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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1997
REGISTRATION NO. 333-6397
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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>
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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
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value........................ 9,577,661 shares $9.125 $87,396,157 $26,484(2)
====================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(c).
(2) Of this amount $16,748 was previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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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 APRIL 15, 1997
PROSPECTUS
9,577,661 SHARES
UROHEALTH SYSTEMS, INC.
COMMON STOCK
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The 9,577,661 shares of Common Stock offered hereby are being sold by the
Selling Stockholders. See "Selling Stockholders" and "Plan of Distribution."
Urohealth Systems, Inc. ("Urohealth" or the "Company") will not receive any of
the proceeds from the sale of the shares by the Selling Stockholders. The Common
Stock of the Company is listed on The Nasdaq Stock Market National Market under
the symbol "UROH." On April 14, 1997, the last reported sale price of the Common
Stock was $8.75 per share. See "Price Range of Common Stock and Dividends."
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK 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.
This Prospectus relates to the public offering for resale, which is not
being underwritten, of the following securities of the Company by the holders
thereof (the "Selling Stockholders"): (i) 190,488 shares of Common Stock of the
Company acquired by John F. Woodhead in connection with the acquisition of
Allstate Medical Products, Inc. ("Allstate") by the Company; (ii) 300,000 shares
of Common Stock of the Company acquired by Gerald W. Timm in connection with the
acquisition of Dacomed Corporation ("Dacomed") by the Company; (iii) 178,572
shares of Common Stock of the Company acquired by former shareholders of
Endoscopic Imaging Systems, Inc. ("EIS") in connection with the acquisition of
EIS by the Company; (iv) 1,414,827 shares acquired by Avatex Corporation upon
conversion of a convertible note and Series B Convertible Preferred Stock of the
Company owned by Avatex; (v) 111,000 shares of Common Stock of the Company
issued to Vista Medical Technologies, Inc. ("Vista") in connection with an
exclusive license of certain technology granted by Vista to the Company; (vi)
164,384 shares of Common Stock of the Company issued to Charles Klieman and John
Stigglebout in connection with an exclusive license of certain technology
granted to the Company; (vii) 1,295,700 shares of Common Stock of the Company
issued to former shareholders of X-Cardia Corporation in connection with the
acquisition of X-Cardia by the Company, and 1,000,000 shares of Common Stock
issuable to the former shareholders of X-Cardia under the Merger Agreement upon
satisfaction of certain contingencies; (viii) 2,017,837 shares of Common Stock
of the Company acquired by a former shareholder of Osbon Medical Systems Ltd.
("Osbon") in connection with the acquisition of Osbon by the Company; and (ix)
2,800,000 shares of Common Stock of the Company issued to the former
stockholders of Microsurge, Inc. ("Microsurge") in connection with the
acquisition of Microsurge by the Company.
The Selling Stockholders directly, through agents designated from time to
time, or through dealers or underwriters also to be designated may sell 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 March 31, 1998 and
the date on which all of the shares have been sold.
To the extent required, the names of additional Selling Stockholders, if
any, 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. See "Plan of Distribution."
The Company will not receive any proceeds from this offering. The aggregate
proceeds to the Selling Stockholders from the sale of 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 Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of 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.
THE DATE OF THIS PROSPECTUS IS , 1997.
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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
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 Common Stock 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 Common Stock 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 Transition Report on Form 10-K for the period
ended March 31, 1996, as amended; (ii) the Company's Current Report on Form 8-K,
dated July 15, 1996, as amended by the Forms 8-K/A filed on August 12, 1996 and
September 26, 1996; (iii) the Company's Quarterly Reports on Form 10-Q, as
amended, for the quarters ended June 30, 1996, September 30, 1996 and December
31, 1996; (iv) the Company's Current Report on Form 8-K, dated March 14, 1997,
as amended by the Form 8-K/A filed with the Commission on April 15, 1997; (v)
the Company's Current Report on Form 8-K, dated April 14, 1997; and (vi) the
description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A dated November 22, 1996.
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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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
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 purchaser of the Notes also received warrants to purchase 2% of the
fully-diluted common equity of the Company, and the right to receive an
additional 2% if certain financial performance thresholds are not achieved by
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 $50.0 million revolving credit facility (the "New Credit
Facility") which is secured by all of the Company's assets.
MICROSURGE ACQUISITION. On March 31, 1997, the Company acquired Microsurge,
Inc. ("Microsurge") in a transaction pursuant to which Microsurge became a
wholly-owned subsidiary of the Company (the "Merger"). All of the outstanding
Microsurge capital stock will be exchanged in the Merger for shares of Common
Stock of the Company, and the Company will either assume or repay approximately
$9 million of outstanding Microsurge indebtedness and other obligations. The
total purchase price, including assumption of debt and other obligations, was
approximately $38 million.
