<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1996
REGISTRATION NO. 333-12723
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UROHEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 98-0122944
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
</TABLE>
------------------------
5 CIVIC PLAZA, SUITE 100
NEWPORT BEACH, CALIFORNIA 92660
(714) 668-5858
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
CHARLES A. LAVERTY
CHIEF EXECUTIVE OFFICER
UROHEALTH SYSTEMS, INC.
5 CIVIC PLAZA, SUITE 100
NEWPORT BEACH, CALIFORNIA 92660
(714) 668-5858
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
ROBERT M. MATTSON, JR., ESQ. NICHOLAS P. SAGGESE, ESQ.
MORRISON & FOERSTER LLP SKADDEN, ARPS, SLATE,
19900 MACARTHUR BOULEVARD MEAGHER & FLOM
IRVINE, CALIFORNIA 92612 300 S. GRAND AVENUE
(714) 251-7500 LOS ANGELES, CALIFORNIA 90071
(213) 657-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the offer and sale of the securities being
registered, other than underwriting discounts and commissions, are estimated as
follows:
<TABLE>
<S> <C>
Registration Fee....................................... $ 27,635
NASD Filing Fee........................................ 8,514
Legal Fees and Expenses................................ 200,000
Blue Sky Fees and Expenses............................. 15,000
Accounting Fees and Expenses........................... 100,000
Printing and Engraving Expenses........................ 150,000
Transfer Agent and Registrar Fees...................... 20,000
Miscellaneous.......................................... 78,851
--------
Total.................................................. $600,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 145 ("Section 145") of the General Corporation
Law of the State of Delaware (the "DGCL") which provides for indemnification of
directors and officers in certain circumstances.
UROHEALTH's Certificate of Incorporation provides that a director of
UROHEALTH will not be personally liable to UROHEALTH or its stockholders for
monetary damages for breach of fiduciary duty as a director of UROHEALTH except
for liability (i) for any breach of such director's duty of loyalty to UROHEALTH
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii) under
Section 174 of the DGCL (unlawful payment of dividends), or (iv) for any
transaction from which such director derived an improper personal benefit.
UROHEALTH is empowered by Section 145 of the DGCL, subject to the
procedures and limitations stated therein, to indemnify any person against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in the defense of any
threatened, pending or completed action, suit or proceeding in which such person
is made a party by reason of his or her being or having been a director or
officer of UROHEALTH. The statute provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a person
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
UROHEALTH's Bylaws provide that UROHEALTH shall indemnify its directors,
and may indemnify its officers, to the full extent permitted by law.
The Registrant has entered into agreements with certain directors and
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts to the fullest extent permitted
by law incurred in connection with any proceeding to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of the Registrant or any of its affiliated enterprises, provided such
person acted honestly and in good faith with a view to the best interests of the
corporation.
There are directors' and officers' liability insurance policies presently
in force insuring directors and officers of the Registrant and its subsidiaries.
II-1
<PAGE> 3
ITEM 16. EXHIBITS.
Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant. Incorporated by reference to Exhibit 3.2 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1995.
4.1 Form of Certificate for Common Stock. Incorporated by reference to Exhibit 4.1
of the Company's Annual Report on Form 10-K for the fiscal period ended March
31, 1996.
4.2 Rights Agreement. Incorporated by reference to Exhibit 4.1 to the Registrant's
Current Report on Form 8-K dated May 20, 1993 (the "May 20, 1993 Form 8-K").
4.3 Form of Rights Certificate. Incorporated by reference to Exhibit 4.2 to the
Registrant's May 20, 1993 Form 8-K.
5.1 Opinion of Morrison & Foerster LLP.
23.1 Consent of Ernst & Young LLP.**
23.2 Consent of Doane Raymond.**
23.3 Consent of Coopers & Lybrand L.L.P.**
23.4 Consent of KPMG Peat Marwick LLP.**
23.5 Consent of Cherry, Bekaert & Holland.**
23.6 Consent of Ernst & Young LLP.**
23.7 Consent of Morrison & Foerster LLP (included in Exhibit 5.1).
23.8 Consent of BDO Seidman.**
24.1 Power of Attorney of certain officers and directors.**
</TABLE>
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** Previously filed.
II-2
<PAGE> 4
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Act"), each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Exchange Act of 1934 (the "Exchange Act") (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described in Item 15 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 3 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Newport Beach, State of California, on November
11, 1996.
UROHEALTH SYSTEMS, INC.
By: /s/ CHARLES A. LAVERTY
------------------------------------
Charles A. Laverty
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------------------- --------------------------------- ------------------
<C> <S> <C>
/s/ CHARLES A. LAVERTY Chief Executive Officer and November 11, 1996
- ---------------------------------------- Director (Principal Executive
Charles A. Laverty Officer)
/s/ JAMES L. JOHNSON Chief Financial Officer November 11, 1996
- ---------------------------------------- (Principal Financial Officer and
James L. Johnson Principal Accounting Officer)
* Director November 11, 1996
- ----------------------------------------
Mitchell J. Blutt, M.D.
* Director November 11, 1996
- ----------------------------------------
Abbey J. Butler
* Director November 11, 1996
- ----------------------------------------
John Chamberlin
* Director November 11, 1996
- ----------------------------------------
Robert N. Elkins
* Director November 11, 1996
- ----------------------------------------
Melvyn J. Estrin
* Director November 11, 1996
- ----------------------------------------
C. Sage Givens
Director , 1996
- ----------------------------------------
Lawrence Goelman
* Director November 11, 1996
- ----------------------------------------
Michael S. Gross
</TABLE>
II-4
<PAGE> 6
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------------------- --------------------------------- ------------------
<C> <S> <C>
* Director November 11, 1996
- ----------------------------------------
Richard Newhauser
* Director November 11, 1996
- ----------------------------------------
James B. Osbon
* Director November 11, 1996
- ----------------------------------------
Julian W. Osbon
* Director November 11, 1996
- ----------------------------------------
Francis J. Tedesco
* Director November 11, 1996
- ----------------------------------------
Gerald W. Timm
*By: /s/ CHARLES A. LAVERTY
- ----------------------------------------
Charles A. Laverty
Attorney-In-Fact
</TABLE>
II-5
<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
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<C> <S> <C>
1.1 Form of Underwriting Agreement.......................................
3.1 Certificate of Incorporation of the Registrant.......................
3.2 Bylaws of the Registrant. Incorporated by reference to Exhibit 3.2 of
the Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995........................................................
4.1 Form of Certificate for Common Stock. Incorporated by reference to
Exhibit 4.1 of the Company's Annual Report on Form 10-K for the
fiscal period ended March 31, 1996...................................
4.2 Rights Agreement. Incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K dated May 20, 1993 (the "May
20, 1993 Form 8-K")..................................................
4.3 Form of Rights Certificate. Incorporated by reference to Exhibit 4.2
to the Registrant's May 20, 1993 Form 8-K............................
5.1 Opinion of Morrison & Foerster LLP...................................
23.1 Consent of Ernst & Young LLP.**......................................
23.2 Consent of Doane Raymond.**..........................................
23.3 Consent of Coopers & Lybrand L.L.P.**................................
23.4 Consent of KPMG Peat Marwick LLP.**..................................
23.5 Consent of Cherry, Bekaert & Holland.**..............................
23.6 Consent of Ernst & Young LLP.**......................................
23.7 Consent of Morrison & Foerster LLP (included in Exhibit 5.1).........
23.8 Consent of BDO Seidman.**
24.1 Power of Attorney of certain officers and directors.**...............
</TABLE>
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** Previously filed.
<PAGE> 1
EXHIBIT 1.1
UROHEALTH SYSTEMS, INC.
5,750,000 Shares
Common Stock $0.001 par value
UNDERWRITING AGREEMENT
November __, 1996
BEAR, STEARNS & CO. INC.
NEEDHAM & COMPANY, INC.
PIPER JAFFRAY INC.
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies and Gentlemen:
UROHEALTH Systems, Inc., a corporation organized and existing
under the laws of Delaware (the "Company"), and the selling stockholders of the
Company set forth on Schedule I hereto (the "Selling Stockholders") propose,
subject to the terms and conditions stated herein, to issue and sell, as
applicable, to the several underwriters named in Schedule II hereto (the
"Underwriters") an aggregate of 5,000,000 shares (the "Firm Shares") of the
Company's Common Stock, par value $0.001 per share (the "Common Stock"), and,
for the purpose of covering over-allotments in connection with the sale of the
Firm Shares, the Company proposes to issue and sell to the Underwriters, at the
option of the Underwriters, up to an additional 750,000 shares (the "Additional
Shares") of Common Stock. The Firm Shares and any Additional Shares purchased by
the Underwriters are referred
<PAGE> 2
to herein as the "Shares." The Shares are more fully described in the
Registration Statement referred to below.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Act"), a registration statement on
Form S-3 (No. 333-12723), including a preliminary prospectus, subject to
completion, relating to the Shares. The registration statement, as amended at
the time it becomes effective or, if a post-effective amendment is filed with
respect thereto, as amended by such post-effective amendment at the time of its
effectiveness, including in each case, all documents incorporated or deemed
incorporated by reference therein, if any, all financial statements and
exhibits, and the information, if any, contained in a prospectus or term sheet
subsequently filed with the Commission pursuant to Rule 424(b) under the Act and
deemed to be a part of the registration statement at the time of its
effectiveness pursuant to Rule 430A or Rule 434 under the Act (as applicable),
and any additional registration statement relating to the issuance of additional
shares of Common Stock filed pursuant to Rule 462(b) under the Act, is
hereinafter referred to as the "Registration Statement"; and the prospectus,
constituting a part of the Registration Statement at the time it became
effective, or such revised prospectus as shall be provided to the Underwriters
for use in connection with the offering of the Shares that differs from the
prospectus on file with the Commission at the time the Registration Statement
became effective, including, in each case, all documents incorporated or deemed
incorporated by reference therein, if any, whether or not filed with the
Commission pursuant to Rule 424(b) under the Act, and including any preliminary
prospectus subject to completion and any term sheet meeting the requirements of
Rule 434(c), filed pursuant to Rule 424(b), in the form used to confirm sales of
the Shares, is hereinafter referred to as the "Prospectus."
1. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this agreement (the "Agreement"),
and subject to its terms and conditions, the Company and the Selling
Stockholders agree, severally and not jointly, to issue and sell, as applicable,
the Shares in the respective amounts
2
<PAGE> 3
set forth opposite their names on Schedule I hereto to the Underwriters, and the
Underwriters agree, severally and not jointly, to purchase from the Company and
the Selling Stockholders the Shares in the respective amounts set forth opposite
their names on Schedule II hereto, plus such amount as they may individually
become obligated to purchase pursuant to Section 8 hereof, at a purchase price
per share (the "Purchase Price") equal to $-------.
2. Delivery and Payment. Delivery to you of and payment for
the Shares shall be made at 9:00 A.M., New York time, on the fourth business day
(such time and date being referred to as the "Closing Date") following the date
of this Agreement, at [ ]. The Closing Date and the location of
delivery of, and the form of payment for, the Shares may be varied by agreement
among the Underwriters, the Company and the Selling Stockholders.
On the basis of the representations and warranties contained
in this Agreement, and subject to the terms and conditions hereof, (i) the
Company agrees to issue and sell to the Underwriters up to 750,000 Additional
Shares, (ii) the Underwriters shall have a right to purchase, from time to time,
up to an aggregate of 750,000 Additional Shares at the Purchase Price.
Additional Shares may be purchased for the purpose of covering over-allotments
made in connection with the offering of the Firm Shares. If any Additional
Shares are to be purchased, each Underwriter, severally and not jointly, agrees
to purchase the number of Additional Shares (subject to such adjustments to
eliminate fractional shares as Bear, Stearns may determine) which bears the same
proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto bears to the total number of Firm Shares.
The Company hereby agrees, and the Company shall, concurrently
with the execution of this Agreement, deliver an agreement executed by (i) each
of the directors and officers of the Company and (ii) the Selling Stockholders,
pursuant to which each such person will agree, not to, directly or indirectly,
offer, sell, contract to sell, grant any option to purchase or otherwise dispose
of (whether directly or indirectly), without the prior written consent of Bear,
Stearns, any shares of Common Stock, or any securities convertible into or
exercisable or exchangeable for,
3
<PAGE> 4
or warrants, options or rights to purchase or acquire, Common Stock or enter
into any agreement to do any of the foregoing (whether directly or indirectly),
for a period of 120 days after the date of the Prospectus, except pursuant to
this Agreement.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at such place as the
Underwriters shall reasonably designate, at 9:00 A.M., New York City time, on
such date or dates (individually, an "Option Closing Date"), which may be the
same as the Closing Date but shall in no event be earlier than the Closing Date,
as shall be specified in a written notice from the Underwriters to the Company
of the Underwriters' determination to purchase a number, specified in said
notice, of Additional Shares. Any such notice may be given at any time not later
than 30 days after the date of this Agreement. Any Option Closing Date and the
location of delivery of and payment for the Additional Shares may be varied by
agreement among the Underwriters and the Company.
Certificates for the Shares shall be registered in such names
and issued in such denominations as the Underwriters shall request in writing
not later than two business days prior to the Closing Date or the applicable
Option Closing Date, as the case may be, and shall be made available to you at
the offices of Bear, Stearns & Co. Inc. ("Bear, Stearns"), or such other place
as shall be acceptable to you, for inspection not later than 9:30 A.M., New York
City time, on the business day next preceding the Closing Date or the applicable
Option Closing Date, as the case may be. Certificates in definitive form
evidencing the Shares shall be delivered to you on the Closing Date or the
applicable Option Closing Date, as the case may be, with any transfer taxes
payable upon initial issuance thereof duly paid by the Company or the Selling
Stockholders, for the respective accounts of the Underwriters against payment of
the Purchase Price per share by wire transfer payable in same day funds, to the
order of the Company.
3. Agreements of the Company. The Company agrees with each of
you that:
(a) It will, if the Registration Statement
has not heretofore become effective under the Act, file an amendment to the
Registration Statement or, if necessary
4
<PAGE> 5
pursuant to Rule 430A under the Act, a post-effective amendment to the
Registration Statement, in each case as soon as practicable after the execution
and delivery of this Agreement, and will use its best efforts to cause the
Registration Statement or such post-effective amendment to become effective at
the earliest possible time. The Company will comply fully and in a timely manner
with the applicable provisions of Rule 424 and Rule 430A, and if applicable,
Rule 462, under the Act.
(b) It will advise you promptly and, if re-
quested by any of you, confirm such advice in writing, (i) when the Registration
Statement has become effective, if and when the Prospectus is sent for filing
pursuant to Rule 424 under the Act and when any post-effective amendment to the
Registration Statement becomes effective, (ii) of the receipt of any comments
from the Commission or any state securities commission or regulatory authority
that relate to the Registration Statement or requests by the Commission or any
state securities commission or regulatory authority for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement, or of the
suspension of qualification of the Shares for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purpose by the
Commission or any state securities commission or any other regulatory authority,
and (iv) of the happening of any event during such period as in your reasonable
judgment you are required to deliver a prospectus in connection with sales of
the Shares by you which makes any statement of a material fact made in the
Registration Statement untrue or which requires the making of any additions to
or changes in the Registration Statement (as amended or supplemented from time
to time) in order to make the statements therein not misleading or that makes
any statement of a material fact made in the Prospectus (as amended or
supplemented from time to time) untrue or which requires the making of any
additions to or changes in the Prospectus (as amended or supplemented from time
to time) in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Company shall use its best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption of the Shares under any state securities or Blue Sky
laws, and, if at any time the Commission shall issue any stop order suspending
the effectiveness of the
5
<PAGE> 6
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption of the
Shares under any state securities or Blue Sky laws, the Company shall use every
reasonable effort to obtain the withdrawal or lifting of such order at the
earliest possible time.
(c) It will furnish to you without charge
three (3) signed copies (plus one (1) additional signed copy to your legal
counsel) of the Registration Statement as first filed with the Commission and of
each amendment to it, including all exhibits filed therewith, and will furnish
to you such number of conformed copies of the Registration Statement as so filed
and of each amendment to it, without exhibits, as you may reasonably request.
(d) It will not file any amendment or sup-
plement to the Registration Statement, whether before or after the time when it
becomes effective, or make any amendment or supplement to the Prospectus, of
which you shall not previously have been advised and provided a copy within two
business days prior to the filing thereof (or such reasonable amount of time as
is necessitated by the exigency of such amendment or supplement) or to which you
shall reasonably object; and it will prepare and file with the Commission,
promptly upon your reasonable request, any amendment to the Registration
Statement or supplement to the Prospectus which may be necessary or advisable in
connection with the distribution of the Shares by you, and will use its best
efforts to cause any amendment to the Registration Statement to become effective
as promptly as possible.
(e) Promptly after the Registration State-
ment becomes effective, and from time to time thereafter for such period in your
reasonable judgment as a prospectus is required to be delivered in connection
with sales of the Shares by you, it will furnish to each Underwriter and dealer
without charge as many copies of the Prospectus (and of any amendment or
supplement to the Prospectus) as such Underwriters and dealers may reasonably
request. The Company consents to the use of the Prospectus and any amendment or
supplement thereto by any Underwriter or any dealer, both in connection with the
offering or sale of the Shares and for such period of time thereafter as the
Prospectus is required by the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act") to be delivered in connection therewith.
6
<PAGE> 7
(f) If during such period as in your reasonable judgment
you are required to deliver a prospectus in connection with sales of the Shares
by you any event shall occur as a result of which it becomes necessary to amend
or supplement the Prospectus in order to make the statements therein, in the
light of the circumstances existing as of its date and the date the Prospectus
is delivered to a purchaser, not misleading, or if it is necessary to amend or
supplement the Prospectus to comply with any law, it will promptly prepare and
file with the Commission an appropriate amendment or supplement to the
Prospectus so that the statements in the Prospectus, as so amended or
supplemented, will not, in the light of the circumstances existing as of its
date and the date the Prospectus is so delivered, be misleading, and will comply
with applicable law, and will furnish to each Underwriter and dealer without
charge such number of copies thereof as such Underwriters and dealers may
reasonably request.
(g) Prior to any public offering of the Shares, it will
cooperate with you and your counsel in connection with the registration or
qualification of the Shares for offer and sale by you under the state securities
or Blue Sky laws of such jurisdictions as you may request (provided, that the
Company shall not be obligated to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified or to take any action that would
subject it to general consent to service of process in any jurisdiction in which
it is not now so subject). The Company will continue such qualification in
effect so long as required by law for distribution of the Shares.
(h) It will make generally available to its security
holders as soon as reasonably practicable a consolidated earning statement
covering a period of at least twelve months beginning after the "effective date"
(as defined in Rule 158 under the Act) of the Registration Statement (but in no
event commencing later than 45 days after such date) which shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 thereunder, and to advise
you in writing when such statement has been so made available.
(i) It will timely complete all required filings and
otherwise fully comply in a timely manner with all provisions of the Exchange
Act.
7
<PAGE> 8
(j) During the period of five years hereafter, the
Company will furnish to you (i) as soon as available, a copy of each report of
the Company mailed to stockholders or filed with the Commission, and (ii) from
time to time such other information concerning the Company as you may reasonably
request.
(k) Whether or not the transactions contemplated hereby
are consummated or this Agreement is terminated, it will pay and be responsible
for all costs, expenses, fees and taxes in connection with or incident to (i)
the printing, processing, filing, distribution and delivery under the Act or the
Exchange Act of the Registration Statement, each preliminary prospectus, the
Prospectus and all amendments or supplements to any of them, (ii) the printing,
processing, execution, distribution and delivery of this Agreement, any
memoranda describing state securities or Blue Sky laws and all other agreements,
memoranda, correspondence and other documents printed, distributed and delivered
in connection with the offering of the Shares, (iii) the registration with the
Commission and the issuance and delivery of the Shares, (iv) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the jurisdictions referred to in paragraph (g) above (including, in each
case, the fees and disbursements of counsel relating to such registration or
qualification and memoranda relating thereto and any filing fees in connection
therewith), (v) furnishing such copies of the Registration Statement, Prospectus
and preliminary prospectus, and all amendments and supplements to any of them,
as may be reasonably requested by you, (vi) filing, registration and clearance
with the National Association of Securities Dealers, Inc. (the "NASD") in
connection with the offering of the Shares (including any filing fees in
connection therewith and the fees and disbursements of counsel relating
thereto), (vii) the listing of the Shares on the American Stock Exchange (the
"AMEX"), (viii) any "qualified independent underwriter" if required by the rules
of the NASD (including fees and disbursements of counsel for such qualified
independent underwriter) and (ix) the performance by the Company of its other
obligations under this Agreement, the cost of its personnel and other internal
costs, the cost of printing and engraving the certificates representing the
Shares, and all expenses and taxes incident to the sale and delivery of the
Shares to you.
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<PAGE> 9
(l) It will use the proceeds from the sale of the Shares in
the manner described in the Prospectus under the caption "Use of Proceeds."
(m) It will cause the Shares to be quoted on the AMEX and
will use its reasonable best efforts to maintain such quotation, or quotation on
the National Market of the Nasdaq Stock Market, while any of the Shares are
outstanding.
