<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1997
REGISTRATION NO. 333-34131
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
AMENDMENT NO. 1
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 of incorporation or
organization) (I.R.S. Employer Identification No.)
</TABLE>
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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:
ROBERT M. MATTSON, JR., ESQ.
MORRISON & FOERSTER LLP
19900 MACARTHUR BOULEVARD
SUITE 1200
IRVINE, CALIFORNIA 92612
(714) 251-7500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE 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. [X]
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. [ ] ____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(1) PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value........................ 996,600 shares $4.50 $4,484,700 $1,359(2)
Warrants....................... 110,000 N/A(3) N/A(3) N/A(3)
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</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(c).
(2) Previously paid.
(3) No separate registration fee is required in accordance with Rule 457(g).
------------------------
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.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 10, 1997
PROSPECTUS
UROHEALTH SYSTEMS, INC.
110,000 WARRANTS
996,600 SHARES OF COMMON STOCK
------------------------
The registration statement (the "Registration Statement") of which this
Prospectus forms a part, registers the offer and sale by the holders named
herein or by their transferees, pledgees, donees or their successors (the
"Selling Security Holders") of Urohealth Systems, Inc. ("Urohealth" or the
"Company") of (i) 110,000 warrants (the "Warrants") to purchase up to an
aggregate of 996,600 shares of Common Stock, $.001 par value per share, of the
Company ("Common Stock," and together with the Warrants, the "Securities") and
(ii) the up to 996,600 shares of Common Stock issuable upon exercise of the
Warrants. Of the 996,600 shares of Common Stock registered herein, all of the
shares are issuable upon exercise of the Warrants. The holders acquired the
outstanding Warrants offered hereby from the Company in connection with the
issuance and sale pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"), of the Company's 12 1/2% Senior Subordinated
Notes due 2004 and Warrants in April 1997. See "Selling Security Holders" and
"Plan of Distribution." The Company will not receive any of the proceeds from
the sale of the Warrants or the sale of the shares of Common Stock offered
hereby. The Warrants are exercisable at an exercise price, subject to
adjustment, of $9.50, commencing June 30, 1998 through the close of business on
April 1, 2004. To the extent that any of the Warrants are exercised, the Company
will use the proceeds thereof for general corporate purposes. See "Use of
Proceeds." The Common Stock of the Company is listed on The Nasdaq National
Market under the symbol "UROH." On , 1997, the last reported sale
price of the Common Stock was $ per share. See "Price Range of Common Stock
and Dividends." Prior to this offering there has been no public market for the
Warrants and the Company does not intend to apply for listing or quotation of
the Warrants on any securities exchange or stock market.
The Selling Security Holders directly, through agents designated from time
to time, or through dealers or underwriters also to be designated may sell the
Warrants and the Common Stock from time to time on terms to be determined at the
time of sale. The effectiveness of the Registration Statement of which this
Prospectus constitutes a part is expected to terminate on the earlier of April
1, 2004 and the date on which all of the Warrants and shares of Common Stock
have been sold.
To the extent required, the respective purchase prices and public offering
prices, the names of any such agent, dealer or underwriter, and any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying Prospectus Supplement or by filing a post-effective amendment to
the registration statement of which this Prospectus is a part. See "Plan of
Distribution."
The Company will not receive any proceeds from this offering. The aggregate
proceeds to the Selling Security Holders from the sale of the Warrants and the
Common Stock will be the purchase price less the aggregate agent's commissions
and underwriter's discounts, if any. The Company by agreement will pay
substantially all of the other expenses of this offering. See "Plan of
Distribution" herein for a description of the indemnification arrangements for
the agents, dealers and underwriters.
The Selling Security Holders and any broker-dealers, agents or underwriters
that participate with the Selling Security Holders in the distribution of the
Warrants and the Common Stock may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), and
any commissions received by them and any profit on the resale of the Common
Stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
AVAILABLE INFORMATION
Urohealth Systems, Inc. ("Urohealth" or the "Company") is subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Chicago Regional Office, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 75 Park Place, 14th Floor, New York, New York 10017. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at its principal office at 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, the Commission maintains a site on the World Wide Web
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants, including the Company, that file
reports electronically with the Commission.
The Company has filed with the Commission a Registration Statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained herein concerning the provisions of any
documents are necessarily summaries of such documents, and each such statement
is qualified in its entirety by reference to the copy of the applicable document
filed with the Commission. For further information concerning the Company and
the Securities offered hereby, reference is made to the Registration Statement,
including the exhibits and schedules thereto. The Registration Statement,
including the exhibits and schedules thereto, may be inspected without charge at
the Commission's principal office, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of all or any part thereof may be obtained from the
Commission's Public Reference Section at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
following documents, which have been filed with the Commission pursuant to the
Exchange Act: (i) the Company's Annual Report on Form 10-K for the year ended
March 31, 1997, as amended on July 29, 1997 and September 2, 1997 (Commission
file no. 1-11150); (ii) the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 (Commission file no. 1-11150); (iii) the Company's
Current Report on Form 8-K, dated April 28, 1997 (Commission file no. 1-11150);
(iv) the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A dated November 22, 1996 (Commission file no.
1-11150); and (v) the reports of independent auditors and financial statements
of Richard-Allan Medical Industries, Inc. and X-Cardia Corporation and unaudited
pro forma condensed consolidated financial information set forth at pages F-36
to F-64 in the Company's Registration Statement on Form S-4 (No. 333-26503).
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents referred to above which have been or may be
incorporated by reference in this Prospectus (excluding exhibits to the
information that is incorporated herein by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Requests for such copies should be directed to Kevin M. Higgins,
Senior Vice President and General Counsel, Urohealth Systems, Inc., 5 Civic
Plaza, Suite 100, Newport Beach, California 92660; telephone number (714)
668-5858.
Any statement contained in a document incorporated by reference shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed
incorporated document or in any accompanying prospectus supplement modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
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<PAGE> 4
THE COMPANY
OVERVIEW
Urohealth is a developer, manufacturer and distributor of products for the
urology, minimally invasive and general surgery, and gynecology markets (the
"Target Markets"). The Company has a broad offering of products used by
healthcare professionals for patients suffering from impotence, incontinence and
other gynecological and urological disorders, and other conditions requiring
minimally invasive and general surgery. In October 1994, under the leadership of
new management, the Company adopted and began to implement a strategic plan
which took advantage of consolidation opportunities in the highly fragmented
medical products industry. Management's strategy was to position the Company to
benefit from the competitive advantages and operating efficiencies inherent in
an infrastructure which combines an experienced management team, sophisticated
and efficient manufacturing facilities and a large sales force.
The Company's strategy is to: (i) expand the range of products to its
growing Target Markets; (ii) leverage its sales force to increase sales of its
existing, newly acquired and recently developed products, including sales
through distributors and group purchasing organizations; (iii) further
capitalize on efficiencies and synergies available by continuing to consolidate
manufacturing of existing and acquired products into the Company's existing
manufacturing operations; (iv) continue to acquire and develop additional
innovative products and product lines, including products to serve the
gynecology market; and (v) develop and expand an international sales and
marketing presence to capitalize on opportunities it identifies in selected
developed countries.
RECENT DEVELOPMENTS
Pending Acquisition of Imagyn. On April 19, 1997, the Company entered into
an agreement to acquire Imagyn Medical, Inc. ("Imagyn") in a stock-for-stock
merger. Imagyn is a developer of micro-invasive systems to diagnose and treat
gynecological and reproductive disorders. Imagyn's products enable physicians to
atraumatically access and visualize all the organs of the female reproductive
system. Imagyn's primary platform, the MicroLap System, is a microendoscopy
system. MicroLap is a 2 mm microlaparoscope with resolution and light efficiency
characteristics which rival the conventional laparoscopes used in hospitals,
thereby allowing physicians to perform a wide range of gynecological procedures
in all clinical settings. Imagyn's MicroSpan microhysteroscopy system, which
incorporates the same high resolution optics found in Imagyn's MicroLap
microlaparoscopy system, includes a 1.6 mm hysteroscope and a MicroSpan Sheath
designed to allow atraumatic access to the uterus without cervical dilation.
Imagyn's third platform is the Ovation System, which is used for visual
evaluation of the fallopian tubes. The acquisition is subject to approval by the
stockholders of the Company and Imagyn and to other customary closing
conditions. If the Merger is consummated, the Company will issue approximately
11.4 million shares of its Common Stock in exchange for the outstanding Imagyn
Common Stock.
Placement of Senior Subordinated Notes. On April 10, 1997, the Company
completed the private placement (the "Note Offering") of $110 million aggregate
principal amount of its 12.5% Senior Subordinated Notes due 2004 (the "Notes").
The purchasers of the Notes also received warrants to purchase an aggregate of
488,400 shares (or 996,600 shares, if EBITDA (as defined in the warrants) for
fiscal 1998 is not achieved) of Common Stock of the Company. The Company used a
portion of the proceeds from the Note Offering to repay its existing bank credit
facility, and at the same time the Company entered into a new revolving credit
facility (the "Credit Facility") which is secured by all of the Company's
assets.