Microsurge was a privately-held company that designed, developed,
manufactured and marketed surgical instruments for use in minimally invasive
surgery. Microsurge's minimally invasive surgery instruments are based on a
"multi-use" concept ("reposable") that seeks to fill the gap between disposable
products and traditional reusable products. The Company expects that the
acquisition of Microsurge will expand the Company's customer base and expand the
number of products available for sale by the Company's existing minimally
invasive surgery sales force. The Company believes that Microsurge manufacturing
operations can be consolidated with the Company's existing manufacturing
operations.
X-CARDIA ACQUISITION. On February 28, 1997, the Company acquired X-Cardia
Corporation for a combination of cash and stock. The aggregate purchase price
will be up to $33 million depending upon achievement of certain milestones after
the closing. In addition, the Company is obligated to pay a percentage of sales
for a four-year period after commercial introduction of the first product using
the acquired technology. The Company delivered stock with a value of $12 million
at the closing, and is obligated to deliver the balance of the purchase price, a
combination of cash and stock, upon achievement of clinical and patent approval
milestones. There can be no assurances that the milestones will be achieved.
With this acquisition, the Company acquired, among other things, cardiac output
monitoring technology that is currently under development.
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RISK FACTORS
Prospective purchasers of the Common Stock 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
Common Stock offered hereby.
Significant Leverage. Since completion of the Note Offering, the Company
has substantial indebtedness and significant debt service obligations. At
December 31, 1996, on a pro forma basis, the Company would have had
approximately $170.7 million of indebtedness outstanding, approximately $228.9
million of total assets, approximately $157.4 million of total tangible assets
and approximately $32.2 million of stockholders' equity.
The Company'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 the New Credit Facility or successor credit facilities. The
Company 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. The Company
historically and, on a pro forma basis for the nine months ended December 31,
1996, has had negative cash flow from operations. For the nine months ended
December 31, 1996, on a pro forma basis for the Note Offering and the
acquisitions of X-Cardia and Microsurge, the Company would have had a deficiency
of earnings to fixed charges of $40.2 million and a deficiency of EBITDA to
fixed charges of $7.4 million. EBITDA as used herein consists of earnings before
interest, income taxes, extraordinary items and depreciation and amortization
expense and excludes restructuring, direct acquisition and other costs. While
EBITDA should not be construed as an alternative to operating income or net
income as determined in accordance with generally accepted accounting principles
as an indicator of operating performance, liquidity, or cash flows, it is a
measure that the Company believes is commonly used to evaluate a Company's
ability to service debt. In order to have positive cash flow from operations and
meet its various financial requirements, including debt service, the Company
must experience substantial growth and improvements in its results of
operations. There can be no assurance that the Company will have positive cash
flow from operations in the future. If the Company 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 New Credit
Facility, the indenture relating to the Notes (the "Note Indenture"), or other
debt instruments. In the absence of such financing, the Company's ability to
respond to changing business and economic conditions, to make future
acquisitions, to absorb adverse operating results or to fund capital
expenditures or research and development may be adversely affected. Finally, it
is anticipated that in order to pay the principal balance of the Notes due at
maturity, the Company will have to obtain alternative financing.
The Company's high degree of leverage could have important consequences
including, without limitation, the following: (i) a substantial portion of the
Company's net cash provided by operations will be committed to the payment of
the Company's interest expense and principal repayment obligations and will not
be available to the Company for its operations, capital expenditures,
acquisitions or other purposes; (ii) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures or
acquisitions may be limited; (iii) the Company will be more highly leveraged
than certain of its competitors, which may place it at a disadvantage and limit
the Company's flexibility in reacting to changes in its business; and (iv) the
Company's borrowings under the New Credit Facility would bear interest at
variable rates, which could result in higher interest expense if interest rates
rise.
Operating Losses; No Assurance of Profitability; Liquidity. The Company
reported net losses for its fiscal years ended June 30, 1994 and 1995 and for
the nine months ended March 31, 1996 of $20.1 million, $18.5 million, and $18.0
million, respectively. In addition, the Company reported a loss from operations
of $19.4 million for the nine months ended December 31, 1996. The Company
expects to incur a significant restructuring charge in the quarter ended March
31, 1997 in connection with the write-down of purchased incomplete research and
development, elimination of redundant facilities and personnel and other merger
related costs, primarily in connection with the acquisitions of X-Cardia and
Microsurge. There can be no assurance that the Company will be profitable in any
future period. The Company has historically experienced
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and, on a pro forma basis for the nine months ended December 31, 1996, would
have experienced negative cash flow from operations. The net cash used in
operating activities by the Company for is fiscal years ended June 30, 1994 and
1995 and for the nine months ended March 31, 1996 was $11.7 million, $8.2
million and $12.5 million, respectively. There can be no assurance that its
operating activities will generate sufficient cash flow to meet the Company's
needs in any future period. The Company's future capital requirements will
depend upon many factors, including the success of the Company's sales and
marketing efforts, new product development, and future acquisitions of companies
and products. The Company believes that the net proceeds from the Note Offering,
together with borrowings under the New Credit Facility, if any, and funds
expected to be generated from operations will be adequate to fund its 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 the Company on
acceptable terms, if at all. In addition, other than certain permitted
indebtedness (under the Note Indenture), including indebtedness under the New
Credit Facility, the Company 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 the Company's business, results of operations
or financial condition.
