intermed operations. The consolidations
include the elimination of duplicative corporate and administrative expenses and
the manufacture of previously purchased inventories. No assurance, however, can
be given regarding the aggregate amount or the timing of cost savings to be
achieved by the Company from the consolidation. Such cost savings have not been
reflected in the unaudited pro forma condensed combined statement of operations.
For the nine month fiscal period end March 31, 1996, presented in the
unaudited pro forma condensed combined statement of operations, shares used in
the computation of earnings per common share give effect to the applicable
exchange ratio. The unaudited pro forma condensed combined financial statements
and accompanying notes should be read in conjunction with the respective
historical audited consolidated financial statements of Urohealth contained in
its Transition Report on Form 10-K for the fiscal period ended March 31, 1996
and the audited consolidated financial statements of Richard-Allan contained in
this Current Report on Form 8-K/A Amendment No. 1.
23
<PAGE> 23
UROHEALTH SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Note and
Preferred Stock
OR Conversion
Concepts and Sale of
Richard and Subordinated Pro forma Total
Urohealth Allan Intermed Debentures Adjustments Pro forma
--------- ------- -------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current:
Cash and equivalents $ 1,185 $ 20 $(4,248) $31,960 (g) $ - $ 28,917
Accounts receivable, net 7,337 3,115 593 - - 11,045
Inventories 5,705 1,252 573 - 237 (c) 7,767
Prepaids and deposits 1,685 376 33 - - 2,094
Deferred debt issuance costs 614 - - (364)(g) - 250
--------- -------- ------- ------- -------- --------
Total current assets 16,526 4,763 (3,049) 31,596 237 50,073
Property and equipment, net 8,132 4,409 249 - 4,500 (b) 17,290
Patents, net 2,135 - - - - 2,135
Deposits and other assets 649 64 (399) 4,417 (g) - 4,731
Goodwill 393 - 6,881 - 52,380 (b) 59,417
(237)(c)
Investment in Richard-Allan - - - - 60,000 (a) -
(60,000)(b)
--------- -------- ------- ------- -------- --------
Total assets $ 27,835 $ 9,236 $ 3,682 $36,013 $ 56,880 $133,646
========= ======== ======= ======= ======== ========
Liabilities
Current:
Accounts payable and accrued expenses $ 9,455 $ 3,031 $ 888 - $ - $ 13,374
Accrued compensation 2,045 578 - - - 2,623
Restructuring accrual 1,345 - - - - 1,345
Revolving lines of credit 7,123 - - (7,123)(g) 11,500 (a) 11,500
Current portion of notes payable
and capital leases 286 160 620 - - 1,066
--------- -------- ------- ------- -------- --------
Total current liabilities 20,254 3,769 1,508 (7,123) 11,500 29,908
Long-term liabilities:
Notes payable 6,641 2,347 - (6,000)(g) 18,000 (a) 23,988
3,000 (a)
Capital leases 211 - - - - 211
Convertible note 1,284 - - (1,284)(h) - -
Other liabilities 185 - 125 - - 310
Restructuring, less current portion 823 - - - - 823
Minority interest 1,073 - - - - 1,073
Redeemable convertible preferred stock 3,554 - - (3,554)(h) - -
Convertible subordinated debentures - - - 50,000 (g) - 50,000
Common stockholders' equity:
Preferred stock - 38 - - (38)(b) -
Common stock 12 5 - 1 (h) 2 (a) 15
(5)(b)
Warrants 2,922 - - 1,250 (g) - 4,172
Additional paid-in capital 55,050 - 2,049 4,837 (h) 27,498 (a) 89,434
Treasury stock - (63) - - 63 (b) -
Retained earnings (deficit) (64,076) 3,118 - (2,114)(g) (3,118)(b) (66,190)
Foreign currency translation (98) 22 - - (22)(b) (98)
--------- -------- ------- ------- -------- --------
Total common stockholders' equity (6,190) 3,120 2,049 3,974 24,380 27,333
--------- -------- ------- ------- -------- --------
Total liabilities and stockholders' equity $ 27,835 $ 9,236 $ 3,682 $36,013 $ 56,880 $133,646
========= ======== ======= ======= ======== ========
</TABLE>
24
<PAGE> 24
UROHEALTH SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the nine months ended March 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
OR
Concepts
Richard and Pro forma Total
Urohealth Allan Intermed Adjustments Pro forma
-------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 39,641 $15,705 $4,225 $ - $ 59,571
Cost of sales 12,896 8,195 2,476 - 23,567
-------- ------- ------ ------- --------
Gross profit 26,745 7,510 1,749 - 36,004
Operating expenses
Selling, general and administrative 32,218 7,450 1,317 1,709 (e) 42,694
Research and development 1,324 765 3 - 2,092
Restructuring charges 5,456 - - - 5,456
Direct acquisition costs 4,232 - - - 4,232
-------- ------- ------ ------- --------
43,230 8,215 1,320 1,709 54,474
-------- ------- ------ ------- --------
Income (loss) from operations (16,485) (705) 429 (1,709) (18,470)
Other income (expense)
Minority interest (55) - - - (55)
Interest income 23 42 38 - 103
Interest expense (1,002) (183) (190) (2,229)(d) (3,604)
Other (48) (9) (9) - (66)
-------- ------- ------ ------- --------
Income (loss) before taxes (17,567) (855) 268 (3,938) (22,092)
Income tax expense (benefit) 431 (375) - - (f) 56
-------- ------- ------ ------- --------
Net income (loss) (17,998) (480) 268 (3,938) (22,148)
Dividends and accretion on redeemable
convertible preferred stock (579) - - - (579)
-------- ------- ------ ------- --------
Net income (loss) attributable to common stockholders $(18,577) $ (480) $ 268 $(3,938) $(22,727)
======== ======= ====== ======= ========
Net income (loss) per share
attributable to common stockholders $ (1.50) $(96.00) n/a $ (1.77) $ (1.56)
======== ======= ====== ======= ========
Weighted average number of shares 12,344 5 n/a 2,229 (i) 14,578
======== ======= ====== ======= ========
</TABLE>
25
<PAGE> 25
UROHEALTH Systems, Inc
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements
1. Acquisitions
ACQUISITION OF RICHARD-ALLAN MEDICAL INDUSTRIES, INC.
On July 5, 1996, Urohealth Systems, Inc. ("Urohealth") entered into an
agreement to acquire all of the outstanding capital stock of
Richard-Allan Medical Industries, Inc. ("Richard-Allan"), an Illinois
corporation, in exchange for $27.5 million in cash and 2,084,691 shares
of Urohealth common stock. Richard-Allan manufactures and markets
surgical operating room supplies. In addition, the Company agreed to
acquire the real estate on which the Richard-Allan facility is located
from a partnership for $1.5 million of cash and a $3.0 million note for
the balance of the purchase price. The acquisition was accounted for as
a purchase. The acquisition has been recorded based upon available
information and upon certain assumptions that the Company believes are
reasonable in the circumstances. The purchase price has been allocated
to the acquired assets and liabilities based on a preliminary
determination of their respective fair values.
The Company is continuing to evaluate the value of acquired incomplete
research and development. This evaluation is considering, among other
factors, the stage of development of each product, the time and
resources needed to complete each product, expected income and
associated risks (including the inherent difficulties and uncertainties
in developing and manufacturing new products and potential alternative
surgical procedures in future target markets). This analysis may result
in a one-time non-cash charge to earnings for incomplete research and
development related to the acquired company that does not have
alternative future use. No such charge has been recognized in the pro
forma financial information herein.
ACQUISITION OF THE INTERMED GROUP, INC.
On July 1, 1996, Urohealth acquired The Intermed Group, Inc., a
Delaware Corporation ("Intermed"), pursuant to the terms of the
Agreement and Plan of Merger dated as of June 1, 1996. Intermed is
engaged in the development, manufacture, and marketing of disposable
medical products.
Under the terms of the agreement, each outstanding share of common
stock of Intermed was converted into the right to receive .1242575
shares of Urohealth Common Stock, plus cash in the amount of $1.21.
Upon consummation of the merger, approximately 149,306 shares of
Urohealth common stock (with a fair value of $2.05 million) were issued
and cash of $1.46 million was paid in exchange for all of the
outstanding shares of Intermed common stock. Direct acquisition costs
incurred related to the transaction were $400,000. The cash portion of
the purchase price was funded using a portion of the proceeds from the
sale of Urohealth's 8.75% Convertible Subordinated Debentures issued
May 13, 1996. The purchase price has been allocated to the acquired
assets and liabilities based on a preliminary determination of their
respective fair values. It was determined that the acquired
identifiable tangible and intangible assets had a value of $1.18
million and assumed liabilities of $1.61 million.
ACQUISITION OF CERTAIN ASSETS OF OR CONCEPTS, INC.
On June 5, 1996, Urohealth acquired certain assets of O.R. Concepts,
Inc. pursuant to an Asset Purchase Agreement dated June 5, 1996 among
Urohealth, O.R. Concepts, Inc., a Texas Corporation, and Vital Signs,
Inc., a New Jersey Corporation. The acquired assets are used in the
development, manufacture, and marketing of laparoscopic surgery
products and accessories.
The purchase price for the acquired assets was $2,786,000, payable in
cash upon the closing of the transaction. The purchase price was funded
using a portion of the proceeds from the sale of Urohealth's 8.75%
Convertible Subordinated Debentures issued May 13, 1996. The purchase
price has been allocated
26
<PAGE> 26
1. Acquisitions (continued)
to the acquired assets and liabilities based on a preliminary
determination of their respective fair values. It was determined that
the acquired identifiable tangible and intangible assets had a value of
$273,000 and assumed liabilities of $20,000.
The historical amounts included in the accompanying pro forma condensed
financial statements as of March 31, 1996 and for the nine months then
ended reflect the financial position and results of operations of
Urohealth prior to the acquisition of Richard-Allan, Intermed Group,
Inc. or the assets of OR Concepts, Inc.
(a) The total purchase price of the Richard-Allan acquisition,
including direct acquisition costs and the cost of the related
real estate, of $60,000,000 was determined as follows:
<TABLE>
<S> <C>
Issuance of 2,084,691 shares of Urohealth Systems, Inc.
common stock at $13.1914 per share $27,500,000
Cash 29,000,000
Note payable 3,000,000
Direct acquisition costs 500,000
-----------
$60,000,000
===========
</TABLE>
The cash and direct acquisition cost portions of the purchase
price were financed with a new bank credit facility. The
credit facility consists of a $20 million term loan and a $15
million revolving line of credit.
(b) Allocation of the purchase price of $60,000,000 based on the fair
market value of assets acquired and liabilities assumed results
in the following:
<TABLE>
<S> <C>
Net assets at historical amounts $ 3,120,000
Land and building 4,500,000
Costs in excess of net assets acquired 52,380,000
-----------
$60,000,000
===========
</TABLE>
(c) To conform the cost basis used to record the carrying value of
inventory from LIFO to FIFO.
(d) Interest expense related to the new bank credit facility
incurred in connection with the acquisition at an estimated
composite interest rate of 8.75%.
(e) Amortization of costs in excess of book value of assets acquired
in the transaction. Costs in excess of net assets acquired is
amortized over 25 years.
(f) No income tax effect has been provided for the pro forma
adjustments since Urohealth's historical operations for the
period would not permit any additional income tax benefit to
be recognized.