3
<PAGE> 5
WARRANTS
Set forth below is a summary of the Warrants. For a more complete
description of the Warrants see "Description of Capital Stock -- Warrants."
WARRANTS........................ The number of shares of Common Stock into
which each Warrant will be exercisable is (i)
4.44 or (ii) 9.06 if the Company has EBITDA
of less than $32.5 million for its fiscal
year ended March 31, 1998.
ADJUSTMENT...................... The number of shares of Common Stock for
which, and the price per share at which, a
Warrant is exercisable are subject to
adjustment upon the occurrence of certain
events described in the Warrant Agreement
(the "Warrant Agreement"), dated April 10,
1997, by and between the Company and The Bank
of New York, as warrant agent (the "Warrant
Agent").
EXERCISE; EXPIRATION............ The Warrants are exercisable, at a price of
$9.50 per share of Common Stock, on or after
June 30, 1998. The Warrants expire on April
1, 2004 (the "Expiration Date"). The Warrants
are not subject to redemption by the Company.
REGISTRATION RIGHTS............. Pursuant to the Warrant Registration Rights
Agreement (as defined) the Company has agreed
to file the Warrant Shelf Registration
Statement (as defined) under the Securities
Act covering the resale of the Warrants by
the holders thereof and to use its reasonable
efforts to cause the Warrant Shelf
Registration Statement to be declared
effective under the Securities Act within 150
days after April 10, 1997 and to remain
effective, subject to certain exceptions,
until the earliest of (i) such time as all
the Warrants have been sold thereunder, (ii)
three years after its effective date and
(iii) such time as the Warrants can be sold
without restriction under the Securities Act.
Pursuant to the Warrant Registration Rights
Agreement, the Company is required to file
the Common Shelf Registration Statement (as
defined) under the Securities Act covering
the issuance of shares of Common Stock to the
holders of the Warrants upon exercise of the
Warrants by the holders thereof and to use
its reasonable efforts to cause the Common
Shelf Registration Statement to be declared
effective on or before 365 days after April
10, 1997 and to remain effective, subject to
certain exceptions, until the earlier of (i)
such time as all Warrants have been exercised
and (ii) the April 1, 2004.
The Registration Statement of which this
Prospectus constitutes a part is intended to
satisfy the Company's registration
obligations with respect to the Securities
under the Warrant Registration Rights
Agreement.
4
<PAGE> 6
RISK FACTORS
Prospective purchasers of the Securities offered hereby should consider
carefully the following factors, together with the other information contained
in or incorporated by reference in this Prospectus, prior to purchasing the
Securities offered hereby.
Significant Leverage. Urohealth has substantial indebtedness and
significant debt service obligations. At June 30, 1997, Urohealth had
approximately $170.1 million of indebtedness outstanding, approximately $179.7
million of total assets, approximately $121.0 million of total tangible assets
and approximately $(24.0) million of stockholders' equity. The Company's annual
debt service obligations are approximately $19 million per year.
Urohealth's ability to pay interest on the Notes and to satisfy its other
debt obligations will depend upon its future operating performance, which will
be affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control, as well as the availability of
borrowings under its existing credit facility (the "Credit Facility") or
successor credit facilities. Urohealth will require substantial amounts of cash
to fund scheduled payments of principal and interest on its outstanding
indebtedness as well as future capital expenditures and any increased working
capital requirements. Urohealth historically and, on a pro forma basis for the
year ended March 31, 1997, has had negative cash flow from operations. In order
to have positive cash flow from operations and meet its various financial
requirements, including debt service, Urohealth must experience substantial
growth and improvements in its results of operations. There can be no assurance
that Urohealth will have positive cash flow from operations in the future. If
Urohealth is unable to meet its cash requirements out of cash flow from
operations or from available borrowings, there can be no assurance that it will
be able to obtain alternative financing or that it will be permitted to do so
under the terms of the Credit Facility, the indenture relating to the Notes (the
"Note Indenture"), or other debt instruments. Urohealth was not in compliance
with certain financial covenants under its Credit Facility for the quarter ended
June 30, 1997, and has been granted a waiver through September 15, 1997 by its
senior lender that permits borrowings equal to the lesser of $15 million and 80%
of eligible accounts receivable under the facility. After giving effect to the
waiver, Urohealth's borrowing eligibility under the Credit Facility at June 30,
1997 was approximately $13.4 million. Subsequent to June 30, 1997, Urohealth
borrowed $13.3 million under the Credit Facility. In the absence of such
financing, including financing under the Credit Facility, Urohealth's ability to
absorb adverse operating results or to fund capital expenditures or research and
development, to respond to changing business and economic conditions and to make
future acquisitions may be adversely affected. Finally, it is anticipated that
in order to pay the principal balance of the Notes due at maturity, Urohealth
will have to obtain alternative financing.
Urohealth's high degree of leverage could have important consequences
including, without limitation, the following: (i) a substantial portion of
Urohealth's net cash provided by operations will be committed to the payment of
Urohealth's interest expense and principal repayment obligations and will not be
available to Urohealth for its operations, capital expenditures, acquisitions or
other purposes; (ii) Urohealth's ability to obtain additional financing in the
future for working capital, capital expenditures or acquisitions may be limited;
(iii) Urohealth will be more highly leveraged than certain of its competitors,
which may place it at a disadvantage and limit Urohealth's flexibility in
reacting to changes in its business; and (iv) Urohealth's borrowings under the
Credit Facility bear interest at variable rates, which could result in higher
interest expense if interest rates rise.
Operating Losses; No Assurance of Profitability; Liquidity. Urohealth
reported net losses for its fiscal year ended June 30, 1995, for the nine months
ended March 31, 1996 and the year ended March 31, 1997 of $24.8 million, $23.0
million and $86.5 million, respectively, and a net loss of $11.4 million for the
three months ended June 30, 1997. There can be no assurance that Urohealth will
be profitable in any future period. The net cash used in operating activities by
Urohealth for its fiscal year ended June 30, 1995, for the nine months ended
March 31, 1996 and for the year ended March 31, 1997 was $12.9 million, $16.9
million and $55.0 million, respectively, and $22.9 million for the three months
ended June 30, 1997. There can be no assurance that the operating activities of
the Company will generate sufficient cash flow to meet its liquidity needs in
any future period. The future capital requirements of the Company will depend
upon many factors, including the success of its sales and marketing efforts, new
product development, and future acquisitions of
5
<PAGE> 7
companies and products. The Company believes that the net proceeds from the Note
Offering, together with borrowings under the Credit Facility (see "Significant
Leverage") and funds expected to be generated from operations will be adequate
to fund operations for the next 12 months. There can be no assurance, however,
that the Company will not require additional financing during such time.
Further, there can be no assurance that any additional financing will be
available to Urohealth on acceptable terms, if at all. In addition, other than
certain permitted indebtedness (under the Note Indenture), including
indebtedness under the Credit Facility, Urohealth will need improvement in
results of operations in order to incur additional indebtedness under the terms
of the Note Indenture. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate its acquisition and product
development efforts, which could have a material adverse effect on Urohealth's
business, results of operations or financial condition.
Limitations Imposed by Certain Indebtedness. The documents governing the
indebtedness of Urohealth (including the Note Indenture and the Credit Facility)
contain significant covenants that limit Urohealth's and its subsidiaries'
ability to engage in various transactions and, in the case of the Credit
Facility, require satisfaction of specified financial performance criteria. In
addition, under each of the foregoing documents, the occurrence of certain
events (including, without limitation, failure to comply with the foregoing
covenants, material inaccuracies of representations and warranties, certain
defaults under or acceleration of other indebtedness and events of bankruptcy or
insolvency) would, in certain cases after notice and grace periods, constitute
an event of default permitting acceleration of the indebtedness covered by such
documents. The limitations imposed by the documents governing the outstanding
indebtedness of Urohealth and its subsidiaries are substantial, and failure to
comply with them could have a material adverse effect on Urohealth and its
subsidiaries.
Future Operating Results Dependent on Products. The future operating
results of the Company will be dependent upon its ability to increase sales of
existing medical products and the continued acceptance of such products by the
medical community and third-party payors as useful and cost-effective.
Historically, Urohealth has been highly dependent on the sale of vacuum erection
devices for the treatment of male impotence. The market for medical products is
characterized by rapid technological change and product obsolescence. In
particular, competition in the market for treatment of male impotence is
especially intense and has increased substantially in recent years. Competitors
and others may develop and introduce new products, devices or approaches for
treatment of the conditions targeted by Urohealth that could render one or more
of Urohealth's products obsolete or noncompetitive. The future operating results
of the Company will also be dependent, therefore, upon its ability to develop or
acquire new products that are competitive in the markets it serves. Product
acceptance will depend upon many factors, including the continued demonstration
of the utility and cost-effectiveness of products of the Company, the
maintenance of regulatory clearance in the United States and elsewhere and the
continued availability of third-party reimbursement. Failure of one or more of
Urohealth's products to continue to be accepted by the medical community or the
inability to develop new products could have a material adverse effect on the
Company. Substantially all of Urohealth's medical product sales are derived from
medical products of companies that Urohealth has acquired. As Urohealth has
acquired businesses and technologies, it has acquired a number of related
products under development which will require additional research and
development efforts by Urohealth in an attempt to bring such products to market.