Limitations Imposed by Certain Indebtedness. The documents governing the
indebtedness of the Company outstanding upon consummation of the Note Offering
(including the Note Indenture and the New Credit Facility) contain significant
covenants that limit the Company's and its subsidiaries' ability to engage in
various transactions and, in the case of the New 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 the Company and its subsidiaries are substantial, and failure to comply with
them could have a material adverse effect on the Company 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
its existing medical products and their continued acceptance by the medical
community and third-party payors as useful and cost-effective. Historically, the
Company 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. The Company's future
operating results will also be dependent, therefore, upon the Company's 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 the Company's
products, 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 the Company's products to continue to be accepted by the
medical community or its inability to develop new products could have a material
adverse effect on the Company. Substantially all of the Company's medical
product sales are derived from medical products of companies that the Company
acquired. As the Company has acquired businesses and technologies, it has
acquired a number of related products under development which will require
additional research and development efforts by the Company in an attempt to
bring products to market. While members of management of the Company have
experience in developing products internally, the Company has not historically
developed a significant number of medical products internally. There can be no
assurance that the Company'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 the Company's business, operating results or financial condition.
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<PAGE> 7
Concentration of Credit Risk; Extended Payment Terms. The Company sells
several lines that are considered "capital equipment" by hospitals and other
purchasers. From time to time, the Company offers certain customers extended
payment terms to facilitate sales of these products. The Company may in the
future grant similar extended payment terms. In addition, the Company may, in
the future, determine to reclassify certain accounts receivable, with payment
terms exceeding 360 days, to long-term receivables. For the three months and
nine months ended December 31, 1996, sales that the Company made pursuant to
extended payment terms were approximately 19% and 11%, respectively, of total
sales. The Company's typical payment terms require payment from 30 to 90 days.
As of December 31, 1996, the Company had a total of $7.3 million of accounts
receivable on extended payment terms, of which approximately $5.0 million were
with Integrated Medical Resources, Inc. ("IMR") for sales of the Company's
Rigiscan product pursuant to terms under which the payments are due over 15-36
months, including $3.0 million of accounts receivable related to such sales
which occurred in the quarter ended December 31, 1996. Over the twelve month
period ended December 31, 1996, the Company sold approximately $6.0 million of
products to IMR. IMR is a public company traded on the NASDAQ stock market under
the symbol "IMRI." For its most recent fiscal year ended December 31, 1996, IMR
reported a loss of $6.5 million. Bruce Hazuka, Executive Vice President --
Operations of the Company, is a member of the board of directors of IMR. As of
December 31, 1996, the Company had approximately $550,000 of accounts receivable
with extended payment terms that arose from the initial release of its EndoView
product, returns of which product resulted in the Company issuing credit memos
in the first calendar quarter of 1997. The Company initiated these returns to
assure customer satisfaction with the product and expects to refurbish and
resell these products with no material loss.
Management of Growth. The Company'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, the Company
expects to add administrative and other personnel and manufacturing capacity,
and make additional investments in operations and systems. There can be no
assurances that the Company would be able to find and train such personnel, or
to do so on a timely basis, or 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 the Company to carefully manage production capacity and inventory
levels, as well as quality controls, to meet increasing product demand and new
product introductions. The Company 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 the Company's business, operating results or
financial condition.
Integration of Acquired Operations. The Company recently acquired X-Cardia
and Microsurge. The Company currently intends to integrate 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, the
Company 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 the Company's strategy. Any delays or
unexpected costs incurred in connection with such integration could have a
material adverse effect on the Company's business, operating results or
financial condition.
Future Acquisitions. An important element of the Company's strategy is to
identify and acquire businesses and product lines. The Company 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, the Company has acquired a number of medical product companies and product
lines and has acquired or licensed additional technology. As a result of those
acquisitions, the Company has experienced rapid growth. The Company expects to
continue to acquire additional products and companies in the future. There can
be no assurance that the Company will be able to implement or sustain its
acquisition strategy or that its strategy will ultimately prove profitable to
the Company. The Company will likely be required to issue additional shares of
Common Stock,
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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 the Company's ability to pursue and
consummate future acquisitions.