27
<PAGE> 27
2. Sale of subordinated convertible debentures
(g) On May 13, 1996, the Company sold $50.0 million of 8.75%
convertible subordinated debentures in a private placement
with net proceeds of approximately $45.0 million, net of debt
issuance costs. The Company used $16.5 million of the proceeds
to repay amounts outstanding under a revolving line of credit
and a $6.0 million bank note. As of March 31, 1996,
approximately $13.1 million was outstanding under these
facilities. In connection with the $50.0 million private
placement, a break-up fee consisting of $500,000 in cash and
200,000 warrants, valued at $1,250,000, was paid to the holder
of the facilities. The break-up fee and unamortized deferred
loan costs related to the repaid line of credit and bank
totaling $2.1 million as of March 31, 1996 has been charged
against retained earnings.
3. Conversion of convertible note and convertible preferred stock
(h) Also on May 13, 1996, obligations under the convertible note
and redeemable convertible preferred stock, totaling
approximately $8.5 million, were exchanged for 1,414,827
shares of the Company's common stock. As of March 31, 1996,
approximately $4.8 million was outstanding under these
securities and would have been convertible into approximately
806,000 shares.
4. Per share calculations
(i) The aggregate weighted average common share amounts represent
the weighted average common shares of Urohealth plus shares
issued for Richard-Allan and Intermed. Common stock
equivalents have not been included in the calculation as they
are anti-dilutive.
28
<PAGE> 1
EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 5, 1996, by and
among UROHEALTH Systems, Inc., a Delaware corporation ("UROHEALTH"), UROHEALTH,
Inc. (California), a California corporation and wholly-owned subsidiary of
UROHEALTH ("UROHEALTH California"), and Richard-Allan Medical Industries, Inc.
("RA"), an Illinois corporation ("RA"). The parties hereto are sometimes
hereinafter referred to collectively as the "Companies." UROHEALTH and
UROHEALTH California are sometimes referred to collectively as the "Constituent
Corporations," or individually as a "Constituent Corporation."
WHEREAS, the respective Boards of Directors of the Companies
deem it advisable and in the best interests of their respective stockholders
that UROHEALTH acquire RA by the merger of RA with and into UROHEALTH
California 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) 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
----------
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, RA shall be merged with and into UROHEALTH California, with UROHEALTH
California being the surviving corporation in such Merger (the "Surviving
Corporation") and the separate existence of RA shall thereupon cease. The
Merger shall have the effects set forth in Section 1107 of the Corporations
Code of the State of California ("CCC"). The Surviving Corporation shall be a
wholly-owned subsidiary of UROHEALTH.
1.2 Effective Time of the Merger. The Merger shall
become effective upon the completion of the filing of properly executed
Agreement of Merger with the Secretary of State of the State of California and
properly executed Articles of Merger with the Secretary of State of the State
of Illinois, which filing shall be made on the Closing Date after satisfaction
of the conditions set forth in Article VIII. When used in this Agreement, the
term "Effective Time" with respect to the Merger shall mean the date and time
at which such Agreement of Merger and Articles of Merger are successfully
filed.
<PAGE> 2
ARTICLE II
UROHEALTH AND THE SURVIVING CORPORATION
---------------------------------------
2.1 Articles of Incorporation of the Surviving
Corporation. The Articles of Incorporation of UROHEALTH California shall be
the Articles of Incorporation of the Surviving Corporation of the Merger.
2.2 Bylaws of the Surviving Corporation. The Bylaws of
UROHEALTH California 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 California 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 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.
2.4 Employment/Severance Agreements. Prior to the
Effective Time, UROHEALTH and RA shall take or cause to be taken all necessary
action to cause UROHEALTH to enter into employment agreements, on terms and
conditions as outlined in Exhibit 2.4 hereto with Richard R. Newhauser and the
other management employees identified in Exhibit 2.4.
ARTICLE III
CONVERSION OF SHARES
--------------------
3.1 Exchange Ratio. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder thereof:
(a) Each share of common stock of RA ("RA Share")
issued and outstanding immediately prior to the Effective Time (other than the
Excluded Shares as defined in Section 3.6 and RA Shares held by UROHEALTH or
any subsidiary of UROHEALTH, if any), shall be converted at the Effective Time
into the right to receive (i) a cash amount equal to $27.5 million divided by
the number of RA Shares outstanding immediately prior to the Effective Time
other than the Excluded Shares, plus (ii) that number of shares of UROHEALTH
common stock ("UROHEALTH Shares") equal to $27.5 million divided by (A) the
Closing
2
<PAGE> 3
Market Value (as defined below) of UROHEALTH common stock multiplied by (B) the
number of RA Shares outstanding immediately prior to the Effective Time other
than the Excluded Shares, less (iii) amounts and shares distributed under the
Retention Plan (as described in Section 7.13) (the "Exchange Ratio"). "Closing
Market Value" shall mean the average of the closing prices of UROHEALTH common
stock as reported on the American Stock Exchange (or the Nasdaq National
Market, as applicable) for the 15 trading days preceding execution of this
Agreement and ending on the sixteenth trading day after the execution of this
Agreement.
(b) At the Effective Time, all RA Shares (other
than the Excluded Shares) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously representing any such RA Shares shall thereafter
represent the right to receive the cash and UROHEALTH Shares into which such RA
Shares have been converted. Certificates representing RA Shares shall be
exchanged for cash and 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 UROHEALTH or RA
should split or combine the UROHEALTH Shares or the RA Shares, or pay a stock
dividend or other stock distribution in UROHEALTH Shares or RA Shares, then the
Exchange Ratio will be appropriately adjusted to reflect such split,
combination, dividend or other distribution.
(c) Each RA Share held in the treasury of RA or
by any subsidiary of RA and each such RA Share held by UROHEALTH or any
subsidiary of UROHEALTH immediately prior to the Effective Time shall be
canceled and retired and cease to exist, and no UROHEALTH Shares shall be
issued in exchange therefor. All UROHEALTH Shares owned by RA or any
subsidiary shall become treasury stock of UROHEALTH.
3.2 Exchange of Shares.
(a) No later than the Effective Time, UROHEALTH
shall make available, and each holder of RA Shares (other than Excluded Shares)
will be entitled to receive, upon surrender to UROHEALTH of one or more
certificates representing such RA Shares for cancellation, cash in the amount
and certificates representing the number of UROHEALTH Shares into which such RA
Shares are converted in the Merger. The UROHEALTH Shares into which the RA
Shares shall be converted in the Merger shall be deemed to have been issued at
the Effective Time.
(b) Upon surrender of a certificate representing
RA Shares ("Certificate") for cancellation duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor cash and a
certificate representing that number of whole UROHEALTH Shares which such
holder has the right to receive in respect of the Certificates surrendered
pursuant to the provisions of this Article III, less 10% of such UROHEALTH
Shares (the "Indemnification Shares"), which shall be delivered to the Escrow
Agent for deposit in the Indemnification Escrow (as defined in Section 10.1(b)
hereof) and less the Retention Funds (as defined in Section 7.13).
3
<PAGE> 4
(c) In the event that any stock certificate
representing RA Shares shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such certificate to
be lost, stolen or destroyed, UROHEALTH will issue or cause to be issued in
exchange for such lost, stolen or destroyed certificate the number of UROHEALTH
Shares into which such RA Shares are converted in the Merger in accordance with
this Article III. When authorizing such issuance in exchange therefor, the
Board of Directors of UROHEALTH may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate to give UROHEALTH a bond in such sum as it may direct as
indemnity, or such other form of indemnity, as it shall direct, against any
claim that may be made against UROHEALTH with respect to the certificate
alleged to have been lost, stolen or destroyed.
3.3 Dividends; Transfer Taxes. No dividends that are
declared on UROHEALTH Shares will be paid to persons entitled to receive
certificates representing UROHEALTH Shares until such persons surrender their
certificates representing RA Shares. Upon such surrender, there shall be paid
to the person in whose name the certificates representing such UROHEALTH Shares
shall be issued any dividends which shall have become payable with respect to
such UROHEALTH Shares between the Effective Time and the time of such
surrender. In no event shall the person entitled to receive such dividends be
entitled to receive interest on such dividends. If any certificates for any
UROHEALTH Shares are to be issued in a name other than that in which the
certificate representing RA Shares surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the person requesting
such exchange shall pay to the Exchange Agent any transfer or other taxes
required by reason of the issuance of certificates for such UROHEALTH Shares in
a name other than that of the registered holder of the certificate surrendered,
or shall establish to the satisfaction of UROHEALTH that such tax has been paid
or is not applicable. Notwithstanding the foregoing, neither UROHEALTH nor any
other party hereto shall be liable to a holder of RA Shares for any cash
payment or UROHEALTH Shares or dividends thereon or, in accordance with Section
3.4, the cash payment for fractional interests, delivered to a public official
pursuant to applicable escheat laws.
3.4 No Fractional Securities. No certificates or scrip
representing fractional UROHEALTH Shares shall be issued upon the surrender for
exchange of certificates representing RA Shares pursuant to this Article III
and no dividend, stock split-up or other change in the capital structure of
UROHEALTH shall relate to any fractional security, and such fractional
interests shall not entitle the owner thereof to vote or to any rights of a
security holder. In lieu of any such fractional securities, each holder of RA
Shares who would otherwise have been entitled to a fraction of a UROHEALTH
Share upon surrender of stock certificates for exchange pursuant to this
Article III shall be paid cash upon such surrender in an amount equal to the
product of such fraction multiplied by the Closing Market Value.
3.5 Closing of Transfer Books. At the Effective Time,
the stock transfer books of RA shall be closed and no transfer of RA Shares
shall thereafter be made. If, after the Effective Time, certificates
representing RA Shares are presented to the Surviving Corporation, they shall
be canceled and exchanged for cash and certificates representing UROHEALTH
Shares in accordance with the terms hereof. At and after the Effective Time,
the holders of RA Shares to
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be exchanged for cash and UROHEALTH Shares pursuant to this Agreement shall
cease to have any rights as stockholders of RA except for the right to
surrender such stock certificates in exchange for cash and UROHEALTH Shares as
provided hereunder.
3.6 Dissenting Shares. If holders of RA Shares are
entitled to dissent from a Merger and demand appraisal of any such RA Shares in
accordance with the provisions of the Illinois Business Corporation Act
concerning the right of such holders to dissent from a Merger and demand
appraisal of their RA Shares ("Dissenting Holders"), any RA 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
Illinois Business Corporation Act, provided, however, that each RA 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 RA Shares, in
either case pursuant to the Illinois Business Corporation Act, shall not be
deemed Excluded Shares but shall be deemed to be converted, as of the Effective
Time, into the right to receive cash and UROHEALTH Shares in accordance with
the Exchange Ratio.
3.7 Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Morrison & Foerster, 19900 MacArthur Boulevard, 12th Floor, Irvine,
California 92715, at 9:00 a.m., local time, on the first business day (the
"Closing Date") after the later of (a) the day on which the stockholders'
meeting referred to in Section 7.3 shall have occurred or (b) 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 Companies shall agree.
3.8 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 RA, 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 RA, in the name of and on behalf of RA, 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.