While members of management of Urohealth have experience in developing products
internally, Urohealth has not historically developed a significant number of
medical products internally. There can be no assurance that Urohealth's medical
products will be successfully developed and marketed, that required regulatory
approvals from the Food and Drug Administration ("FDA") or equivalent foreign
authorities for any indication will be obtained or that any products, if
produced, will be capable of being produced in commercial quantities at
reasonable costs, that such future products will be brought to market in a
timely manner or that existing products will generate significant sales, the
failure of any of which could have a material adverse effect on Urohealth's
business, operating results or financial condition.
Concentration of Credit Risk; Extended Payment Terms. Urohealth sells
several product lines that are considered "capital equipment" by hospitals and
other purchasers. From time to time, Urohealth offers certain customers extended
payment terms to facilitate sales of these products. Urohealth may in the future
grant similar extended payment terms. For the year ended March 31, 1997, sales
that Urohealth made pursuant to
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<PAGE> 8
extended payment terms were approximately 7% of total sales. Urohealth's typical
payment terms require payment from 30 to 90 days. As of June 30, 1997, Urohealth
had a total of $4.1 million of accounts receivable on extended payment terms
with Integrated Medical Resources, Inc. ("IMR") for sales of Urohealth's
Rigiscan product pursuant to terms under which the payments are due over 15-36
months. Over the twelve month period ended March 31, 1997, Urohealth sold
approximately $5.8 million of products to IMR on extended terms. IMR is a public
company traded on the Nasdaq under the symbol "IMRI." For its most recent fiscal
year ended December 31, 1996, IMR reported a loss of $6.5 million. Bruce Hazuka,
Chief Operating Officer for Urohealth, is a member of the board of directors of
IMR.
Uncertainty Relating to Third-Party Reimbursement. In the United States,
health care providers, such as hospitals and physicians, that purchase
Urohealth's products and other medical devices, generally rely on third-party
payors, including private health insurance plans and federal Medicare and state
Medicaid, to reimburse all or part of the cost of the procedure in which the
medical device is being used. Reimbursement has traditionally been available in
the United States for vacuum erection devices manufactured by Urohealth and sold
by prescription to patients under a specific reimbursement code. The majority of
the remaining Urohealth products are used in procedures for which reimbursement
is generally available, however, there are no specific reimbursement codes for
Urohealth's products. There can be no assurance that reimbursement will be
available for procedures performed using Urohealth's existing products or future
products. In the event that reimbursement is not available for procedures using
such products, the market acceptance for such products in the United States
could be materially and adversely affected. In addition, certain health care
providers are moving toward a managed care system in which such providers
contract to provide comprehensive health care for a fixed cost per covered
individual. Urohealth is unable to predict what changes will be made in the
reimbursement methods utilized by third-party health care payors, and Urohealth
could be adversely affected by changes in reimbursement policies of governmental
or private health care payors, particularly to the extent any such changes
affect reimbursement for procedures in which its products are used. Failure by
physicians, hospitals and other users of Urohealth's products to obtain
sufficient reimbursement from health care payors for procedures in which their
products are used or adverse changes in governmental and private third-party
payors' policies toward reimbursement for such procedures would have a material
adverse effect on Urohealth's business, financial condition and results of
operations.
Market acceptance of Urohealth's products in international markets may be
dependent in part upon the availability of reimbursement within prevailing
health care payment systems. Reimbursement and health care payment systems in
international markets vary significantly by country, and include both government
sponsored and private health insurance. There can be no assurance that any
international reimbursement approvals will be obtained in a timely manner, or at
all. Failure to receive international reimbursement approvals could have a
material adverse effect on market acceptance of Urohealth's products in
international markets and therefore could have a material adverse effect on
Urohealth's business, financial condition and results of operations.
Management of Growth. Urohealth's growth has placed, and is expected to
continue to place, significant demands on its financial, operational and
management resources. In addition, in order to meet expected growth, Urohealth
expects to add administrative and other personnel and manufacturing capacity,
and make additional investments in operations and systems. There can be no
assurance that Urohealth will be able to find and train such personnel, or to do
so on a timely basis, or to expand its operations and manufacturing capacity to
the extent and in the time required. Continued growth in sales, including sales
under new group purchasing organization and distributor agreements, would
require Urohealth carefully to manage production capacity and inventory levels,
as well as quality controls, to meet increasing product demand and new product
introductions. Urohealth has already experienced rapid growth in its inventory
levels in anticipation of increased sales. Inaccuracies in demand forecasts
could result in insufficient or excessive capacity or inventories and
disproportionate overhead expenses. Failure to adequately manage growth,
including any unexpected costs, delays, quality control issues or inefficiencies
incurred or encountered in connection with such management of growth could have
a material adverse effect on Urohealth's business, operating results or
financial condition.
7
<PAGE> 9
Integration of Acquired Operations. Urohealth recently acquired X-Cardia
and Microsurge. Urohealth has integrated the operations of those acquired
entities with its own operations. No assurance can be given that the benefits
expected from such integration will be realized. In addition, Urohealth will be
subject to the risks that such recently acquired operations and future
acquisitions will not perform as expected and that the earnings from such
operations will not be sufficient to support the capital expenditures needed to
develop such operations in conformity with Urohealth's strategy. Any delays or
unexpected costs incurred in connection with such integration could have a
material adverse effect on Urohealth's business, operating results or financial
condition.
Future Acquisitions. An important element of Urohealth's strategy is to
identify and acquire businesses and product lines. Urohealth actively seeks
acquisition opportunities in the regular course of its business and is engaged
in ongoing evaluations of and discussions with third parties regarding potential
acquisitions certain of which, if consummated, could be material. Since July
1995, Urohealth has acquired a number of medical product companies and product
lines and has acquired or licensed additional technology. As a result of those
acquisitions, Urohealth has experienced rapid growth. Urohealth expects to
continue to acquire additional products and companies in the future. There can
be no assurance that Urohealth will be able to implement or sustain its
acquisition strategy or that its strategy will ultimately prove profitable to
Urohealth. Urohealth will likely be required to issue additional shares of
Common Stock, incur additional debt or to use a portion of its cash balances to
make such future acquisitions. In addition, the terms of the Note Indenture and
the terms of other indebtedness may restrict Urohealth's ability to pursue and
consummate future acquisitions.
Reliance on Patents and Proprietary Rights. The commercial success and
future revenue growth of Urohealth will depend, in part, on its ability to
operate without infringing on the rights of others both in the United States and
abroad and not breaching technology licenses that cover technology used in its
products. Urohealth owns or has authority to use United States and foreign
patent rights with respect to some of its medical products and have filed, and
expects in the future to file, additional patent applications. It is uncertain
whether any third party patents will require Urohealth to develop alternative
technology or to alter its products or processes, obtain licenses or cease
certain activities. If such licenses are required, there can be no assurance
that Urohealth will be able to obtain such licenses on commercially favorable
terms, if at all. Failure by Urohealth to obtain a license to any technology
that it may require to commercialize its products could have a material adverse
effect on the Company. Urohealth recently acquired X-Cardia and its cardiac
output monitoring technology and recently received approval of its patent filed
with respect to the technology. There can be no assurance as to the breadth or
degree of the protection that may be afforded by any such patents, or whether
any such applications ultimately may be approved resulting in the issuance of
patents. Urohealth believes that some measure of patent protection with respect
to its products will be required to allow it to compete with large medical
products companies. There can be no assurance that Urohealth will continue to
develop or acquire products or processes that are patentable or that patents
applied for will be issued or that any patents issued to or licensed by
Urohealth will not be challenged, invalidated or circumvented, or that the
rights granted thereunder will provide it with competitive advantages. In
addition, Urohealth could incur substantial costs in defending its proprietary
rights and there can be no assurance that a competitor's technology or product
would be found to infringe such rights. Although Urohealth believes that its
patents are valid, there can be no assurance that the validity of any patent
will be upheld if asserted by Urohealth against any party. Further, there can be
no assurances as to the breadth and degree of protection that will be afforded
Urohealth's patent rights or that other companies will not independently develop
similar but non-infringing competitive products. Moreover, the laws of some
foreign countries may not protect Urohealth's proprietary rights to the same
extent as the laws of the United States. In addition, there is currently pending
before Congress legislation providing for changes to the patent law which may
adversely affect the patent and proprietary rights of pharmaceutical,
biopharmaceutical and biomedical firms. If such pending legislation is adopted,
the extent to which such changes would affect the operations of the Company
cannot be ascertained.