(n) It will use its best efforts to do and perform all
things required to be done and performed under this Agreement by it prior to or
after the Closing Date and to satisfy all conditions precedent on its part to
the delivery of the Shares.
(o) It will timely complete all required filings and
otherwise comply fully in a timely manner with all provisions of the Exchange
Act, and will file all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14(a) or 15(d) of the Exchange Act subsequent to the date
of the Prospectus and for so long as the delivery of the Prospectus is required
in connection with the offer or sale of the Shares.
(p) During the period beginning on the date of this
Agreement and continuing to and including the Closing Date, except as described
in the Prospectus, there will be no transactions entered into by the Company or
any of its subsidiaries (each a "Subsidiary" and, collectively, the
"Subsidiaries") which are material with respect to the Company and the
Subsidiaries taken as a whole, and there will be no dividend or distribution of
any kind declared, paid or made by the Company on any class of capital stock or
other equity interests.
4. Representations and Warranties. (1) The Company represents
and warrants to each of you and to each of the Selling Stockholders that:
(a) When the Registration Statement becomes effective,
including at the date of any post-effective amendment, at the date of the
Prospectus (if different) and at the Closing Date, the Registration Statement
will comply in all material respects with the provisions of the Act, and will
not contain any untrue statement of a material fact or
9
<PAGE> 10
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; the Prospectus and any supplements
or amendments thereto will not at the date of the Prospectus, at the date of any
such supplements or amendments and at the Closing Date contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that the representations and
warranties contained in this paragraph (a) shall not apply to statements in or
omissions from the Registration Statement or the Prospectus (or any supplement
or amendment to them) made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by or on behalf
of any Underwriter expressly for use therein. The Company acknowledges for all
purposes under this Agreement that the statements with respect to price and
underwriting discount all as set forth on the cover page and the last paragraph
on the inside cover page, and in the table and the second paragraph under the
caption "Underwriting" in the Prospectus (or any amendment or supplement
thereto) constitute the only written information (the "Underwriter Information")
furnished to the Company by the Underwriters expressly for use in the
Registration Statement or the Prospectus (or any amendment or supplement to
them) and that the Underwriters shall not be deemed to have provided any other
information (and therefore are not responsible for any such statement or
omission).
(b) Any term sheet and prospectus subject to
completion provided by the Company to the Underwriters for use in connection
with the offering and sale of the Shares pursuant to Rule 434 under the Act
together are not materially different from the Prospectus included in the
Registration Statement.
(c) Each preliminary prospectus and the pro-
spectus filed as part of the Registration Statement as originally filed or as
part of any amendment thereto, or filed pursuant to Rule 424 under the Act, and
each Registration Statement filed pursuant to Rule 462(b) under the Act, if any,
complied when so filed in all material respects with the Act.
(d) No action has been taken and no statute,
rule, regulation or order has been enacted, adopted or issued by any
governmental body, agency or official which
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<PAGE> 11
prevents the issuance of the Shares, prevents or suspends the use of the
preliminary Prospectus or the Prospectus, or suspends the sale of the Shares in
any jurisdiction referred to in Section 3(g) hereof; no injunction, restraining
order, or order of any nature by any Federal or state court has been issued with
respect to the Company or any of the Subsidiaries which would prevent or suspend
the issuance of the Shares, prevent or suspend the use of the preliminary
Prospectus or the Prospectus, or suspend the sale of the Shares in any
jurisdiction referred to in Section 3(g) hereof; no action, suit or proceeding
before any court or arbitrator or any governmental body, agency or official,
domestic or foreign, is pending against or, to the best of the Company's
knowledge, threatened against, the Company or any of the Subsidiaries which, if
adversely determined, would interfere with or adversely affect the issuance of
the Shares or in any manner draw into question the validity of this Agreement or
the Shares; and the Company has complied with every request of any securities
authority or agency of any jurisdiction for additional information.
(e) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under the
caption, "Capitalization"; all of the shares of issued and outstanding Common
Stock have been duly authorized and validly issued and are fully paid,
nonassessable and not subject to any preemptive or similar rights; the Firm
Shares to be sold by the Company and the Additional Shares have been duly
authorized for issuance and sale to the Underwriters pursuant to this Agreement
and, when issued and delivered by the Company pursuant to this Agreement against
payment of the consideration set forth herein, will be validly issued and fully
paid and nonassessable; the capital stock of the Company, including the Common
Stock, conforms in all material respects to all statements relating thereto in
the Prospectus and the Registration Statement; and the issuance of the Shares by
the Company will not be subject to preemptive or other similar rights.
(f) This Agreement has been duly authorized
and validly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms (assuming due authorization, execution and delivery by all other
parties hereto), subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws affecting creditors' rights and
remedies
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<PAGE> 12
generally and to general principles of equity (regardless of whether enforcement
is sought in a proceeding at law or in equity) and except to the extent that
indemnification from liability in connection with the Federal securities laws
may be unenforceable.
(g) The execution and delivery of this Agreement by the
Company, the issuance and sale, as applicable, of the Shares, the performance of
this Agreement and the consummation of the transactions contemplated by this
Agreement will not conflict with or constitute or result in a breach or
violation of (or an event which, with notice or lapse of time, or both, would
constitute a breach or violation of) the charters or bylaws of the Company or
any of the terms or provisions of, or constitute a default or cause an
acceleration of any obligation under or result in the imposition or creation of
(or the obligation to create or impose) any security interest, mortgage, pledge,
claim, lien, encumbrance or adverse interest of any nature (each, a "Lien") with
respect to, any obligation, bond, agreement, note, debenture, or other evidence
of indebtedness, or any indenture, mortgage, deed of trust or other agreement,
lease, license or instrument to which the Company or any of the Subsidiaries is
a party or by which it or any of them is bound, or to which any properties of
the Company or any of the Subsidiaries is or may be subject, or any order of any
court or governmental agency, body or official having jurisdiction over the
Company or any of the Subsidiaries or any of their properties, or violate or
conflict with any statute, judgment, decree, order, rule or regulation of any
court, governmental agency or other body or self-regulatory organization
applicable to the Company or any of the Subsidiaries, or any of their respective
assets or properties.
(h) No authorization, approval or consent or order of, or
filing with, any court or governmental body, agency or official is necessary in
connection with the transactions contemplated by this Agreement, except such as
will be obtained and made under the Federal and state securities or Blue Sky
laws or regulations.
(i) The Company and each of the Subsidiaries has been duly
organized, is validly existing as a corporation in good standing under the laws
of its respective jurisdiction of incorporation and has the requisite power and
authority to carry on its business as it is currently being conducted, to own,
lease and operate its properties
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<PAGE> 13
and, as applicable, to authorize the offering of the Shares, to execute, deliver
and perform its respective obligations under this Agreement, and to issue, sell
and deliver the Shares, as applicable, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
where the operation, ownership or leasing of property or the conduct of its
business requires such qualification, except for those cases in which failure to
be so qualified or in good standing would not have a Material Adverse Effect (as
defined). None of the Company or any of the Subsidiaries is in violation of any
statute, judgment, decree, order, rule or regulation applicable to any of them
or any of their respective properties or assets, which violation could have a
material adverse effect on the properties, facilities, business, results of
operations, general affairs, management, condition (financial or otherwise),
prospects, or business affairs of the Company and the Subsidiaries, taken as a
whole (a "Material Adverse Effect").
(j) All of the issued and outstanding shares of capital
stock of, or other ownership interests in, each Subsidiary have been duly
authorized and validly issued, and all of the shares of capital stock of, or
other ownership interests in, each Subsidiary are owned, directly or through
Subsidiaries, by the Company. All such shares of capital stock are fully paid
and nonassessable, are not subject to any preemptive or similar rights, and are
owned free and clear of any Lien. There are no outstanding subscriptions,
rights, warrants, options, calls, convertible or exchangeable securities,
commitments of sale, or Liens related to or entitling any person to purchase or
otherwise to acquire any shares of the capital stock of, or other ownership
interest in, any Subsidiary.
(k) Neither the Company nor any of the Subsidiaries is in
violation of its respective charter or bylaws or in default in the performance
of any obligation, bond, agreement, debenture, note or any other evidence of
indebtedness, or any indenture, mortgage, deed of trust or other contract,
lease, license, permit, certificate or other instrument to which the Company or
any of the Subsidiaries is a party or by which any of them is bound, or to which
any of the property or assets of the Company or of any of the Subsidiaries is
subject.
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<PAGE> 14
(l) There is no action, suit, or proceeding before or by
any court or governmental agency or body, or arbitration board or tribunal,
domestic or foreign, pending against or affecting the Company or any of the
Subsidiaries, or any of their respective assets or properties, which is required
to be disclosed in the Prospectus or which could have, singly or in the
aggregate, a Material Adverse Effect, or which could materially and adversely
affect the Company's performance of its obligations pursuant to this Agreement
or the transactions contemplated hereby, and to the best of the Company's and
the Subsidiaries' knowledge, no such action, suit, or proceeding is contemplated
or threatened. None of the Company or any of the Subsidiaries is subject to any
judgment, order, decree, rule or regulation of any court, governmental authority
or arbitration board or tribunal which could have a Material Adverse Effect.
(m) Neither the Company nor any of the Subsidiaries is in
violation of any Federal, state or local laws and regulations relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including, without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of toxic or hazardous
substances, materials or wastes, or petroleum and petroleum products ("Materials
of Environmental Concern"), or otherwise relating to the protection of human
health and safety, or the storage, disposal, transport or handling of Materials
of Environmental Concern (collectively, "Environmental Laws"), including without
limitation any violation or non-compliance with any permits or other
governmental authorizations held by the Company or any Subsidiary, in each case
which could have a Material Adverse Effect or otherwise require disclosure in
the Registration Statement. Neither the Company nor any Subsidiary has received
any communication (written or oral), whether from a governmental authority or
otherwise, alleging any such violation or noncompliance and, to the best
knowledge of the Company after due inquiry, there are no circumstances, either
past, present or that are reasonably foreseeable, that are likely to lead to
such violation in the future; there is no pending or threatened claim, action,
investigation or notice (written or oral) by any person or entity alleging
potential liability for investigatory, cleanup, or governmental responses costs,
or natural resources or property damages, or personal injuries, attorney's fees
or penalties relating to (x) the pres-
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<PAGE> 15
ence, or release into the environment, of any Materials of Environmental Concern
at any location owned or operated by the Company or any Subsidiary, now or in
the past, or (y) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law (collectively, "Environmental Claims"); and
there are no past or present actions, activities, circumstances, conditions,
events or incidents, that are likely to form the basis of any Environmental
Claim against the Company or any Subsidiary or against any person or entity
whose liability for any Environmental Claim the Company or any Subsidiary has
retained or assumed either contractually or by operation of law, in each case
which could have a Material Adverse Effect or otherwise require disclosure in
the Registration Statement. In the ordinary course of its business, the Company
conducts a periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its Subsidiaries, in the course of
which it identifies and evaluates associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities and any
potential liabilities to third parties); on the basis of such review, the
Company has reasonably concluded that such associated costs and liabilities
could not, singly or in the aggregate, have a Material Adverse Effect or
otherwise require disclosure in the Registration Statement.
(n) Neither the Company nor any Subsidiary is in violation
of any Federal, state or local law relating to discrimination in the hiring,
promotion or pay of employees nor any applicable wage or hour laws, which such
violation would have a Material Adverse Effect. There is (A) no unfair labor
practice complaint pending against the Company or any Subsidiary or, to the best
knowledge of the Company, threatened against any of them, before the National
Labor Relations Board or any state or local labor relations board, and no
grievance or significant arbitration proceeding arising out of or under any
collective bargaining agreement is so pending against the Company or any
Subsidiary or, to the best knowledge of the Company, threatened against any of
them, and (B) no labor dispute in which the Company or any Subsidiary is
involved nor, to the best knowledge of the Company, is any labor dispute
imminent, other than routine disciplinary and grievance matters, in each case
which, if determined adversely to the Company, could have a Material
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<PAGE> 16
Adverse Effect. The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and the regulations and published interpretations
thereunder; no "reportable event" (as defined in ERISA and the regulations and
published interpretations thereunder) has occurred with respect to any "pension
plan" (as defined in ERISA and the regulations and published interpretations
thereunder) established or maintained by the Company or any of its Subsidiaries;
the amount of "unfunded benefit liabilities" (as defined in ERISA and the
regulations and published interpretations thereunder) under all "pension plans"
does not exceed $100,000; neither the Company nor any of its Subsidiaries has
incurred or expects to incur liability under (i) Title IV of ERISA with respect
to termination of, or withdrawal from, any "pension plan" or (ii) Section 4971,
4975 or 4980B of the Code; and each "pension plan" established or maintained by
the Company that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
(o) Except as disclosed in the Prospectus, or as could not
have, singly or in the aggregate, a Material Adverse Effect, the Company and
each Subsidiary has good and marketable title, free and clear of all Liens, to
all property and assets described in the Prospectus as being owned by it and
such property and assets are in good repair and suitable for use as so
described. All leases to which the Company or each Subsidiary is a party are
valid and binding and no default has occurred or is continuing thereunder which
could result, singly or in the aggregate, in a Material Adverse Effect, and the
Company and the Subsidiaries enjoy peaceful and undisturbed possession under all
such leases to which any of them is a party as lessee with such exceptions as do
not interfere materially with the use made by the Company or such Subsidiary.
(p) The Company and its Subsidiaries maintain insurance
at least in such amounts and covering at least such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar businesses in
similar industries.
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(q) The firm of accountants that has certified or shall
certify the applicable consolidated financial statements and supporting
schedules and the notes thereto of the Company included in the preliminary
Prospectus and the Prospectus are independent public accountants with respect to
the Company and the Subsidiaries, as required by the Act and the Exchange Act.
The consolidated financial statements, together with related schedules and
notes, set forth in the preliminary Prospectus and the Prospectus (and any
amendments or supplements thereto), comply as to form in all material respects
with the requirements of the Act and the Exchange Act and fairly present the
consolidated financial position of the Company and the Subsidiaries at the
respective dates indicated and the results of their operations and their cash
flows for the respective periods indicated, in accordance with generally
accepted accounting principles in the United States of America ("GAAP")
consistently applied throughout such periods and in accordance with the
requirements of the Commission's Regulation S-X; and the other financial and
statistical information and data included in the preliminary Prospectus and the
Prospectus (and any amendments or supplements thereto), historical and pro
forma, are accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company.
(r) Subsequent to the respective dates as of which
information is presented in the Prospectus, (i) neither the Company nor any of
the Subsidiaries has incurred any liabilities or obligations, direct or
contingent, which are material to the Company and the Subsidiaries taken as a
whole, nor entered into any transaction not in the ordinary course of business,
(ii) there has been no decision or judgment in the nature of litigation or
arbitration to which the Company or any Subsidiary is a party that could have,
singly or in the aggregate, a Material Adverse Effect, and (iii) there has not
been any material adverse change, or any development which would reasonably be
expected to involve, singly or in the aggregate, a material adverse change, in
the properties, facilities, business, results of operations, general affairs,
management, condition (financial or otherwise), prospects or business affairs of
the Company and the Subsidiaries taken as a whole (any of the items set forth in
clause (i), (ii) or (iii), above, a "Material Adverse Change").
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<PAGE> 18
(s) All Tax Returns (as hereinafter defined) required to be
filed by the Company or any of the Subsidiaries in any jurisdiction have been
filed and all material amount of Taxes (as hereinafter defined), including
withholding Taxes, penalties and interest, assessments, fees and other charges
due or claimed to be due from such entities have been paid, other than those
being contested in good faith and for which adequate reserves have been provided
or those currently payable without penalty or interest. All Tax Returns filed by
the Company and its Subsidiaries prior to the date hereof were complete and
accurate in all material respects. Except as described in the Prospectus, no
material claim for assessment or collection of Taxes is presently being asserted
against the Company or its Subsidiaries. Furthermore, except as otherwise
described in the Prospectus, the Company and its Subsidiaries are not parties to
any pending action, proceeding or investigation by any governmental authority
for the assessment or collection of a material amount of Taxes, nor does the
Company have knowledge of any such threatened action, proceeding or
investigation. No material claim by any authority in a jurisdiction where the
Company or any of its Subsidiaries does not currently file a Tax Return is
pending to the effect that the Company or any of its Subsidiaries is or may be
subject to taxation by that jurisdiction. No Liens are presently imposed upon or
asserted against any of the Company's or any of its Subsidiaries' assets as a
result of or in connection with any failure, or alleged failure, to pay any
material amount of Tax. As of the Closing Date, the Company and its Subsidiaries
will not have any agreement, whether or not written, providing for the payment
of Tax liabilities or entitlement to refunds with any other party. The Company
and its Subsidiaries have withheld and paid all material amount of Taxes
required to be withheld in connection with any amounts paid or owing to any
employee, creditor, independent contractor or other third party with respect to
the business of the Company or its Subsidiaries. The unpaid Taxes of the Company
and its Subsidiaries do not exceed, in any material respect, the reserve for Tax
liability (as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and tax income) set forth on the most recent
balance sheet of the Company, as adjusted for the passage of time through the
date hereof in accordance with the past custom and practice of the Company in
filing its Tax Returns. For purposes of this Agreement, the terms "Tax" and
"Taxes" shall mean all Federal, state, local or foreign income, payroll,
employee withholding,
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unemployment insurance, social security, sales, use, service use, leasing use,
excise, franchise, gross receipts, value added, alternative or add-on minimum,
estimated, occupation, real and personal property, stamp, transfer, workers'
compensation, severance, windfall profits, environmental (including taxes under
Section 59A of the Internal Revenue Code of 1986, as amended), or other tax of
the same or of a similar nature, including any interest, penalty, or addition
thereto, whether disputed or not. The term "Tax Return" means any return,
declaration, report, form, claim for refund, or information return or statement
relating to Taxes or income subject to taxation, or any amendment thereto, and
including any schedule or attachment thereto.
(t) (i) Each of the Company and the Subsidiaries has all
material certificates, consents, exemptions, orders, permits, licenses,
authorizations, or other approvals or rights (each, an "Authorization") of and
from, and has made all material declarations and filings with, all Federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, necessary or required to own,
lease, license and use its properties and assets and to conduct its business in
the manner it does as described in the Prospectus in the jurisdictions wherein
presently operated, and such other certifications, accreditations and
eligibility to participate in specified programs as and to the extent described
in the Prospectus, including, without limitation, to the extent so described,
eligibility to participate in Medicare, Medicaid and Medi-Cal programs [and
accreditation by the Joint Commission on Accreditation of Healthcare
Organizations], (ii) each of the Company and the Subsidiaries has all such
Authorizations, certifications, accreditations and determinations of eligibility
and such are valid and in full force and effect, except as could not have,
singly or in the aggregate, a Material Adverse Effect, (iii) the Company and the
Subsidiaries are in compliance in all material respects with the terms and
conditions of all such Authorizations, certifications, accreditations and
determinations of eligibility and with the rules and regulations of the
regulatory authorities and governing bodies having jurisdiction with respect
thereto, except for such non-compliance as could not have a Material Adverse
Effect and (iv) neither the Company nor any Subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
Authorization, certification, accreditation or determination of eligibility
(except in the ordinary course of business in
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<PAGE> 20
connection with the receipt of a routine survey that outlines immaterial areas
which require Company or Subsidiary action to maintain compliance or to preclude
such revocation or modification) and no such Authorization contains any
restrictions that are materially burdensome to any of them in a manner different
than applied to other companies engaged in similar businesses. The Company and
the Subsidiaries possess the patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names (collectively, "Intellectual
Property") necessary to conduct its business as described in the Prospectus, and
neither the Company nor any of the Subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to the
foregoing. To the best knowledge of the Company after due inquiry, the use of
such Intellectual Property in connection with the business and operations of the
Company and the Subsidiaries does not infringe on the rights of any person.
(u) The Company and each of the Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) Neither the Company nor any of the Subsidiaries is (i)
an "investment company" or a company "controlled" by an investment company
within the meaning of the Investment Company Act of 1940, as amended, or (ii) a
"holding company" or a "subsidiary company" of a holding company, or an
"affiliate" thereof within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
(w) Except as disclosed in the Prospectus, there are no
business relationships or related party transactions required to be disclosed in
the Prospectus.
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(x) Each certificate signed by any officer of the Company
or any Subsidiary and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and warranty by the Company
or such Subsidiary, as applicable, to each Underwriter as to the matters covered
thereby.
(y) None of the Company, any Subsidiary, nor any director,
officer, agent, employee or other person associated with or acting on behalf of
the Company or any of the Subsidiaries, has used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the Foreign Corrupt Practices Act of 1977; made
any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment; or is in violation of any Federal "fraud and abuse legislation" or
Federal "anti-kickback law."