Reliance on Patents and Proprietary Rights. The commercial success and
future revenue growth of the Company 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 the
Company's products. The Company owns or has authority to use United States and
foreign patent rights with respect to some of its medical products and has
filed, and expects in the future to file, additional patent applications. It is
uncertain whether any third party patents will require the Company 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 the Company will be able to obtain such licenses on commercially
favorable terms, if at all. Failure by the Company to obtain a license to any
technology that it may require to commercialize its products could have a
material adverse effect on the Company. The Company recently acquired X-Cardia
which has filed patent applications with respect to its cardiac output
monitoring technology. There can be no assurance as to the breadth or degree of
the protection that may be afforded by such patent, or whether such applications
ultimately may be approved. The Company 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 the
Company 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 the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide it with
competitive advantages. In addition, the Company 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 the Company believes that its patents are valid, there can be no
assurance that the validity of any patent will be upheld if asserted by the
Company against any party. Further, there can be no assurances as to the breadth
and degree of protection of these rights or that other companies will not
independently develop products similar to the Company's products that will not
infringe on its rights but will compete directly with its products. In addition,
the laws of some foreign countries may not protect the Company'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 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 the Company to do business in the future. The Company 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 the Company's technology can be developed and commercialized without a
license to such patents or proprietary rights or that any licenses required
under any such patent or proprietary rights would be made available on terms
acceptable to the Company, if at all. If the Company 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 the
Company 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 the Company. Furthermore there can be no assurance that
competitors or potential competitors will not independently develop similar or
alternative products to those of the Company, duplicate any of the Company's
products or technologies, or design around the patented technologies developed
by the Company or its licensors, any of which could have a material adverse
effect on the Company's business, results of operations or financial condition.
The Company 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 the Company. It is the
Company'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 the Company would have
adequate remedy for such breach, or that the Company's trade secrets will not
otherwise
7
<PAGE> 9
become known through independent discovery by competitors. Moreover, in the
absence of patent protection, the Company's business may be adversely affected
by competitors who independently develop substantially equivalent technology.
Regulatory Matters. Most of the Company's laboratory and medical products
are subject to regulation for safety and efficacy by, among other governmental
entities, the FDA and corresponding agencies of state and foreign countries in
which the Company sells 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 the
Company. 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
the Company 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 the Company 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. The Company
incurs 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 the Company's FDA marketing clearances have been obtained through the FDA's
510(k) process; however, certain other products will require PMAs, including the
Company's Relax(TM) product. 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. The Company 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 the
Company's determination regarding its 50(k)s. If the FDA were to disallow a
510(k) marketing clearance for any device, the Company could be required to file
appropriate applications, either 510(k) or PMA, 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, the Company's business,
results of operations and financial condition could be materially and adversely
affected. There can be no assurance that the Company 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.
There have been a number of proposals over the last several years that, if
implemented, could have the effect of reducing, or curtailing increases in,
Medicare and Medicaid reimbursement for medical products, and there has been
increasing pressure from private payors to limit increases in healthcare costs.
These proposals, if adopted, and increased pricing pressure from private payors
could have a material adverse effect on the Company's business, results of
operations or financial condition.
Competition. The markets in which the Company operates are very competitive
and are characterized by rapidly evolving technology and product obsolescence.
The Company 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
8
<PAGE> 10
which would compete with products which the Company 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 the Company. 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 the Company. There can be no
assurances that technological change will not place one or more of the Company'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 the Company's business, results of
operations or financial condition. There can be no assurance that the Company
will be able to compete successfully in the future.
Dependence on Management. The success of the Company will depend on its
ability to attract and retain highly qualified personnel. In particular, the
loss of Charles A. Laverty, the Company's Chief Executive Officer, could have a
material adverse effect on the Company's business if a suitable replacement
could not be found. The Company 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. The Company has "key person" insurance on the life of Mr.
Laverty, however, there can be no assurance that such insurance would be
sufficient to compensate the Company for his absence. There can be no assurance
that the Company will be successful in attracting or retaining key personnel.
Products Liability Exposure. The medical products manufactured by the
Company 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 the Company enter the market, the Company will be subject
to an increased risk of products liability claims. While the Company 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 could have a material adverse effect on the Company's business, results of
operations or financial condition.
Potential Tax Liability. In connection with the redomestication of the
Company from Canada to the State of Delaware in July 1995, the Company has filed
a final Canadian tax return reporting the "deemed sale" of assets of Davstar
Industries Ltd. (the Canadian parent company). The Company 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 the Company's Canadian loss carryforwards. However, the Canadian
tax authorities could attempt to assign a greater value to the Company than used
in the Company'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.
Limitation on Use of Tax Net Operating Loss Carryovers. As of March 31,
1996, the Company had accumulated net operating loss carryovers for U.S. federal
and state income tax purposes of approximately $42.0 million and $30.0 million,
respectively. These loss carryovers would expire, if not previously utilized
against income of the Company, in various years through 2011. 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 acquisitions of Osbon, an ownership change
occurred for purposes of Section 382 of the Code, thereby subjecting the Company
to annual limitations on its ability to offset its existing loss carryovers
against its future income. In connection with the offering in November 1996 of
Common Stock of the Company an additional ownership change may have occurred.
The Company believes this additional ownership change will not reduce the
December 29, 1995 Section 382 limitation.
9
<PAGE> 11
Warrants and Options; Potential Dilution and Adverse Impact on Additional
Financing. The Company has a significant number of outstanding options and
warrants. In addition, in May and July 1996, the Company issued $50.0 million of
the Company's 8.75% Convertible Subordinated Debentures due 2006 (the
"Debentures") which are convertible into Common Stock of the Company 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 the Company's
stockholders may occur. The existence of such warrants, options and convertible
securities may adversely affect the terms on which the Company can obtain
additional financing, and the holders of such warrants, options and convertible
securities can be expected to exercise them at a time when the Company would, in
all likelihood, be able to obtain additional capital by an offering of its
unissued capital stock on terms more favorable to the Company than those
provided by such warrants, options and convertible securities.