3.9 Update of Exhibits. To the extent any Exhibit called
for in Article IV or V hereto is not provided by the applicable party on the
date this Agreement is executed, such party shall have 20 days from the date of
such execution to provide such Exhibit to the other parties. Any Exhibit
provided subsequent to execution hereof and within 20 days of such execution
shall be attached hereto and the applicable party's requirements and warranties
herein shall be deemed amended thereby as of the date hereof.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF UROHEALTH
AND UROHEALTH CALIFORNIA
------------------------
As used in this Agreement, (i) the term "Material Adverse
Effect" means, with respect to RA, UROHEALTH or UROHEALTH California, as the
case may be, a material adverse effect on the business, assets, results of
operations or financial condition of such party and its subsidiaries taken as a
whole or in the ability of such party to perform its obligations hereunder and
(ii) the word "subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated, of
which such party or any other subsidiary of such party is a general partner
(excluding partnerships the general partnership interests of which held by such
party or any subsidiary of such party do not have a majority of the voting
interests in such partnership) or of which at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporations or other organizations is directly
or indirectly owned or controlled by such party and/or by any one or more of
the subsidiaries.
UROHEALTH and UROHEALTH California represent and warrant to
RA, except as disclosed to RA in writing prior to the execution of this
Agreement, as follows:
4.1 Organization. Each of UROHEALTH and UROHEALTH
California 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. Each of UROHEALTH and UROHEALTH California
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. Each
corporate subsidiary of UROHEALTH and UROHEALTH California 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 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 Capitalization. As of the date hereof, the
authorized capital stock of UROHEALTH and UROHEALTH California is as set forth
in Exhibit 4.2 hereto. As of the date hereof, the number of shares of capital
stock of UROHEALTH and UROHEALTH California which are issued and outstanding is
as set forth in Exhibit 4.2 hereto. All of the issued and outstanding shares
of UROHEALTH and UROHEALTH California are validly issued, fully paid and
nonassessable and free of preemptive rights or similar rights created by
statute, the
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Certificate of Incorporation or Bylaws of UROHEALTH, the Articles of
Incorporation or Bylaws of UROHEALTH California or any agreement by which
UROHEALTH or UROHEALTH California or any of their subsidiaries is a party or by
which they are bound. Except (a) as set forth above or, (b) as disclosed in
Exhibit 4.2 hereto, there are not as of the date of this Agreement any shares
of capital stock of UROHEALTH issued or outstanding or any options, warrants,
subscriptions, calls, rights, convertible securities or other agreements or
commitments obligating UROHEALTH to issue, transfer or sell any shares of its
capital stock. Except as set forth in Exhibit 4.2, 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 stockholders of UROHEALTH may vote ("Voting Debt") were issued
and outstanding with respect to UROHEALTH.
4.3 Authority Relative to this Agreement. UROHEALTH 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 the consummation by UROHEALTH of the transactions contemplated
hereby have been duly authorized by the Boards of Directors of UROHEALTH and
UROHEALTH California and no other corporate proceedings on the part of either
such Company are necessary to approve this Agreement or the transactions
contemplated hereby.
4.4 Consents and Approvals; No Violations. Except for
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), state or foreign laws relating to takeovers, if applicable,
state securities or blue sky laws, and, as applicable, filing and recordation
of Agreement of Merger under the CCC and the Articles of Merger under the
Illinois Business Corporation Act, no filing with, and no permit,
authorization, consent or approval of, any public body or authority is
necessary for the consummation by UROHEALTH of the transactions contemplated by
this Agreement. Neither the execution and delivery of this Agreement by
UROHEALTH, nor the consummation by UROHEALTH of the transactions contemplated
hereby, nor compliance by UROHEALTH with any of the provisions hereof, will (a)
result in any breach of its Certificate of Incorporation or Bylaws or the
Articles of Incorporation or Bylaws of its subsidiaries, (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 UROHEALTH or any of its subsidiaries is a party or by which
any of them or any of their respective properties or assets may be bound or (c)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to UROHEALTH, any of its subsidiaries or any of their respective
properties or assets, except in the case of clauses (b) and (c) for violations,
breaches or defaults that would not have a Material Adverse Effect.
4.5 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 Exchange Act since July 1, 1993,
including, without limitation, an Annual Report on Form 10-K for the year ended
March 31, 1996 (collectively, the "UROHEALTH SEC Reports"), and has
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previously furnished or made available to RA true and complete copies of all
such UROHEALTH SEC Reports. None of the UROHEALTH 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 UROHEALTH 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 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.
4.6 Compliance With Applicable Law. Except as disclosed
in the UROHEALTH SEC Reports filed prior to the date of this Agreement,
UROHEALTH and each of its subsidiaries 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 each
of UROHEALTH and its subsidiaries 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 or any of its subsidiaries, except to the extent that the failure to
hold any such licenses, franchises, permits or authorizations, or any such
violation, would not, individually or in the aggregate, have a Material Adverse
Effect.
4.7 Ownership of RA Shares. As of the date hereof,
neither UROHEALTH nor, to the knowledge of UROHEALTH, any of its affiliates or
associates (as such terms are defined under the Exchange Act) (i) beneficially
owns, directly or indirectly, or (ii) are parties to any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or disposing of,
in each case, RA Shares which in the aggregate represent 10% or more of the
outstanding RA Shares.
4.8 Absence of Certain Changes in Events. Since March
31, 1996, neither UROHEALTH nor UROHEALTH California, nor any of their
subsidiaries, have suffered a change, or any event involving a prospective
change, in the business, assets, financial condition or results of operations
of UROHEALTH, UROHEALTH California, or any of their subsidiaries which has had,
or is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect (other than as a result of changes or proposed changes in
federal or state health care (including health care reimbursement) laws or
regulations of general applicability or interpretations thereof, changes in
generally accepted accounting principles and changes that could, under the
circumstances, reasonably have been anticipated in light of disclosures made in
writing by UROHEALTH or UROHEALTH California pursuant hereto.
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4.9 Employee Benefit Plans. Each written or formal
employee benefit plan (individually, without limitation, any "employee benefit
plan" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") policy or agreement that is maintained by
UROHEALTH (all of the foregoing, the "UROHEALTH Benefit Plans"), that is
subject to ERISA is in substantial compliance with ERISA; each of the UROHEALTH
Benefit Plans intended to be "qualified" within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code") is so qualified; and no event has
occurred, and to the knowledge of UROHEALTH, there exists no condition or set
of circumstances in connection with where UROHEALTH or its subsidiaries is or
could be subject to liability (except liability for benefit claims and funding
obligations payable in the ordinary course) under ERISA, the Code, or any other
applicable law with respect to any UROHEALTH Benefit Plan.
4.10 Other Information. No representation or warranty by
UROHEALTH contained in this Agreement or any certificate furnished or to be
furnished by or on behalf of UROHEALTH pursuant to this Agreement contains or
will contain any untrue statement of material fact or omits or will omit to
state any material fact required to be stated herein or therein which is
necessary to make the statements contained herein or therein, in light of the
circumstances in which they are or were made, not misleading in any material
respect.
4.11 Shares to be Issued in Merger. The UROHEALTH Shares
to be issued upon consummation of the Merger pursuant hereto will, at the
Effective Time, be duly authorized and will, when issued pursuant to this
Agreement, be validly issued, fully paid and nonassessable.
4.12 Litigation. As of the date of this Agreement, except
as disclosed in the UROHEALTH SEC Reports or to the extent that individually
and in the aggregate they would not reasonably be expected to have a Material
Adverse Effect: (a) there is no action, suit, judicial or administrative
proceeding, arbitration or investigation pending or, to the best knowledge of
UROHEALTH, threatened against or involving UROHEALTH or any of its
subsidiaries, or any of their properties or rights, before any court,
arbitrator, or administrative or governmental body; (b) there is no judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against UROHEALTH
or any of its subsidiaries; and (c) UROHEALTH and its subsidiaries are not in
violation of any term of any judgments, decrees, injunctions or orders
outstanding against them.
4.13 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 UROHEALTH 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. UROHEALTH has filed or caused to be
filed timely all material federal, state, local and foreign tax returns
required to be filed by each of its 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. UROHEALTH has paid or caused to be paid or has made
adequate provision or set up an adequate accrual or reserve for the payment of,
all
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taxes shown to be due in respect of the periods for which returns are due, and
has established (or will establish at least quarterly) an adequate accrual or
reserve for the payment of all taxes payable in respect of the period
subsequent to the last of said periods required to be so accrued or reserved.
Neither UROHEALTH nor any of its Tax Affiliates has any material liability for
taxes in excess of the amount so paid or accruals or reserves so established.
Neither UROHEALTH nor any of its Tax Affiliates is delinquent in the payment of
any tax in excess of the amount reserved or provided therefor, and no
deficiencies for any tax, assessment or governmental charge in excess of the
amount reserved or provided therefor have been threatened, claimed, proposed or
assessed. No waiver or extension of time to assess any taxes has been given or
requested. UROHEALTH's federal and state income tax returns have never been
audited by the Internal Revenue Service or comparable state agencies.
4.14 Compliance With Legislation Regulating Environmental
Quality.
(a) (i) Throughout the period of its ownership or
operation of the UROHEALTH Facilities, neither UROHEALTH nor any of its
subsidiaries has received any written notices, directives, violation reports,
actions or claims from or by (A) any local, state, federal or foreign
governmental agency concerning Environmental Laws or (B) any person alleging
that, in connection with Hazardous Materials, conditions at any of the
UROHEALTH Facilities or UROHEALTH's acts or omissions have resulted in or
caused or threatened to result in or cause injury or death to any person or
damage to any property, including without limitation, damage to natural
resources, and to UROHEALTH's knowledge, no such notices, directives, violation
reports, actions, claims or allegations exist; (ii) the UROHEALTH Facilities
and the business operated by UROHEALTH and its subsidiaries are in compliance
with all applicable state, federal, foreign and local Environmental Laws,
except where any noncompliance with Environmental Laws would not have a
Material Adverse Effect on UROHEALTH; and (iii) to UROHEALTH's knowledge, no
friable asbestos or PCBs have been located at any of the UROHEALTH Facilities.
"UROHEALTH Facilities" shall mean UROHEALTH's plants, offices, manufacturing
facilities, warehouses, improvements, administration buildings and real
property.
(b) (i) There has been no spill, discharge,
release, cleanup or contamination of or by any Hazardous Materials used,
generated, treated, stored, disposed of or handled by UROHEALTH or any of its
subsidiaries at any of the UROHEALTH Facilities; (ii) neither UROHEALTH nor any
of its subsidiaries has treated, stored, disposed of, released or transported
any Hazardous Material in a manner which would give rise to any liability under
any Environmental Laws; and (iii) UROHEALTH and its subsidiaries hold all
necessary permits, licenses, approvals and consents to conduct their business
as currently being conducted and are not in violation of any condition of any
such permit, license or consent.
4.15 FDA Matters.
(a) UROHEALTH and each of its subsidiaries is,
and the products sold by UROHEALTH and each of its subsidiaries are, in
compliance in all material respects with all current applicable statutes,
rules, regulations, standards, guides or orders administered or issued
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by the Federal Food and Drug Administration or any other federal, foreign,
state or local agency or governmental body having regulatory authority over the
products of UROHEALTH and its subsidiaries (the "FDA").
(b) Neither UROHEALTH nor any of its subsidiaries
has received from the FDA, or has knowledge of any facts which would furnish
any reasonable basis for, any notice of adverse findings, regulatory letters,
warning letters, Section 305 notices or other similar communications from the
FDA, and there have been no seizures conducted or threatened by the FDA, and no
recalls, field notifications or alerts conducted, requested or threatened by
the FDA relating to the products sold by UROHEALTH or any of its subsidiaries.