(z) Except to the extent described otherwise in the
Prospectus, all facilities owned or operated as continuing operations by the
Company or the Subsidiaries (the "Company Facilities") (i) are certified for
participation or enrollment in the Medicare, Medicaid and Medi-Cal programs,
(ii) have a current and valid provider contract with the Medicare, Medicaid and
Medi-Cal programs, and (iii) are in substantial compliance with the terms and
conditions of participation of such programs and have received all approvals or
qualifications necessary for capital reimbursement of the Company's assets
except, in each case, where such failure would not have a Material Adverse
Effect. To the best knowledge of the Company, the amounts established as
provisions for Medicare, Medicaid and Medi-Cal adjustments and adjustments by
any other third party payors on the financial statements of the Company and the
Subsidiaries are sufficient in all material respects to pay any amounts for
which the Company or any of the Subsidiaries may be liable. Neither the Company
nor any of the Subsidiaries has received notice from the regulatory authorities
which enforce the statutory or regulatory provisions in respect of the Medi-
care, Medicaid or Medi-Cal programs of any pending or threatened investigations,
surveys (other than routine surveys) or decertification proceedings, and neither
the Company nor any of the Subsidiaries has any reason to believe that any such
investigations, surveys or proceedings are pending,
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<PAGE> 22
threatened or imminent which individually or in the aggregate could have a
Material Adverse Effect.
(aa) Each such Company Facility is licensed by the proper
state department of health to conduct its business in substantially the manner
conducted by such Company Facility. The Company Facilities are presently in
substantial compliance with all of the material terms, conditions and provisions
of such licenses. The facilities, equipment, staffing and operations of the
Company Facilities satisfy the applicable state licensing requirements in all
material respects.
(ab) No funds were received on behalf of the Company or any
of the Subsidiaries to construct, improve or acquire any of its facilities under
the "Hill-Burton" Act as a result of which the Company or any of the
Subsidiaries are currently or will in the future be required to pay any amounts
for which there shall be any "recapture" as a result of the consummation of the
transactions contemplated by this Agreement.
(ac) Except as disclosed in the preliminary prospectus and
the Prospectus, no holder of any shares of capital stock of the Company has any
right to require registration of such shares.
(ad) Neither the Company nor any of its affiliates is
presently doing business with the government of Cuba nor, to the knowledge of
the Company, with any person or affiliate located in Cuba.
(2) Each of the Selling Stockholders, with respect to itself
and severally and not jointly, represents and warrants to, and agrees with, the
Underwriters and the Company as follows:
(a) The execution, delivery and performance of this
Agreement by the Selling Stockholder and the sale of Shares, and the
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement will not (i) conflict with or result in
a breach of any of the terms or provisions, or constitute a default or
cause an acceleration of any obligation under, (A) the organizational
documents of the Selling Stockholder or (B) any bond, note, debenture
or
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<PAGE> 23
other evidence of indebtedness or any indenture, mortgage, deed of
trust or other material contract, lease, or other instrument to which
the Selling Stockholder is a party or by which the Selling Stockholder
is bound, or to which any of the property or assets of the Selling
Stockholder is subject, or (C) any order of any court or governmental
agency or authority entered in any proceeding to which the Selling
Stockholder was or is a party or by which the Selling Stockholder is
bound or (ii) (solely with respect to actions by the Selling
Stockholder) violate or conflict with any applicable U.S. federal,
state or local law, rule, administrative regulation or ordinance or
administrative or court decree applicable to the Selling Stockholder or
its property, except in each such case as would not, singly or in the
aggregate, have a material adverse effect on the business, results of
operations, financial condition or prospects of the Selling
Stockholder; provided, however, that no representation or warranty is
made with respect to U.S. federal securities laws or the securities
laws of any state or other jurisdiction.
(b) The Selling Stockholder has on the date of this
Agreement and will have at the Closing Date good and marketable title
to the Shares to be sold by the Selling Stockholder to the
Underwriters, free and clear of any Lien other than pursuant to this
Agreement; and upon delivery to the Underwriters of the Shares to be
sold by the Selling Stockholder hereunder and payment of the purchase
price therefor by the Underwriters as herein contemplated, the
Underwriters will receive good and marketable title to the Shares
purchased by them from the Selling Stockholder, free and clear of any
Lien other than any Lien created by or resulting from the sale to the
Underwriters pursuant to this Agreement.
(c) All authorizations, approvals and consents
necessary for the execution, delivery and performance by the Selling
Stockholder of this Agreement, and the sale and delivery by the Selling
Stockholder to the Underwriters of the Shares to be sold by the Selling
Stockholder hereunder
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<PAGE> 24
have been obtained and are in full force and effect; and the Selling
Stockholder has all requisite right, power and authority to enter into
and perform its obligations under this Agreement and to sell, transfer
and deliver the Shares to be sold by the Selling Stockholder to the
Underwriters hereunder.
(d) The Selling Stockholder Information (as defined
in Section 8) (as modified by any notice pursuant to Section 4(2)(f)
below) does not, and will not on the Closing Date, include an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(e) The Selling Stockholder has not taken, and will
not take, directly or indirectly, any action designed to, or which
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Shares pursuant to the distribution
contemplated by this Agreement, and, other than as permitted by the
Act, the Selling Stockholder has not distributed and will not
distribute any Prospectus or other offering material in connection with
the offering and sale of the Shares.
(f) At any time during the period described in
Section 3(f) hereof, if there is any change in the information referred
to in Section 4(2)(d) above, the Selling Stockholder will promptly
notify the Underwriters and the Company of such change.
(g) The Selling Stockholder acknowledges for all
purposes under this Agreement (including this paragraph and Section 5
hereof) that the Underwriter Information constitutes the only written
information furnished to the Company by or on behalf of the
Underwriters for use in the Registration Statement or the Prospectus
(or any amendment or supplement to them) and that the Underwriters
shall not be deemed to have provided any
24
<PAGE> 25
information (and therefore are not responsible for any statement or
omission) pertaining to any arrangement or agreement with respect to
any party other than the Underwriters.
(h) Neither such Selling Stockholder nor any of his
or its affiliates directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, or has any other association with (within the meaning of
Article I of the Bylaws of the NASD), any member firm of the NASD.
5. Indemnification.
(a) The Company agrees to indemnify and hold
harmless (i) the Underwriters and (ii) each person, if any, who controls (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any of
the Underwriters (any of the persons referred to in this clause (ii) being
hereinafter referred to as a "controlling person") (any person referred to in
clause (i) or (ii) may hereinafter be referred to as an "Indemnified Person") to
the fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, actions and expenses (including without limitation and as incurred,
reimbursement of all reasonable costs of investigating, preparing, pursuing, or
defending any claim or action, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the reasonable
fees and expenses of counsel to any Indemnified Person in accordance with the
provisions of this Section 5) directly or indirectly caused by, related to,
based upon or arising out of, or in connection with any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (including, in each case, any amendment or
supplement thereto) or any preliminary prospectus, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not misleading, except
insofar as any such loss, liability, claim, damage or expense is caused solely
by an untrue statement or omission or alleged untrue statement or omission that
is (x) made in reliance upon and in conformity with any Underwriter Information
or (y) with respect to the Underwriter from whom the person asserting such loss,
liability, claim, damage or
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<PAGE> 26
expense purchased Shares, made in any preliminary prospectus if a copy of the
Prospectus (as amended or supplemented, if the Company shall have furnished the
Underwriter with such amendments or supplements thereto on a timely basis) was
not delivered by or on behalf of such Underwriter to the person asserting such
loss, liability, claim, damage or expense, if required by law to have been so
delivered by the Underwriter seeking indemnification, at or prior to the written
confirmation of the sale of the Shares, and it shall be finally determined by a
court of competent jurisdiction, in a judgment not subject to appeal or review,
that the Prospectus (as so amended or supplemented) would have completely
corrected such untrue statement or omission. The Company shall notify you
promptly of the institution, threat or assertion of any claim, proceeding
(including any governmental investigation) or litigation in connection with the
matters addressed by this Agreement which involves the Company or an Indemnified
Person.
(b) Each Selling Stockholder agrees, severally and
not jointly, to indemnify and hold harmless each Indemnified Person to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, actions and expenses (including without limitation and as incurred,
reimbursement of all reasonable costs of investigating, preparing, pursuing or
defending any claim or action, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the reasonable
fees and expenses of counsel to any Indemnified Person in accordance with the
provisions of this Section 5) directly or indirectly caused by, related to,
based upon or arising out of, or in connection with any untrue statement or
alleged untrue statement of a material fact relating to such Selling Stockholder
contained in the Registration Statement or the Prospectus (including, in each
case, any amendment or supplement thereto) or any preliminary prospectus, or any
omission or alleged omission to state therein a material fact relating to such
Selling Stockholder required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of the circumstances
under which they were made) not misleading, except insofar as any such loss,
liability, claim, damage or expense is caused solely by an untrue statement or
omission or alleged untrue statement or omission that is (i) made in reliance
upon and in conformity with any Underwriter Information or (ii) with respect to
the Underwriter from whom the person asserting such loss, liability, claim,
damage or
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<PAGE> 27
expense purchased Shares, made in any preliminary prospectus if a copy of the
Prospectus (as amended or supplemented, if the Company shall have furnished the
Underwriter with such amendments or supplements thereto on a timely basis) was
not delivered by or on behalf of such Underwriter to the person asserting such
loss, liability, claim, damage or expense, if required by law to have been so
delivered by the Underwriter seeking indemnification, at or prior to the written
confirmation of the sale of the Shares, and it shall be finally determined by a
court of competent jurisdiction, in a judgment not subject to appeal or review,
that the Prospectus (as so amended or supplemented) would have completely
corrected such untrue statement or omission. The Company shall notify you
promptly of the institution, threat or assertion of any claim, proceeding
(including any governmental investigation) or litigation in connection with the
matters addressed by this Agreement which involves the Company or an Indemnified
Person. Notwithstanding the foregoing, the liability of any Selling Stockholder
pursuant to this paragraph (b) shall be limited to an amount equal to the total
proceeds (net of underwriting discounts and commissions but before deducting
expenses) received by the Selling Stockholder from the sale of the Shares
hereunder.
(c) The Company agrees to indemnify and hold
harmless each of the Selling Stockholders to the fullest extent lawful, from and
against any and all losses, claims, damages, liabilities, actions and expenses
(including without limitation and all losses, claims, damages, liabilities,
actions and expenses (including without limitation and as incurred,
reimbursement of all reasonable fees and expenses of counsel to the Selling
Stockholders; provided, that the Company shall only be liable for the fees and
expenses of one counsel for the Selling Stockholders as a group) directly or
indirectly caused by, related to, based upon or arising out of, or in connection
with any untrue statement of a material fact contained in the Registration
statement or the Prospectus (including, in each case, any amendment or
supplement thereto) or any preliminary prospectus, or any omission or alleged
omission to state therein or necessary to make the statements therein (in the
case of the Prospectus, in light of the circumstances under which they were
made) not misleading; provided, however, that this indemnity agreement shall not
apply to any loss, liability, claim, damage or expense to the extent caused by
any untrue statement or omission or alleged omission made in reliance upon and
in conformity with any information furnished by such
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<PAGE> 28
Selling Stockholder for inclusion in the Registration Statement or the
Prospectus.
(d) In case any action or proceeding (including any
governmental investigation) shall be brought or asserted against any of the
Indemnified Persons with respect to which indemnity may be sought against the
Company or the Selling Stockholders, such Indemnified Person shall promptly
notify the parties against whom indemnification is being sought (the
"Indemnifying Persons") in writing (provided that the failure to give such
notice shall not relieve any of the Indemnifying Persons of its obligations or
liabilities pursuant to this Agreement, except to the extent that the
Indemnifying Person has been materially prejudiced by such failure as determined
by a court of competent jurisdiction in a judgment no longer subject to appeal
or review). Upon receiving such notice, the Company and the Selling Stockholders
shall be entitled to participate in any such action or proceeding and to assume,
at its sole expense, the defense thereof, with counsel reasonably satisfactory
to such Indemnified Person (who shall not, except with the consent of the
Indemnified Person, be counsel to any Indemnifying Person) and, after written
notice from the Company to such Indemnified Person of its election so to assume
the defense thereof promptly after receipt of the notice from the Indemnified
Person of such action or proceeding, the Company or the Selling Stockholders
shall not be liable to such Indemnified Person hereunder for legal expenses of
other counsel subsequently incurred by such Indemnified Person in connection
with the defense thereof, other than reasonable costs of investigation, unless
(i) the Company or the Selling Stockholders agree in writing to pay such fees
and expenses, (ii) the Company or the Selling Stockholders shall have failed
promptly to assume such defense or to employ counsel reasonably satisfactory to
such Indemnified Person, or (iii) the named parties to any such action or
proceeding (including any impleaded parties) include both such Indemnified
Person and an Indemnifying Person or an affiliate of an Indemnifying Person, and
such Indemnified Person shall have been advised by counsel either (x) that there
may be one or more legal defenses available to such Indemnified Person that are
different from or additional to those available to such Indemnifying Person or
such affiliate or (y) a conflict may exist between such Indemnified Person and
such Indemnifying Person or such affiliate (in which case, if such Indemnified
Person notifies the Company or the Selling Stockholders in writing, the Company
or the
28
<PAGE> 29
Selling Stockholders shall not have the right to assume the defense thereof), it
being understood, however, that the Indemnifying Persons shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) at any time
for all such Indemnified Persons. An Indemnifying Person shall not be liable for
any settlement of any such action or proceeding effected without the prior
written consent of such Indemnifying Person, but if settled with the prior
written consent of such Indemnifying Person, such Indemnifying Person agrees to
indemnify and hold harmless any Indemnified Person from and against any loss,
claim, damage, liability or expense by reason of any such settlement. The
Indemnifying Persons shall not, without your prior written consent, settle or
compromise or consent to the entry of judgment in or otherwise seek to terminate
any pending or threatened action, claim, litigation or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether or not
any Indemnified Person is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Person from all liability arising out of such action, claim, litigation or
proceeding.
(e) The Underwriters agree, severally and
not jointly, to indemnify and hold harmless the Company, its directors and
officers who sign the Registration Statement, the directors and officers of the
Company, the Selling Stockholders, and any person controlling (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company
or the Selling Stockholders, to the same extent as the foregoing indemnity from
the Company and the Selling Stockholders to each of the Indemnified Persons, but
only with respect to claims and actions solely based on any Underwriter
Information. In case any action or proceeding (including any governmental
investigation) shall be brought or asserted against the Company, any of its
directors, any such officer, the Selling Stockholders or any such controlling
person in respect of which indemnity may be sought against any Underwriter
pursuant to the foregoing sentence, the Underwriter shall have the rights and
duties given to the Company (except that if the Company or any Selling
Stockholder shall have assumed the defense thereof, such Underwriter shall not
be required to do so, but may employ
29
<PAGE> 30
separate counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Underwriter), and the
Company, its directors, any such officers, the Selling Stockholders and each
such controlling person shall have the rights and duties given to the
Indemnified Person by Section 5(c) above.
(f) If the indemnification provided for in
this Section 5 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or expenses referred to herein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the indemnifying
party(ies), on the one hand, and the indemnified party(ies), on the other hand,
from the offering of the Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the indemnifying party(ies) and the indemnified
party, as well as any other relevant equitable considerations. The relative
fault of the Company and the Selling Stockholders, on the one hand, and the
Underwriters, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact related to information supplied by the Company
or the Selling Stockholders, on the one hand, or by the Underwriters, on the
other, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The indemnity and
contribution obligations of any party set forth herein shall be in addition to
any liability or obligation such party may otherwise have to any other party.
The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 5(e) were determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabili-
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<PAGE> 31
ties or judgments referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, the Underwriters (and their related Indemnified
Persons) shall not be required to contribute, in the aggregate, any amount in
excess of the amount by which the total underwriting discount applicable to the
Shares purchased by the Underwriters exceeds the amount of any damages which the
Underwriters (and their related Indemnified Persons) have otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 5(e) are
several in proportion to the respective number of Shares purchased by each of
the Underwriters hereunder and not joint.
6. Conditions of Underwriters' Obligations. The respective
obligations of the several Underwriters to purchase any Shares under this
Agreement are subject to the satisfaction of each of the following conditions on
the Closing Date:
(a) All of the representations and warran-
ties of the Company and the Selling Stockholders contained in this Agreement
shall be true and correct on the Closing Date, with the same force and effect as
if made on and as of the Closing Date. The Company and the Selling Stockholders
shall have performed or complied with all of their obligations and agreements
herein contained and required to be performed or complied with by each of them
at or prior to the Closing Date.
(b) (i) The Registration Statement shall
have become effective (or, if a post-effective amendment is required to be filed
pursuant to Rule 430A promulgated under the Act, such post-effective amendment
shall have become effective) not later than 10:00 A.M. (and in the case of a
Registration Statement filed under Rule 462(b) of the Act, not later than 10:00
P.M.), New York City time, on the date of this Agreement or at such later date
and time as you may approve in writing, (ii) at the Closing Date, no stop order
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<PAGE> 32
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been commenced or shall be
pending before or contemplated by the Commission and every request for
additional information on the part of the Commission shall have been complied
with in all material respects, and (iii) no stop order suspending the sale of
the Shares in any jurisdiction referred to in Section 3(g) shall have been
issued and no proceeding for that purpose shall have been commenced or shall be
pending or threatened.
(c) No stop order suspending the sale of the
Shares in any jurisdiction has been issued and no proceeding for that purpose
has been commenced or is pending or threatened and every request for additional
information on the part of any state securities commission has been complied
with; no action shall have been taken and no statute, rule, regulation or order
shall have been enacted, adopted or issued by any governmental agency, body or
official which would, as of the Closing Date, prevent the issuance of the
Shares; and no injunction, restraining order or order of any nature by any court
of competent jurisdiction shall have been issued as of the Closing Date which
would prevent the issuance of the Shares. Subsequent to the execution and
delivery of this Agreement and prior to the Closing Date, there shall not have
been any downgrading, nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2) of the
Act.
(d) (i) Since the date hereof, there shall
not have been any Material Adverse Change, (ii) since the date as of which
information is given in the Prospectus, there shall not have been any Material
Adverse Change, (iii) since the date of the latest balance sheet included in the
Prospectus, there shall not have been any material adverse change, or
development involving a prospective material adverse change, in the capital
stock or debt of the Company or any of the Subsidiaries and (iv) the Company and
the Subsidiaries shall have no liability or obligation, direct or contingent,
that is material to the Company and the Subsidiaries, individually or in the
aggregate, and which is not disclosed in the Prospectus.
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<PAGE> 33
(e) You shall have received a certificate of the
Company, executed by the Chief Executive Officer and the Chief
Financial Officer dated the Closing Date, confirming, as of the Closing
Date, the matters (as to the Company) set forth in paragraphs (a)
through (d) and (o) of this Section 6 and you shall have received a
certificate of each Selling Stockholder confirming, as of the Closing
Date, the matters (as to such Selling Stockholder) set forth in para-
graphs (a) and (o).
(f) On the Closing Date, you shall have received:
(g) An opinion (satisfactory to you and your
counsel), dated the Closing Date, of Morrison & Foerster LLP, counsel
for the Company, to the effect that:
(i) the Company is duly incorporated and validly
existing corporation in good standing under the laws of its
jurisdiction of organization and the Company has the requisite
corporate power and corporate authority to own, lease and operate
its properties and to conduct its business as described in the
Prospectus and is duly qualified as a foreign corporation and in
good standing in each jurisdiction where the ownership, leasing or
operation of property or the conduct of its business requires such
qualification, except where the failure to be so qualified will
not have a material adverse effect on the financial condition of
the Company and its subsidiaries taken as a whole;
(ii) the Company has full corporate power and
authority to execute, deliver and perform this Agreement, and the
Company has full corporate power and authority to authorize, issue
and sell the Shares as contemplated by this Agreement; and this
Agreement has been duly authorized, executed and delivered by the
Company;
(iii) the Shares conform in all material
respects to the descriptions thereof contained in the
Prospectus;
(iv) neither the Company nor any of the
Subsidiaries is (a) an "investment company" or a company
33
<PAGE> 34
"controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended, or (b) a "holding
company" or a "subsidiary company" of a holding company, or an
"affiliate" thereof within the meaning of the Public Utility
Holding Company Act of 1935, as amended;
(v) such counsel does not know of any legal or
governmental proceedings which would be required to be described
in the Prospectus which are not described therein nor any
contracts or documents of a character which would be required to
be described in the Prospectus which are not so described; it
being understood that such counsel need express no opinion as to
the financial statements, notes or schedules or other numerical,
accounting, statistical and financial data included therein;
(vi) no authorization, approval, consent or
order of, or filing with, any court or governmental body or agency
is required for the consummation by the Company of the
transactions contemplated by this Agreement, except such as are
required to be obtained and made under the 1933 Act, or state
securities or Blue Sky laws or regulations;
(vii) the execution and delivery of this
Agreement, the issuance and sale of the Shares, the payment of the
Shares in accordance with their terms and the consummation of the
transactions contemplated by this Agreement will not conflict with
or result in a breach or violation of the charter or bylaws of the
Company or the terms or provisions of, or constitute a default
under, any statute, rule or regulation or to the best of such
counsel's knowledge any material agreement or instrument to which
the Company or any of the Subsidiaries is a party or by which any
of them is bound, or to which any of the assets or properties of
the Company or any of the Subsidiaries is subject, or to the best
of such counsel's knowledge any order of any court or governmental
agency, body or official having jurisdiction over the
34
<PAGE> 35
Company or any of the Subsidiaries or any of their properties;
(viii) the Registration Statement has become
effective under the Act; any required filing of the Prospectus,
and any supplements and term sheets thereto, pursuant to Rule
424(b) has been made in the manner and within the time period
required by Rule 424(b); and to the knowledge of such counsel
(after due inquiry) no stop order suspending the effectiveness of
the Registration Statement or any part thereof has been issued and
no proceedings therefor have been instituted or are pending or
contemplated under the Act;
In giving their opinion required by subsection (g) of this
Section 6, such counsel (i) may state that such opinions are limited to matters
governed by the Federal laws of the United States of America, the laws of the
State of California, the laws of the State of New York, and the laws of the
State of Delaware, and (ii) shall state that (a) such counsel has acted as
counsel to the Company on a regular basis and has acted as counsel to the
Company in connection with the preparation of the Prospectus and (b) such
counsel has participated in conferences with officers and other representatives
of the Company and its Subsidiaries, representatives of the independent public
accountants for the Company and its Subsidiaries, your representatives and your
counsel in connection with the preparation of the Prospectus and has considered
the matters required to be stated therein and the statements contained therein;
and such counsel shall advise you that, on the basis of the foregoing, although
such counsel has not independently verified the accuracy, completeness or
fairness of such statements (except as indicated above) no facts came to such
counsel's attention that caused such counsel to believe that the Prospectus as
of the date thereof and as of the date hereof, contained an 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 not misleading. Without
limiting the foregoing, such counsel may further state that it assumes no
responsibility for, and has not independently verified, the accuracy,
completeness or fairness of the financial statements, notes and schedules and
other financial and statistical data included in the Prospectus.