Rights Agreements; Anti-takeover Effects. The Company 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 the Company
even if a majority of the Company'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 the Company or to change existing management.
Volatility of Stock Price. The market price of the Company'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 the Company's
actual operating performance. The market price of the Company's Common Stock has
historically been very volatile. See "Price Range of Common Stock and
Dividends."
Absence of Dividends. The Company has never paid any cash dividends and
does not anticipate paying cash dividends in the foreseeable future. In
addition, the Company is restricted in its ability to pay dividends under
outstanding credit facilities and preferred stock of a subsidiary of the
Company.
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 the Company 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 health care reform; liability and other
claims asserted against the Company; 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 the
Company; the availability and terms of capital to fund the expansion of the
Company's business; and other factors referenced herein. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
10
<PAGE> 12
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Urohealth's Common Stock is traded on the Nasdaq Stock Market National Market
under the symbol "UROH." Prior to November 26, 1996, the Company's Common Stock
was traded on the American Stock Exchange ("AMEX"). 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 1995:
First quarter....................................................... $14 1/4 $ 9 3/16
Second quarter...................................................... $12 3/4 $ 5 13/16
Third quarter....................................................... $11 5/8 $ 4 7/8
Fourth quarter...................................................... $10 11/16 $ 8 1/4
FISCAL 1996:
First quarter....................................................... $13 1/2 $ 9
Second quarter...................................................... $12 $ 6 15/16
Third quarter....................................................... $13 1/8 $ 6 3/4
FISCAL 1997:
First quarter....................................................... $15 7/8 $12 1/8
Second quarter...................................................... $14 7/8 $10 5/8
Third quarter....................................................... $13 1/4 $ 7 1/4
Fourth quarter...................................................... $11 3/4 $ 7 1/4
</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 the outstanding preferred stock of a subsidiary.
11
<PAGE> 13
SELLING STOCKHOLDERS
The Selling Stockholders are persons who acquired shares in connection with
the acquisitions by the Company of businesses and technology, a consultant to
the Company and an entity that provided debt and equity financing to the
Company. The shares covered by this Prospectus are being registered to permit
public secondary trading of the shares and the Selling Stockholders may offer
the shares for resale from time to time. See "Plan of Distribution."
Except as described below, none of the Selling Stockholders 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 certain information with respect to the
number of shares owned by certain Selling Stockholders prior to and after the
offering (assuming each Selling Stockholder elects to sell all of its shares
being registered).
<TABLE>
<CAPTION>
SHARES PERCENT SHARES PERCENT
BENEFICIALLY BENEFICIALLY NUMBER BENEFICIALLY BENEFICIALLY
OWNED PRIOR OWNED PRIOR OF SHARES OWNED AFTER OWNED AFTER
TO OFFERING TO OFFERING(1) OFFERED OFFERING OFFERING(1)
----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Avatex Corporation.................. 2,464,827(2) 8.4% 1,414,827 1,050,000 3.6%
Gerald W. Timm...................... 706,549(3) 2.5 300,000 406,549 1.4
John J. Woodhead.................... 190,488 * 190,488 -- --
Julian W. Osbon..................... 2,017,837 7.1 2,017,837 -- --
Vista Medical Technologies, Inc..... 110,000 * 110,000 -- --
Charles Klieman..................... 123,288 * 123,288 -- --
John Stigglebout.................... 41,096 * 41,096 -- --
Gerald J. Sanders................... 321,479 1.1 321,479 -- --
Ascher Shmulewitz................... 328,677 1.2 328,677 -- --
Other X-Cardia shareholders......... 559,197 2.0 559,197 -- --
X-Cardia contingent shares.......... 1,000,000 3.5 1,000,000 -- --
Allstate Insurance Company.......... 303,042 1.1 303,042 -- --
Allstate Life Insurance Company..... 151,521 * 151,521 -- --
Domain Partners II LP............... 289,261 1.0 289,261 -- --
Highland Capital Partners LP........ 340,922 1.2 340,922 -- --
Medical Science Partners LP......... 209,500 * 209,500 -- --
Menlo Ventures VI LP................ 360,633 1.3 360,633 -- --
Other Microsurge stockholders....... 1,145,121 4.0 1,145,121 -- --
Elliot Kornberg, M.D................ 115,680 * 115,680 -- --
William Tarello..................... 76,520 * 76,520 -- --
Stephen J. Shapiro.................. 66,965 * 66,965 -- --
Alan Schempp........................ 44,643 * 44,643 -- --
Leon Daykhovsky..................... 22,321 * 22,321 -- --
Stephen A. Sonowski................. 44,643 * 44,643 -- --
</TABLE>
- ---------------
* Less than 1%.
(1) Includes outstanding options and warrants and the Company's 8.75%
Convertible Subordinated Debentures due 2006 (the "Convertible Debentures").