The patents or proprietary rights of others may have an adverse effect on
the ability of Urohealth to do business in the future. Urohealth may be required
to obtain licenses to patents or proprietary rights of other parties in order to
produce and sell certain of its products. No assurance can be given that
Urohealth's technology can be developed and commercialized without a license to
such patents or proprietary rights or that
8
<PAGE> 10
any licenses required under any such patent or proprietary rights would be made
available on terms acceptable to Urohealth, if at all. If Urohealth does not
obtain or maintain such licenses, it could encounter delays in product
introductions while it attempts to design around or contest the validity of such
patents, or Urohealth could find that the development, manufacture or sale of
products requiring such licenses could be foreclosed, any of which could have a
material adverse effect on Urohealth. Furthermore, there can be no assurance
that competitors or potential competitors will not independently develop similar
or alternative products to those of Urohealth, duplicate any of Urohealth's
products or technologies, or design around the patented technologies developed
by Urohealth or its licensors, any of which could have a material adverse effect
on Urohealth's business, results of operations or financial condition.
Urohealth also relies on trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain its competitive
position. There can be no assurance that others will not independently create
substantially equivalent proprietary information or otherwise gain access to or
disclose such information of Urohealth. It is Urohealth's policy to require
certain of its employees, contractors and consultants to execute confidentiality
agreements to protect its unpatented proprietary technology and know-how. There
can be no assurance that such confidentiality agreements will not be breached,
that Urohealth would have adequate remedy for such breach, or that Urohealth's
trade secrets will not otherwise become known through independent discovery by
competitors. Moreover, in the absence of patent protection, Urohealth's business
may be adversely affected by competitors who independently develop substantially
equivalent technology.
Regulatory Matters. Most of Urohealth's medical products are subject to
regulation for safety and efficacy by, among other governmental entities, the
United States Food and Drug Administration ("FDA") and corresponding agencies of
state and foreign countries in which Urohealth sell its products. The process of
receiving governmental approval may take a number of years and the expenditure
of substantial resources. There can be no assurance that even after such time
and expenditures, regulatory approval will be obtained for any of the products
developed by Urohealth. If regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which the product may
be marketed. Further, discovery of previously unknown problems with a product,
manufacturer or its manufacturing facilities may result in restrictions on such
product or manufacturer, including withdrawal of the product from the market.
The Federal Food, Drug and Cosmetic Act, the Public Health Services Act and
other federal statutes and regulations govern or influence the testing,
manufacture, safety, labeling, storage, recordkeeping, approval, advertising and
promotion of such products. Product development and approvals within this
regulatory framework take a number of years and involve the expenditure of
substantial resources. Noncompliance with applicable requirements may have a
material adverse effect on Urohealth and can result in fines, warning letters,
recall or seizure of products, total or partial suspension of production,
refusal by the government to approve product license applications or allow
Urohealth to enter into supply contracts, and criminal prosecution. The FDA also
has the authority to revoke product licenses and establishment licenses
previously granted. Failure to comply with present or future regulatory
requirements, or respond to the new information reflecting on the safety or
effectiveness of an approved product, can lead the FDA to withdraw its approval
to market a product. Urohealth and Imagyn incur substantial costs in complying
with regulatory requirements.
The FDA requires that a manufacturer introducing a new medical device or a
new indication for use of an existing medical device obtain either a 510(k)
premarket notification clearance or a premarket approval ("PMA") prior to being
introduced into the market. The 510(k) premarket notification clearance process
is significantly quicker and less costly than the PMA process. Substantially all
of Urohealth's FDA marketing clearances have been obtained through the FDA's
510(k) process; however, certain other products will require PMAs. The PMA
process is significantly more complex and time consuming than the 510(k)
notification process. The PMA process may take several years or longer and
requires the submission of extensive supporting data and clinical information.
Urohealth believes that it is in material compliance with the FDA's 510(k)
requirements for new and modified devices. The FDA has announced a program to
review approvals (510(k)s and PMAs) for certain devices. There can be no
assurance that upon any such review the FDA will agree with Urohealth's
determination regarding its 510(k)s. If the FDA were to disallow a 510(k)
marketing clearance for any device, Urohealth could be required to file
appropriate applications, either 510(k) or PMA,
9
<PAGE> 11
with the FDA or to take the products in question off the market. If the FDA were
to require suspension of the sale of one or more of the products pending receipt
of 510(k) clearance or if the FDA were to refuse to grant 510(k) clearance,
Urohealth's business, results of operations and financial condition could be
materially and adversely affected. There can be no assurance that Urohealth will
obtain timely regulatory approval for its future products, or that existing
approvals will not be withdrawn. Moreover, regulatory approvals, if granted, may
include significant limitations on the indicated uses for which a product may be
marketed.
Competition and Technological Change. The markets in which Urohealth
operates are very competitive and are characterized by rapidly evolving
technology and product obsolescence. Urohealth believes that its ability to
develop and commercialize new products and product enhancements is and will be
critical to its continued growth. There are a substantial number of medical
products companies and such companies could develop or offer products which
would compete with products which Urohealth currently markets or intends to
market. Some of these companies have marketing and distribution capabilities,
and many of them have capital resources and research and development staffs,
substantially greater than those of Urohealth. Moreover, it is reasonable to
expect additional entrants into the field. Any of these companies could
introduce competing products, which could cause a decline in sales or loss of
market acceptance of existing or future products of Urohealth or the combined
companies. There can be no assurances that technological change will not place
one or more of Urohealth's existing or future products at a competitive
disadvantage. In addition, increased competitive pressure could lead to
intensified price-based competition that could materially adversely affect
Urohealth's business, results of operations or financial condition. There can be
no assurance that Urohealth will be able to compete successfully in the future.
Dependence on Management. The success of Urohealth will depend on its
ability to attract and retain highly qualified personnel. In particular, the
loss of Charles A. Laverty, Urohealth's Chief Executive Officer, could have a
material adverse effect on Urohealth's business if a suitable replacement could
not be found. Urohealth has an employment agreement with Mr. Laverty that
provides for a three-year term expiring on April 1, 1999. The agreement
automatically renews for additional three-year terms if not terminated by either
party by prior notice. Urohealth has "key person" insurance (solely payable to
the Company) on the life of Mr. Laverty in the amount of $5.0 million; however,
there can be no assurance that such insurance would be sufficient to compensate
Urohealth for his absence. There can be no assurance that Urohealth will be
successful in attracting or retaining key personnel.
Products Liability Exposure. The medical products manufactured by Urohealth
have from time to time become the subject of products liability litigation
initiated by the patients using the products. In addition, as additional
products of Urohealth enter the market, the Company will be subject to an
increased risk of products liability claims. While Urohealth believes that its
products have been manufactured in accordance with industry standards, and
believes it has maintained adequate products liability insurance coverage, any
adverse claim or series of claims or adverse publicity resulting from a claim,
regardless of whether such claims are covered by insurance, could have a
material adverse effect on Urohealth's business, results of operations or
financial condition.
Potential Tax Liability. In connection with the redomestication of
Urohealth from Canada to the State of Delaware in July 1995, Urohealth has filed
a final Canadian tax return reporting the "deemed sale" of assets of Davstar
Industries Ltd. (the Canadian parent company). Urohealth anticipates that the
Canadian tax authorities will review the tax status of the former entity,
Davstar Industries Ltd., as a result of its redomestication from Canada to the
United States and believes that all or at least a significant amount of any
potential Canadian tax liability arising from the redomestication would be
offset against Urohealth's Canadian loss carryforwards. However, the Canadian
tax authorities could attempt to assign a greater value to Urohealth than used
in Urohealth's estimates, which could result in some amount of Canadian tax that
cannot be presently determined being assessed in a future period. No provision
for any liability that may result from the ultimate resolution of this tax
matter has been included in the accompanying consolidated financial statements
of Urohealth.
Potential Impact of Pending Legal Proceedings. In July 1997, several
complaints were filed against Urohealth, certain its officers and directors and,
in certain complaints, the lead underwriters of Urohealth's
10
<PAGE> 12
November 1996 public offering, requesting certification of a class action,
alleging various violations of Federal securities laws and seeking unspecified
compensatory damages. The suits were filed in the United States District Court
for the Central District of California. All of the suits are based on
substantially the same facts and have been brought on behalf of purchasers of
Common Stock of Urohealth during various periods between July 18, 1996 and July
1, 1997. No proceedings have taken place in any of the suits. There can be no
assurance that any of these suits will not result in an outcome unfavorable to
Urohealth or that the outcome of any of these suits will not have material
adverse effect on Urohealth's business, results of operations or financial
condition.
Limitation on Use of Tax Net Operating Loss Carryovers. As of March 31,
1997, Urohealth had accumulated net operating loss carryovers for U.S. federal
and state income tax purposes of approximately $92 million and $68 million,
respectively. These loss carryovers would expire, if not previously utilized
against income of Urohealth, in various years through 2012. The future income
tax benefit of these losses has not been given recognition in the Consolidated
Financial Statements. Under Section 382 of the United States Internal Revenue
Code of 1986, as amended (the "Code"), and corresponding provisions of state tax
law, certain "ownership changes" with respect to the stock of a corporation
having unused net operating loss carryovers (a "loss corporation"), or with
respect to the stock of its parent corporation, may result in annual limitations
on utilizations of such loss carryovers against future income of the loss
corporation. In connection with the acquisition of Osbon Medical Systems Ltd. in
December 1995, an ownership change occurred for purposes of Section 382 of the
Code, thereby subjecting Urohealth to annual limitations on its ability to
offset its existing loss carryovers against its future income. In connection
with the acquisition of Microsurge on March 31, 1997, an additional ownership
change may have occurred. Urohealth believes this additional ownership change
will not reduce the December 29, 1995 Section 382 limitation, but will place
limitations on the maximum annual utilization of operating loss carryforwards
generated subsequent to such date.