(c) Each premarket approval ("PMA") and premarket
notification ("510(k)") documents and related documents and information for
each of the products of UROHEALTH and its subsidiaries is in compliance in all
material respects with the applicable federal statutes, rules, regulations,
standards, guides or orders administered or promulgated by the FDA and all
preclinical and clinical studies have been conducted with recognized good
clinical and good laboratory practices in all material respects.
(d) Neither UROHEALTH nor any of its subsidiaries
is aware of any facts which are reasonably likely to cause (i) the denial,
withdrawal, recall or suspension of any products sold or intended to be sold by
UROHEALTH or any of its subsidiaries, (ii) a change in the marketing
classification or labeling of any such products, or (iii) a termination or
suspension of marketing of any such products.
(e) None of the products manufactured, marketed
or sold by UROHEALTH or any of its subsidiaries has been recalled or subject to
a field notification (whether voluntarily or otherwise), and neither UROHEALTH
nor any of its subsidiaries has received notice (whether completed or pending)
of any proceeding seeking recall, suspension or seizure of any products sold or
proposed to be sold by UROHEALTH or any of its subsidiaries.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RA
------------------------------------
RA represents and warrants to UROHEALTH, except as disclosed
to UROHEALTH in writing prior to the execution of this Agreement, as follows:
5.1 Organization. RA 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. RA 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. Each corporate subsidiary of RA 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 and is duly qualified to do business, and
is in good standing (to the
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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.
5.2 Capitalization. As of the date hereof, the
authorized capital stock of RA is as set forth in Exhibit 5.2 hereto. As of
the date hereof, the number of RA Shares which are issued and outstanding is as
set forth in Exhibit 5.2 hereto. All of the issued and outstanding RA 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 RA or any agreement by which RA or any of its subsidiaries is a party or by
which it is bound. Except (a) as set forth above or, (b) as disclosed in
Exhibit 5.2 hereto, there are not as of the date of this Agreement any shares
of capital stock of RA issued or outstanding or any options, warrants,
subscriptions, calls, rights, convertible securities or other agreements or
commitments obligating RA 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 stockholders of RA
may vote ("Voting Debt") were issued and outstanding with respect to RA. As of
the date hereof and at the Effective Time, no stock options, warrants,
convertible securities or other contractual commitments to purchase or issue RA
Shares are outstanding.
5.3 Authority Relative to this Agreement. RA has the
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement by RA and the
consummation by RA of the transactions contemplated hereby have been duly
authorized by the Board of Directors of RA, and, except for approval by the
requisite votes cast by RA's stockholders at the meeting provided for in
Section 7.3, no other corporate proceedings on the part of RA are necessary to
approve this Agreement or the transactions contemplated hereby.
5.4 Consents and Approvals; No Violations. Except for
the Securities Act, the Exchange Act, state or foreign laws relating to
takeovers, if applicable, state securities or blue sky laws, and, as
applicable, filing and recordation of the Agreement of Merger under the CCC and
the Articles of Merger under the Illinois Business Corporations Act, no filing
with, and no permit, authorization, consent or approval of, any public body or
authority is necessary for the consummation by RA of the transactions
contemplated by this Agreement. Neither the execution and delivery of this
Agreement by RA, nor the consummation by RA of the transactions contemplated
hereby, nor compliance by RA with any of the provisions hereof, will (a) result
in any breach of the Articles of Incorporation or Bylaws of RA, (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 RA or any of its subsidiaries is a party or by which any of
them or any of their respective properties or assets may be bound or (c)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to RA, any of its subsidiaries
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or any of their respective properties or assets, except in the case of clauses
(b) and (c) for violations, breaches or defaults that would not have a Material
Adverse Effect.
5.5 Financial Statements. RA has furnished to UROHEALTH
RA's audited consolidated financial statements (consolidated balance sheets,
consolidated statements of income, consolidated statements of stockholders'
equity and consolidated statements of cash flows) at and for each of the
12-month periods ended June 30, 1993, 1994 and 1995 and its unaudited financial
statements at and for the 10-month period ended April 30, 1996 (collectively,
the "RA Financial Statements"). Each of the balance sheets (including the
related notes) included in the RA Financial Statements fairly presents in all
material respects the consolidated financial position of RA 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 RA and its
subsidiaries for the respective periods or as of 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.
5.6 Absence of Certain Changes or Events. Since June 30,
1995, neither RA nor any of its subsidiaries has: (a) taken any of the actions
set forth in Sections 6.1(b), 6.1(c) or 6.1(e) hereof; (b) incurred any
liability material to RA and its subsidiaries on a consolidated basis, except
in the ordinary course of its business, consistent with past practices; (c)
suffered a change, or any event involving a prospective change, in the
business, assets, financial condition or results of operations of RA or any of
its subsidiaries which has had, or is reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect (other than as a result of
changes or proposed changes in federal or state health care (including health
care reimbursement) laws or regulations of general applicability or
interpretations thereof, changes in generally accepted accounting principles
and changes that could, under the circumstances, reasonably have been
anticipated in light of disclosures made in writing by RA to UROHEALTH pursuant
hereto); or (d) subsequent to the date hereof, except as permitted by Section
6.1 hereof, conducted its business and operations other than in the ordinary
course of business and consistent with past practices.
5.7 Litigation. As of the date of this Agreement, except
to the extent that individually and in the aggregate they would not reasonably
be expected to have a Material Adverse Effect or except as set forth in Exhibit
5.7 hereto: (a) there is no action, suit, judicial or administrative
proceeding, arbitration or investigation pending or, to the best knowledge of
RA, threatened against or involving RA or any of its subsidiaries, or any of
their properties or rights, before any court, arbitrator, or administrative or
governmental body; (b) there is no judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against RA or any of its subsidiaries; and (c) RA and
its subsidiaries are not in violation of any term of any judgments, decrees,
injunctions or orders outstanding against them. RA has furnished to UROHEALTH
in writing, a description of all
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litigation, actions, suits, proceedings, arbitrations, investigations known to
it, judgments, decrees, injunctions or orders pending, or to the knowledge of
RA, threatened against or involving RA or any of its subsidiaries, or any of
their properties or rights as of the date hereof.
5.8 Contracts.
(a) Each of the material contracts, instruments,
mortgages, notes, security agreements, leases, agreements or understandings to
which RA or any of its subsidiaries is a party that relates to or affects the
assets or operations of RA or any of its subsidiaries or to which RA or any of
its subsidiaries or their respective assets or operations may be bound or
subject is a valid and binding obligation of RA and in full force and effect
(with respect to RA or such subsidiary), except for where the failure to be in
full force and effect would not, individually or in the aggregate, have a
Material Adverse Effect. Except to the extent that the consummation of the
transactions contemplated by this Agreement may require the consent of third
parties, as disclosed in writing to UROHEALTH pursuant hereto, there are no
existing defaults by RA or any of its subsidiaries thereunder or, to the
knowledge of RA, by any other party thereto, which defaults, individually or in
the aggregate, would have a Material Adverse Effect; and no event of default
has occurred, and no event, condition or occurrence exists, that (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default by RA or any of its subsidiaries thereunder
which default would, individually or in the aggregate, have a Material Adverse
Effect.
(b) As of the date of this Agreement neither RA
nor any of its subsidiaries is a party to any oral or written (i) consulting
agreement not terminable on 60 days or less notice involving the payment of
more than $25,000 per annum, in the case of any such agreement with an
individual, (ii) joint venture agreement, (iii) noncompetition or similar
agreements that restricts RA or its subsidiaries from engaging in a line of
business, (iv) agreement with any executive officer or other employee of RA or
any subsidiary the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving RA of the
nature contemplated by this Agreement and which provides for the payment of in
excess of $10,000, (v) agreement with respect to any executive officer of RA or
any subsidiary providing any term of employment beyond one year or compensation
guaranty in excess of $50,000 per annum, or (vi) agreement or plan, including
any stock option plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
5.9 Employee Benefit Plans.
(a) RA has previously delivered to UROHEALTH a
true and complete list of each written or formal employee benefit plan
(including, without limitation, any "employee benefit plan" as defined in
Section 3(3) of ERISA) policy or agreement that is maintained (all of the
foregoing, the "RA Benefit Plans"), or is or was contributed to by RA or any of
its subsidiaries or pursuant to which RA or any of its subsidiaries or any
trade or business, whether
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or not incorporated (an "RA ERISA Affiliate"), which together with RA would be
deemed a "single employer" within the meaning of Section 4001 of ERISA, is
still potentially liable for payments, benefits or claims. A copy of each RA
Benefit Plan as currently in effect and, if applicable, the most recent Annual
Report, Actuarial Report or Valuation, Summary Plan Description, Trust
Agreement and a Determination Letter issued by the IRS for each RA Benefit Plan
have heretofore been delivered to UROHEALTH. No RA Benefit Plan was or is
subject to Title IV of ERISA or Section 412 of the Code (including any
"multiemployer plan," as defined in Section 3(37) of ERISA).
(b) Each of the RA Benefit Plans that are subject
to ERISA is in substantial compliance with ERISA; each of the RA Benefit Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code is
so qualified; and no event has occurred, and to the knowledge of RA, there
exists no condition or set of circumstances in connection with which RA or any
RA ERISA Affiliate is or could be subject to liability (except liability for
benefit claims and funding obligations payable in the ordinary course) under
ERISA, the Code, or any other applicable law with respect to any RA Benefit
Plan.
(c) All contributions or other amounts payable by
RA or its subsidiaries through June 30, 1996 with respect to each RA Benefit
Plan in respect of current or prior plan years have been either paid or accrued
on the most recent financial statements of RA made available to UROHEALTH. Any
contributions or other amounts payable by RA or its subsidiaries for periods
between June 30, 1996 and the Effective Time with respect to each RA Benefit
Plan in respect of current or prior plan years have been or will be either paid
or accrued in the normal course of business on the books and records of RA at
or prior to the Effective Time. There are no pending, or, to the best
knowledge of RA, threatened or anticipated, claims (other than routine claims
for benefits) by or on behalf of or against any of the RA Benefit Plans or any
trusts or other funding vehicles related thereto.
(d) No RA Benefit Plan provides benefits,
including without limitation death or medical benefits (whether or not
insured), with respect to current or former employees for periods extending
beyond their retirement or other termination of service (other than (i)
coverage mandated by Part 6 of Subtitle B of Title I of ERISA, Section 4980B of
the Code or any comparable state law, (ii) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in Section
3(2) of ERISA, (iii) deferred compensation benefits accrued as liabilities on
the books of RA or the RA ERISA Affiliates, or (iv) benefits the full cost of
which is borne by the current or former employee or his or her beneficiary).
5.10 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 RA 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. RA has filed or caused to be filed timely all material
federal, state, local and foreign tax returns required to be filed by each of
its and any member of its consolidated, combined, unitary or similar group
(each
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such member a "Tax Affiliate"). Such returns, reports and other information
are accurate and complete in all material respects. RA has paid or caused to
be paid or has made adequate provision or set up an adequate accrual or reserve
for the payment of, all taxes shown to be due in respect of the periods for
which returns are due, and has established (or will establish at least
quarterly) an adequate accrual or reserve for the payment of all taxes payable
in respect of the period subsequent to the last of said periods required to be
so accrued or reserved. Neither RA nor any of its Tax Affiliates has any
material liability for taxes in excess of the amount so paid or accruals or
reserves so established. Neither RA nor any of its Tax Affiliates is
delinquent in the payment of any tax in excess of the amount reserved or
provided therefor, and no deficiencies for any tax, assessment or governmental
charge in excess of the amount reserved or provided therefor have been
threatened, claimed, proposed or assessed. No waiver or extension of time to
assess any taxes has been given or requested.