The Convertible Debentures vote with the Common Stock of the Company on an
"as converted" basis, and if all converted would convert into 4,587,156
shares of Common Stock.
(2) Includes 1,414,827 shares of Common Stock and warrants to purchase 1,050,000
shares of Common Stock which are currently exercisable.
(3) Includes 511,931 shares owned by Mr. Timm. Also includes 194,618 shares held
in trusts for the benefit of the children of Mr. Timm.
12
<PAGE> 14
In March and July 1995, the Company sold to Avatex Corporation (formerly
FoxMeyer Corporation) ("Avatex") a total of 60,000 shares of Series B Preferred
Stock for an aggregate purchase price of $4,000,000. The Series B Preferred
Stock had an aggregate redemption value and conversion value of $6,000,000. The
Series B Preferred Stock was entitled to dividends at a rate per annum of $6.25
per share for dividends paid by issuing additional shares of Series B Preferred
Stock. The Series B Preferred Stock was convertible into Common Stock of the
Company at $6.00 per share.
In March 1995 Avatex also purchased from the Company for $1,000,000 a
Convertible Note with a face principal amount of $2,000,000. The note bore
interest at a rate per annum equal to 6.250% with respect to interest payments
made by delivering additional notes. The Convertible Note was convertible into
Common Stock of the Company of $6.00 per share.
In May 1996, Avatex converted all of the Series B Preferred Stock and the
Convertible Note described above into Common Stock of the Company. In connection
with that transaction, the Company replaced existing warrants to purchase
800,000 shares of Common Stock of the Company with a new warrant to purchase
800,000 shares of Common Stock at a blended exercise price of $6.875 per share.
In addition, the Company issued Avatex a warrant to purchase 250,000 shares of
Common Stock at an exercise price of $10.00 per share. The Avatex also agreed to
use its reasonable best efforts to maintain the two board seats currently held
by Avatex nominees as a result of their ownership of Series B Preferred Stock
for the next two years.
Gerald W. Timm is a director of the Company. Dr. Timm was the founder of
Dacomed (which was acquired by the Company in July 1995), and he received his
shares of Common Stock of the Company listed in the above table in exchange for
the shares of Dacomed stock previously owned by him. In connection with the
acquisition of shares of Common Stock of the Company in the Dacomed merger, Dr.
Timm was granted certain registration rights with respect to the shares
acquired. Dr. Timm served as Executive Vice President of the Company from July
1995 until April 1996.
In July 1995, the Company acquired Allstate in a transaction pursuant to
which Mr. Woodhead received his shares of Common Stock listed in the above
table. In connection with that transaction, Mr. Woodhead was granted certain
registration rights with respect to the shares acquired. In addition, the
Company entered into a consulting agreement with Mr. Woodhead which expires in
1999, and which provided for payments of $200,000 in 1995 and $7,500 per month
for the remainder of the term.
In December 1995, the Company acquired Osbon in a transaction pursuant to
which Julian Osbon acquired the shares of Common Stock listed in the above
table. In connection with that transaction, Mr. Osbon was granted certain
registration rights with respect to the shares acquired. Julian W. Osbon
previously served as a director of Urohealth.
In connection with the consummation of the Osbon merger, the Company
entered into a three-year employment agreement with Julian W. Osbon which
provided for a minimum annual salary of $400,000. Julian W. Osbon has a right of
first refusal to acquire three parcels of real estate currently owned by the
Company. Urohealth engages from time to time Charter Advertising, a company
wholly-owned by Julian W. Osbon, to perform advertising services with respect to
the Osbon products at rates and for services which are competitive with rates
and services for similar services available from third parties.
Under the terms of the Osbon Merger Agreement, Urohealth has agreed to
continue the funding of a non-profit, public benefit corporation established by
Geddings Osbon Sr. The non-profit corporation currently receives funding from
Osbon, and Julian W. Osbon serves on the Board of Directors of the non-profit
corporation. The minimum funding obligations of Urohealth under the Osbon Merger
Agreement are: (i) $500,000 for the first full fiscal year after the Osbon
Merger; and (ii) 2% of pre-tax profits with respect to Osbon operations for the
second, third and fourth fiscal years after the Osbon Merger.
In December 1996, the Company obtained an exclusive license from Vista
Medical Technologies, Inc. ("Vista") with respect to certain patented and other
technology. Pursuant to the license agreement, the Company paid Vista a
licensing fee of $1,000,000 and issued Vista 110,000 shares of Common Stock of
the Company. In addition, the Company is obligated to pay Vista a royalty based
on products sold which use the licensed technology.
13
<PAGE> 15
In March 1997, the Company obtained an exclusive license from Charles
Klieman and John Stiggelbout ("Licensors") with respect to certain patented and
other technology relating to pivotal endoscopic surgical instruments. Pursuant
to the license agreement, the Company paid a licensing fee of $1,500,000 and
issued 164,384 shares of Common Stock of the Company. In addition, the Company
is obligated to pay Licensors a royalty based on products sold which use the
licensed technology.