Warrants and Options; Potential Dilution and Adverse Impact on Additional
Financing. Urohealth has a significant number of outstanding options and
warrants. In addition, in May and July 1996, Urohealth issued $50.0 million of
Urohealth's 8.75% Convertible Subordinated Debentures due 2006 (the
"Debentures") which are convertible into Urohealth Common Stock at a conversion
price, subject to adjustment, of $10.90 per share. The holders of the Debentures
would be entitled to receive 4,587,156 shares of Common Stock if such holders
elected to convert all of the Debentures into Common Stock. To the extent that
the outstanding options and warrants are exercised, or convertible securities
are converted, dilution of the interests of Urohealth's stockholders may occur.
The existence of such warrants, options and convertible securities may adversely
affect the terms on which Urohealth can obtain additional financing, and the
holders of such warrants, options and convertible securities can be expected to
exercise them at a time when Urohealth would, in all likelihood, be able to
obtain additional capital by an offering of its unissued capital stock on terms
more favorable to Urohealth than those provided by such warrants, options and
convertible securities.
Rights Agreements; Anti-takeover Effects. Urohealth has adopted a
Preferred Share Purchase Rights Plan, pursuant to a Rights Agreement dated as of
May 20, 1993 (the "Rights Agreement"). The Rights Agreement provides for the
type of plan commonly called a "poison pill." The Rights Agreement is intended
to prevent abusive hostile takeover attempts. However, the Rights Agreement
could have the effect of deterring or preventing an acquisition of Urohealth
even if a majority of Urohealth's stockholders would be in favor of such
acquisition, and could also have the effect of making it more difficult for a
person or group to gain control of Urohealth or to change existing management.
Volatility of Stock Price. The market price of Urohealth's Common Stock is
subject to significant fluctuations in response to variations in quarterly
operating results, general trends in the market for healthcare products, and
other factors. In addition, broad market fluctuations as well as general
economic or political conditions such as healthcare reform may adversely affect
the market price of the Urohealth Common Stock, regardless of Urohealth's actual
operating performance. The market price of Urohealth's Common Stock has
historically been very volatile.
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<PAGE> 13
Absence of Dividends. Urohealth has never paid any cash dividends and does
not anticipate paying cash dividends in the foreseeable future. In addition,
Urohealth is restricted in its ability to pay dividends under outstanding credit
facilities.
Absence of a Public Market for the Warrants. There is no public market for
the Warrants and Urohealth does not intend to apply for listing of the Warrants
on any national securities exchange or for quotation of the Warrants through the
Nasdaq. No assurance can be given as to the liquidity of the trading market for
the Warrants or that an active public market for the Warrants will develop. If
an active public market does not develop, the market price and liquidity of the
Warrants may be adversely affected.
The Warrants are not currently exercisable and will expire on April 1,
2004. A Warrantholder who fails to exercise its Warrants prior to expiration
will lose all rights to acquire Common Stock. Prior to the exercise of the
Warrants, the Warrantholders will not have any of the rights of the holders of
Common Stock.
Forward-Looking Statements. Certain statements contained, or incorporated
by reference, herein, including without limitation, statements containing the
words "believes," "anticipates," "intends," "expects" and words of similar
import, constitute "forward-looking statements." Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of Urohealth or industry results
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, both
domestic and foreign; industry capacity; management of growth; development of
products; proprietary rights; demographic changes; existing government
regulations and changes in, or the failure to comply with, government
regulations; legislative proposals for healthcare reform; liability and other
claims asserted against Urohealth; competition; the loss of any significant
customers; changes in operating strategy or development plans; the ability to
attract and retain qualified personnel; the significant indebtedness of
Urohealth; the availability and terms of capital to fund the expansion of
Urohealth's business; and other factors referenced herein. Given these
uncertainties, Urohealth stockholders are cautioned not to place undue reliance
on such forward-looking statements.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Warrants or
the Common Stock offered herein by the Selling Security Holders. If all of the
Warrants are exercised, the Company will receive estimated net proceeds of
approximately (i) $4.6 million, or (ii) $9.5 million, if the Company has EBITDA
of less than $32.5 million for its fiscal year ended March 31, 1998. The Company
intends to utilize any proceeds from the exercise of the Warrants for general
corporate purposes. There can be no assurances that any of the Warrants will be
exercised.
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<PAGE> 14
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Urohealth's Common Stock is traded on The Nasdaq National Market under the
symbol "UROH." Prior to November 26, 1996, the Company's Common Stock was traded
on the American Stock Exchange. The following table sets forth the high and low
sales prices per share for the periods indicated. The information in the table
has been adjusted to give effect to the one-for-three reverse stock split that
was effective December 29, 1995. For current price information, prospective
purchasers are encouraged to consult publicly available sources.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1996:
First quarter...................................................... $13-7/8 $ 9
Second quarter..................................................... $ 9-3/8 $ 6-3/16
Third quarter...................................................... $13-1/8 $ 8-1/8
FISCAL 1997:
First quarter...................................................... $16 $11-3/4
Second quarter..................................................... $15-1/4 $ 9-3/4
Third quarter...................................................... $13-1/4 $ 7-1/4
Fourth quarter..................................................... $11-7/8 $ 7-1/4
FISCAL 1998:
First quarter...................................................... $10-1/4 $ 4-3/4
Second quarter (through September 4, 1997)......................... $ 6 $ 4
</TABLE>
The Company has never paid cash dividends on its Common Stock and does not
anticipate that it will do so in the foreseeable future. The present policy of
the Company is to retain earnings, if any, to finance the anticipated growth of
its business. In addition, the Company is restricted from paying cash dividends
under the terms of outstanding indebtedness of the Company.
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<PAGE> 15
SELLING SECURITY HOLDERS
The Warrants were originally issued and sold by Urohealth in April 1997 to
Bear, Stearns & Co. Inc. (the "Initial Purchaser") in a private placement, and
were resold by the Initial Purchaser in transactions exempt from the
registration requirements of the Securities Act in the United States to
qualified institutional buyers (as defined in Rule 144A under the Securities
Act) and to certain accredited investors (as defined in Rule 501(a) under the
Securities Act). The shares covered by this Prospectus are being registered to
permit public secondary trading of the Warrants and the shares of Common Stock
issuable upon exercise of the Warrants and the Selling Security Holders may
offer the securities for resale from time to time. See "Plan of Distribution."
Except for participation in the Note Offering or as described below, none
of the Selling Security Holders has had a material relationship with the Company
within the past three years other than as a result of the ownership of the
Common Stock and other securities of the Company.
The following table sets forth as of September , 1997, the respective
number of Warrants beneficially owned by each Selling Security Holder and the
number of Warrant Shares issuable upon exercise of such Selling Security
Holder's Warrants. The term Selling Security Holders includes the holders listed
below and the beneficial owners of the Securities and their transferees,
pledgees, donees or other successors. The table has been prepared based upon
information furnished to Urohealth by or on behalf of the Selling Security
Holders.
<TABLE>
<CAPTION>
SECURITIES BENEFICIALLY
OWNED
----------------------------
WARRANTS COMMON STOCK(1)
-------- ---------------
<S> <C> <C>
Bankers Trust Company(2).................................. 13,600 123,216
Bear, Stearns & Co.(2).................................... 3,750 33,975
Boston Safe Deposit(2).................................... 225 2,039
Inv. BK/MF(2)............................................. 150 1,359
SSB Cust.(2).............................................. 5,900 53,454
Hachrovia(2).............................................. 125 1,133
Cede Fast................................................. 84,630 766,748
Bear Stearns Securities Corp. ............................ 1,620 14,677
</TABLE>
- ---------------
(1) Shares represent the maximum number of shares issuable upon exercise of the
Warrants owned.
(2) Represents shares registered in the name of Cede Fast as agent for The
Depository Trust Company held for the benefit of the designated
participants.
The information concerning the Selling Security Holders may change from
time to time. If required, such changes will be set forth in Prospectus
Supplements. The per share exercise price and, therefore, the number of shares
of Common Stock issuable upon conversion of the Warrants, are subject to
adjustment under certain circumstances. Accordingly, the number of shares of
Common Stock issuable upon conversion of Warrants may increase or decrease.
Because the Selling Security Holders may offer all or some portion of the
Securities pursuant to this Prospectus, and because there are currently no
agreements, arrangements or understandings with respect to the sale of
Securities, no estimate can be given as to the amount of Securities that will be
held by the Selling Security Holders upon termination of this offering. None of
the Selling Security Holders own 1% or more of the outstanding Common Stock of
the Company.