5.11 Compliance With Applicable Law. RA and each of its
subsidiaries 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 each of RA and its
subsidiaries 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 RA or any of its
subsidiaries, except to the extent that the failure to hold any such licenses,
franchises, permits or authorizations, or any such violation, would not,
individually or in the aggregate, have a Material Adverse Effect.
5.12 Subsidiaries. Exhibit 5.12 lists all the
subsidiaries of RA as of the date of this Agreement and indicates for each such
corporate subsidiary as of such date the jurisdiction of incorporation or
organization. All of the outstanding shares of capital stock or other equity
interests of each of the subsidiaries are (a) held by RA or one of such
wholly-owned subsidiaries, (b) fully paid and nonassessable, and (c) owned by
RA or one of such wholly-owned subsidiaries free and clear of any claim, lien
or encumbrance.
5.13 Labor and Employment Matters. (a) RA and its
subsidiaries are and have been in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including, without limitation,
the Immigration Reform and Control Act, the Worker Adjustment and Retraining
Notification Act, the Americans with Disabilities Act and such laws respecting
employment discrimination, equal opportunity, affirmative action, worker's
compensation, occupational safety and health requirements and unemployment
insurance and related matters, and are not engaged in and have not engaged in
any unfair labor practice; (b) to the best knowledge of RA, no investigation or
review by or before any governmental entity concerning any violations of any
such applicable laws is pending nor, to the best knowledge of RA is any such
investigation threatened or has any such investigation occurred during the last
three years, and no governmental entity has provided any notice to RA or any of
its subsidiaries or otherwise asserted an intention to conduct any such
investigation; (c) there is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against RA or any of its subsidiaries; (d) no
union representation question or union organizational activity exists
respecting the
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employees of RA or any of its subsidiaries; (e) no collective bargaining
agreement exists which is binding on RA or any of its subsidiaries; (f) neither
RA nor any of its subsidiaries has experienced any material work stoppage or
other material labor difficulty; and (g) in the event of termination of the
employment of any of the current officers, directors, employees or agents of RA
or any of its subsidiaries, none of RA, any of its subsidiaries, UROHEALTH, any
of its subsidiaries or the Surviving Corporation, will pursuant to any
agreement or by reason of anything done prior to the Effective Time by RA or
any of its subsidiaries be liable to any of said officers, directors, employees
or agents for so-called "severance pay" or any other similar payments or
benefits, including, without limitation, post-employment health care (other
than pursuant to COBRA) or insurance benefits.
5.14 Insurance. As of the date hereof, RA and each of its
subsidiaries are insured by insurers reasonably believed by RA to be of
recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged. All
material policies of insurance and fidelity or surety bonds insuring RA or any
of its subsidiaries or their respective businesses, assets, employees, officers
and directors are in full force and effect. As of the date hereof, there are
no material claims by RA or any of its subsidiaries under any such policy or
instrument as to which any insurance company is denying liability or defending
under a reservation of rights clause.
5.15 Contracts with Physicians, Hospitals, HMOs and Third
Party Providers. RA has made available to UROHEALTH copies (or in the case
where no written documentation exists, a summary) of all outstanding contracts,
partnerships, joint ventures and other arrangements or understandings (written
or oral) between (a) RA or any of its subsidiaries and (b) any physician,
hospital, HMO, other managed care organization, or other third-party provider
relating to the provision of medical or consulting services, treatments,
patient referrals, medical or similar activities.
5.16 Ownership of Shares. As of the date hereof, neither
RA nor, to its best knowledge, any of its affiliates or associates (as such
terms are defined under the Exchange Act) (a) beneficially owns, directly or
indirectly, or (b) are parties to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, in each case,
shares of the capital stock of UROHEALTH which in the aggregate represent 10%
or more of the outstanding UROHEALTH Shares.
5.17 FDA Matters.
(a) RA and each of its subsidiaries is, and the
products sold by RA and each of its subsidiaries are, in compliance in all
material respects with all current applicable statutes, rules, regulations,
standards, guides or orders administered or issued by the Federal Food and Drug
Administration or any other federal, foreign, state or local agency or
governmental body having regulatory authority over the products of RA and its
subsidiaries (the "FDA").
(b) Neither RA nor any of its subsidiaries has
received from the FDA, or has knowledge of any facts which would furnish any
reasonable basis for, any notice of adverse
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findings, regulatory letters, warning letters, Section 305 notices or other
similar communications from the FDA, and there have been no seizures conducted
or threatened by the FDA, and no recalls, field notifications or alerts
conducted, requested or threatened by the FDA relating to the products sold by
RA or any of its subsidiaries.
(c) Each premarket approval ("PMA") and each of
the premarket notification ("510(k)") documents and related documents and
information for each of the products of RA and its subsidiaries is in
compliance in all material respects with the applicable federal statutes,
rules, regulations, standards, guides or orders administered or promulgated by
the FDA and all preclinical and clinical studies have been conducted with
recognized good clinical and good laboratory practices in all material
respects. RA has disclosed in writing to UROHEALTH a complete and accurate
list of all products of RA and its subsidiaries indicating (i) which products
are marketed under an approved FDA authority (e.g., PMA, 510(k) or IDE) and
identifying such authority, and (ii) which products are not marketed under an
approved FDA authority, and indicating why such products are being marketed
without such authority. Such listing also contains a complete and accurate
list of all PMA applications, PMA supplements, 510(k) submissions and IDE
submissions of RA or any of its subsidiaries currently pending with the FDA.
(d) Neither RA nor any of its subsidiaries is
aware of any facts which are reasonably likely to cause (i) the denial,
withdrawal, recall or suspension of any products sold or intended to be sold by
RA or any of its subsidiaries, (ii) a change in the marketing classification or
labeling of any such products, or (iii) a termination or suspension of
marketing of any such products.
(e) None of the products manufactured, marketed
or sold by RA or any of its subsidiaries has been recalled or subject to a
field notification (whether voluntarily or otherwise), and neither RA nor any
of its subsidiaries has received notice (whether completed or pending) of any
proceeding seeking recall, suspension or seizure of any products sold or
proposed to be sold by RA or any of its subsidiaries.
5.18 RA Proprietary Rights. For purposes of this Section
5.18, RA shall mean RA and each of its subsidiaries.
(a) Exhibit 5.18 sets forth a listing of all of
RA'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 RA's patents and copyrights
and all pending applications therefor, all other trademarks and other marks,
trade names and other trade rights or in which RA has any interest whatsoever,
and all other trade secrets, designs, plans, specifications, technical
information and other RA proprietary rights, whether or not registered, created
or used by or on behalf of RA (collectively "RA Proprietary Rights"). Exhibit
5.18 (the "RA 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
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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 mark, the service mark serial number or the
service mark registration number, the service mark class of goods covered and
the service mark expiration date for each country in which a service mark 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. The RA
Proprietary Rights listed in the RA Proprietary Rights List are all those used
by RA in connection with its business. True and correct copies of all patents,
and all pending applications for patents, owned, controlled, created or used by
or on behalf of RA or in which RA has any interest whatsoever have been
provided to UROHEALTH.
(b) (i) Except as set forth in Exhibit 5.18,
no person has a right to receive a royalty or similar payment in respect of any
RA Proprietary Rights whether or not pursuant to any contractual arrangements
entered into by RA; and RA 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 RA Proprietary Rights.
(ii) Except as set forth in Exhibit 5.18,
RA owns and has the sole right to use each of the RA Proprietary Rights.
Except for applications pending, all of the patents, registered designs and
trademarks listed in the RA Proprietary Rights List have been duly issued and
all of the other RA Proprietary Rights exist, are registered and are
subsisting. All of the pending patent applications have been duly filed. None
of the RA Proprietary Rights is involved in any pending or threatened
litigation. RA has not received any notice of invalidity or infringement of
any rights of others with respect to such trademarks. RA has taken all
reasonable and prudent steps to protect the RA Proprietary Rights from
infringement by any other person. 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 RA that it is claiming
any ownership of or right to use such RA Proprietary Rights, or (z) to the
knowledge of RA, is infringing upon any such RA Proprietary Rights in any way.
To the knowledge of RA, RA's use of the RA Proprietary Rights is not infringing
upon or otherwise violating the rights of any third party in or to such RA
Proprietary Rights, and no proceedings have been instituted against or notices
received by RA that are presently outstanding alleging that RA's use of the RA
Proprietary Rights infringes upon or otherwise violates any rights of a third
party in or to such RA Proprietary Rights. All of the RA Proprietary Rights
are valid and enforceable rights of RA and will not cease to be valid and in
full force and effect by reason of the execution, delivery and performance of
this Agreement or the consummation of the transactions contemplated by this
Agreement. There are not, and it is reasonably expected that after the
Effective Time there will not be, any restrictions on RA's right to sell
products manufactured by or for RA which relate to the RA Proprietary Rights.
(c) Except as set forth in Exhibit 5.18, no
employee of RA or any of its subsidiaries is, or is now expected to be, in
default under any term of any employment contract, agreement or arrangement
relating to any RA Proprietary Rights or noncompetition agreement,
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or any other contract or any restrictive covenant relating to the right of any
such officer or employee to be employed by RA or any of its subsidiaries
because of the nature of the business conducted or to be conducted by RA or any
of its subsidiaries or relating to the use of any intellectual property of
others, and the continued employment of RA's and its subsidiaries' officers and
employees does not subject RA or any of its subsidiaries to any liability
resulting from such a violation.
5.19 Owned Property; RA Facilities. Except as set forth
in Exhibit 5.19, neither RA nor any of its subsidiaries owns any real property.
Exhibit 5.19 lists all of RA's plants, offices, manufacturing facilities,
warehouses, improvements, administration buildings and real property (the "RA
Facilities").
5.20 Compliance With Legislation Regulating Environmental
Quality.
(a) (i) Throughout the period of its ownership or
operation of the RA Facilities, neither RA nor any of its subsidiaries has
received any written notices, directives, violation reports, actions or claims
from or by (A) any local, state, federal or foreign governmental agency
concerning Environmental Laws or (B) any person alleging that, in connection
with Hazardous Materials, conditions at any of the RA Facilities or RA's acts
or omissions have resulted in or caused or threatened to result in or cause
injury or death to any person or damage to any property, including without
limitation, damage to natural resources, and to the knowledge of RA, no such
notices, directives, violation reports, actions, claims or allegations exist;
(ii) the RA Facilities and the business operated by RA and its subsidiaries are
in compliance with all applicable state, federal, foreign and local
Environmental Laws, except where any noncompliance with Environmental Laws
would not have a Material Adverse Effect on RA; (iii) no underground storage
tanks either are or, to the knowledge of RA, have been located at any of the RA
Facilities; and (iv) to the knowledge of RA, no friable asbestos or PCBs have
been located at any of the RA Facilities.