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<PAGE> 36
(h) You shall have received an opinion dated
the Closing Date, from Kevin Higgins, Esq., general counsel of the Company, in
form and substance reasonably satisfactory to you (which may state that such
opinion is limited to matters governed by the Federal laws of the United States
of America, the laws of the State of New York and the laws of the State of
Delaware), to the effect that:
(i) Each of the Subsidiaries is a duly
incorporated and validly existing corporation in good standing
under the laws of its respective jurisdiction of organization, has
the requisite corporate power and authority to own, lease and
operate its properties and to conduct its business as described in
the Prospectus, and is duly qualified as a foreign corporation and
in good standing in each jurisdiction where the ownership, leasing
or operation of property or the conduct of its business requires
such qualification, except where such failure to be so qualified
will not have a material adverse effect on the financial condition
of the Company and its subsidiaries taken as a whole;
(ii) The execution and delivery of this
Agreement, the issuance and sale of the Shares, the performance by
the Company of its obligations pursuant to this Agreement and the
consummation of the transactions contemplated by this Agreement
will not conflict with or result in a breach or violation of any
of the respective charters or bylaws of the Company or any of the
Subsidiaries or the terms or provisions of, or constitute a
default by the Company or any Subsidiary under any statute, rule
or regulation or to the best of such counsel's knowledge any
material agreement or instrument to which the Company or any of
the Subsidiaries is a party or by which any of them is bound, or
to which any of the assets or properties of the Company or any of
the Subsidiaries is subject, or to the best of such counsel's
knowledge any order of any court or governmental agency, body or
official having jurisdiction over the Company or any of the
Subsidiaries or any of their properties;
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<PAGE> 37
(iii) To the best of such counsel's knowledge,
there is no current, pending or threatened action, suit or
proceeding before any court or governmental agency, authority or
body or any arbitrator involving the Company or any Subsidiary or
to which any of their respective property is subject, which is of
such a material nature as to be required to be disclosed in the
Prospectus and which is not adequately disclosed in the
Prospectus;
(iv) Each of the Company and its Subsidiaries
has such Authorizations from all regulatory or governmental
officials, bodies and tribunals as are necessary to own, lease and
operate its respective properties and to conduct its business in
the manner described in the Prospectus and such certifications,
accreditations and eligibility to participate in specified
programs as and to the extent described in the Prospectus,
including, without limitation, eligibility to participate in
Medicare, Medicaid and Medi-Cal programs;
(v) All of the issued and outstanding shares of
capital stock of, or other ownership interests in, each Subsidiary
are owned directly or through Subsidiaries, by the Company, are
fully paid and nonassessable, and to the best of such counsel's
knowledge are owned free and clear of any Lien;
(vi) the descriptions in the Prospectus of
statutes, legal and governmental proceedings, contracts and other
documents and regulatory matters including, without limitation,
the matters described in the Prospectus, under the caption
"Business-Government Regulation" insofar as such statements
constitute summaries of legal matters, documents or proceedings
referred to therein are accurate in all material respects and
fairly present the information required to be shown;
(vii) to the best of such counsel's knowledge,
neither the Company nor any of its subsidiaries has violated any
Environmental Laws, nor any Federal or state law relating to
discrimination in the hiring, promotion or pay of employees
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<PAGE> 38
nor any applicable federal or state wages and hours laws, nor any
provisions of ERISA or the rules and regulations promulgated
thereunder, which in each case might result in any Material
Adverse Change in the business, prospects, financial condition or
results of operation of the Company and its Subsidiaries, taken as
a whole; and
(viii) to the best of such counsel's knowledge,
except as disclosed in the Prospectus, there are no outstanding
subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or Liens related to or entitling
any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, any Subsidiary.
In giving the opinion required by subsection (h) of this
Section 6, such counsel shall state that (a) such counsel has acted as counsel
to the Company on a regular basis and has acted as counsel to the Company in
connection with the preparation of the Prospectus and (b) such counsel has
participated in conferences with officers and other representatives of the
Company and its Subsidiaries, representatives of the independent public
accountants for the Company and its Subsidiaries, your representatives and your
counsel in connection with the preparation of the Prospectus and has considered
the matters required to be stated therein and the statements contained therein;
and such counsel shall advise you that, on the basis of the foregoing, although
such counsel has not independently verified the accuracy, completeness or
fairness of such statements (except as indicated above) no facts came to such
counsel's attention that caused such counsel to believe that the Prospectus as
of the date thereof and as of the date hereof, contained an 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 not misleading. Without
limiting the foregoing, such counsel may further state that it assumes no
responsibility for, and has not independently verified, the accuracy,
completeness or fairness of the financial statements, notes and schedules and
other financial and statistical data included in the Prospectus.
(i) You shall have received an opinion dated
the Closing Date, from Lyon and Lyon, intellectual property
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<PAGE> 39
counsel to the Company, in form and substance satisfactory to you.
(j) You shall have received an opinion
(satisfactory to the Underwriters and counsel for the Underwriters), dated the
Closing Date, of counsel for each Selling Stockholder, to the effect that:
(i) the Selling Stockholder has the requisite
power and authority to enter into and perform this Agreement; this
Agreement has been duly and validly authorized by all necessary
action by the Selling Stockholder and has been duly executed and
delivered by the Selling Stockholder; the transactions
contemplated by this Agreement have been duly and validly
authorized by all necessary action by the Selling Stockholder;
(ii) the Selling Stockholder has full legal
right, power and authority, and any approval required by law
(other than any approval imposed by the Act and applicable state
securities and Blue Sky laws), to sell, assign, transfer and
deliver the Shares to be sold by it in the manner provided in this
Agreement;
(iii) to such counsel's knowledge, upon
delivery to the Underwriters of the Shares to be sold by the
Selling Stockholder and payment of the purchase price therefor by
the Underwriters as herein contemplated, the Underwriters
(assuming that they acquire such Shares without notice of any
adverse claim, as such term is used in Article 8 of the Uniform
Commercial Code) will acquire the shares free and clear of all
adverse claims (other that those resulting from any action of the
Underwriter); and
(iv) neither the sale of the Shares nor the
performance of the Selling Stockholder's obligations pursuant to
this Agreement will (A) conflict with, result in a breach or
violation of, or constitute a default under the terms of any
indenture or other agreement or instrument of which such counsel
has knowledge to which the Selling Stockholder is a party or
bound, or any statute, rule or regulation of which such counsel
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<PAGE> 40
has knowledge to which the Selling Stockholder is subject, or to which
any of the properties of the Selling Stockholder is subject, or any
order of which such counsel has knowledge after due inquiry of any
court or governmental agency or body having jurisdiction over the
Selling Stockholder or any of its properties or (B) violate any of the
provisions, if applicable, of the charter documents of the Selling
Stockholder as in effect on the date of the opinion.
(k) You shall have received an opinion,
dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden,
Arps"), counsel for the Underwriters, in form and substance reasonably
satisfactory to you.
(l) You shall have received letters on and
as of the date hereof as well as on and as of the Closing Date (in the latter
case constituting an affirmation of the statements set forth in the former), in
customary form and in substance reasonably satisfactory to you, from Ernst &
Young LLP and [ ] independent public accountants, with respect to the financial
statements and certain financial information contained in the Prospectus as you
shall reasonably require.
(m) All corporate proceedings and other
legal matters incident to the authorization, form and validity of this
Agreement, the Shares, the Prospectus, and all other legal matters relating to
this Agreement and the transactions contemplated hereby shall be satisfactory in
all respects to Skadden, Arps, and such counsel shall have been furnished with
such documents and opinions, in addition to those set forth above, as they may
reasonably require for the purpose of enabling them to review or pass upon the
matters referred to in this Section 6, in order to evidence the accuracy,
completeness and satisfaction in all material respects of any of the
representations, warranties or conditions herein contained and to render the
opinion referred to in Section 6(k).
(n) Prior to the Closing Date, the Company
and the Selling Stockholders shall have furnished to you such further
information, certificates and documents as you may reasonably request.
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<PAGE> 41
(o) The Company and the Selling Stockholders
shall not have failed at or prior to the Closing Date to perform or comply with
any of the agreements herein contained and required to be performed or complied
with by the Company or the Selling Stockholders at or prior to the Closing Date.
7. Effective Date of Agreement, Default and Termination. This
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time on or prior to
the Closing Date by the Underwriters by notice to the Company if any of the
following has occurred: (i) subsequent to the date of this Agreement, any
Material Adverse Change or development involving a prospective Material Adverse
Change, whether or not arising in the ordinary course of business, which, in the
judgment of Bear, Stearns impairs the investment quality of the Shares, (ii) any
outbreak or escalation of hostilities or other national or international
calamity or crisis or material adverse change in the financial markets of the
United States or elsewhere, or any other substantial national or international
calamity or emergency if the effect of such outbreak, escalation, calamity,
crisis or emergency would, in Bear, Stearns' judgment, make it impracticable or
inadvisable to market the Shares or to enforce contracts for the sale of the
Shares, (iii) any suspension or limitation of trading generally in securities on
the New York or American Stock Exchanges, the National Association of Shares
Dealers Automated Quotation National Market, or the over-the-counter markets or
any setting of minimum prices for trading on such exchanges or markets, (iv) any
declaration of a general banking moratorium by either Federal or New York
authorities, (v) the taking of any action by any Federal, state or local
government or agency in respect of its monetary or fiscal affairs that in Bear,
Stearns' judgment has a material adverse effect on the financial markets in the
United States, and would, in Bear, Stearns' judgment, make it impracticable or
inadvisable to market the Shares to enforce contracts for the sale of the
Shares, (vi) any securities of the Company or any of the Subsidiaries shall have
been downgraded or placed on any "watch list" for possible downgrading or
reviewed for a possible change that does not indicate the direction of the
possible change by any "nationally recognized statistical rating organization,"
as such term is defined for purposes
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<PAGE> 42
of Rule 436(g)(2) of the Act, (vii) the delisting of the common stock of the
Company from the American Stock Exchange, or (viii) the enactment, publication,
decree or other promulgation of any Federal or state statute, regulation, or
rule or order of any court or other governmental authority which in the judgment
of Bear, Stearns could have a Material Adverse Effect.
If this Agreement shall be terminated by the Underwriters
pursuant to clause (i), (vi) or (vii) of the second paragraph of this Section 7
or because of the failure or refusal on the part of the Company to comply with
the terms or to fulfill any of the conditions of this Agreement, the Company
agrees to reimburse you for all reasonable out-of-pocket expenses (including the
reasonable fees and disbursements of counsel) incurred by you. Notwithstanding
any termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 3(k) hereof. If this Agreement is
terminated pursuant to this Section 7, such termination shall be without any
other liability of any Underwriter to the Company or the Selling Stockholders.
If on the Closing Date any of the Underwriters shall fail or
refuse to purchase the Shares which it has agreed to purchase hereunder on such
date, and the aggregate amount of such Shares that such defaulting
Underwriter(s) agreed but failed or refused to purchase does not exceed 10% of
the total amount of such Shares to be purchased on such date by all
Underwriters, each non-defaulting Underwriter shall be obligated severally, in
the proportion which the amount of Shares set forth opposite its name in
Schedule I hereto bears to the aggregate principal amount of Shares which all
the non-defaulting Underwriters, as the case may be, have agreed to purchase, or
in such other proportion as you (at your option) may specify, to purchase the
Shares that such defaulting Underwriter or Underwriters, as the case may be,
agreed but failed or refused to purchase on such date. If, on the Closing Date,
any of the Underwriters shall fail or refuse to purchase the Shares, as the case
may be, and the total amount of Shares with respect to which such default occurs
exceeds 10% of the total amount of Shares to be purchased on such date by all
Underwriters, the Company may elect within 48 hours of such default to close the
sale and purchase by the other non-defaulting Underwriters of the amount of
Shares which such Underwriters have agreed to purchase pursuant to Section 1
hereof plus an
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<PAGE> 43
additional amount which such non-defaulting Underwriters are required to
purchase under this Section 7, and to limit the total amount of Shares to be
sold to the amount of Shares to be so purchased. Alternatively, the Company may
elect within 48 hours of such default, that this Agreement terminate without
liability on the part of the non-defaulting Underwriters and the Company, except
as otherwise provided in this Section 7. In any such case that does not result
in termination of this Agreement, either you or the Company may postpone the
Closing Date for not longer than seven (7) days, in order that the required
changes, if any, in the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve a defaulting
Underwriter from liability in respect of any default of any such Underwriter
under this Agreement.
8. Further Agreements of the Selling Stockholders. Each
Selling Stockholder agrees, severally and not jointly, with the Underwriters and
the Company:
(a) Such Selling Stockholder has, and on the
Closing Date will have, full legal right, power and authority to enter into this
Agreement and the Custody Agreement between the Selling Stockholders and
American Stock Transfer and Trust Company, as Custodian (the "Custody
Agreement") and to sell, assign, transfer and deliver such Shares in the manner
provided herein and therein, and this Agreement and the Custody Agreement have
been duly authorized, executed and delivered by such Selling Stockholder and
each of this Agreement and the Custody Agreement is a valid and binding
agreement of such Selling Stockholder enforceable in accordance with its terms,
except as rights to indemnity and contribution hereunder may be limited by
applicable law.
(b) The power of attorney signed by such
Selling Stockholder appointing Charles A. Laverty, James L. Johnson and Kevin M.
Higgins, or any one of them, as his attorney-in-fact to the extent set forth
therein with regard to the transactions contemplated hereby and by the
Registration Statement and the Custody Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling Stockholder and is a
valid and binding instrument of such Selling Stockholder enforceable in
accordance with its terms, and, pursuant to such power of attorney, such Selling
Stockholder has authorized Charles A. Laverty, James L. Johnson and Kevin M.
Higgins, or any one of them, to execute and deliver on his behalf this Agreement
and any other
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<PAGE> 44
document necessary or desirable in connection with transactions contemplated
hereby and to deliver the Shares to be sold by such Selling Stockholder pursuant
to this Agreement.
(c) To pay or cause to be paid its own
underwriting discounts and commissions, and all of its costs, fees and expenses
incident to the performance of this Agreement, including any taxes.
(d) To take all reasonable actions in cooperation
with the Company and the Underwriters to do and perform all things to be done by
the Selling Stockholder pursuant to this Agreement prior to the Closing Date or
reasonably requested by the Company in connection herewith and to satisfy all
conditions precedent to the delivery of the Shares pursuant to this Agreement.
(e) Prior to any public offering of the
Shares, the Selling Stockholder will cooperate with the Underwriters and counsel
for the Underwriters in connection with the registration or qualification of the
Shares for offer and sale by the Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as the Underwriters may
reasonably request, and will continue such qualification in effect so long as
reasonably required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Selling
Stockholder shall not be required to take any action that would subject the
Selling Stockholder to the general service of process in any jurisdiction where
it is not now so subject.
(f) To deliver to the Underwriters prior to
or at the Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other form as may be required by law).
9. Notices. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company, to it at Five
Civic Plaza, Suite 100, Newport Beach, California 92660, Attention: Chief
Financial Officer and, in each case, with a copy to Morrison & Foerster LLP,
19900 MacArthur Boulevard, Suite 1200, Irvine, California 92612, Attention:
Robert M. Mattson, Esq., (b) if to any Underwriter, to Bear, Stearns & Co. Inc.,
245 Park Avenue, New York, New York 10167, Attention: Syndicate De-
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<PAGE> 45
partment, and, in each case, with a copy to Skadden, Arps, Slate, Meagher & Flom
LLP, 300 South Grand Avenue, Suite 3400, Los Angeles, California 90071,
Attention: Nicholas P. Saggese, and (c) if to any Selling Stockholder, to its
address as set forth on Schedule II hereto or in any case to such other address
as the person to be notified may have requested in writing.
10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS
APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS
LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY SUIT, ACTION OR
PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY,
IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN ANY SUCH COURT. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
11. Severability. Any determination that any provision of this
Agreement may be, or is, unenforceable shall not affect the enforceability of
the remainder of this Agreement.
12. Successors. Except as otherwise provided, this Agreement
has been and is made solely for the benefit of and shall be binding upon the
Company, the Underwriters, any Indemnified Person referred to herein and their
respective successors and assigns, all as and to the extent provided in this
Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The terms "successors and assigns" shall not include a
purchaser of any of the Shares from any of the Underwriters merely because of
such purchase.
13. Certain Definitions. For purposes of this Agreement,
"business day" means any day other than Saturday, Sunday or a Federal holiday.
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<PAGE> 46
14. Counterparts. This Agreement may be executed in one or
more counterparts and, if executed in one or more counterpart, the executed
counterparts shall each be deemed to be an original, not all such counterparts
shall together constitute one and the same instrument.
15. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to effect the meaning
or interpretation of, this Agreement.
16. Survival. The indemnities and contribution provisions and
the other agreements, representations and warranties of the Selling
Stockholders, the Company, its officers and directors, and of the Underwriters
set forth in or made pursuant to this Agreement shall remain operative and in
full force and effect, and will survive delivery of and payment for the Shares,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any of the Underwriters or by or on behalf of the
Company, the officers or directors of the Company, any controlling person of the
Company, or the Subsidiaries or the Selling Stockholders, (ii) acceptance of the
Shares and payment for them hereunder and (iii) termination of this Agreement.
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<PAGE> 47
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument. Please confirm that the
foregoing correctly sets forth the agreement among the Company, the Selling
Stockholders and you.
Very truly yours,
UROHEALTH SYSTEMS, INC.
By: ________________________
Name:
Title:
[SELLING STOCKHOLDERS]
GERALD W. TIMM
By: ________________________
Name: Gerald W. Timm
(Selling Stockholder)
JULIA COLEMAN TIMM
By: _________________________
Name: Julia Coleman Timm
(Selling Stockholder)
GERALD W. TIMM, as Trustee
By: ________________________
Name:
Title: Trustee
(Selling Stockholder)
<PAGE> 48
JULIAN W. OSBON
By: ________________________
Name:
(Selling Stockholder)
JOHN WOODHEAD
By: ________________________
Name:
(Selling Stockholder)
<PAGE> 49
The foregoing Purchase Agreement is hereby confirmed and accepted as of the date
first above written.
BEAR, STEARNS & CO. INC.
By: _______________________
Name:
Title:
NEEDHAM & COMPANY, INC.
By: _______________________
Name:
Title:
PIPER JAFFRAY INC.
By: _______________________
Name:
Title:
<PAGE> 50
SCHEDULE I
Firm Shares
-----------
Company .............................................. 3,150,000
Selling Stockholders ................................
[List names and amounts]
<PAGE> 51
SCHEDULE II
Firm Shares
-----------
Bear, Stearns & Co. Inc. . . . . . . . .
Needham & Company, Inc. . . . . . . . . .
Piper Jaffray Inc. . . . . . . . . . . .
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
UROHEALTH SYSTEMS, INC.
1. The name of the Corporation is UROHEALTH SYSTEMS, Inc.
2. The address of its registered office in the State of Delaware is 1209
Orange Street, in the City of Wilmington, 19801, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
3. The nature of the business of the Corporation and the objects or
purposes to be transacted, promoted or carried on by it are as follows: To
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
4. The total number of shares of all classes of stock which the
Corporation is authorized to issue is Fifty-five Million (55,000,000) shares,
consisting of Fifty Million (50,000,000) shares of Common Stock with a par value
of one-tenth of one cent ($0.001) per share and Five Million (5,000,000) shares
of Preferred Stock with a par value of one-tenth of one cent ($0.001) per share.
The Preferred Stock may be issued in one or more series, and the Board of
Directors of the Corporation is expressly authorized (i) to fix the
designations, powers, preferences, rights, including voting rights,
qualifications, limitations and restrictions with respect to any series of
Preferred Stock and (ii) to specify the number of shares of any series of
Preferred Stock.