In February 1997, the Company acquired X-Cardia Corporation ("X-Cardia")
pursuant to a merger of X-Cardia with and into a wholly-owned subsidiary of the
Company. Pursuant to the merger agreement all of the outstanding shares of
capital stock of X-Cardia were converted into the shares of Common Stock of the
Company. In addition, under the merger agreement the former X-Cardia
shareholders are entitled to receive additional cash and stock based on
achievement of certain milestones. The former X-Cardia shareholders are also
entitled to receive an earn-out amount based on sales of X-Cardia products
during the four years after first commercial introduction of a product using
X-Cardia technology. The former X-Cardia shareholders received a total of
1,295,700 shares of Common Stock of the Company, and upon resolution of future
contingencies are entitled to receive a combination of stock and cash in the
amount of $21 million, excluding amounts due under the earn-out arrangement.
Messrs. Sanders and Shmulewitz are former X-Cardia shareholders and the shares
of Urohealth Common Stock reflected in the above table were acquired in
connection with the X-Cardia Merger. None of the other former X-Cardia
shareholders acquired in the X-Cardia Merger one percent or more of the
outstanding Urohealth Common Stock.
In March 1997, the Company acquired Microsurge pursuant to a merger of a
wholly-owned subsidiary of the Company with and into Microsurge. Pursuant to the
merger agreement, Microsurge became a wholly-owned subsidiary of the company and
all of the outstanding shares of capital stock of Microsurge were converted into
shares of Common Stock of the Company. The Company issued or will issue
approximately 2,800,000 shares of Common Stock in the Microsurge merger. The
shares reflected in the above table as owned by Allstate Insurance Company,
Allstate Life Insurance Company, Domain Partners II LP, Highland Capital
Partners LP, Medical Science Partners LP and Menlo Ventures VI LP were acquired
by those stockholders in the Microsurge merger. None of the other former
Microsurge stockholders acquired in the Microsurge merger one percent or more of
the outstanding Urohealth Common Stock.
In March 1997, the Company acquired PEBB Biopsy Corporation ("PEBB") in a
transaction pursuant to which PEBB merged with and into a wholly-owned
subsidiary of the Company. In the merger, all of the outstanding shares of
capital stock of PEBB were converted into an aggregate of $1,200,000 and 192,000
shares of Common Stock of the Company. In connection with the transaction, Dr.
Kornberg, a former shareholder of PEBB, entered into a five-hear consulting
agreement with the Company pursuant to which the Company pays Dr. Kornberg
$100,000 per year. The shares reflected in the above table as owned by Dr.
Kornberg and Mr. Tarello were acquired in the PEBB merger.
Messrs. Shapiro, Schempp, Daykhovsky and Sonowski acquired an aggregate of
178,572 shares of Common Stock of the Company in connection with the acquisition
of Endoscopic Imaging Systems, Inc. ("EIS") by the Company in May 1996. Under
the Merger Agreement, the former EIS shareholders received the shares of Common
Stock of the Company listed above in exchange for all of the issued and
outstanding shares of EIS capital stock. In addition, the former EIS
shareholders are entitled to an earn-out payment based on future sales of
products acquired by the Company from EIS as a result of the merger. Dr. Shapiro
is also an employee of, and acts as a consultant to, the Company.
PLAN OF DISTRIBUTION
The Common Stock offered hereby may be sold from time to time to purchasers
directly by any of the Selling Stockholders. Alternatively, any of the Selling
Stockholders may from time to time offer the Common Stock through underwriters,
dealers or agents who may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of Common Stock for whom they may act as agent. The Selling
Stockholders and any underwriters, dealers or agents participating in the
distribution of Common Stock may be deemed to be underwriters, and any profit on
the sale of Common Stock by them and any discounts, commissions or concessions
received by any such
14
<PAGE> 16
underwriters, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. At the time a particular offer of Common
Stock is made, if required, a Prospectus Supplement will be distributed which
will set forth the aggregate amount of Common Stock 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 Stockholders 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 Stockholders of the Common Stock offered hereby.
The Common Stock 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 Stockholders or by agreement between the Selling Stockholders and
underwriters or dealers.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of any of the Common Stock may not simultaneously
engage in market activities with respect to any of the Common Stock for a period
of nine business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, the Selling Stockholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-2, 10b-6 and
10b-7, which provisions may limit the timing of purchases and sales of any of
the Common Stock by the Selling Stockholders. All of the foregoing may affect
the marketability of the Common Stock.
Pursuant to agreements with the Selling Stockholders, the Company will pay
substantially all of the expenses incident to the registration, offering and
sale of the Common Stock to the public other than commissions and discounts of
underwriters, dealers or agents, and has agreed to indemnify the Selling
Stockholders against certain liabilities, including liabilities under the
Securities Act.
In order to comply with certain states' securities laws, if applicable, the
Common Stock will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states the Common Stock may not be sold
unless the Common Stock has 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 March 31, 1998 or such
shorter period which will terminate when all Common Stock covered by the
Registration Statement has been sold.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Kevin M.
Higgins, Esq.