(b) (i) To the knowledge of RA, there has been
no spill, discharge, release, cleanup or contamination of or by any Hazardous
Materials used, generated, treated, stored, disposed of or handled by RA or any
of its subsidiaries at any of the RA Facilities; (ii) neither RA nor any of its
subsidiaries has treated, stored, disposed of, released or transported any
Hazardous Material in a manner which would give rise to any liability under any
Environmental Laws; and (iii) RA and its subsidiaries hold all necessary
permits, licenses, approvals and consents to conduct their business as
currently being conducted and are not in violation of any condition of any such
permit, license, approval or consent, except where the failure to hold any such
permit, license, approval or consent would not have a Material Adverse Effect.
5.21 Private Sale.
(a) RA and its stockholders understand and
acknowledge that the offering of UROHEALTH Shares pursuant to this Agreement
will not be registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on exemptions set forth in the Act and the regulations
thereunder, nor will it be registered or qualified in any state under any
securities or
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blue sky laws, by reason of their issuance in a transaction exempt from such
requirements or qualification. UROHEALTH's reliance upon such exemptions is
predicated in part upon RA's representations as set forth in this Agreement.
(b) RA's stockholders are acquiring the UROHEALTH
Shares for their own respective accounts, for investment and not with a view to
the distribution thereof, nor with any present intention of distributing the
same.
(c) RA's stockholders are "accredited investors"
as defined in Regulation D of the Act. RA, and all of its stockholders, by
reason of their business or financial experience or the business or financial
experience of its professional advisors who are unaffiliated with and who are
not compensated by UROHEALTH or any affiliates or selling agent of UROHEALTH,
directly or indirectly, have the capacity to protect their own interests in
connection with the purchase of UROHEALTH Shares and have no need for liquidity
and are able to bear the risk of such investment for an indefinite period of
time and to afford a complete loss thereof.
(d) RA and its stockholders acknowledge that
UROHEALTH has made available to them, at a reasonable time prior to the
purchase of the UROHEALTH Shares, the opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of the UROHEALTH
Shares and to obtain any additional information that UROHEALTH possesses or can
acquire without unreasonable effort or expense.
(e) RA and its stockholders understand that each
stockholder must bear the economic risk of its investment indefinitely, unless
the UROHEALTH Shares are registered pursuant to the Act or an exemption from
such registration is available.
5.22 Other Information. No representation or warranty by
RA contained in this Agreement or any certificate furnished or to be furnished
by or on behalf of RA pursuant to this Agreement contains or will contain any
untrue statement of material fact or omits or will omit to state any material
fact required to be stated herein or therein which is necessary to make the
statements contained herein or therein, in light of the circumstances in which
they are or were made, not misleading in any material respect.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
--------------------------------------
6.1 Conduct of Business Pending the Merger. Each of
UROHEALTH, UROHEALTH California and RA 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 such Company 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) such Company 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) except for (A) the proposed increase in UROHEALTH's
authorized capital stock consisting of 50,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock and (B) the proposed amendment of
UROHEALTH's Certificate of Incorporation to entitle the holders of its 8.75%
Convertible Subordinated Debentures due 2006 to voting rights, amend its
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, except for the proposed redemption of
UROHEALTH California's Series A Preferred Stock, 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) such Company 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), except that such Company may
issue shares required to be issued upon exercise of existing stock options,
warrants or similar plans, or under other contractual commitments previously
made, which options, warrants, plans or commitments have been disclosed in
writing to the other Company pursuant hereto; (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 material 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; provided, however, that nothing in this
subsection (c) to Section 6.1 shall prevent UROHEALTH from issuing warrants to
purchase its Common Stock in accordance with the court-approved settlement of
its stockholder securities class action litigation;
(d) such Company shall use its best efforts to
preserve intact the business organization of such Company 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; provided, however, that no breach of
this covenant shall be deemed to have occurred if a failure to comply with this
Section 6.1(d) occurs as a result of any matter arising out of the transactions
contemplated by this Agreement or any acquisition proposals made to such
Company or the public announcement thereof;
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(e) such Company and its subsidiaries shall not
knowingly take or allow to be taken or fail to take any action which act or
omission would jeopardize qualification of the Merger as a "reorganization"
within the meaning of Section 368 of the Code; and
(f) such Company and its subsidiaries shall use
all reasonable efforts to prevent any representation or warranty of such
Company herein from becoming untrue or incorrect in any material respect.
6.2 Compensation Plans. During the period from the date
of this Agreement and continuing until the Effective Time, each of UROHEALTH,
UROHEALTH California and RA agrees as to itself and its subsidiaries that,
other than the agreements referred to in Section 2.4, it will not, without the
prior written consent of the other (except as required by applicable law or
pursuant to existing contractual arrangements or other plans or commitments as
otherwise disclosed to the other in writing pursuant hereto) (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 such
Company and one or more of its officers, directors or employees, in each case
so as to materially 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 arrangement to do any of the foregoing, except for
normal increases and non-stock benefit changes in the ordinary course of
business and consistent with past practices, (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 such Company
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.
6.3 Current Information. From the date of this Agreement
to the Effective Time, each of RA, UROHEALTH and UROHEALTH California will
cause one or more of its designated representatives to confer on a regular and
frequent basis (not less than semi-monthly) with representatives of the other
and to report the general status of its ongoing operations and to deliver to
the other (not less than quarterly) unaudited consolidated balance sheets and
related consolidated statements of income, stockholders equity and cash flows
for the period since the last such report. Each of RA and UROHEALTH will
promptly notify the other of any material change in the normal course of
business or in its or its subsidiaries' properties.
6.4 Legal Conditions to Merger. Each of RA, UROHEALTH
and UROHEALTH California 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
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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 stockholders, 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; provided, however, that a party
shall not be obligated to take any action pursuant to the foregoing if the
taking of such action or such compliance or the obtaining of such consent,
authorization, order, approval or exemption would, in such party's reasonable
opinion, (i) be materially burdensome to such party and its subsidiaries taken
as a whole or impact in such a materially adverse manner the economic or
business benefits of the transactions contemplated by this Agreement as to
render inadvisable the consummation of the Merger or (ii) result in the
imposition of a condition or restriction on such party or on the Surviving
Corporation of the type referred to in Section 8.1(c). Each Company 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.
6.5 Advice of Changes; Government Filings. Each of
UROHEALTH, UROHEALTH California and RA shall confer on a regular and frequent
basis with the other, report on operational matters and promptly advise the
other orally and in writing of any change or event having, or which, insofar as
can reasonably be foreseen, could have, a Material Adverse Effect on such party
or which would cause or constitute a material breach of any of the
representations, warranties or covenants of such party contained herein.
UROHEALTH shall file all reports required by regulation to be filed by it with
the SEC between the date of this Agreement and the Effective Time and shall
deliver to RA copies of all such reports promptly after the same are filed.
Except where prohibited by applicable statutes and regulations, each party
shall promptly provide the other (or its counsel) with copies of all other
filings made by such party with any state or federal government entity in
connection with this Agreement or the transactions contemplated hereby.
ARTICLE VII
ADDITIONAL AGREEMENTS
---------------------
7.1 Access and Information.
(a) RA, UROHEALTH and UROHEALTH California and
their respective subsidiaries shall each afford to the other and to the other's
financial advisors, legal counsel, accountants, consultants and other
representatives access during normal business hours throughout the period from
the date hereof to the Effective Time to all of its books, records, properties,
facilities, personnel commitments and records (including but not limited to tax
returns) and, during such period, each shall furnish promptly to the other all
information concerning its business, properties and personnel as such other
party may reasonably request. No investigation pursuant to this Section 7.1
shall affect any representations or warranties made herein or the conditions to
the obligations of the respective parties to consummate the Merger.
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(b) All information furnished by either RA,
UROHEALTH and UROHEALTH California to the other pursuant hereto shall be
treated as the sole property of the party furnishing the information until
consummation of the Merger. The parties will hold any such information that is
nonpublic in confidence to the extent required by, and in accordance with the
Confidentiality Agreement dated as of May 31, 1996 among RA and UROHEALTH (the
"Confidentiality Agreement") and such Confidentiality Agreement shall survive
the termination of this Agreement.
7.2 Acquisition Proposals. RA and its subsidiaries will
not, and will use their best efforts to cause their respective directors,
officers, employees, financial advisors, legal counsel, accountants and other
agents and representatives ("advisors") not to, initiate, solicit or encourage,
directly or indirectly, or take any other action to facilitate any inquiries or
the making of any proposal with respect to, or engage or participate in
negotiations concerning, provide any nonpublic information or data to or have
any discussions with any person other than UROHEALTH and its advisors relating
to, any acquisition, tender offer (including a self-tender offer), exchange
offer, merger, consolidation, acquisition of beneficial ownership of or the
right to vote securities representing 10% or more of the total voting power of
such Company or any of its subsidiaries, dissolution, business combination,
purchase of all or any significant portion of the assets or any division of, or
any equity interest in, such Company or any of its subsidiaries, or similar
transaction other than the Merger (such proposals, announcements, or
transactions being referred to as "Acquisition Proposals"). RA will promptly
notify UROHEALTH orally and in writing if any such Acquisition Proposal
(including the terms thereof and identity of the persons making such proposals)
is received and furnish to UROHEALTH a copy of any written proposal.
7.3 RA Stockholder Approval. RA acting through its Board
of Directors, shall, in accordance with applicable law and its Articles of
Incorporation and Bylaws:
(a) promptly and duly call, give notice of,
convene and hold as soon as practicable following the date hereof a meeting of
RA's respective stockholders (or obtain a written consent of its stockholders)
for the purpose of voting to approve and adopt this Agreement and shall use its
best efforts, except to the extent the Board of Directors reasonably believe is
otherwise required by its fiduciary duty, to obtain each such stockholder's
approval; and
(b) except to the extent the Board of Directors
reasonably believes it is otherwise required by its fiduciary duty, recommend
approval and adoption of this Agreement by the stockholders of RA, and take all
lawful action to solicit such approval.
7.4 Director and Officer Indemnification. All rights to
indemnification and advancement of expenses existing in favor of the directors,
officers and agents of RA (the "Indemnified Parties") under the provisions
existing on the date hereof of any of RA's Articles of Incorporation, Bylaws
and indemnification agreements shall survive the Effective Time for at least
three years thereafter (including any directors' and officers' liability
insurance heretofore maintained if such insurance remains available for such
period on commercially reasonable terms) and UROHEALTH agrees to indemnify and
advance expenses to the Indemnified Parties
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to the full extent required or permitted by RA under the provisions existing on
the date hereof of the Articles of Incorporation, Bylaws and indemnification
agreements of RA.
7.5 Public Announcements. So long as this Agreement is
in effect, each of UROHEALTH, UROHEALTH California and RA agrees that it will
obtain the approval of the other prior to issuing any press release and will
use its best efforts to consult with the others before otherwise making any
public statement or responding to any press inquiry with respect to this
Agreement or the transactions contemplated hereby, except as may be required by
law or any governmental agency if required by such agency or the rules of the
American Stock Exchange.
7.6 Expenses. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
7.7 Additional Agreements.
(a) Subject to the terms and conditions herein
provided, including without limitation those set forth in the proviso to
Section 6.4 hereof, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using all reasonable efforts to obtain all necessary
waivers, consents and approvals, and to effect all necessary registrations and
filings. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of the Companies shall take all such necessary
action.
(b) Subject to the terms and conditions herein
provided, including without limitation those set forth in the proviso to
Section 6.4 hereof, UROHEALTH, UROHEALTH California and RA will cooperate with
each other and use all reasonable efforts to prepare all necessary
documentation to effect promptly all necessary filings and to obtain all
necessary permits, consents, approvals, orders and authorizations of or any
exemptions by, all third parties and governmental bodies necessary to
consummate the transactions contemplated by this Agreement.