250,000 shares of Preferred Stock has been fixed and designated as Series
A Junior Participating Preferred Stock and 100,000 shares of Preferred Stock has
been fixed and designated as Series B Exchangeable Convertible Preferred Stock
with the express terms and provisions of those series of preferred stock being
as follows:
The Series A Junior Participating Preferred Stock has the following
rights, powers, preferences, qualifications, limitations and restrictions:
1. Designation and Amount.
The shares of such series shall be designated as "Series A Junior
Participating Preferred Stock, $.001 par value" (hereinafter referred to as the
"Series A Junior Participating Preference Shares"), and the number of shares
constituting such series shall be 250,000.
2. Dividends and Distributions.
(A) Subject to the superior rights of the holders of any series of
preferred shares ranking superior to the, Series A Junior Participating
Preference Shares with respect to dividends, the holders of Series A Junior
Participating Preference Shares shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the 15th day of January, April,
July and October in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share of Series A Junior
Participating Preference Share, or fraction thereof, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $5.00 U.S. Dollars or
(b) subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in Common Stock or a subdivision of
the outstanding Common Stock (by
1
<PAGE> 2
reclassification or otherwise), declared on the Common Stock of the Corporation
(the "Common Stock") since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any shares of Series A Junior Participating Preference Share,
or fraction thereof. In the event the Corporation shall at any time following
June 30, 1993 (i) declare any dividend on Common Shares payable in Common
Shares, (ii) subdivide the outstanding Common Shares, or (iii) combine the
outstanding Common Shares into a smaller number of shares, then in each such
case the amount to which holders of Series A Junior Participating Preference
Shares were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying each such amount by a
fraction the numerator of which is the number of Common Shares outstanding
immediately after such event and the denominator of which is the number of
Common Shares that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Junior Participating Preference Shares as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Shares
(other than a dividend payable in Common Shares); provided that, in the event no
dividend or distribution shall have been declared on the Common Shares during
the period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $5.00 U.S. Dollars per share on
the Series A Junior Participating Preference Shares shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
Series A Junior Participating Preference Shares from the Quarterly Dividend
Payment Date next preceding the date of issue of such Series A Series Junior
Participating Preference Shares, unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of issue of
such shares, or unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders of Series A
Junior Participating Preference Shares entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the Series A Junior Participating Preference Shares in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of Series A Junior Participating Preference Shares
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for the
payment thereof.
3. Voting Rights
The holders of Series A Junior Participating Preference Shares shall have
the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
Series A Junior Participating Preference Share shall entitle the holder thereof
to one vote on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time following June 30,
1993 (i) declare any dividend on Common Shares payable in Common Shares, (ii)
subdivide the outstanding Common Shares, or (iii) combine the outstanding Common
Shares into a smaller number of shares, then in each such case the number of
votes per share to which holders of Series A Junior Participating Preference
Shares were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number of
Common Shares outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein or by law, the holders of Series A
Junior Participating Preference Shares and the holders of Common Shares shall
vote together as one class on all matters submitted to a vote of shareholders of
the Corporation.
2
<PAGE> 3
(C) (i) If at any time dividends on any Series A Junior Participating
Preference Shares shall be in arrears in an amount equal to six (6) quarterly
dividends thereon, the occurrence of such contingency shall mark the beginning
of a period (herein called a "default period") which shall extend until such
time when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all Series A Junior
Participating Preference Shares then outstanding shall have been declared and
paid or set apart for payment. During each default period, the holders of
preferred shares, voting as a class, irrespective of series, shall have the
right to elect two (2) Directors.
(ii) During any default period, such voting right of the holders of
preferred shares may be exercised initially at a special meeting called pursuant
to subparagraph (iii) of this Section 3(C) or at any annual meeting of
shareholders, and thereafter at annual meetings of shareholders, provided that
neither such voting right nor the right of the holders of any other series of
preferred shares, if any, to increase, in certain cases, the authorized number
of Directors shall be exercised unless the holders of ten percent (10%) in
number of preferred shares outstanding shall be present in person or by proxy.
The absence of a quorum of the holders of Common Shares shall not affect the
exercise by the holders of preferred shares of such voting right. At any meeting
at which the holders of preferred shares shall exercise such voting right
initially during an existing default period, they shall have the right, voting
as a class, to elect Directors to fill such vacancies, if any, in the Board of
Directors as may then exist up to two (2) Directors or, if such right is
exercised at an annual meeting, to elect two (2) Directors. If the number which
may be so elected at any special meeting does not amount to the required number,
the holders of the preferred shares shall have the right to make such increase
in the number of Directors as shall be necessary to permit the election by them
of the required number. After the holders of the preferred shares shall have
exercised their right to elect Directors in any default period and during the
continuance of such period, the number of Directors shall not be increased or
decreased except by vote of the holders of preferred shares as herein provided
or pursuant to the rights of any equity securities ranking senior to or pari
passu with the Series A Junior Participating Preference Shares.
(iii) Unless the holders of preferred shares shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any shareholder or shareholders
owning in the aggregate not less than ten percent (10%) of the total number of
preferred shares outstanding, irrespective of series, may request, the calling
of a special meeting of the holders of preferred shares, which meeting shall
thereupon be called by the President or the Secretary of the Corporation. Notice
of such meeting and of any annual meeting at which holders of preferred shares
are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each
holder of record of preferred shares by mailing a copy of such notice to him at
his last address as the same appears on the books of the Corporation. In default
of the calling of such meeting within 45 days after such order or request, such
meeting may be called on similar notice by any shareholder or shareholders
owning in the aggregate not less than 10% of the total number of preferred
shares outstanding. Notwithstanding the provisions of this paragraph (C)(iii) ,
no such special meeting shall be called during the period within 30 days
immediately preceding the date fixed for the next annual meeting of the
shareholders.
(iv) In any default period the holders of Common Shares, and other
classes of stock of the Corporation if applicable, shall continue to be entitled
to elect the whole number of Directors until the holders of preferred shares
shall have exercised their right to elect two (2) Directors voting as a class,
after the exercise of which right (x) the Directors so elected by the holders of
preferred shares shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided in paragraph
(C)(ii) of this Section 3) be filled by vote of a majority of the remaining
Directors theretofore elected by the holders of the class of shares which
elected the Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular class of stock
shall include Directors elected by such Directors to fill vacancies as provided
in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of preferred shares as a class to elect Directors shall
cease, (y) the term of any Directors elected by the holders of preferred shares
as a class shall terminate, and (z) the number of Directors shall be such number
as may be provided for in the articles of incorporation or bylaws irrespective
of any increase made pursuant to the provisions of paragraph (C)(ii) of this
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Section 3 (such number being subject, however, to change thereafter in any
manner provided by law or in the articles of incorporation or bylaws). Any
vacancies in the Board of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority of the remaining
Directors.
(D) Except as set forth herein, holders of Series A Junior Participating
Preferred Shares shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Shares as set forth herein) for taking any corporate action.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preference Shares as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on Series A Junior Participating
Preference Shares outstanding shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preference Shares;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior Participating
Preference Shares, except dividends paid ratably on the Series A Junior
Participating Preference Shares and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which-the holders of
all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior Participating
Preference Shares, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in exchange for
shares of any stock of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A Junior
Participating Preference Shares; or
(iv) purchase or otherwise acquire for consideration any Series A
Junior Participating Preference Shares, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any of the Corporation's shares
unless the Corporation could, under paragraph (A) of this Section 4, purchase or
otherwise acquire such shares at such time and in such manner.
5. Liquidation, Dissolution or Winding Up.
(A) Upon any voluntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preference Shares unless, prior
thereto, the holders of , Series A Junior Participating Preference Shares shall
have received $20,000 U.S. Dollars per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment (the "Series A Liquidation Preference"). Following the
payment of the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of Series A Junior Participating
Preference Shares unless,
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prior thereto, the holders of Common Shares shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and recapitalizations with, respect to the Common Shares) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding Series A Junior Participating Preference Shares and
Common Shares, respectively, holders of Series A Junior Participating Preference
Shares and holders of Common Shares shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio, on a
per share basis, of the Adjustment Number to one with respect to such Series A
Junior Participating Preference Shares and Common Shares, on a per share basis,
respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of preferred shares, if any, which
rank on a parity with the Series A Junior Participating Preference Shares, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.
(C) In the event the Corporation shall at any time following June 30, 1993
(i) declare any dividend on Common Shares payable in Common Shares, (ii)
subdivide the outstanding Common Shares or (iii) combine the outstanding Common
Shares into a smaller number of shares, then in each such case the Adjustment
Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of which is the
number of Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were outstanding
immediately prior to such event.
6. Consolidation, Merger, etc.
In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the Common Shares are exchanged for or
changed into other stock or securities, cash and/or any other property, then in
any such case the Series A Junior Participating Preference Shares shall at the
same time be similarly exchanged or changed in an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind) , as the case may be, into which or for which each Common Share is
changed or exchanged. In the event the Corporation shall at any time following
June 30, 1993 (i) declare any dividend on Common Shares payable in Common
Shares, (ii) subdivide the outstanding Common Shares, or (iii) combine the
outstanding Common Shares into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect to the exchange
or change of Series A Junior Participating Preference Shares shall be adjusted
by multiplying such amount by a fraction the numerator of which is the number of
Common Shares outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding immediately prior to
such event.
7. Redemption.
The Series A Junior Participating Preference Shares may be called for
redemption by the Corporation, at its option, by vote of the Board of Directors,
in whole but not in part, at any time, by paying therefor in cash an amount
equal to $20,000 U.S. Dollars per share, plus accrued and unpaid dividends to
the date fixed for redemption.
8. Ranking.
The Series A Junior Participating Preference Shares shall rank junior to
all other series of the Corporation's preferred shares as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
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9. Amendment.
So long as any Series A Junior Participating Preference Shares are
outstanding, the Articles of Incorporation of the Corporation shall not be
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Junior Participating Preference
Shares so as to affect them adversely without the affirmative vote of the
holders of two-thirds or more of the outstanding Series A Junior Participating
Preference Shares, voting separately as a class.
10. Fractional Shares.
Series A Junior Participating Preference Shares may be issued in fractions
of a share which shall entitle the holder, in proportion to such holder's
fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of Series A
Junior Participating Preference Shares.
The Series B Exchangeable Convertible Preferred Stock (the "Series B
Exchangeable Convertible Preference Shares") has the following rights, powers,
preferences, qualifications, limitations and restrictions:
1. Voting Rights.
(A) So long as the Board of Directors consists of nine (9) or fewer
members, the holders of the Series B Exchangeable Convertible Preference Shares,
voting separately as a class (to the exclusion of any other series or class of
preferred or common equity), shall be entitled to elect two (2) members of the
Board of Directors. In the event the size of the Board of Directors is increased
to a number greater than nine (9), the holders of the Series B Exchangeable
Convertible Preference Shares shall, in addition to their right to elect two (2)
members of the Board of Directors, be entitled to elect such number of
additional directors equal to fifty-percent (50%) of the number of members of
the Board of Directors in excess of nine (9). In all such elections, each holder
of Series B Exchangeable Convertible Preference Shares shall be entitled to one
(1) vote in respect of each such share of which he is the registered holder.
(B) In the case of any vacancy in the office of a director occurring among
the directors elected by the holders of the Series B Exchangeable Convertible
Preference Shares pursuant to Section 1(A) hereof, the remaining director or
directors so elected by the holders of the Series B Exchangeable Convertible
Preference Shares may, by affirmative vote of a majority thereof (or the
remaining director so elected if there is but one, or if there is no such
director remaining, by the affirmative vote of the holders of a majority of the
Series B Exchangeable Convertible Preference Shares) elect a successor or
successors to hold the office for the unexpired term of the director or
directors whose place or places shall be vacant. Any director who shall have
been elected by the holders of the Series B Exchangeable Convertible Preference
Shares or any director so elected as provided in the preceding sentence hereof,
may be removed during the aforesaid term of office, whether with or without
cause, only by the affirmative vote of the holders of a majority of the Series B
Exchangeable Convertible Preference Shares.
2. Dividends.
(A) The holders of the Series B Exchangeable Convertible Preference Shares
shall be entitled to receive, and the Board of Directors shall declare, subject
to applicable law, cumulative cash dividends at a rate per annum (the "Dividend
Rate") of $0.4375 per share. Such dividends shall be payable, as and when
declared by the Board of Directors out of funds legally available therefor
semiannually on June 30 and December 31 (each a "Dividend Payment Date") of each
year beginning June 30, 1995 (unless such day is not a business day, in which
event on the
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next succeeding business day) to holders of record as they appear on the
register for the Series B Exchangeable Convertible Preference Shares (the
"Preferred Stock Register") on the December 15, and June 15, as appropriate,
immediately preceding such Dividend Payment Date.
(B) Dividends on the Series B Exchangeable Convertible Preference Shares,
if not paid in cash as set forth above, will be paid in additional Series B
Exchangeable Convertible Preference Shares (the "Additional Shares") to the
extent of legally available funds for all Dividend Payment Dates. To the extent
dividends are paid in Additional Shares, such Additional Shares shall be payable
at the rate per annum of $0.6250 per share.
(C) Dividends shall accrue from the date of issuance of the Series B
Exchangeable Convertible Preference Shares except that dividends on Additional
Shares shall accrue from the date such Additional Shares are issued. Such
dividends shall be paid out of money, assets or property of the Corporation
properly applicable to the payment of dividends. Semiannual dividends which are
not paid in full in cash or in Additional Shares will cumulate without interest
and, will cumulate as if semiannual dividends had been paid in Additional Shares
and such Additional Shares were outstanding on each succeeding Dividend Payment
Date until such accumulated semiannual dividends shall have been declared and
paid in cash or in Additional Shares (as permitted by the next preceding
paragraph) by the Board of Directors of the Corporation. Any such declaration
may be for a portion, or all, of the then accumulated dividends. Any accumulated
dividends which are not paid will continue to cumulate in the manner described
above. To the extent that all or any part of dividends in Additional Shares
would result in the issuance of a fractional Additional Share of such series
(which shall be determined with respect to the aggregate number of shares of the
Series B Exchangeable Convertible Preference Shares held, or deemed to be held,
of record by each holder of such series) then such amount shall be paid in cash.
(D) No dividend or distribution in cash, shares of capital stock or other
property shall be paid or declared and set apart for payment on any date or on
in respect of the Common Stock, $.001 par value, ("Common Shares") of the
Corporation, or on any other series of stock (other than the Series A Junior
Participating Preference Shares) issued by the Corporation (collectively, the
"Junior Securities") (all such dividends or distributions hereafter referred to
as a "Junior Securities Distribution" ), unless, at the same time a dividend or
distribution is paid or declared and set apart for payment, as the case may be,
on the Series B Exchangeable Convertible Preference Shares payable at the rate
as set forth herein and payable on a date no later than the payment date set for
such Junior Securities Distribution. In no event may the Corporation make a
Junior Securities Distribution or redeem, purchase or otherwise acquire for
value any Junior Securities while there are dividends in arrears on the Series B
Exchangeable Convertible Preference Shares; provided that the provisions of this
paragraph shall not prohibit the payment or declaration and setting aside of a
dividend payable in Junior Securities or a redemption, purchase or acquisition
of Junior Securities with shares of Junior Securities.
(E) No dividend or distribution in cash, shares of capital stock, or other
property shall be paid or declared and set apart for payment on any date on or
in respect of any other class of stock of the Corporation ranking on a parity
with the Series B Exchangeable Convertible Preference Shares in payment of
dividends or upon dissolution, liquidation or winding up of the Corporation
(collectively, "Parity Stock") until dividends payable for all past semiannual
dividend periods on all outstanding Series B Exchangeable Convertible Preference
Shares have been paid or declared and set apart for payment in full. So long as
any Series B Exchangeable Convertible Preference Shares shall remain
outstanding, no cash dividends shall be declared or paid or set apart for
payment with respect to any Parity Stock, nor shall any shares of any class of
Parity Stock be redeemed or purchased by the Corporation or any subsidiary
thereof nor shall any monies be paid to or made available for a sinking fund for
redemption or purchase of any shares of Parity Stock unless, in each such
instance, cash dividends on all outstanding Series B Exchangeable Convertible
Preference Shares for the then current semiannual dividend period shall have
been paid or set aside for payment.
(F) No dividend may be paid or declared and set apart for payment on any
Series B Exchangeable Convertible Preference Share unless at the same time a
ratable dividend in cash or Additional Shares is paid or set apart for payment
on all Series B Exchangeable Convertible Preference Shares then outstanding.
Each holder of Series B Exchangeable Convertible Preference Shares on the record
date for any dividend declared and payable
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thereon shall be entitled to such dividend notwithstanding that any Series B
Exchangeable Convertible Preference Shares held by such holder is redeemed by
the Corporation after such record date and before the payment date of such
dividend.
3. Redemption at the Option of the Corporation.
(A) Subject to any requirement of law, the Corporation may, at any time on
or after the third anniversary of the issuance of the Series B Exchangeable
Convertible Preference Shares (any such date, the "Redemption Date") and from
any source of funds legally available therefor, redeem all but not less than all
of the then issued and outstanding Series B Exchangeable Convertible Preference
Shares upon payment to the holder of each outstanding Series B Exchangeable
Convertible Preference Share of $100.00 (the "Redemption Price") for each such
share together with all accrued or declared and unpaid dividends. The
Corporation shall effect such redemption on the Redemption Date by issuing and
delivering, in exchange for each Series B Exchangeable Convertible Preference
Share, that number Common Shares (the "Redemption Shares") calculated by
dividing the Redemption Price of such Series B Exchangeable Convertible
Preference Share plus accrued but unpaid dividends to the Redemption Date by the
Market Price of a Common Share as determined in accordance with Section 5(B)
below.
(B) Unless all the holders of the Series B Exchangeable Convertible
Preference Shares to be redeemed shall have waived notice of such redemption,
the Corporation shall, at least 15 but no more than 30 business days prior to
the Redemption Date, provide notice (the "Notice of Redemption") to each holder
of record (at the close of business on the business day next preceding the day
on which notice is given) at the last address of such holder as it appears on
the securities register of the Series B Exchangeable Convertible Preference
Shares to be redeemed notifying such holder of the redemption to be effected,
specifying the number of shares to be redeemed from such holder, the Redemption
Date, the Redemption Price, the place at which payment may be obtained and
calling upon such holder to surrender to the Corporation, in the manner and at
the place designated, his certificate or certificates representing the shares to
be redeemed. On or after the Redemption Date, each holder of Series B
Exchangeable Convertible Preference Shares to be redeemed shall surrender to the
Corporation the certificate or certificates representing such shares, duly
endorsed, in the manner and at the place designated in the Notice of Redemption.
The Corporation shall, as soon as practicable thereafter, and in any event no
later than 10 business days after surrender of the certificate(s) representing
the redeemed shares, pay to the registered holder of Series B Exchangeable
Convertible Preference Shares being redeemed, the Redemption Price for each such
share by issuing and delivering at the office of the Corporation or such other
place as may be designated by the Corporation to such holder of Series B
Exchangeable Convertible Preference Stock, a certificate or certificates for the
number of Redemption Shares to which such shareholder shall be entitled as
aforesaid. Such redemption shall be deemed to have been made immediately prior
to the close of business on the date of surrender of the Series B Exchangeable
Convertible Preference Shares to be redeemed, and the person or persons entitled
to receive the Common Shares issuable upon such redemption shall be treated for
all purposes as the record holder or holders of such Common Shares on such date.
(C) From and after the Redemption Date, all rights of the holders of
Series B Exchangeable Convertible Preference Shares redeemed shall cease with
respect to such shares, unless payment of the Redemption Price for such redeemed
shares shall not be made by the Corporation in accordance with the foregoing
provisions, in which case the rights of the holders shall remain unaffected, and
such shares shall not thereafter be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever. Any Series B
Exchangeable Convertible Preference Shares not redeemed shall remain outstanding
and entitled to all the rights and preferences provided herein.
(D) No fractional shares shall be issued upon the redemption of any of the
Series B Exchangeable Convertible Preference Shares. All Common Shares
(including fractions thereof) issuable upon redemption of more than one Series B
Exchangeable Convertible Preference Share by a holder thereof shall be
aggregated for purposes of determining whether the redemption would result in
the issuance of any fractional share. If, after the aforementioned aggregation,
the redemption would result in the issuance of a fraction of a Common Share, the
Corporation shall, in
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lieu of issuing any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value of such fraction on the
Redemption Date (as determined in good faith by the Board of Directors).
(E) Any notice required by the provisions of this Section 3 to be given to
the holders of Series B Exchangeable Convertible Preference Shares shall be
deemed given if deposited in the United States mail, postage prepaid, or if sent
by facsimile or delivered personally by hand or nationally recognized courier
and addressed to each holder of record at such holder's address or facsimile
number appearing in the records of the Corporation.