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<PAGE> 16
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue up to 50,000,000 shares of Common Stock,
$.001 par value, and 5,000,000 shares of Preferred Stock, $.001 par value of
which 250,000 shares have been designated as Series A Junior Participating
Preferred Stock (the "Series A Preferred Shares"). As of June 30, 1997, there
were 23,825,000 shares of Common Stock issued and outstanding and no preferred
stock issued or outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There are no
cumulative voting rights. Accordingly, the holders of a majority of the shares
of Common Stock (and the Debentures described below) entitled to vote in any
election of directors may elect all of the directors standing for election.
Subject to any preferences which may be granted to the holders of Preferred
Stock, each holder of Common Stock is entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, as well as any distributions to the stockholders
upon liquidation, dissolution or winding up of the Company. Each holder of
Common Stock is entitled to share ratably in all assets of the Company remaining
after payment of all debts and other liabilities and subject to the prior rights
of any outstanding Preferred Stock. Holders of Common Stock have no conversion,
redemption, subscription or preemptive rights or other rights to subscribe for
additional shares. The outstanding shares of Common Stock are validly issued,
fully paid and nonassessable. The rights, preferences and privileges of holders
of Common Stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
PREFERRED STOCK
The Board of Directors is authorized to issue the Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions,
including the dividend rights, conversion rights, voting rights, rights and
terms of redemption, redemption price or prices, liquidation preferences and the
number of shares constituting any series or the designations of such series,
without any further vote or action by the stockholders of the Company. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action of the
stockholders of the Company. The issuance of Preferred Stock with voting and
conversion rights may adversely affect the voting power of the holders of Common
Stock of the Company, including the loss of voting control to others.
The Company has adopted a Preferred Share Purchase Rights Plan (the "Rights
Plan") which is designed to deter coercive or certain takeover tactics, to
prevent a person or group from gaining control of the Company without offering
fair value to all stockholders and to deter other abusive takeover tactics which
are not in the best interest of stockholders. In May 1993, the Company executed
the Rights Plan with its transfer agent and 250,000 Series A Preferred Shares
were designated for potential issuance under the Rights Plan. Under the terms of
the Rights Plan each share of Common Stock is accompanied by one right; each
right entitles the registered stockholder to purchase from the Company
one-hundredth of a share of Series A Junior Participating Preferred Stock, $.001
par value, at an exercise price of $200. The rights only become exercisable ten
days after a public announcement that an acquiring person (as defined in the
Rights Plan) has acquired 20% or more of the outstanding shares of Common Stock
of the Company or a person or group offers to acquire 35% or more of the
outstanding Common Stock or ten days after the Company determines that a person
is an Adverse Person (as defined in the Rights Plan). The Company can redeem the
Rights for $.01 per Right at any time until ten days after the rights become
exercisable (the 10-day period can be extended by the Company). The Rights Plan
will expire on June 30, 2003 unless earlier redeemed by the Company. If,
subsequent to the rights becoming exercisable, the Company is acquired in a
merger or other business combination at any time when there is a 20% or more
holder, the rights will then entitle a holder to buy shares of common stock of
the acquiring company with a market value equal to twice the exercise price of
each right. Alternatively, if the 20% holder acquires the Company by means of a
merger in which the
15
<PAGE> 17
Company and its stock survive, or if any person acquires 35% or more of the
Company's Common Stock, each right now owned by a 20% or more stockholder, will
become exercisable for Common Stock of the Company having a market value equal
to twice the exercise price of the right.
VOTING DEBENTURES
The holders of the Debentures are entitled to vote on all matters submitted
to a vote of the stockholders of the Company, voting together with the holders
of the Common Stock (and any other shares of capital stock of the Company
entitled to vote at a meeting of stockholders) as one class. Each Debenture is
entitled to a number of votes equal to the number of shares of Common Stock into
which the Debenture could then be converted. As of June 30, 1997, there was
$50.0 million aggregate principal amount of Debentures outstanding which would
convert into 4,587,156 shares of Common Stock.
WARRANTS
General
The Warrants issued with the Old Notes (the "Warrants") were issued under a
Warrant Agreement (the "Warrant Agreement") between the Company and The Bank of
New York, as Warrant Agent (the "Warrant Agent"). The following description of
the Warrants does not purport to be complete and is qualified in its entirety by
the provisions of the Warrant Agreement. The Warrants are not the subject of the
Exchange Offer and will continue to have restrictions on transfer as set forth
therein until registered in accordance with the Warrant Registration Rights
Agreement.
Each Warrant entitles the registered owner thereof to purchase Common Stock
at a per share exercise price of $9.50, subject to adjustment as specified below
(the "Exercise Price"). The Warrants are exercisable on or after June 30, 1998,
and expire at 5:00 p.m., New York City time, on April 1, 2004. The number of
shares of Common Stock into which each Warrant is exercisable is (i) 4.44 or
(ii) 9.06 if the Company has Consolidated EBITDA of less than $32.5 million for
its fiscal year ended March 31, 1998.
Holders of Warrants are not entitled, by virtue of being such holders, to
any of the rights of holders of shares of Common Stock. The Warrants are not
subject to redemption by the Company.
Exercise of Warrants
Warrants may be exercised by surrendering to the Warrant Agent a signed
Warrant certificate indicating the Warrantholder's election to exercise all or a
portion of the Warrants evidenced by such certificate. Surrendered Warrant
certificates must be accompanied by payment of the aggregate Exercise Price. The
Exercise Price is payable at the holder's option by certified or cashier's check
payable to the order of the Company, or by any combination thereof. No
adjustments as to dividends (other than stock dividends) with respect to the
Common Stock will be made upon any exercise of Warrants.
The Company has reserved for issuance a number of shares of Common Stock
sufficient to provide for the exercise of the rights of purchase represented by
the Warrants. When delivered, such shares will be fully paid and nonassessable.
The Company will bear the cost of any documentary stamp tax payable in
connection with the issuance of shares of Common Stock upon the exercise of the
Warrants, but will not be responsible for the payment of any such taxes upon the
issuance of such shares to any person other than the registered holder of the
Warrants so exercised or upon the transfer of the Warrants.
The Company is not required to issue fractional shares upon the exercise of
Warrants. In lieu of any fractional share to which a holder would otherwise be
entitled upon exercise of any Warrant, the Company will pay to such holder an
amount in cash equal to the value of such fractional interests based upon the
then current market price of a full share of Common Stock.
If the Company, in a single transaction or through a series of related
transactions, consolidates with or merges with or into any other person or
sells, assigns, transfers, leases, conveys or otherwise disposes of all or
16
<PAGE> 18
substantially all of its properties and assets to another person or group of
affiliated persons or is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Common Stock (any such transaction, an
"Extraordinary Transaction"), as a condition to consummating any such
Extraordinary Transaction, the person formed by or surviving any such
consolidation or merger if other than the Company or the person to whom such
transfer has been made (the "Surviving Person") shall enter into a supplemental
warrant agreement pursuant to which it agrees to assume all of the obligations
of the Company under the Warrants and the Warrant Registration Rights Agreement.
If such Extraordinary Transaction occurs prior to June 30, 1998, then (i) the
Warrants shall become exercisable immediately upon the consummation of such
Extraordinary Transaction for the kind and amount of consideration that the
holder thereof would have received as a result of the Extraordinary Transaction
if such holder had exercised the Warrant for 4.44 shares of Common Stock,
subject to adjustment, immediately prior to the consummation of the
Extraordinary Transaction, and (ii) the Surviving Person shall, upon
consummation of the Extraordinary Transaction, issue to each holder of Warrants
on that date, a new Warrant certificate having the same terms as the Warrants
but representing the right to receive the kind and amount of consideration that
such holder would have received as a result of the Extraordinary Transaction if
such holder had exercised the Warrant for 4.62 shares of Common Stock, subject
to adjustment, immediately prior to the consummation of the Extraordinary
Transaction, exercisable on or after June 30, 1998 if the Company's Consolidated
EBITDA for its fiscal year ended March 31, 1998 is less than $32.5 million.
Anti-dilution and Warrant Price Adjustments
The number of shares of Common Stock purchasable upon the exercise of each
Warrant and the Exercise Price are subject to adjustment upon the occurrence of
certain events affecting the Common Stock, including, without limitation, (i)
payment of a dividend or the making of a distribution on the shares of Common
Stock which is paid or made in shares of Common Stock or other securities of the
Company or in certain rights to purchase Common Stock or other securities of the
Company, (ii) subdivision of the outstanding shares of Common Stock into a
greater number of shares, (iii) combination of the outstanding shares of Common
Stock into a smaller number of shares, (iv) issuance of certain rights or
warrants to the holders of the shares of Common Stock, entitling them to
subscribe for or purchase shares of Common Stock, or of securities convertible
into or exchangeable for Common Stock, at a price less than the current market
price, (v) reclassification of the shares of Common Stock, (vi) distribution to
the holders of the shares of Common Stock of evidences of indebtedness or assets
(excluding any dividend or distribution paid in cash out of retained earnings),
and (vii) extraordinary cash dividends on the Common Stock, subject to the
limitation that no adjustment in the number of shares acquirable upon exercise
of the Warrants will be required until cumulative adjustments require an
adjustment of at least 1% thereof. No adjustment will be made on account of any
dividend or interest reinvestment plan or any employee stock purchase plan
providing for the purchase of shares of Common Stock at a discount from market
price.