(c) Each party will keep the other party apprised
of the status of any inquiries made of such party by the SEC or any other
governmental agency or authority or members of their respective staffs with
respect to this Agreement or the transactions contemplated herein.
7.8 Company Accruals and Reserves. Prior to the Closing
Date, RA shall review and, to the extent determined necessary or advisable,
consistent with generally accepted accounting principles and the accounting
rules, regulations and interpretations of the SEC and its staff, modify and
change its accrual, reserve and provision policies and practices to (a) reflect
UROHEALTH's plans with respect to the conduct of RA's business following the
Merger and (b) make adequate provision (for the costs and expenses relating
thereto) so as to be applied
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consistently on a mutually satisfactory basis with those of UROHEALTH. The
parties agree to cooperate in preparing for the implementation of the
adjustments contemplated by this Section 7.8. Notwithstanding the foregoing,
(i) RA shall not be obligated to take in any respect any such action pursuant
to this Section 7.8 (other than pursuant to the preceding sentence) unless and
until UROHEALTH acknowledges that all conditions to its obligations to
consummate the Merger have been satisfied and (ii) no adjustments made solely
as a result of this Section 7.8 shall change the Exchange Ratio.
7.9 Purchase of Property. UROHEALTH or UROHEALTH
California shall acquire from Newhauser Associates, a Michigan general
partnership, that certain real property commonly known as 8850 M-89, Richland,
Michigan 49083 pursuant to documents (the "Real Estate Documents") to be
attached hereto as Exhibit 7.9 within 20 days of execution hereof for a
purchase price of $4.5 million, on the terms and conditions mutually agreed to
by the parties and described in the Real Estate Documents. The Real Estate
Documents shall contemplate that $1.5 million of the purchase price shall be
paid in cash and Newhauser Associates will carry a $3.5 million, 10 year
mortgage on such real property at an interest rate equal to the Prime Rate
published in the Wall Street Journal on the date of Closing, or if such date is
not a day on which such rate is published, on such previous date on which the
rate is published.
7.10 Election of Director. UROHEALTH shall use its best
efforts to cause Richard R. Newhauser to be nominated as a director of
UROHEALTH and to be renominated as such for three years from the Effective
Time.
7.11 Voting Agreement. The stockholders of RA shall enter
into that certain Stockholders Agreement, dated May 13, 1996, agreeing to vote
in favor of the Debenture Voting Rights Proposal at the UROHEALTH annual
meeting, as described in the related proxy statement.
7.12 Registration Rights. The parties shall enter into a
mutually acceptable agreement providing the stockholders of RA with at least
one demand registration right and piggyback registration rights relating to the
UROHEALTH Shares, which agreement shall take into account the rights of others
under existing registration rights agreements with UROHEALTH.
7.13 Retention Bonus. At Closing, UROHEALTH shall place into
a segregated account of the Indemnification Escrow cash in the amount of
$550,000 and that number of UROHEALTH Shares equal to $550,000 (such cash and
shares, the "Retention Fund"). Each of the eleven individuals named on Exhibit
7.13 shall be entitled to receive a bonus (the "Retention Bonus") in the event
such individual is employed by the Surviving Corporation on the date twelve
months after the Effective Time. The Retention Bonus shall equal $50,000 in
cash and UROHEALTH Shares equal to $50,000 for each such individual, and shall
be paid from the Retention Fund. Any amounts or shares remaining in the
Retention Fund after all Retention Bonuses shall have been paid shall be
distributed to the RA Stockholders pro rata.
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ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
----------------------------------------
8.1 Conditions to all Parties' Obligation to Effect the
Merger. The respective obligations of RA, UROHEALTH and UROHEALTH California
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) This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the requisite vote
of the stockholders of RA in accordance with applicable law and there shall be
no Dissenting Holders.
(b) 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 Agreement of Merger
with the Secretary of State for the State of Delaware and the Articles of
Merger with the Secretary of State of the State of Illinois, 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
UROHEALTH or UROHEALTH California and their subsidiaries, taken as a whole,
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 RA Shares and to consummate the Merger shall have been
received.
(c) 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 UROHEALTH, UROHEALTH California or their
subsidiaries (or, in the case of any disposition of assets required in
connection with such Requisite Regulatory Approval, upon either RA, UROHEALTH
or UROHEALTH California 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.
8.2 Conditions to Obligation of Each Company to Effect
the Merger. The obligation each of RA, UROHEALTH and UROHEALTH California 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 such Company:
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(a) The other Company shall have performed in all
material respects its obligations under this Agreement required to be performed
by it at or prior to the Effective Time and the representations and warranties
of the other Company contained in this Agreement shall be true and correct in
all material respects at and as of the Effective Time as if made at and as of
such time, except as contemplated by this Agreement. RA, UROHEALTH and
UROHEALTH California shall have delivered to the other a certificate of its
President or an Executive Vice President as to the satisfaction of this
condition.
(b) Each of RA, UROHEALTH and UROHEALTH
California shall have received an opinion of its outside counsel, dated as of
the Effective Time, substantially to the effect that, on the basis of facts,
representations, and assumptions set forth in such opinion which are consistent
with the state of facts existing at the Effective Time, the Merger applicable
to such Company will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that such
Company will be a party to the reorganization within the meaning of Section
368(a) of the Code. In addition, each of RA, UROHEALTH and UROHEALTH
California shall have received the opinion of its, and the other Company's or
Companies' respective, outside counsel dated the Closing Date and addressed to
itself and the other Company or Companies covering the additional matters set
forth in Exhibit 8.2(b).
(c) Each of RA, UROHEALTH and UROHEALTH
California 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, except those for
which failure to obtain such consents and approvals would not, individually or
in the aggregate, have a material adverse effect on UROHEALTH or UROHEALTH
California and their subsidiaries taken as a whole or upon the consummation of
the transactions contemplated hereby.
8.3 Conditions to Obligation of UROHEALTH and UROHEALTH
California to Effect the Merger. The obligation of UROHEALTH and UROHEALTH
California to effect the Merger shall be further subject to the following
conditions:
(a) UROHEALTH shall have completed a due
diligence review of the operations, properties, records, contracts, assets,
liabilities (contingent and otherwise), and regulatory compliance of RA and its
subsidiaries and the results of the due diligence review shall be satisfactory
to UROHEALTH in its sole discretion. In the event the results of the due
diligence review are unsatisfactory to UROHEALTH, UROHEALTH and UROHEALTH
California shall have the option within twenty (20) days of the execution of
this Agreement to (i) terminate this Agreement by written notice to RA or (ii)
delivery of a written notice ("Notice") to RA conditioning UROHEALTH's and
UROHEALTH California's obligation to consummate the Merger upon RA's resolving,
to UROHEALTH's satisfaction prior to the Closing Date, those matters described
in the Notice, including, if applicable, amendment or termination of agreements
or arrangements as set forth in the Notice on terms acceptable to UROHEALTH.
Upon receiving the Notice, RA shall have five (5) business days to either (i)
terminate this Agreement by giving written notice to UROHEALTH or (ii) proceed
with the
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Merger, in which case the conditions outlined in the Notice shall be
deemed additional Closing conditions under this Section 8.3.
The results of UROHEALTH's due diligence shall be deemed
satisfactory for the purposes of this Section 8.3 unless in UROHEALTH's
reasonable judgment (a) they indicate that any representation or warranty made
by RA under this Agreement was materially untrue or inaccurate as of the date
when made or (b) they otherwise reveal liabilities (contingent or otherwise),
accounting irregularities (particularly other statements of assets or income or
inadequate reserves or allowances) in excess of $100,000 in the aggregate,
adverse agreements, understandings or arrangements to which RA or any of its
subsidiaries is a party, or any set of adverse facts or circumstances relating
to the general affairs, management, financial position or prospects of RA or
its subsidiaries (including the ability of UROHEALTH or UROHEALTH California to
succeed to the benefits of any arrangements between RA and physicians,
hospitals, managed care organizations or other third-party providers) which, if
known to UROHEALTH or UROHEALTH California at the time of the execution of this
Agreement, would have made it inadvisable for UROHEALTH or UROHEALTH California
to proceed with the Merger on the terms contemplated by this Agreement.
(b) Consistent with oral commitments from
UROHEALTH's lenders, a minimum of $27.5 million shall have been funded on or
prior to Closing.
8.4 Conditions to Obligation of RA to Effect the Merger.
The obligation of RA to effect the Merger shall be further subject to the
following conditions:
(a) RA shall have completed a due diligence
review of the operations, properties, records, contracts, assets, liabilities
(contingent and otherwise), and regulatory compliance of RA and its
subsidiaries and the results of the due diligence review shall be satisfactory
to RA in its sole discretion. In the event the results of the due diligence
review are unsatisfactory to RA, RA shall have the option within twenty (20)
days of the execution of this Agreement to (i) terminate this Agreement by
written notice to UROHEALTH or (ii) delivery of a written notice ("Notice") to
UROHEALTH conditioning RA's obligation to consummate the Merger upon
UROHEALTH's resolving, to RA's satisfaction prior to the Closing Date, those
matters described in the Notice, including, if applicable, amendment or
termination of agreements or arrangements as set forth in the Notice on terms
acceptable to RA. Upon receiving the Notice, UROHEALTH shall have five (5)
business days to either (i) terminate this Agreement by giving written notice
to RA or (ii) proceed with the Merger, in which case the conditions outlined in
the Notice shall be deemed additional Closing conditions under this Section
8.4.
(b) The results of RA's due diligence shall be
deemed satisfactory for the purposes of this Section 8.4 unless in RA's
reasonable judgment (i) they indicate that any representation or warranty made
by UROHEALTH under this Agreement was materially untrue or inaccurate as of the
date when made or (ii) they otherwise reveal liabilities (contingent or
otherwise), accounting irregularities (particularly other statements of assets
or income or inadequate reserves or allowances) in excess of $100,000 in the
aggregate, adverse agreements,
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understandings or arrangements to which UROHEALTH or any of its subsidiaries is
a party, or any set of adverse facts or circumstances relating to the general
affairs, management, financial position or prospects of UROHEALTH or its
subsidiaries which, if known to RA at the time of the execution of this
Agreement, would have made it inadvisable for RA to proceed with the Merger on
the terms contemplated by this Agreement.
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 stockholders of RA:
(a) By mutual written consent of UROHEALTH and
RA.
(b) By UROHEALTH or RA if the Merger shall not
have been consummated on or before September 1, 1996.
(c) By either UROHEALTH or RA if there shall have
been any material breach of a material obligation of the other and, if such
breach is curable, such default shall have not been remedied within 10 days
after receipt by the defaulting party of notice in writing from the other
specifying such breach and requesting that it be remedied, provided, that such
10-day period shall be extended for so long as the other Company shall be
making diligent attempts to cure such default.
(d) By RA 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 any Merger and such order,
decree, ruling or any other action shall have become final and non-appealable.
(e) By RA or UROHEALTH upon written notice to the
other if any approval of its stockholders required for the consummation of the
Merger submitted for their approval shall not have been obtained by reason of
the failure to obtain the required vote at a duly held meeting of stockholders
or at any adjournment thereof.
(f) By RA or UROHEALTH at any time prior to the
date of RA's stockholders' meeting, if the Closing Market Value is more than
15% below the closing price of UROHEALTH common stock on the American Stock
Exchange on the date this Agreement is executed.