4. Exchange.
(A) Upon the occurrence of any of the following events, a holder of Series
B Exchangeable Convertible Preference Shares shall be entitled at any time to
require, subject to applicable law, the Corporation to redeem the whole or any
part of the Series B Exchangeable Convertible Preference Shares registered in
the name of such holder on the books of the Corporation:
(i) Failure of the Corporation to pay (a) any amounts due under that
certain Convertible Note dated March 15, 1995, by and between the Corporation
and FoxMeyer Corporation, or (b) lawfully available dividends on the Series B
Exchangeable Convertible Preference Stock, within 10 days of such amounts or
dividends coming due;
(ii) Tangible net worth (tangible assets less all liabilities) of
the Corporation falls below $7,500,000;
(iii) Market capitalization of the Corporation (as calculated by
multiplying the Corporation's closing market price on the exchange on which its
Common Shares are then listed by the number of outstanding Common Shares) falls
below (a) $13,500,000 (prior to the close of the proposed merger of a subsidiary
of the Corporation with Dacomed Corporation (the "Dacomed Merger") ) or (b)
$18,700,000 (after the close of the Dacomed Merger);
(iv) Debt for borrowed money (in the amounts reflected in the
Corporation's financial statements) to tangible net worth ratio of the
Corporation above 1.5:1; and
(v) Quick ratio (cash plus marketable securities plus receivables
(due within 120 days) over current liabilities) of the Corporation below 0.5:1.
(B) To effect such redemption, the holder of Series B Exchangeable
Convertible Preference Shares shall tender to the Corporation at its registered
office a request in writing specifying (i) that such holder desires to have all
or any number specified therein of the Series B Exchangeable Convertible
Preference Shares registered in the name of such holder redeemed by the
Corporation and (ii) the business day, which day shall not be less than 30 days
after the day on which the request in writing is given to the Corporation, on
which the holder desires to have the Corporation redeem such shares (the
"Exchange Date"), together with the share certificates representing the Series B
Exchangeable Convertible Preference Shares which the registered holder desires
to have the Corporation redeem and such other documents and instruments as may
be required to effect a transfer under applicable law and the by-laws of the
Corporation.
(C) Upon receipt of such request and share certificates, the Corporation
shall, on the Exchange Date, redeem such shares and shall pay or cause to be
paid to the order of such holder the Redemption Price of such shares. Payment in
respect of Series B Exchangeable Convertible Preference Shares being redeemed
shall be made by delivery to the respective holders thereof of Convertible Debt
(i) with a face amount equal to the Redemption Price of all such Series B
Exchangeable Convertible Preference Shares redeemed plus accrued but unpaid
dividends to the Redemption Date, and (ii) on the same terms (including, without
limitation, the covenants and events of default included in that certain
Convertible Note Purchase Agreement, dated as of March 15, 1994, by and between
the
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Corporation and FoxMeyer Corporation) as that certain Convertible Debt evidenced
by that certain Davstar Industries Ltd. Convertible Note, dated March 15, 1995,
in the amount of $2,000,000. If only a portion of the Series B Exchangeable
Convertible Preference Shares represented by any certificates are redeemed, a
new certificate for the balance shall be issued by the Corporation.
(D) From and after the Exchange Date, all rights of the holders of Series
B Exchangeable Convertible Preference Shares redeemed shall cease with respect
to such shares unless upon presentation and surrender of certificates in
accordance with the foregoing provisions, payment of the Redemption Price shall
not be made, in which case the rights of such holder shall remain unaffected
until the Redemption Price has been paid in the manner hereinbefore provided,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever. Any
Series B Exchangeable Convertible Preference Shares not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein.
5. Voluntary Conversion.
(A) Each issued and outstanding Series B Exchangeable Convertible
Preference Share shall be convertible, at the option of the holder thereof, at
any time on or after the first anniversary of the issuance of such share and on
or prior to the fifth day prior to the Redemption Date, if any, as may have been
fixed in any Redemption Notice with respect to the Series B Exchangeable
Convertible Preference Shares (any such date, the "Conversion Date"), at the
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable Common Shares as is determined by dividing the
Redemption Price of such Series B Exchangeable Convertible Preference Share plus
accrued but unpaid dividends to the Redemption Date by the price at which such
share may be converted (the "Conversion Price"). The Conversion Price shall be
$2.00 initially, and shall be subject to adjustment from time to time in the
circumstances and manner set forth in Section 7 below.
(B) Each issued and outstanding Series B Exchangeable Convertible
Preference Share shall also be convertible, at the option of the holder thereof,
at any time on or after the third anniversary of the issuance of such share and
on or prior to the fifth day prior to the Redemption Date, if any, as may have
been fixed in any Redemption Notice with respect to the Series B Exchangeable
Convertible Preference Shares (any such date, the "Conversion Date"), at the
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable Common Shares as is determined by dividing
$66.67 per Series B Exchangeable Convertible Preference Share plus accrued but
unpaid dividends to the Conversion Date by the price at which such share may be
converted (the "Put Conversion Price"). The Put Conversion Price shall be the
per share Market Price of the Common Shares on the Conversion Date. For purposes
of the above calculation, Market Price of one Common Share shall be determined
by the Corporation's Board of Directors in good faith; provided, however, that
where there exists a public market for the Common Shares at the time of such
conversion, the fair market value per share shall be the average of the closing
bid and asked prices of the Common Shares quoted in the Over-The-Counter Market
Summary or the last reported sale price of the Common Shares or the closing
price quoted on the Nasdaq National Market or on any exchange on which the
Common Shares are then listed, whichever is applicable, as published in the
Western Edition of The Wall Street Journal for the five (5) trading days prior
to the date of determination of Market Price.
(C) Before any holder of Series B Exchangeable Convertible Preference
Shares shall be entitled to convert the same into Common Shares, such
shareholder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for such
stock, and shall give written notice to the Corporation at such office that such
shareholder elects to convert the same and shall specify the number of Series B
Exchangeable Convertible Preference Shares to be converted and shall state
therein the name or names in which such shareholder wishes the certificate or
certificates of Common Shares to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series B Exchangeable Convertible Preference Stock, a certificate or
certificates for the number of Common Shares to which such shareholder shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of the
Series B Exchangeable Convertible Preference Shares to be converted, and the
person or persons
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entitled to receive the Common Shares issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such Common Shares
on such date.
(D) From and after the Conversion Date, all rights of the holders of
Series B Exchangeable Convertible Preference Shares converted shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. Any Series B Exchangeable Convertible Preference Shares not
converted shall remain outstanding and entitled to all the rights and
preferences provided herein.
(E) No fractional shares shall be issued upon the conversion of any of the
Series B Exchangeable Convertible Preference Shares. All Common Shares
(including fractions thereof) issuable upon conversion of more than one Series B
Exchangeable Convertible Preference Share by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned aggregation,
the conversion would result in the issuance of a fraction of a Common Share, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the Conversion Date (as determined in good faith by the
Board of Directors).
6. Liquidation Preference.
In the event of the liquidation, dissolution or winding up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding-up its affairs, whether voluntary or
involuntary, the holders of the Series B Exchangeable Convertible Preference
Shares shall be entitled to receive, subject to applicable law, prior to and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of Common Shares and any other shares ranking junior
to the Series B Exchangeable Convertible Preference Shares, an amount equal to
the Redemption Price of each share plus all accrued or declared but unpaid
dividends thereon. The Series B Exchangeable Convertible Preference Shares and
the Series A Junior Participating Preference Shares shall rank on a parity as to
the receipt of the respective preferential amounts for each such series upon the
occurrence of such event. If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series B Exchangeable
Convertible Preference Shares and the Series A Junior Participating Preference
Shares shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series B Exchangeable Convertible Preference Shares and
the Series A Junior Participating Preference Shares in proportion to the
preferential amount each such holder is otherwise entitled to receive.
7. Adjustments to Redemption Price and Conversion Price.
(A) For purposes of this Section 7, the following definitions apply:
(i) "Options" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Shares or Convertible
Securities (as defined below).
(ii) "Original Issue Date" shall mean the date on which a Series B
Exchangeable Convertible Preference Share was first issued.
(iii) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Shares and Series B Exchangeable
Convertible Preference Shares) or other securities convertible into or
exchangeable for Common Shares.
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(iv) "Additional Common Shares" shall mean all Common Shares issued
(or, pursuant to Section 7(C), deemed to be issued) by the Corporation after the
Original Issue Date, other than Common Shares issued or issuable:
(a) upon conversion of Series B Exchangeable Convertible
Preference Shares;
(b) to officers, directors or employees of, or consultants to,
the Corporation pursuant to stock option or stock purchase plans or agreements
on terms approved by the Board of Directors;
(c) as a dividend or distribution on Series B Exchangeable
Convertible Preference Shares; or
(d) for which adjustment to the Redemption Price or Conversion
Price is made pursuant to Section 7(F).
(B) Any provision herein to the contrary notwithstanding, no adjustment in
the Redemption Price or the Conversion Price for the Series B Exchangeable
Convertible Preference Shares shall be made in respect of the issuance of
Additional Common Shares unless the consideration per share (determined pursuant
to Section 7(E) hereof) for an Additional Common Share issued or deemed to be
issued by the Corporation is less than the Market Price of the Common Shares (as
defined in Section 5(B) above) on the date of such issue.
(C) In the event that the Corporation at any time or from time to time
after the Original Issue Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of holders of any class of
securities then entitled to receive any such Options or Convertible Securities,
then the maximum number of Common Shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein designed to
protect against dilution) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Common Shares
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that in
any such case in which Additional Common Shares are deemed to be issued:
(i) no further adjustments in the Redemption Price or the Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
Common Shares upon the exercise of such Options or conversion or exchange of
such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation, or decrease or increase in the
number of Common Shares issuable, upon the exercise, conversion or exchange
thereof, the Redemption Price or the Conversion Price, as the case may be,
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities (provided, however,
that no such adjustment of the Redemption Price or the Conversion Price shall
affect the Common Shares previously issued upon conversion or redemption of the
Series B Exchangeable Convertible Preference Shares);
(iii) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the Redemption Price or Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(a) in the case of Convertible Securities or Options for
Common Shares the only Additional Common Shares issued were the Common Shares,
if any, actually issued upon the exercise of such
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<PAGE> 13
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange; and
(b) in the case of Options for Convertible Securities only the
Convertible Securities, if any, actually issued upon the exercise thereof were
issued at the time of issue of such Options, and the consideration received by
the Corporation for the Additional Common Shares deemed to have been then issued
was the consideration actually received by the Corporation for the issue of all
such Options, whether or not exercised, plus the consideration deemed to have
been received by the Corporation (determined pursuant to Section 7(E) upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised.
(iv) no readjustment pursuant to clause (ii) or (iii) above shall
have the effect of increasing the Redemption Price or Conversion Price to an
amount which exceeds the lower of (a) the Redemption Price or Conversion Price
on the original adjustment date, or (b) the Redemption Price or Conversion Price
that would have resulted from any issuance of Additional Common Shares between
the original adjustment date and such readjustment date;
(v) in the case of any Options which expire by their terms not more
than 30 days after the date of issue thereof, no adjustment of the Redemption
Price or Conversion Price shall be made until the expiration or exercise of all
such Options, whereupon such adjustment shall be made in the same manner
provided in clause (iii) above.
(D) In the event that the Corporation, at any time after the Original
Issue Date shall issue Additional Common Shares (including Additional Common
Shares deemed to be issued pursuant to Section 7(C)) without consideration or
for a consideration per share less than the Market Price of the Common Shares on
the date of such issue, then and in such event, the Redemption Price or
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Redemption Price
or Conversion Price by a fraction, the numerator of which shall be the number of
Common Shares outstanding immediately prior to such issue plus the number of
Common Shares which the aggregate consideration received by the Corporation for
the total number of Additional Common Shares so issued would purchase at the
Market Price, and the denominator of which shall be the number of Common Shares
outstanding immediately prior to such issue plus the number of such Additional
Common Shares so issued. For the purpose of the above calculation, the number of
Common Shares outstanding immediately prior to such issue shall be calculated on
a fully diluted basis, as if all Series B Exchangeable Convertible Preference
Shares and all Convertible Securities had been fully converted into Common
Shares immediately prior to such issuance and any outstanding warrants, options
or other rights for the purchase of shares of stock or convertible securities
had been fully exercised immediately prior to such issuance (and the resulting
securities fully converted into Common Shares, if so convertible) as of such
date, but not including in such calculation any additional Common Shares
issuable with respect to shares of Series B Exchangeable Convertible Preference
Shares, Convertible Securities, or outstanding options, warrants or other rights
for the purchase of shares of stock or convertible securities, solely as a
result of the adjustment of the Redemption Price or Conversion Price resulting
from the issuance of the Additional Common Shares causing the adjustment in
question.
(E) For purposes of this Section 7, the consideration received by the
Corporation for the issue of any Additional Common Shares shall be computed as
follows:
(i) Such consideration shall:
(a) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding the amounts paid
or payable for accrued interest or accrued dividends;
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<PAGE> 14
(b) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as determined in
good faith by the Board of Directors; and
(c) in the event Additional Common Shares are issued together
with other shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (a) and (b) above, as determined in
good faith by the Board of Directors.
(ii) The consideration per share received by the Corporation for
Additional Common Shares deemed to have been issued pursuant to Section 7(C),
relating to Options and Convertible Securities shall be determined by dividing:
(a) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(b) the maximum number of Common Shares (as set forth in the
instruments relating thereto, without regard to any provision contained therein
designed to protect against the dilution) issuable upon the exercise of such
Options or conversion or exchange of such convertible securities.
(F) In the event that the Corporation at any time or from time to time
after the Original Issue Date shall declare or pay, without consideration, any
dividend on the Common Shares payable in Common Shares or in any right to
acquire Common Shares for no consideration, or shall effect a subdivision of the
outstanding Common Shares in a greater number of Common Shares (by stock split,
reclassification or otherwise than by a payment of a dividend in Common Shares
or in any right to acquire Common Shares), or in the event that the outstanding
Common Shares shall be combined or consolidated, by reclassification or
otherwise into a lesser number of Common Shares, then the Redemption Price or
Conversion Price, as the case may be, in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be proportionately
decreased or increased, as appropriate.
(G) In the event that there shall be (i) a reorganization (other than a
subdivision, combination or reclassification of shares otherwise provided for
herein), (ii) a merger or consolidation of the Corporation with or into another
corporation in which the Corporation is not the surviving entity, or a reverse
triangular merger in which the Corporation is the surviving entity but the
shares of the Corporation's capital stock outstanding immediately prior to the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise, (iii) an offering of Common Shares or any
other securities pro rata among its shareholders, or (iv) a sale or transfer of
the Corporation's properties and assets as, or substantially as, an entirety to
any other person, then, as a part of such reorganization, merger, consolidation,
sale or transfer, lawful provision shall be made so that the holders of Series B
Exchangeable Convertible Preference Shares shall thereafter be entitled to
receive upon redemption or conversion, as the case may be, the number of shares
of stock or other securities or property of the successor corporation resulting
from such reorganization, merger, consolidation, sale or transfer that holders
of the Series B Exchangeable Convertible Preference Shares would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if each such share had been redeemed or converted immediately before
such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 7.
(H) If the Common Shares issuable upon the redemption or conversion of the
Series B Exchangeable Convertible Preference Shares shall be changed into the
same or a different number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for in Section 7(F) above or a
merger or other reorganization referred to in Section 7(G) above), the
Redemption Price or Conversion Price, as the case may be, then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted so that the Series B
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<PAGE> 15
Exchangeable Convertible Preference Shares shall be convertible into, in lieu of
the number of Common Shares which the holders would otherwise have been entitled
to receive, a number of shares of such other class or classes of stock
equivalent to the number of Common Shares that would have been subject to
receipt by the holders upon the redemption or conversion of the Series B
Exchangeable Convertible Preference Shares immediately before that change.
(I) Upon the occurrence of each adjustment or readjustment of the
Redemption Price or Conversion Price pursuant to this Section 7, the Corporation
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series B Exchangeable Convertible
Preference Shares a certificate setting forth such adjustment or readjustment
and showing the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
B Exchangeable Convertible Preference Shares, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Redemption Price and the Conversion Price at the time in
effect, and (iii) the number of Common Shares and the amount, if any, of other
property which at the time would be received upon conversion.
8. Amendment of Articles of Incorporation.
In addition to any other requirements under applicable law, the Articles of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series B Exchangeable Convertible Preference Shares so as to affect them
adversely without the affirmative vote of the holders of a majority or more of
the outstanding Series B Exchangeable Convertible Preference Shares, voting
separately as a series. In any such vote, each holder of Series B Exchangeable
Convertible Preference Shares shall be entitled to one (1) vote for each such
share held.
9. Fractional Shares.
Unless otherwise provided in these Articles, Series B Exchangeable
Convertible Preference Shares may be issued in fractions of a share which shall
entitle the holder, in proportion to such holder's fractional shares, to receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series B Exchangeable Convertible Preference Shares.
10. Notices.
Any notice, request, cheque or other communication required or permitted to
be given to any holder of Series B Exchangeable Convertible Preference Shares
shall be sent by courier or delivered to such holder at his address as it
appears on the records of the Corporation or, in the event of the address of any
such shareholder not so appearing, to the last known address of such holder. The
accidental failure to give notice to one or more of such shareholders shall not
affect the validity of any action requiring the giving of notice by the
Corporation. Any notice given as aforesaid shall be deemed to be given on the
date upon which it was mailed or delivered.
5. The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS
---- ---------------
Charles A. Laverty 3050 Redhill Avenue
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Costa Mesa, California 92626
6. The board of directors is expressly authorized to make, alter or
repeal the bylaws of the Corporation.
7. Elections of directors need not be by written ballot unless the
bylaws of the Corporation shall so provide.
8. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors and/or of the
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been made, be binding
on all the creditors or class of stockholders, of the Corporation as the case
may be, and also on the Corporation.
9. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
10. To the fullest extent permitted by Delaware statutory or
decisional law, as amended or interpreted, no director of the Corporation shall
be personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director. This Article 10 does not affect the
availability of equitable remedies for breach of fiduciary duties.
I, the undersigned, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying that this is my act and deed and the facts herein stated are true,
and, accordingly, have hereunto set my hand this 21st day of July 1995.
CHARLES A LAVERTY
------------------------------
Charles A. Laverty
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CERTIFICATE OF DOMESTICATION
The undersigned, Charles A. Laverty, Chief Executive Officer, of Davstar
Industries Ltd., presently a corporation organized and existing under the laws
of the Province of Ontario but which is domesticating to Delaware and changing
its name to "UroHealth Systems, Inc." (the "Corporation"), DOES HEREBY CERTIFY:
1. The Corporation was first incorporated on August 28, 1985 under the
Business Corporations Act, 1982 (Ontario, Canada).
2. The name of the Corporation immediately prior to the filing of this
Certificate of Domestication with the Secretary of State of the
State of Delaware was Davstar Industries Ltd.
3. The name of the Corporation as set forth in the Certificate of
Incorporation being filed with the Secretary of State of the State
of Delaware in accordance with Section 388(b) of the General
Corporation Law of the State of Delaware is "UroHealth Systems,
Inc."
4. The principal place of business of the Corporation immediately prior
to the filing of this Certificate of Domestication was 3050 Redhill
Avenue, Costa Mesa, California 92626.
5. A Certificate of Incorporation of UroHealth Systems, Inc. is being
filed with the Secretary of State of the State of Delaware
contemporaneously with the filing of this Certificate of
Domestication.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly
executed by Charles A. Laverty, its Chief Executive Officer, on this 21st day of
July, 1995.
By: /s/ CHARLES A. LAVERTY
---------------------------------
Charles A. Laverty
Chief Executive Officer
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CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
UROHEALTH SYSTEMS, INC.
(Pursuant to Section 242 of the General Corporation Law of the State of
Delaware)
UroHealth Systems, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies to the following:
FIRST: That the first paragraph of Article 4 of the Certificate of
Incorporation of the Corporation be, and hereby is, amended to read in its
entirety as follows:
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Twenty-Five Million
(25,000,000), consisting of Twenty Million (20,000,000) shares of Common
Stock with a par value of one-tenth of one cent ($.001) per share and Five
Million (5,000,000) shares of Preferred Stock with a par value of
one-tenth of one cent ($.001) per share. The Preferred Stock may be issued
in one or more series, and the Board of Directors is expressly authorized
(i) to fix the designations, powers, preferences, rights, including voting
rights, qualifications, limitations and restrictions with respect to any
series of Preferred Stock and (ii) to specify the number of shares of any
series of Preferred Stock.
SECOND: The following new paragraph shall be inserted immediately
following the first paragraph of Article 4 as amended and restated above:
On the effective date of this amendment to the Certificate of
Incorporation (the "Effective Date"), the Common Stock of the Corporation
will be combined on a one-for-three basis so that each share of Common
Stock issued and outstanding immediately prior to the Effective Date shall
automatically be converted into and reconstituted as one-third of a share
of Common Stock (the "Reverse Split"). No fractional shares will be issued
by the Corporation as a result of the Reverse Split. In lieu thereof, each
stockholder whose shares of Common Stock are not evenly divisible by three
will receive cash in lieu of fractional shares.
THIRD: That the foregoing amendment to Article 4 of the Certificate of
Incorporation and resolutions pertaining thereto were duly adopted by the board
of directors of the Corporation in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
FOURTH: That the foregoing amendment to Article 4 of the Certificate of
Incorporation was duly adopted and approved by the stockholders of the
Corporation entitled to vote thereon, in
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accordance with the provisions of the Certificate of Incorporation and Section
242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this instrument has been executed for, on behalf of,
and in the name of the Corporation by its officers thereunto duly authorized on
December 29, 1995.