Registration Rights
The Company is required under the Warrant Registration Rights Agreement to
file a shelf registration statement under the Securities Act covering the resale
of the Warrants by the holders thereof (the "Warrant Shelf Registration
Statement") within 60 days after the Issue Date and to use its reasonable
efforts to cause the Warrant Shelf Registration Statement to be declared
effective under the Securities Act within 150 days after the Issue Date and to
remain effective until the earliest of (i) such time as all the Warrants have
been sold thereunder, (ii) three years after its effective date and (iii) such
time as the Warrants can be sold without restriction under the Securities Act.
Each holder of Warrants that sells such Warrants pursuant to the Warrant
Shelf Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to the
purchaser, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by certain
provision of the Warrant Registration Rights Agreement which are applicable to
such holder (including certain indemnification obligations). In addition, each
holder of Warrants will be required to deliver information to be used in
connection with the Warrant
17
<PAGE> 19
Shelf Registration Statement in order to have its Warrants included in the
Warrant Shelf Registration Statement.
The Company is required under the Warrant Registration Rights Agreement to
file a shelf registration statement under the Securities Act covering the
issuance of Warrant Shares (the "Common Shelf Registration Statement") and to
use its reasonable efforts to cause the Common Shelf Registration Statement to
be declared effective on or before 365 days after the Issue Date and to remain
effective until the earlier of (i) such time as all Warrants have been exercised
and (ii) the Expiration Date.
During any consecutive 365-day period, the Company shall be entitled to
suspend the availability of each of the Warrant Shelf Registration Statement and
the Common Shelf Registration Statement for up to two 45 consecutive-day periods
(except for the 45 consecutive-day period immediately prior to the Expiration
Date) if the Board of Directors determines in the exercise of its reasonable
judgment that there is a valid business purpose for such suspension and provides
notice that such determination was made to the holders of the Warrants;
provided, however, that in no event shall the Company be required to disclose
the business purpose for such suspension if the Company determines in good faith
that such business purpose must remain confidential. There can be no assurance
that the Company will be able to file, cause to be declared effective, or keep a
registration statement continuously effective until all of the Warrants have
been exercised or have expired.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law ("Section 203")
provides, in general, that a stockholder acquiring more than 15% of the
outstanding voting shares of a corporation subject to the statute (an
"Interested Stockholder") but less than 85% of such shares may not engage in
certain "Business Combinations" with the corporation for a period of three years
subsequent to the date on which the stockholder became an Interested Stockholder
unless (i) prior to such date the corporation's Board of Directors approved
either the Business Combination or the transaction in which the stockholder
became an Interested Stockholder or (ii) the Business Combination is approved by
the corporation's board of directors and authorized by a vote of at least
two-thirds of the outstanding voting stock of the corporation not owned by the
Interested Stockholder.
Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which the
Interested Stockholder receives or could receive a benefit on other than a pro
rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation which increase the proportionate interest of
the Interested Stockholder, or transactions in which the Interested Stockholder
receives certain other benefits.
REGISTRATION RIGHTS
The Company has granted registration rights to the holders of the
Debentures with respect to both the Debentures and the shares of Common Stock
into which the Debentures may be converted. Pursuant to such rights, the Company
may, on no more than one occasion and when requested by the holders of not less
than 51% of the aggregate principal amount of the Debentures outstanding at such
time the request is made, be required to register the Debentures for resale
under the Securities Act. In addition, the Company may, on no more than three
occasions, be required to register the shares of Common Stock into which the
Debentures may be converted. Such registration may only be required of the
Company if the registration is requested with respect to not less than 20% of
the shares of Common Stock underlying the Debentures. Finally, shares of Common
Stock into which the Debentures may be converted may also participate in any
other registered offering initiated by the Company for its own account or for
shares of Common Stock owned by other stockholders of the Company.
The Company has granted registration rights to Avatex Corporation
("Avatex") in connection with financing transactions. At any time, the holders
of not less than 20% of the shares of Common Stock received or to be received in
connection with these transactions may, on two occasions, require the Company to
register
18
<PAGE> 20
such shares of Common Stock for resale under the Securities Act. In addition,
shares of Common Stock issued or to be issued in connection with these
transactions may also participate in any other registered offering initiated by
the Company for its own account or for shares of Common Stock owned by other
stockholders of the Company.
The Company has granted registration rights to certain "affiliates" of
Osbon with respect to shares of Common Stock received by them in the acquisition
of Osbon by the Company. The holders of not less than 20% of the shares of
Common Stock received in the acquisition of Osbon by holders of registration
rights may, on one occasion, require the Company to register such shares of
Common Stock for resale under the Securities Act. In addition, shares of Common
Stock received by "affiliates" of Osbon in the Company's acquisition of Osbon
may also participate in any other registered offering initiated by the Company
for its own account or for shares of Common Stock owned by other stockholders of
the Company.
The Company has granted registration rights to certain "affiliates" of
Dacomed with respect to shares of Common Stock received by them in the
acquisition of Dacomed by the Company. The holders of not less than 20% of the
shares of Common Stock received in the acquisition of Dacomed by the Company by
the holders of registration rights may, on one occasion, require the Company to
register such shares of Common Stock for resale under the Securities Act. In
addition, shares of Common Stock received by "affiliates" of Dacomed in the
Company's acquisition of Dacomed may also participate in any other registered
offering initiated by the Company for its own account or for shares of Common
Stock owned by other stockholders of the Company.
The Company has granted certain piggyback registration rights with respect
to shares of Common Stock to be received upon exercise of warrants issued to a
lender in connection with loans to the Company and granted piggyback and demand
registration rights to another lender with respect to shares issuable upon
exercise of a warrant issued in connection with the Company's former credit
facilities.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer and Trust Company is the transfer agent and
registrar for the Common Stock and The Bank of New York is the transfer agent
and registrar for the Warrants.
19
<PAGE> 21
PLAN OF DISTRIBUTION
The Securities offered hereby may be sold from time to time to purchasers
directly by any of the Selling Security Holders. Alternatively, any of the
Selling Security Holders may from time to time offer the Securities through
underwriters, dealers or agents who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Security
Holders and/or the purchasers of Securities for whom they may act as agent. The
Selling Security Holders and any underwriters, dealers or agents participating
in the distribution of Securities may be deemed to be underwriters, and any
profit on the sale of Securities by them and any discounts, commissions or
concessions received by any such underwriters, dealers or agents might be deemed
to be underwriting discounts and commissions under the Securities Act. At the
time a particular offer of Securities is made, if required, a Prospectus
Supplement will be distributed which will set forth the aggregate amount of
Securities being offered and the terms of the offering, including the name or
names of any underwriters, dealers or agents, any discounts, commissions and
other items constituting compensation from the Selling Security Holders and any
discounts, commissions or concessions allowed or reallocated or paid to dealers,
including the proposed selling price to the public. The Company will not receive
any of the proceeds from the sale by the Selling Security Holders of the
Securities offered hereby.
The Securities may be sold from time to time in one or more transactions at
a fixed offering price, which may be changed, or at varying prices determined at
the time of sale or at negotiated prices. Such prices will be determined by the
Selling Security Holders or by agreement between the Selling Security Holders
and underwriters or dealers. The sale of the Warrants may be effected in
transactions (which may involve crosses or block transactions) (i) on any
national securities exchange or quotation service on which the Warrants may be
listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii)
in transactions otherwise than on such exchanges or in the over-the-counter
market or (iv) through the writing of options. At the time a particular offering
of Warrants is made, a Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Warrants being offered and
the terms of the offering, including the name or names of any underwriters,
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the Selling Holders and any discounts,
commissions or concessions allowed or reallowed or paid to broker-dealers.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of any of the Securities may not simultaneously engage
in market activities with respect to any of the Securities for a period of nine
business days prior to the commencement of such distribution. In addition and
without limiting the foregoing, the Selling Security Holders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M, which provisions may
limit the timing of purchases and sales of any of the Common Stock by the
Selling Security Holders. All of the foregoing may affect the marketability of
the Securities.
Pursuant to agreements with the Selling Security Holders, the Company will
pay substantially all of the expenses incident to the registration, offering and
sale of the Securities to the public other than commissions and discounts of
underwriters, dealers or agents, and has agreed to indemnify the Selling
Security Holders against certain liabilities, including liabilities under the
Securities Act.
In order to comply with certain states' securities laws, if applicable, the
Securities will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states the Securities may not be sold
unless the Securities have been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is complied
with.
The Company has agreed to keep the Registration Statement of which this
Prospectus forms a part continuously effective until April 1, 2004 or such
shorter period which will terminate when all Securities covered by the
Registration Statement has been sold.