9.2 Effect of Termination. In the event of termination
of this Agreement as provided in Section 9.1 above, this Agreement shall
forthwith become of no further effect and, except for a termination resulting
from a breach by a party of this Agreement, there shall be no liability or
obligation on the part of any Company or its officers or directors (except as
set forth
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in Section 7.1(b) hereof and except for Sections 7.6, 9.2 and 11.6 hereof which
shall survive the termination). Nothing contained in this Section 9.2 shall
relieve any party from liability for willful breach of this Agreement that
results in termination of this Agreement. Upon request therefor, each party
will redeliver all documents, work papers and other material of any other party
relating to the transactions contemplated hereby, whether obtained before or
after the execution hereof, to the party furnishing same.
9.3 Amendment. This Agreement may be amended by action
taken at any time before or after approval hereof by the stockholders of RA,
but, after any such approval, no amendment shall be made which alters the
Exchange Ratio or which in any way materially adversely affects the rights of
such stockholders, without the further approval of such stockholders. 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
-------------------------------
10.1 Survival of Representations, Warranties and
Agreements.
(a) No representations, warranties or agreements
contained herein shall survive beyond the Effective Time except that (i) the
agreements contained in Sections 2.3, 3.1, 3.2, 3.3, 3.4, 3.5, 5.21, 7.4, 7.5,
7.7(a), 7.9, 7.13, 10.1 and Article XI hereof, and all other agreements of the
parties, shall survive beyond the Effective Time and (ii) the representations
and warranties of RA shall survive beyond the Effective Time until the earlier
of (x) one year following the Effective Time or (y) the release of the first
audited financial statements for UROHEALTH following the Effective Time
("Termination Date").
(b) Through the Indemnification Shares, the
Surviving Corporation, UROHEALTH, and each of their officers, directors,
employees, agents, representatives and affiliates (collectively, the
"Indemnitees" and individually each an "Indemnitee") (subject to the terms and
conditions of subparagraph (c) below) 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
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or arising out of or related to any untruth, inaccuracy, error in, or breach
of, any representation or warranty of RA contained in this Agreement, when made
or deemed to be made. The rights of Indemnitees to indemnification under this
Section 10.1(b) shall be limited to, and satisfied solely out of and to the
extent of, the Indemnification Shares (which shall not include the Retention
Funds) exchanged for RA Shares in the Merger (the "Indemnification Escrow"),
and any Loss shall be limited to those amounts for which the Indemnitee does
not receive coverage under applicable insurance policies, if any. All
indemnification requests of Indemnitees hereunder shall be made by or through
UROHEALTH.
(c) By voting to approve this Agreement or by
surrendering his or her certificate(s) evidencing RA Shares as described in
Section 3.2, each holder of RA Shares, other than Excluded Shares ("RA
Stockholder"), agrees that UROHEALTH Shares equal to 10% of such shares to
which such stockholder becomes entitled upon consummation of the Merger and the
Retention Funds shall be placed in the Indemnification Escrow provided for in
an Escrow Agreement to be entered into, as of the Effective Time, between
UROHEALTH, RA and the Escrow Agent (which shall be mutually agreed by RA and
UROHEALTH). The Escrow Agent is authorized from time to time to transfer all
or any portion of the amount of the Indemnification Shares so deposited in
satisfaction of the indemnity obligation as contemplated in the Escrow
Agreement. The Indemnitees agree to look solely to the Indemnification Shares
for satisfaction of the obligation of RA Stockholders to indemnify Indemnitees
hereunder and will not look directly to any RA Stockholder for any
indemnification hereunder, nor to the Retention Funds.
(d) If any Indemnitee shall have any liquidated
claim of indemnification pursuant to Section 10.1(b) above, it shall promptly
request that UROHEALTH give written notice thereof to the Representative (as
defined in paragraph (h) below) and the Escrow Agent, including a brief
description of the facts upon which such claim is based and the amount thereof.
Any Indemnitee may also request that UROHEALTH provide written notice to the
Representative and the Escrow Agent of any unliquidated claim of
indemnification pursuant to Section 10.1(b), including a brief description of
the facts upon which such claim is based and a demand for a reserve amount to
be created in respect of such claim. Any claim made by any Indemnitee for
Losses that are unliquidated shall not be paid but Indemnification Shares with
a fair market value equal to such claim shall be held in the Indemnification
Escrow until such Losses are fully liquidated. Notwithstanding the foregoing,
no UROHEALTH Shares will be delivered to an Indemnitee pursuant to a written
claim notice (with respect to either a liquidated or unliquidated claim)
pursuant to Section 10.1(b) above unless, and only to the extent that, the
aggregate amount of Losses sustained by Indemnitees as a group and as to which
written claim notices have been given exceeds $75,000 (taking into account any
reduction of prior noticed claims resulting from the dispute resolution
procedures of Section 10.1(e) below).
(e) If the Representative shall notify the Escrow
Agent in writing (within fifteen (15) days of delivery to the Escrow Agent by
UROHEALTH of a written notice of claim for indemnification) of his objection to
a claim of indemnification or a demand for the creation of a reserve for any
unliquidated claim (or the amount thereof), the Escrow Agent shall hold the
disputed amount of Indemnification Shares in the Indemnification Escrow until
the rights of the RA Stockholders and the Indemnitees with respect thereto have
been agreed upon between the
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Representative and the claiming Indemnitee. In the event such an agreement is
reached, the claiming Indemnitee shall request UROHEALTH to provide to the
Escrow Agent a written notice signed by the Representative in the form
specified in the Escrow Agreement. If no such agreement has been reached,
either the Indemnitee or the Representative may, not earlier than forty-five
(45) days after the date of the initial claim notice, submit the dispute to
binding arbitration in Orange County, California, pursuant to the procedures
and rules for commercial arbitration of the American Arbitration Association.
The Escrow Agent may rely on the order or other determination of any such
arbitrator. If any such arbitrator shall determine that any part of the
Indemnification Escrow is to be delivered to an Indemnitee or is to be set
aside in a reserve for any unliquidated claim, the Escrow Agent shall promptly
following receipt of a copy of such determination establish such reserve or
deliver to such Indemnitee the lesser of (i) that number of Indemnification
Shares with a fair market value equal to the amount of the claim or claims as
awarded to the Indemnitee to be satisfied, subject to the limitation set forth
in paragraph (d) above, or (ii) the entire amount of Indemnification Shares
remaining in the Indemnification Escrow. Any disputed amounts not awarded to
the Indemnitee shall promptly be transferred to the unreserved portion of the
Indemnification Escrow. UROHEALTH and the Representative shall bear their
respective costs and expenses of any such arbitration; provided that, the
Representative shall be entitled to charge the Indemnification Escrow for his
costs and expenses as set forth in the Escrow Agreement.
(f) On the Termination Date, the Escrow Agent
shall distribute to the RA Stockholders on a pro rata basis all remaining
Indemnification Shares in the Indemnification Escrow, less such amount of
Indemnification Shares with a fair market value equal to the dollar amount of
all claims pursuant to Section 10.1(c) that are still in process of resolution
pursuant to Section 10.1(c).
(g) After the Termination Date, (i) as each
matter referred to in Section 10.1(e) is resolved or otherwise concluded and
(ii) as each undisputed unliquidated claim under Section 10.1(b) which remains
unliquidated as of the Termination Date is liquidated, the Escrow Agent shall
distribute to the RA Stockholders their respective pro rata amount of
Indemnification Shares then determined by the Escrow Agent to be free of any
rights of any Indemnitee under Section 10.1(b) through (d), and, when all such
matters are resolved and such claims are liquidated, the obligations under
Section 10(b) hereof shall terminate. The Indemnification Escrow shall be
terminated when all of the Indemnification Shares placed originally into the
Indemnification Escrow shall have been disbursed in accordance with the
provisions hereof and the Escrow Agreement.
(h) As of the Effective Time of the Merger, the
RA Stockholders shall, by virtue of the approval of this Agreement by the
requisite vote of the Stockholders, be deemed, for themselves and their heirs
and representatives and successors, to have constituted and appointed,
effective from the Effective Time, Richard R. Newhauser, as their agent and
attorney-in-fact (the "Representative") to take all action required or
permitted under the Indemnification Escrow as provided in the Escrow Agreement
or herein with respect to the interests and rights of the RA Stockholders. In
the event of the death, physical or mental incapacity or resignation of the
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Representative a replacement Representative shall be appointed as provided in
the Escrow Agreement.
In taking any action whatsoever hereunder, the Representative
shall be protected in relying upon any notice, paper or other document
reasonably believed by him to be genuine, or upon any evidence reasonably
deemed by him to be sufficient. The Representative may consult with counsel in
connection with his duties hereunder and shall be fully protected in any act
taken, suffered or permitted by him in good faith or in accordance with the
advice of counsel. The Representative shall not be liable to the RA
Stockholders for the performance of any act or the failure to act so long as he
acted or failed to act in good faith within what he reasonably believed to be
the scope of his authority and for a purpose which he reasonably believed to be
in the best interests of the RA Stockholders.
(i) The Escrow Agent shall distribute the
Retention Funds in the manner set forth in Section 7.13 within 30 days after
the individuals earning Retention Bonuses are determined.
ARTICLE XI
GENERAL PROVISIONS
------------------
11.1 Brokers. RA represents and warrants to the other
Companies 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 RA. UROHEALTH and UROHEALTH California represent and warrant
to RA that, except for UROHEALTH's financial advisor, Bear Stearns & Co., 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 California.
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 prepaid, return 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 RA, to:
Richard-Allan Medical Industries, Inc.
8850 M-89
Richland, Michigan 49083
Attention: Richard R. Newhauser
with a copy to:
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Howard & Howard Attorneys, P.C.
107 W. Michigan Avenue, Ste. 400
Kalamazoo, Michigan 47007-3956
Attention: Peter J. Livingston, Esq.
(b) If to UROHEALTH or UROHEALTH California, to:
UROHEALTH Systems, Inc.
3050 Redhill Avenue
Costa Mesa, California 92628
Attention: General Counsel
with a copy to:
Morrison & Foerster
19900 MacArthur Boulevard, Suite 1200
Irvine, California 92612
Attention: Robert M. Mattson, Jr., Esq.
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 Exhibits and other documents and instruments referred to herein) and the
Confidentiality Agreement 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.
11.6 Parties in Interest. Except for Sections 2.4, 7.4, 7.6 and
Article X hereof, nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any rights, benefit or remedies of any
nature whatsoever or by reason of this Agreement.
11.7 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.
11.8 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.
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11.9 Investigation. The respective representations and
warranties of UROHEALTH, UROHEALTH California or RA 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.
11.10 Consents. For purposes of any provision of this Agreement
requiring, permitting or providing for the consent of any Company, the written
consent of the Chief Executive Officer of a Company shall be sufficient to
constitute such consent.
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IN WITNESS WHEREOF, each Company 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/ CHARLES A. LAVERTY
-----------------------------------------
Name: Charles A. Laverty
Title: President and Chief Executive
Officer
UROHEALTH, INC. (California)
By: /s/ KEVIN M. HIGGINS
-----------------------------------------
Name: Kevin M. Higgins
Title: Secretary
RICHARD-ALLAN MEDICAL INDUSTRIES, INC.
By: /s/ RICHARD R. NEWHAUSER
-----------------------------------------
Name: Richard R. Newhauser
Title: Chairman
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