UROHEALTH SYSTEMS, INC.
By: JAMES L. JOHNSON
-----------------------------------
ATTEST:
By: KEVIN M. HIGGINS
------------------------------
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CERTIFICATE OF DESIGNATION
OF
UROHEALTH SYSTEMS, INC.
The undersigned officers of UROHEALTH Systems, Inc. (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "General Corporation Law"), do hereby certify that,
pursuant to authority conferred by the Certificate of Incorporation of the
Corporation, as amended to date, and pursuant to the provisions of Section
151(g) of the General Corporation Law, the Board of Directors (the "Board") of
the Corporation, at a meeting duly called and held on May 8, 1996, adopted the
following resolution providing for certain powers, designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations and restrictions thereof, of certain shares of Series C Convertible
Preferred Stock, $.001 par value:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation and in accordance with the General Corporation Law of the
State of Delaware and the provisions of the Corporation's Certificate of
Incorporation, a series of the preferred stock, par value $.001 per share (the
"Series C Preferred Stock"), of the Corporation is hereby created as the Series
C Convertible Preferred Stock, and the designation and number of shares thereof
and the voting powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof, are as follows:
DESIGNATION OF
SERIES C CONVERTIBLE PREFERRED STOCK
DESIGNATION OF AMOUNT; RANKING.
The issuance of Ten Thousand (10,000) shares of the Series C Preferred
Stock is hereby authorized. The Series C Preferred Stock shall rank senior to
all other classes and series of equity securities of the Corporation
(collectively, the "Junior Stock") with respect to dividend rights, rights of
redemption, rights of conversion and rights of Liquidation (as hereinafter
defined).
DEFINITIONS.
As used herein, the following terms shall have the following meanings:
"AFFILIATE" shall mean, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person, with
control consisting of the power, by stock ownership, contract right or
otherwise, to direct or control the management of a Person.
"BOARD" shall mean the Board of Directors of the Corporation.
"CHANGE OF CONTROL" shall have the meaning ascribed thereto in the
Indenture.
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"CLOSING PRICE" shall mean on any Trading Day, the last reported sales
price regular way on each Trading Day or, in the case no such reported sales
took place on such Trading Day, the last reported bid price regular way on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading or, if, the Common Stock is not at the time listed or
admitted for trading on any such exchange, then such price as shall be equal to
the last reported sale price, or if there is no such sale price, the last
reported bid price, as reported by the National Association of Securities
Dealers Automated Quotations System on such Trading Day.
"COMMON STOCK" shall mean the Common Stock, $.001 par value of, the
Corporation.
"COMMON STOCK DEEMED OUTSTANDING" shall mean, at any given time, the
number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to clause
(iv) of Section 7(e).
"DEBENTURES" shall mean the 8.75% Convertible Subordinated Debentures due
2006 issued pursuant to the Indenture.
"DIVIDEND PAYMENT DATE" shall mean March 31, June 30, September 30 and
December 31 of each year and any other date upon which any payment on
Liquidation or by way of redemption is made on the Series C Preferred Stock and
the date of any exchange pursuant to Section 8.
"DIVIDEND RATE" shall mean 8.75% per annum.
"ESPP STOCK" shall mean Common Stock purchased by employees of the
Corporation pursuant to the Employee Stock Purchase Plan, effective as of April
1, 1996.
"EXCLUDED SECURITIES" shall mean:
shares of Common Stock issued upon exercise of the Management Options or
other options or warrants outstanding on the Original Issuance Date including
warrants issued pursuant to the terms of the Warrant Agreement dated as of the
date hereof between the Corporation and the Warrant Agent (as defined therein);
shares of ESPP Stock provided that the number of shares of ESPP Stock
deemed to be Excluded Securities shall not exceed 500,000;
the Reserve Shares; and
shares of Common Stock issued as a stock dividend of upon any stock split
or other subdivision or combination of the Common Stock.
"INDENTURE" shall mean the Indenture dated the Original Issuance Date for
the 8.75% Convertible Subordinated Debentures of the Corporation.
"ISSUANCE DATE" shall mean, with respect to each share of Series C
Preferred Stock, the date upon which such share was originally issued.
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<PAGE> 22
"JUNIOR STOCK" shall mean, with respect to the Series C Preferred Stock,
all other classes and series of equity securities of the Corporation now
existing or hereafter created, including, without limitation, the Series A
Junior Participating Preferred Stock, Series B Exchangeable Convertible
Preferred Stock and Common Stock.
"LIQUIDATION" shall mean any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation.
"MANAGEMENT OPTIONS" shall have the meaning ascribed thereto in the
Securities Purchase Agreement.
"MARKET PRICE" of any security means on any day the average of the closing
prices of such security's sales on all securities exchanges on which such
security may be listed on such day, or, if there have been no sales on any such
exchange on such day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on such day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on such day such
security is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization. If at any time such security is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the "Market Price" shall be the fair market value thereof as jointly
determined by the Corporation and the Requisite Holders.
"ORIGINAL ISSUANCE DATE" shall mean May 9, 1996.
"ORIGINAL ISSUANCE PRICE" shall mean $100 per share of Series C Preferred
Stock.
"PERSON" shall mean an individual, partnership, joint venture,
corporation, limited liability company, a trust, and any other entity and a
government or any department or agency thereof.
"PREFERRED ACCRUED DIVIDENDS" shall mean, with respect to each share of
Series C Preferred Stock, any dividends or distributions required to be paid on
such share of Series C Preferred Stock which remain unpaid at such time.
"PREFERRED LIQUIDATION PREFERENCE" shall mean, at any point in time and
with respect to each share of Series C Preferred Stock, an amount per share
equal to the Original Issuance Price, plus the amount of any Preferred Accrued
Dividends on such share of Series C Preferred Stock, through the date in
question.
"REQUISITE HOLDERS" shall mean, at any time, Persons holding a majority of
the shares of Series C Preferred Stock outstanding at such time.
"RESERVE SHARES" shall have the meaning ascribed thereto in the Securities
Purchase Agreement.
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"SERIES A PREFERRED SHARES" shall have the meaning ascribed thereto in the
Securities Purchase Agreement.
"SERIES B PREFERRED SHARES" shall have the meaning ascribed thereto in the
Securities Purchase Agreement.
"SECURITIES PURCHASE AGREEMENT" shall mean the Securities Purchase
Agreement dated as of May 3, 1996, among the Corporation and the Investors (as
defined therein).
"SUBSIDIARY" shall have the meaning ascribed thereto in the Securities
Purchase Agreement.
"TRADING DAY" shall mean each day that the principal stock exchange or
market system upon which the Common Stock is traded shall be open for trading.
"VOTING DATE" shall have the meaning ascribed thereto in the Indenture.
DIVIDENDS.
The Corporation shall pay cash dividends on each share of Series C
Preferred Stock on each Dividend Payment Date, at an amount per share equal to
the Dividend Rate times the average balance of the Preferred Liquidation
Preference from the last Dividend Payment Date (or, in the case of shares issued
after the last Dividend Payment Date, the Issuance Date for such shares) to the
Dividend Payment Date in question. Dividends on the Series C Preferred Stock for
any period other than a full dividend period, shall be computed on the basis of
a 360-day year consisting of twelve 30-day months. All unpaid dividends
hereunder shall, if not paid in cash as provided herein, accrue and cumulate and
shall increase the Preferred Liquidation Preference from the applicable Dividend
Payment Date.
Unless all dividends on all outstanding shares of the Series C Preferred
Stock shall have been paid or declared and set aside for payment, no dividend
shall be declared, paid or set apart for payment or any other distribution
(whether in cash or obligations of the Corporation or other properties) made
upon any Junior Stock.
Dividends shall be paid in accordance with this Section 3 to the holders
of record of Series C Preferred Stock as they appear on the stock ledger of the
Corporation on the Dividend Payment Date.
In addition to the dividends set forth in paragraph (a) above, in the
event that the Corporation shall pay a cash dividend on shares of Common Stock,
the holder of each share of Series C Preferred Stock shall be entitled to
receive a cash dividend, simultaneously with and in an amount equal to the
amounts paid to the holder of each share of Common Stock; provided, however,
that for the purpose of calculating the amounts due per share of Series C
Preferred Stock under this paragraph (d), each share of Series C Preferred Stock
shall be deemed to be that number of shares of Common Stock into which such
share of Series C Preferred Stock was convertible as of the record date fixed
for the determination of the holders of Common Stock entitled to receive
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such dividends.
In addition to the dividends set forth in paragraphs (a) and (d) above, in
the event that the Corporation shall pay a non-cash dividend or distribution
upon its Junior Stock including, without limitation, any distribution of capital
stock (other than Junior Stock) of the Corporation, stock or other securities of
other persons, evidences of indebtedness issued by the Corporation or other
persons, other assets or options or rights, the holders of Series C Preferred
Stock shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of shares of Common Stock into which
their shares of Series C Preferred Stock were convertible as of the record date
fixed for the determination of the holders of Common Stock entitled to receive
such distribution.
LIQUIDATION.
In the event of any Liquidation, the assets of the Corporation available
for distribution to its stockholders, whether from capital, surplus or earnings,
shall be distributed in the following order of priority:
The holder of each share of Series C Preferred Stock which is not
converted into Common Stock on or prior to the Liquidation, shall be entitled to
receive, prior and in preference to any distribution to any holder of any share
of Junior Stock, for each share of Series C Preferred Stock, an amount equal to
the Preferred Liquidation Preference for such share of Series C Preferred Stock.
If the assets of the Corporation available for distribution to the holders of
Series C Preferred Stock shall be insufficient to permit the payment of the full
preferential amount set forth in this subsection (i), then the holders of Series
C Preferred Stock shall share ratably in any distribution of the assets of the
Corporation based on the respective amounts which would be payable to them in
respect of the shares held by them upon such distribution pursuant to this
subsection (i) if all amounts payable on or with respect to such shares were
paid in full.
After all distributions pursuant to subsection (i) above have been made,
the remaining assets of the Corporation available for distribution, if any, to
the stockholders of the Corporation shall be distributed to the holders of
shares of Junior Stock pursuant to the Corporation's Certificate of
Incorporation.
The Corporation shall mail a written notice of the Liquidation to each
holder of record of shares of Series C Preferred Stock, at his or its post
office address last shown on the records of the Corporation, not less than 30
days prior to the date on which the Liquidation is to be consummated (the
"Liquidation Date"). Anything contained herein to the contrary notwithstanding,
the holders of Series C Preferred Stock shall have the right, exercisable at any
time up to the Liquidation Date, to convert all or any part of such shares into
shares of Common Stock subject to and in accordance with Section 7 hereof.
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REDEMPTION.
The Corporation may redeem all (but not part) of the Series C Preferred
Stock then outstanding (i) on or after the second anniversary of the Original
Issuance Date and prior to the third anniversary of the Original Issuance Date
if for the 60 consecutive Trading Days prior to the delivery of a Redemption
Notice (as defined below) the average Closing Price for the Common Stock shall
have exceeded $22.00 and (ii) at any time on or after the third anniversary of
the Original Issuance Date; provided, however, that the Corporation may not
redeem any shares of Series C Preferred Stock hereunder at any time while any
Convertible Debentures (as defined in the Securities Purchase Agreement) shall
be outstanding. The date established for any such redemption pursuant to this
Section 5(a) is referred to herein as the "Voluntary Redemption Date".
If a Change of Control shall occur or shall be proposed, the Corporation
shall give written notice of such Change of Control, describing in reasonable
detail the terms thereof, to each holder of the Series C Preferred Stock not
more than 45 days nor less than 30 days prior to the consummation thereof. The
Requisite Holders may require the Corporation to redeem all or any portion of
the Series C Preferred Stock owned by such holders at a price per share equal to
the Redemption Price by giving written notice to the Corporation of such
election within 20 days after receipt of such notice from the Corporation. The
Corporation shall give prompt written notice of such election to all other
holders of Series C Preferred Stock (but in any event within 10 days prior to
the consummation of the Change of Control), and each such holder shall have
until 10 days after the receipt of such notice to request redemption (by written
notice given to the Corporation) of all or any portion of the Series C Preferred
Stock owned by such holder. Upon receipt of such election(s), the Corporation
shall be obligated to redeem the aggregate number of shares specified therein
upon the consummation of such Change of Control. If any proposed Change of
Control does not occur, all requests for redemption in connection therewith
shall be automatically rescinded. Any redemption pursuant to this Section 5(b)
shall be made on the date the Change of Control is consummated. Such date is
referred to herein as the "Mandatory Redemption Date"; and the Mandatory
Redemption Date and the Voluntary Redemption Date are referred to herein,
collectively, as the "Redemption Dates" and each, individually, as a "Redemption
Date".
At least 30 days but not more than 60 days prior to a Voluntary Redemption
Date, the Corporation shall provide written notice of such redemption (a
"Voluntary Redemption Notice") to each holder of Series C Preferred Stock
indicating (i) that the Corporation shall redeem all shares of Series C
Preferred Stock on such Voluntary Redemption Date and (ii) the Redemption Price.
Such notice shall call upon such holder to surrender to the Corporation on the
Voluntary Redemption Date or otherwise pursuant to Section 5(f), at the place or
places designated in such notice, the certificate or certificates representing
the shares of Series C Preferred Stock to be redeemed. Each such surrendered
certificate shall be canceled.
The redemption price (the "Redemption Price") at which each share of
Series C Preferred Stock is to be redeemed by the Corporation on the Redemption
Date shall be equal to (i) 105% of the Original Issuance Price, plus all
Preferred Accrued Dividends on such share of Series C Preferred Stock, if such
redemption is made pursuant to Section 5(b) and (ii) the percentage of the
Original Issuance Price specified below for the period during which such
redemption occurs, plus
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<PAGE> 26
all Preferred Accrued Dividends on such share of Series C Preferred Stock, if
such redemption is made pursuant to Section 5(a):
Prior to 5/9/2000 105%
On or after 5/9/2000 and
prior to 5/9/2001
104%
On or after 5/9/2001 and
prior to 5/9/2002
103%
On or after 5/9/2002 and
prior to 5/9/2003
102%
On or after 5/9/2003 and
prior to 5/9/2004
101%
Thereafter 100%
After any Redemption Date (unless default shall be made by the Corporation
in the payment of the applicable Redemption Price, in which event such rights
shall be exercisable until such default is cured), all rights in respect of the
shares of Series C Preferred Stock, except the right to receive the applicable
Redemption Price, shall cease and terminate, and such shares shall no longer be
deemed to be outstanding, whether or not the certificates representing such
shares have been received by the Corporation.
Any communication or notice relating to redemption given pursuant to this
Section 5 shall be sent by first-class certified mail, return receipt requested,
postage prepaid, to the holders of record of shares of Series C Preferred Stock,
at their respective addresses as the same shall appear on the books of the
Corporation, or to the Corporation at the address of its principal, or
registered office, as the case may be. At any time on or after the Redemption
Date, the holders of record of shares of Series C Preferred Stock being redeemed
on such Redemption Date in accordance with this Section 5 shall be entitled to
receive the applicable Redemption Price upon actual delivery to the Corporation
or its agents of the certificates representing the shares to be redeemed.
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<PAGE> 27
Anything contained herein to the contrary notwithstanding, the holders of
shares of Series C Preferred Stock shall have the right, exercisable at any time
up to the close of business on the Redemption Date, to convert all or any part
of shares of Series C Preferred Stock into shares of Common Stock subject to and
in accordance with Section 7 hereof.
VOTING.
In addition to the rights hereinafter specified in this Section 6 and any
other rights provided by law or the By-laws of the Corporation, each share of
Series C Preferred Stock shall entitle the holder thereof to such number of
votes per share as shall equal 50 times the number of shares of Common Stock
(rounded to the nearest whole number) into which such share of Series C
Preferred Stock is then convertible as provided in Section 7 hereof, and shall
further entitle the holder thereof to vote on all matters as to which holders of
Common Stock shall be entitled to vote (with the number of votes specified in
this Section 6(a)), together with such holders of Common Stock as one class and
in the same manner and with the same effect as such holders of Common Stock.
The Corporation shall not, and shall not permit any subsidiary to, without
the affirmative consent or approval of the Requisite Holders, given by written
consent in lieu of meeting or by vote at a meeting called for such purpose for
which notice shall have been given to the holders of Series C Preferred Stock in
the manner provided by law:
in any manner authorize, create, designate, issue or sell any class or
series of capital stock (including any shares of treasury stock) or rights,
options, warrants or other securities convertible into or exercisable or
exchangeable for capital stock (other than Excluded Securities) or any debt
security which by its terms is convertible into or exchangeable for any equity
security or has any other equity feature or any security that is a combination
of debt and equity, which, in each case, as to the payment of dividends,
distribution of assets or redemptions, including, without limitation,
distributions to be made upon a Liquidation, pari passu with or is senior to the
Series C Preferred Stock or which in any manner adversely affects the holders of
the Series C Preferred Stock;
in any manner alter or change the terms, designations, powers, preferences
or relative, participating, optional or other special rights, or the
qualifications, limitations or restrictions, of the Series C Preferred Stock;
reclassify the shares of any class or series of Junior Stock into shares
of any class or series of capital stock (A) ranking, either as to payment of
dividends, distributions of assets or redemptions, including, without
limitation, distributions to be made upon a Liquidation, senior to or on a
parity with the Series C Preferred Stock, or (B) which in any manner adversely
affects the rights of the holders of Series C Preferred Stock in their capacity
as such;
take any action to cause any amendment, alteration or repeal of any of the
provisions of (A) the Certificate of Incorporation or (B) the By-laws, if such
amendment, alteration or repeal would have an adverse effect on the rights of
the holders of the Series C Preferred Stock; or
redeem, purchase or otherwise acquire for any consideration any Junior
Stock (or any moneys be paid or otherwise made available for a sinking fund for
the redemption of any shares of
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any such stock).
In addition to the rights specified in paragraphs (a) and (b) of this
Section 6, the Requisite Holders shall at all times have the special and
exclusive right to elect two directors to the Board.
In any election of directors by the Series C Preferred Stock pursuant to
Section 6(c), each holder of Series C Preferred Stock shall be entitled to one
vote for each share of Series C Preferred Stock held. The Corporation shall take
all actions necessary to effectuate the terms and provisions of Section 6(c).
The special and exclusive voting rights of the holders of the Series C Preferred
Stock, voting separately as one class, contained in Section 6(c) may be
exercised either at a special meeting of the holders of the Series C Preferred
Stock called as provided below, or at any annual or special meeting of the
shareholders of the Corporation, or by written consent of such holders in lieu
of a meeting. The directors to be elected pursuant to Section 6(c) shall serve
for terms extending from the date of their election and qualification until
their successors shall have been elected and qualified.
If at any time any directorship to be filled by the holders of the Series
C Preferred Stock pursuant to Section 6(c) has been vacant for a period of 10
days, the Secretary of the Corporation shall, upon the written request of any
holder of Series C Preferred Stock, call a special meeting of the holders of the
Series C Preferred Stock for the purpose of electing a director or directors to
fill such vacancy or vacancies. Such meeting shall be held at the earliest
practicable date, and at such place, as is specified in or determined in
accordance with the By-laws of the Corporation. If such meeting shall not be
called by the Secretary of the Corporation within 10 days after personal service
of such written request on him or her, then any holder of Series C Preferred
Stock may designate in writing one of their members to call such meeting at the
expense of the Corporation, and such meeting may be called by such person so
designated upon the notice required for annual meetings of shareholders and
shall be held at such place as specified in such notice. Any holder of Series C
Preferred Stock so designated shall have access to the stock books of the
Corporation relating to Series C Preferred Stock for the purpose of calling a
meeting of the stockholders pursuant to these provisions.
At any meeting held for the purpose of electing directors as provided in
Section 6(c), the presence, in person or by proxy, of the holders of record of
shares representing at least a majority of the voting power of the Series C
Preferred Stock then outstanding shall be required to constitute a quorum of the
Series C Preferred Stock for such election. A vacancy in the directorships to be
elected by the holders of the Series C Preferred Stock pursuant to Section 6(c)
may be filled only by vote or written consent in lieu of a meeting of the
Requisite Holders.
OPTIONAL CONVERSION.
The holder of any shares of the Series C Preferred Stock shall have the
right, at such holder's option, at any time or from time to time to convert any
of such shares into such whole number of fully paid and nonassessable shares of
Common Stock as is equal to the quotient obtained by dividing (A) the Original
Issuance Price for such Series C Preferred Stock multiplied by the number of
shares of the Series C Preferred Stock being converted by (B) the Series C
Preferred Conversion Price (as defined below), as last adjusted and then in
effect, for the shares of
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<PAGE> 29
the Series C Preferred Stock being converted, by surrender of the certificates
representing the shares of Series C Preferred Stock so to be converted in the
manner provided in Section 7(b) hereof. The conversion price per share at which
shares of Common Stock shall be issuable upon conversion of shares of Series C
Preferred Stock (the "Series C Preferred Conversion Price") shall initially be
$11.00 per share; provided, however, that the Series C Preferred Conversion
Price shall be subject to adjustment as set forth in Sections 7(d) and 7(f)
hereof. The holder of any shares of Series C Preferred Stock exercising the
aforesaid right to convert such shares into shares of Common Stock shall be
entitled to payment of any dividends due on such shares of Series C Preferred
Stock on the date of such conversion.