20
<PAGE> 22
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Kevin M.
Higgins, Esq.
EXPERTS
The consolidated financial statements of the Company as of March 31, 1996
and 1997, and for the year ended June 30, 1995, for the nine months ended March
31, 1996 and for the year ended March 31, 1997, included in the Company's
Registration Statement on Form S-4 (No. 333-26503), have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such reports are based in part on
the reports of Coopers & Lybrand L.L.P., independent accountants, with respect
to the consolidated financial statements of Microsurge, Inc., as of March 31,
1996 and 1997 and for the year ended December 31, 1995, the nine months ended
March 31, 1996 and the year ended March 31, 1997 (not separately included or
incorporated herein) and the report of KPMG Peat Marwick LLP, independent
auditors with respect to the consolidated financial statements of Dacomed
Corporation for the year ended June 30, 1995 (not separately included or
incorporated herein). The consolidated financial statements referred to above
are incorporated herein by reference in reliance upon such reports given upon
the authority of such firms as experts in accounting and auditing.
The consolidated financial statements of X-Cardia Corporation at December
31, 1996, and for the period from inception (February 13, 1996) through December
31, 1996, incorporated by reference herein from the Company's Registration
Statement on Form S-4 (No. 333-26503) have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated by reference herein. Such consolidated financial statements are
incorporated by reference herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Richard-Allan Medical Industries,
Inc., as of June 30, 1995 and March 31, 1996 and for the years ended June 30,
1994 and 1995 and for the nine months ended March 31, 1996, incorporated by
reference herein from the Company's Registration Statement on Form S-4 (No. 333-
26503) have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated by reference
herein. Such consolidated financial statements are incorporated by reference
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
21
<PAGE> 23
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
Warrants.............................. 4
Risk Factors.......................... 5
Use of Proceeds....................... 12
Price Range of Common Stock and
Dividends........................... 13
Selling Security Holders.............. 14
Description of Capital Stock.......... 15
Plan of Distribution.................. 20
Legal Matters......................... 21
Experts............................... 21
</TABLE>
======================================================
======================================================
UROHEALTH
SYSTEMS, INC.
110,000 WARRANTS
996,600 SHARES OF COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
, 1997
======================================================
<PAGE> 24
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>
<CAPTION>
<S> <C>
Registration Fee.......................................................... $ 1,359
Legal Fees and Expenses................................................... 5,000
Blue Sky Fees and Expenses................................................ 5,000
Accounting Fees and Expenses.............................................. 20,000
Printing and Engraving Expenses........................................... 20,000
Transfer Agent and Registrar Fees......................................... 3,000
Miscellaneous............................................................. 20,641
---------
Total................................................................... $ 75,000
========
</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.
The Company's Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director of the Company
except for liability (i) for any breach of such director's duty of loyalty to
the Company 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.
The Company 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 the Company. 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.
The Company's Bylaws provide that the Company shall indemnify its directors
and 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> 25
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ ----------------------------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation of Urohealth Systems, Inc., as amended through May 9,
1996. Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on
Form 10-K for the fiscal period ended March 31, 1996.
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.
4.4 Warrant Agreement, dated April 10, 1997, between Urohealth Systems, Inc. and The
Bank of New York, as warrant agent. Incorporated by reference to Exhibit 4.4 of
the Company's Current Report on Form 8-K dated April 28, 1997.
4.5 Warrant Registration Rights Agreement, dated April 10, 1997, between Urohealth
Systems, Inc. and Bear, Stearns & Co. Inc. Incorporated by reference to Exhibit
4.5 of the Company's Current Report on Form 8-K dated April 28, 1997.
5.1 Opinion of Kevin M. Higgins, Esq.**
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of KPMG Peat Marwick LLP.
23.6 Consent of Kevin M. Higgins, Esq. (included in Exhibit 5.1)**
24.1 Power of Attorney of certain officers and directors (included in Part II to the
Registration Statement).**
</TABLE>
- ---------------
** Previously filed.
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.
II-2
<PAGE> 26
(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.
(d) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered) and any
deviation from the low or high and the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
provided, however, that paragraphs (d)(1)(i) and (d)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of this chapter at the start of
any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, provided, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or Rule 3-19 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form F-3.
II-3
<PAGE> 27
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. 1 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 September
10, 1997.
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 Amendment
No. 1 to 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 Chairman of the Board and September 10, 1997
- --------------------------------------------- Chief Executive Officer
Charles A. Laverty (Principal Executive
Officer)
/s/ JOSEPH T. ARTINO Assistant Treasurer September 10, 1997
- --------------------------------------------- (Acting Principal Financial
Joseph T. Artino Officer and Acting
Principal Accounting
Officer)
* Director September 10, 1997
- ---------------------------------------------
Abbey J. Butler
* Director September 10, 1997
- ---------------------------------------------
John Chamberlin
* Director September 10, 1997
- ---------------------------------------------
Robert N. Elkins
* Director September 10, 1997
- ---------------------------------------------
Melvyn J. Estrin
* Director September 10, 1997
- ---------------------------------------------
C. Sage Givens
* Director September 10, 1997
- ---------------------------------------------
Lawrence Goelman
* Director September 10, 1997
- ---------------------------------------------
Michael S. Gross
* Director September 10, 1997
- ---------------------------------------------
Richard R. Newhauser
</TABLE>
II-4
<PAGE> 28
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- --------------------------- --------------------
<C> <S> <C>
* Director September 10, 1997
- ---------------------------------------------
Francis J. Tedesco
*By: /s/ CHARLES A. LAVERTY September 10, 1997
----------------------------------------
Charles A. Laverty
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ --------------------------------------------------------------------- -------------
<C> <S> <C>
3.1 Certificate of Incorporation of Urohealth Systems, Inc., as amended
through May 9, 1996. Incorporated by reference to Exhibit 3.1 of the
Company's Annual Report on Form 10-K for the fiscal period ended
March 31, 1996.
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.
4.4 Warrant Agreement, dated April 10, 1997, between Urohealth Systems,
Inc. and The Bank of New York, as warrant agent. Incorporated by
reference to Exhibit 4.4 of the Company's Current Report on Form 8-K
dated April 28, 1997.
4.5 Warrant Registration Rights Agreement, dated April 10, 1997, between
Urohealth Systems, Inc. and Bear, Stearns & Co. Inc. Incorporated by
reference to Exhibit 4.5 of the Company's Current Report on Form 8-K
dated April 28, 1997.
5.1 Opinion of Kevin M. Higgins, Esq.**
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of KPMG Peat Marwick LLP.
23.6 Consent of Kevin M. Higgins, Esq. (included in Exhibit 5.1)**
24.1 Power of Attorney of certain officers and directors (included in Part
II to the Registration Statement).**
</TABLE>
- ---------------
** Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-34131) and related Prospectus of
Urohealth Systems, Inc. for the registration of 996,600 shares of its common
stock and to the incorporation by reference therein of our reports dated July 8,
1997, with respect to the consolidated financial statements and schedule of
Urohealth Systems, Inc. included in its Annual Report on Form 10-K/A, Amendment
No. 2, filed with the Securities and Exchange Commission on September 2, 1997.
/s/ ERNST & YOUNG LLP
Orange County, California
September 9, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-34131) and related Prospectus of
Urohealth Systems, Inc. for the registration of 996,600 shares of its Common
Stock and to the incorporation by reference therein of our report dated February
5, 1997 with respect to the financial statements of X-Cardia Corporation
included in the Urohealth Systems, Inc. Registration Statement (Form S-4 No.
333-26503), filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Palo Alto, California
September 9, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" in the
Registration Statement (Form S-3 No. 333-34131) and related Prospectus of
Urohealth Systems, Inc. for the registration of 996,600 shares of its Common
Stock and to the incorporation by reference therein of our report dated August
8, 1996, except Note K as to which the date is August 14, 1996, with respect to
the financial statements of Richard-Allan Medical Industries, Inc. included in
the Urohealth Systems, Inc. Registration Statement on (Form S-4 No. 333-26503),
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Kalamazoo, Michigan
September 9, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement of Urohealth Systems, Inc. on Form S-3 of our report
dated May 9, 1997 included in Urohealth Systems, Inc.'s Annual Report on Form
10-K on our audits of the financial statements of Microsurge, Inc. as of March
31, 1997 and 1996 and for the year ended March 31, 1997, the nine months ended
March 31, 1996 and the year ended December 31, 1995 (not separately included
therein). We also consent to the reference to our firm under the caption
"Experts."
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
September 9, 1997
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
UROHEALTH Systems, Inc.
We consent to incorporation by reference in the Registration Statement (No.
333-34131) on Form S-3 of our report dated October 10, 1995, relating to the
consolidated statements of operations, stockholders' equity and cash flows for
the fiscal year ended June 24, 1995 of Dacomed Corporation ended and to the
reference to our Firm under the heading "Experts" in the Registration Statement.
/s/ KPMG PEAT MARWICK LLP
--------------------------------------
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 9, 1997