The holder of any shares of Series C Preferred Stock may exercise the
conversion right pursuant to Section 7(a) hereof as to one or more shares
thereof by delivering to the Corporation during regular business hours, at the
office of the Corporation or any transfer agent of the Corporation for the
Series C Preferred Stock as may be designated by the Corporation, the
certificate or certificates for the shares to be converted, duly endorsed or
assigned in blank or to the Corporation (if required by it), accompanied by
written notice stating that the holder elects to convert such shares and stating
the name or names (with address) in which the certificate or certificates for
the shares of Common Stock are to be issued. Conversion shall be deemed to have
been effected on the date when the aforesaid delivery is made (the "Conversion
Date"). As promptly as practicable thereafter the Corporation shall issue and
deliver to or upon the written order of such holder, to the place designated by
such holder, a certificate to which such holder is entitled and a check or cash
in respect of any fractional interest in a share of Common Stock as provided in
Section 7(c) hereof. The person in whose name the certificate or certificates
for Common Stock are to be issued shall be deemed to have become a Common Stock
holder of record on the applicable Conversion Date unless the transfer books of
the Corporation are closed on that date, in which event such person shall be
deemed to have become a Common Stock holder of record on the next succeeding
date on which the transfer books are open, but the respective Series C Preferred
Conversion Price shall be that in effect on the Conversion Date. Upon conversion
of only a portion of the number of shares covered by a certificate representing
shares of Series C Preferred Stock surrendered for conversion, the Corporation
shall issue and deliver to or upon the written order of the holder of the
certificate so surrendered for conversion, at the expense of the Corporation, a
new certificate covering the number of shares of the series of Series C
Preferred Stock representing the unconverted portion of the certificate so
surrendered, which new certificate shall entitle the holder thereof to dividends
on the shares of Series C Preferred Stock represented thereby to the same extent
as if the portion of the certificate theretofore covering such unconverted
shares had not been surrendered for conversion.
No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Series C Preferred Stock. If more than one share of
Series C Preferred Stock shall be surrendered for conversion at any one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of such Series C Preferred Stock so surrendered. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Series C Preferred Stock, the Corporation shall pay
a cash adjustment in respect of such fractional interest in an amount equal to
the then fair market value, as determined in good faith by the Board, of a
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<PAGE> 30
share of Common Stock multiplied by such fractional interest. Fractional
interests shall not be entitled to dividends, and the holders of fractional
interests shall not be entitled to any rights as stockholders of the Corporation
in respect of such fractional interest.
If the Corporation shall, at any time or from time to time after the
Original Issuance Date, issue any shares of Common Stock (or be deemed to have
issued shares of Common Stock as provided in Section 7(e)), other than Excluded
Securities, without consideration or for a consideration per share less than the
then Market Price, then the Series C Preferred Conversion Price shall forthwith
(except as provided in this Section 7(d)) be reduced to the result obtained by
multiplying the then existing Series C Conversion Price by a fraction the
numerator of which is (x) the sum of (1) the number of shares of Common Stock
Deemed Outstanding on a fully diluted basis immediately prior to such issue or
sale multiplied by the Market Price per share of Common Stock immediately prior
to such issue or sale plus (2) the aggregate consideration received by the
Corporation upon such issue or sale, divided by (y) the total number of shares
of Common Stock Deemed Outstanding on a fully diluted basis immediately after
(and including) such issue or sale, and the denominator of which shall be the
Market Price per share of Common Stock immediately prior to such issue or sale.
For the purposes of any adjustment of the Series C Preferred Conversion
Price pursuant to Section 7(d), the following provisions shall be applicable:
In the case of the issuance of Common Stock for cash, the consideration
shall be deemed to be the amount of cash paid therefor before deducting
therefrom any discounts, commissions or other expenses allowed, paid or incurred
by the Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
In the case of the issuance of Common Stock for a consideration in whole
or in part other than cash, the consideration other than cash shall be deemed to
be the fair market value thereof as reasonably determined by the Board,
irrespective of any accounting treatment.
In the case of the issuance of Common Stock without consideration, the
consideration shall be deemed to be $.001 per share.
In the case of the issuance of (x) options to purchase or rights to
subscribe for Common Stock, (y) securities by their terms convertible into or
exchangeable for Common Stock or (z) options to purchase or rights to subscribe
for such convertible or exchangeable securities:
the aggregate maximum number of shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in subdivisions (i), (ii) and (iii) above), if any, received by
the Corporation upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby;
the aggregate maximum number of shares of Common Stock deliverable upon
conversion of or in exchange for any such convertible or exchangeable securities
or upon the exercise of
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<PAGE> 31
options to purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration received by the
Corporation for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in subdivisions (i), (ii) and (iii) above);
on any change in the number of shares or exercise price of Common Stock
deliverable upon exercise of any such options or rights or conversions of or
exchanges for such securities, other than a change resulting from the
anti-dilution provisions thereof, the Series C Preferred Conversion Price shall
forthwith be readjusted to such Series C Preferred Conversion Price as would
have obtained had the adjustment made upon the issuance of such options, rights
or securities not converted prior to such change or options or rights related to
such securities not converted prior to such change been made upon the basis of
such change; and
on the expiration of all such options or rights, the termination of all
such rights to convert or exchange or the expiration of all options or rights
related to such convertible or exchangeable securities in each case having been
issued by the Corporation for the same consideration (as determined pursuant to
subdivision (i), (ii) and (iii) above), the Series C Preferred Conversion Price
shall forthwith be readjusted to such Series C Preferred Conversion Price as
would have been obtained had the adjustment made upon the issuance of such
options, rights, securities or options or rights related to such securities been
made upon the basis of the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights, upon the conversion
or exchange of such securities, or upon the exercise of the options or rights
related to such securities and subsequent conversion or exchange thereof.
The Series C Preferred Conversion Price shall be adjusted pursuant to this
Section 7(f), as provided below:
If, at any time after the Original Issuance Date, the number of shares of
Common Stock outstanding is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then,
following the record date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend, subdivision or split-up, the Series C
Preferred Stock Conversion Price shall be appropriately decreased so that the
number of shares of Common Stock issuable on conversion of each share of Series
C Preferred Stock shall be increased in proportion to such increase in
outstanding shares.
If, at any time after the Original Issuance Date, the number of shares of
Common Stock outstanding is decreased by a combination or reverse stock split of
the outstanding shares of Common Stock, then, following the record date for such
combination, the Series C Preferred Stock Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series C Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
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In case, at any time after the Original Issuance Date, of any capital
reorganization, or any reclassification of the stock of the Corporation (other
than a change in par value or from par value to no par value or from no par
value to par value or as a result of a stock dividend or subdivision, split-up
or combination of shares), or the consolidation or merger of the Corporation
with or into another person (other than a consolidation or merger in which the
Corporation is the continuing corporation and which does not result in any
change in the Common Stock) or of the sale or other disposition of all or
substantially all the properties and assets of the Corporation as an entirety to
any other person, each share of Series C Preferred Stock shall after such
reorganization, reclassification, consolidation, merger, sale or other
disposition be convertible into the kind and number of shares of stock or other
securities or property of the Corporation or of the corporation resulting from
such consolidation or surviving such merger or to which such properties and
assets shall have been sold or otherwise disposed to which the holder of the
number of shares of Common Stock deliverable (immediately prior to the time of
such reorganization, reclassification, consolidation, merger, sale or other
disposition) upon conversion of such share of Series C Preferred Stock would
have been entitled upon such reorganization, reclassification, consolidation,
merger, sale or other disposition and the Series C Preferred Stock Conversion
Price shall, if required, be appropriately adjusted to effect the foregoing. The
provisions of this Section 7 shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales or other
dispositions.
(i) All calculations under Sections 7(e) and (f) shall be made to the
nearest one tenth (1/10) of a cent or to the nearest one tenth (1/10) of a
share, as the case may be.
(ii) In any case in which the provisions of this Section 7 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Corporation may defer until the occurrence of such event (A) issuing
to the holder of any share of Series C Preferred Stock converted after such
record date and before the occurrence of such event the additional shares of
capital stock issuable upon such conversion by reason of the adjustment required
by such event over and above the shares of capital stock issuable upon such
conversion before giving effect to such adjustment and (B) paying to such holder
any amount in cash in lieu of a fractional share of capital stock pursuant to
Section 7(c); provided, however, that the Corporation shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional shares, and such cash, upon the occurrence of the
event requiring such adjustment.
Whenever the Series C Preferred Stock Conversion Price shall be adjusted
as provided in this Section 7, the Corporation shall forthwith file, at the
office of Corporation or any transfer agent designated by the Corporation for
the Series C Preferred Stock, a statement, signed by its chief financial
officer, showing in detail the facts requiring such adjustment and the Series C
Preferred Stock Conversion Price then in effect. The Corporation shall also
cause a copy of such statement to be sent by first-class certified mail, return
receipt requested, postage prepaid, to each holder of shares of Series C
Preferred Stock at his or its address appearing on the Corporation's records.
Where appropriate, such copy may be given in advance and may be included as part
of a notice required to be mailed under the provisions of Section 7.
In the event the Corporation shall propose to take any action of the types
described in
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Section 7(f), the Corporation shall give notice to each holder of shares of
Series C Preferred Stock, in the manner set forth in Section 7(h), which notice
shall specify the record date, if any, with respect to any such action and the
date on which such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Series C Preferred Stock Conversion Price and the number,
kind or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or deliverable
upon conversion of shares of Series C Preferred Stock.
The Corporation shall pay all documentary, stamp or other transactional
taxes attributable to the issuance or delivery of shares of capital stock of the
Corporation upon conversion of any shares of Series C Preferred Stock.
The Corporation shall reserve, free from preemptive rights, out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of Series C Preferred Stock sufficient
shares to provide for the conversion of all outstanding shares of Series C
Preferred Stock.
All shares of Common Stock which may be issued in connection with the
conversion provisions set forth herein will, upon issuance by the Corporation,
be validly issued, fully paid and nonassessable.
If any event occurs of the type contemplated by the provisions of this
Section 7 but not expressly provided for by such provisions (including, but
without limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Board shall make an
appropriate adjustment in the Series C Conversion Price so as to protect the
rights of the holders of Series C Preferred Stock; provided that no such
adjustment shall increase the Series C Conversion Price as otherwise determined
pursuant to this Section 7 or decrease the number of shares of Conversion Stock
issuable upon conversion of each share of Series C Preferred Stock.
EXCHANGE.
As soon as practicable following the Voting Date, all shares of the Series
C Preferred Stock then outstanding shall be exchanged for the Corporation's
8.75% Convertible Subordinated Debentures (the "Debentures"), which Debentures
shall be issued pursuant to the Indenture; provided, however, that on the date
of exchange, (i) there shall be no dividend arrearages (including the dividend
payable on the date of exchange) on the shares of the Series C Preferred Stock
and (ii) all of the conditions for the authentication of the Debentures shall
have been satisfied. Holders of outstanding shares of the Series C Preferred
Stock will be entitled to receive $100 principal amount of Debentures in
exchange for each share of the Series C Preferred Stock held by them at the time
of exchange. In the event that such exchange would result in the issuance of a
Debenture to a holder of the Series C Preferred Stock in a principal amount
which is not a multiple of $10, at the option of the Corporation, the difference
between such principal amount and the highest multiple of $10 which is less than
such principal amount shall be paid to such holder in cash.
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<PAGE> 34
The Corporation will mail to each holder of record of shares of the Series
C Preferred Stock written notice (the "Exchange Notice") of the exchange not
less than 10 nor more than 20 days prior to the date fixed for the exchange (the
"Exchange Date"). Each Exchange Notice shall state (i) the Exchange Date, (ii)
the place or places where certificates for such shares of the Series C Preferred
Stock are to be surrendered for exchange into Debentures and (iii) a statement
that dividends will cease to accrue on the Exchange Date. The Corporation will
cause the Debentures to be authenticated on the Exchange Date and the
Corporation will pay interest on the Debentures at the rate and on the dates
specified in the Indenture from the Exchange Date.
If the Exchange Notice has been mailed as aforesaid, and if the
Corporation has satisfied all of the terms and conditions of this Section 8 and
issued the Debentures in accordance with the terms hereof on the Exchange Date,
from and after the Exchange Date (unless default shall be made by the
Corporation in issuing Debentures in exchange for, or in making the final
dividend payment on, the outstanding shares of the Series C Preferred Stock on
the Exchange Date), dividends on the shares of the Series C Preferred Stock
shall cease to accrue, such shares shall no longer be deemed to be issued and
outstanding for any purpose, and all rights of the holders of shares of the
Series C Preferred Stock including the voting rights thereon (except the right
to receive from the Corporation the Debentures) shall cease and terminate. Upon
surrender in accordance with the Exchange Notice of the certificates for any
shares of the Series C Preferred Stock (properly endorsed or assigned for
transfer, if the Corporation shall so require and the Exchange Notice shall so
state), such shares shall be exchanged by the Corporation into Debentures as
aforesaid.
34
<PAGE> 35
* * * * *
IN WITNESS WHEREOF, UROHEALTH Systems, Inc. has caused this Certificate of
Designation to be duly executed by its Vice President and attested by its
Secretary as of the 8th day of May, 1996.
By: JAMES L. JOHNSON
--------------------------------
Name: James L. Johnson
Title: Vice President and
Chief Financial Officer
ATTEST:
By: KEVIN M. HIGGINS
--------------------------------
Name: Kevin M. Higgins
Title: Secretary
35
<PAGE> 36
Certificate of Amendment
of
Certificate of Incorporation
of
UROHEALTH Systems, Inc.
Urohealth Systems, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
FIRST: That resolutions of the Board of Directors of Urohealth Systems,
Inc. were duly adopted setting forth a proposed amendment of the Certificate of
Incorporation of the Corporation, declaring said amendment to be advisable and
authorizing the officers of the Corporation to present the proposed amendment to
the stockholders of the Corporation for their consideration. The resolution
setting forth the proposed amendment is set forth below.
NOW, THEREFORE, BE IT RESOLVED, that, subject to stockholder approval, at
such time as the Chief Executive Officer, President, Secretary or Assistant
Secretary of this Corporation may direct, the Certificate of Incorporation of
this Corporation be amended by changing the first paragraph of Article 4 so that
it reads in its entirety as follows:
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Fifty-Five Million
(55,000,000), consisting of Fifty Million (50,000,000) shares of Common
Stock with a par value of one-tenth of one cent ($.001) per share and Five
Million (5,000,000) shares of Preferred Stock with a par value of
one-tenth of one cent ($.001) per share. The Preferred Stock may be issued
in one or more series, and the Board of Directors is expressly authorized
(i) to fix the designations, powers, preferences, rights, including voting
rights, qualifications, limitations and restrictions with respect to any
series of Preferred Stock and (ii) to specify the number of shares of any
series of Preferred Stock.
SECOND: That thereafter, pursuant to resolutions of the Board of Directors,
the proposed amendment was presented to the stockholders of the Corporation and
the stockholders of the Corporation approved the proposed amendment of the
Certificate of Incorporation at the Corporation's 1996 Annual Meeting of
Stockholders with the necessary number of shares as required by statute being
voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of the Corporation shall not be reduced under or
by reason of said amendment.
36
<PAGE> 37
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Charles A. Laverty, its Chief Executive Officer, and Kevin M. Higgins,
its Secretary, this 9th day of August, 1996
By: /s/ CHARLES A. LAVERTY
------------------------------------
Charles A. Laverty, Chief Executive
Officer
Attest: /s/ KEVIN M. HIGGINS__
--------------------------------
Kevin M. Higgins, Secretary
37
<PAGE> 38
CERTIFICATE OF AMENDMENT
OF
CERTIFICATION OF INCORPORATION
****
UROHEALTH SYSTEMS, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That, at a meeting of the Board of Directors of UROHEALTH SYSTEMS,
INC., resolutions were duly adopted setting forth a proposed amendment to the
Certificate of Incorporation of the Corporation, declaring the said amendment to
be advisable and directing that the proposed amendment be submitted for approval
of the stockholders of the Corporation at the 1996 Annual Meeting of
Stockholders. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that this Board declares that it is advisable to amend the
Certificate of Incorporation of the Corporation to entitle the holders of
the Corporation's 8.75% Convertible Subordinated Debentures due 2006 (the
"Debentures") that may be issued from time to time to vote on all matters
submitted to a vote of the stockholders of the Corporation and hereby
adopts the amendment to its Certificate of Incorporation by inserting the
following at the end of Article Fourth:
VOTING DEBENTURES
The holders of the Corporation's 8.75% Convertible Subordinated
Debentures due 2006 (the "Debentures") which may be issued from time
to time by the Corporation, shall be entitled to vote on all matters
submitted to a vote of the stockholders of the Corporation, voting
together with the holders of Common Stock (and of any other shares of
capital stock of the Corporation entitled to vote at a meeting of
stockholders) as one class. Each Debenture shall be entitled to
38
<PAGE> 39
a number of votes equal to the number of votes represented by the
Common Stock of the Corporation that could then be acquired upon
conversion of the Debenture into Common Stock, subject to adjustments
as provided in the Debentures. In addition, the holders of the
Debentures shall be entitled to the other voting rights specified in
Article XIV of the Indenture, dated May 13, 1996, between the
Corporation and Bankers Trust Company, as trustee. Holders of the
Debentures shall be deemed to be stockholders of the Corporation, and
the Debentures shall be deemed to be shares of stock for the purpose
of any provision of the Delaware General Corporation Law that requires
the vote of stockholders as a prerequisite to any corporate action.
FURTHER RESOLVED, that the Board of Directors hereby directs that
such amendment be submitted for approval of the stockholders of the
Corporation, in accordance with the requirements of the Certificate of
Incorporation of the Corporation and Delaware law, at the 1996 Annual
Meeting of Stockholders; and
FURTHER RESOLVED, that the Chairman, the President, any Vice
President, the Treasurer, and the Secretary of the Corporation be, and
each of them acting alone hereby is, authorized to execute and deliver,
for and in the name and on behalf of the Corporation, such instruments and
documents and to do any and all such acts and things as he may in his sole
discretion deem necessary or advisable fully to carry out the intents and
purposes of the foregoing resolutions and the matters contemplated
thereby, and the taking of any action by any such officer shall be
conclusive evidence that he deems such action necessary or advisable; any
and all acts which any such officer may do or perform in conformity with
the authority conferred upon him by these resolutions being hereby
ratified, confirmed and approved.
SECOND: That, thereafter, pursuant to resolution of its Board of
Directors, the 1996 Annual Meeting of Stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares of stock as required by statute, were voted in favor of the amendment.
39
<PAGE> 40
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said UROHEALTH SYSTEMS, INC. has caused this
certificate to be signed by Charles A. Laverty, its Chairman and Chief Executive
Officer and attested by Kevin M. Higgins, its Secretary, this 9th day of August,
1996.
UROHEALTH SYSTEMS, INC.
By: /s/ CHARLES A. LAVERTY
----------------------------
Charles A. Laverty
Chairman and Chief Executive Officer
ATTEST:
/s/ KEVIN M. HIGGINS
- ----------------------
Kevin M. Higgins
Secretary
40
<PAGE> 1
EXHIBIT 5.1
[MORRISON & FOERSTER LETTERHEAD]
November 6, 1996
Urohealth Systems, Inc.
Five Civic Plaza, Suite 100
Newport Beach, California 92660
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-3 filed by Urohealth Systems, Inc., a Delaware corporation (the "Company"),
with the Securities and Exchange Commission on September 26, 1996, as amended
October 22, 1996 (Registration No. 333-12723) (the "Registration Statement"),
relating to the registration under the Securities Act of 1933, as amended, of
5,750,000 shares of the Company's Common Stock, $0.001 par value (the "Stock"),
including 3,250,000 authorized but unissued shares being offered by the Company
(including 750,000 shares subject to the Underwriters' over-allotment option)
and 2,500,000 presently issued and outstanding shares being offered by certain
selling stockholders (the "Selling Stockholders"). The Stock is to be sold to
the underwriters named in the Registration Statement for resale to the public.
As counsel to the Company, we have examined the proceedings taken by
the Company in connection with the issuance and sale of the 2,500,000 shares of
Stock that may be sold by the Selling Stockholders. We have also examined the
proceedings proposed to be taken by the Company in connection with the issuance
and sale by the Company of up to 3,250,000 shares of Stock.
It is our opinion that the 2,500,000 shares of Stock that may be sold
by the Selling Stockholders are legally and validly issued and are fully paid
and nonassessable, and that, upon completion of the proceedings to be taken by
the Company prior to the sale of the shares of Stock, the 3,250,000 shares of
Stock that may be issued and sold by the Company, when issued and sold in the
manner described in the Registration Statement and the related Prospectus, will
be legally and validly issued, fully paid and nonassessable.
<PAGE> 2
[MORRISON & FOERSTER LETTERHEAD]
Urohealth Systems, Inc.
November 6, 1996
Page Two
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the Prospectus constituting a part thereof and any amendments
thereto.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