15
<PAGE> 17
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Transition Report on Form 10-K, as amended, as of March 31, 1996 and
for the nine months then ended and as of June 30, 1995 and for the year then
ended, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of the Company as of June 30, 1994
and for the year then ended have been audited by Cherry, Bekaert & Holland LLP.
These consolidated financial statements included UROHEALTH Systems, Inc.,
Dacomed Corporation, Allstate Products, Inc, Osbon Medical Systems, Ltd. and
Advanced Surgical Inc. The consolidated financial statements of Urohealth for
the year ended June 30, 1994 were audited by Doane Raymond, Chartered
Accountants. The consolidated financial statements of Dacomed Corporation as of
June 24, 1995, and for the fiscal year then ended and for the fiscal year ended
October 29, 1994, were audited by KPMG Peat Marwick LLP, independent
accountants. The consolidated financial statements of Advanced Surgical Inc. as
of December 31, 1994 and for the year then ended have been audited by Coopers &
Lybrand L.L.P., independent auditors, as set forth in their report, which
includes an explanatory paragraph related to Advanced's ability to continue as a
going concern. The consolidated financial statements of the Company for the year
ended June 30, 1994 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 Richard-Allan Medical Industries,
Inc. included in the Company's Form 8-K Current Report dated July 1, 1996, as
amended, as of March 31, 1996 and for the nine months then ended and as of June
30, 1995 and 1994 and for the years then ended, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
16
<PAGE> 18
======================================================
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 COMMON STOCK 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
Risk Factors.......................... 4
Price Range of Common Stock and
Dividends........................... 11
Selling Stockholders.................. 12
Plan of Distribution.................. 14
Legal Matters......................... 15
Experts............................... 16
</TABLE>
======================================================
======================================================
9,577,661 SHARES
UROHEALTH
SYSTEMS, INC.
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
, 1997
======================================================
<PAGE> 19
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........................................ $ 26,484
Legal Fees and Expenses................................. 15,000
Blue Sky Fees and Expenses.............................. 5,000
Accounting Fees and Expenses............................ 20,000
Printing and Engraving Expenses......................... 30,000
Transfer Agent and Registrar Fees....................... 3,000
Miscellaneous........................................... 10,516
--------
Total................................................. $110,000
========
</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 may indemnify its officers, to the full extent permitted by law.
The Registrant has entered into agreements with certain directors and
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts to the fullest extent permitted
by law incurred in connection with any proceeding to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of the Registrant or any of its affiliated enterprises, provided such
person acted honestly and in good faith with a view to the best interests of the
corporation.
There are directors' and officers' liability insurance policies presently
in force insuring directors and officers of the Registrant and its subsidiaries.
II-1
<PAGE> 20
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.
5.1 Opinion of Kevin M. Higgins, Esq.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Cherry, Bekaert & Holland LLP.
23.3 Consent of Doane Raymond.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of KPMG Peat Marwick LLP.
23.6 Consent of Ernst & Young LLP
23.7 Consent of BDO Seidman LLP
23.8 Consent of Ernst & Young LLP
23.9 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.
(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.
II-2
<PAGE> 21
(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> 22
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. 2 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 April 15,
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. 2 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 Chief April 15, 1997
- --------------------------------------------- Executive Officer (Principal
Charles A. Laverty Executive Officer)
/s/ JAMES L. JOHNSON Executive Vice President and April 15, 1997
- --------------------------------------------- Chief Financial Officer
James L. Johnson (Principal Financial Officer
and Principal Accounting
Officer)
* Director April 15, 1997
- ---------------------------------------------
Abbey J. Butler
* Director April 15, 1997
- ---------------------------------------------
Mitchell J. Blutt, M.D.
* Director April 15, 1997
- ---------------------------------------------
John Chamberlin
* Director April 15, 1997
- ---------------------------------------------
Robert N. Elkins
* Director April 15, 1997
- ---------------------------------------------
Melvyn J. Estrin
* Director April 15, 1997
- ---------------------------------------------
C. Sage Givens
* Director April 15, 1997
- ---------------------------------------------
Lawrence Goelman
</TABLE>
II-4
<PAGE> 23
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- ------------------------------- ----------------
<C> <S> <C>
* Director April 15, 1997
- ---------------------------------------------
Michael S. Gross
Director , 1997
- ---------------------------------------------
Richard R. Newhauser
Director , 1997
- ---------------------------------------------
Francis J. Tedesco
Director , 1997
- ---------------------------------------------
Gerald W. Timm
*By: /s/ CHARLES A. LAVERTY
- ---------------------------------------------
Charles A. Laverty
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
- ----------- ------------------------------------------------------------------- -------------
<S> <C> <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.
5.1 Opinion of Kevin M. Higgins, Esq.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Cherry, Bekaert & Holland LLP.
23.3 Consent of Doane Raymond.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of KPMG Peat Marwick LLP.
23.6 Consent of Ernst & Young LLP
23.7 Consent of BDO Seidman LLP
23.8 Consent of Ernst & Young LLP
23.9 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 5.1
April 15, 1997
Urohealth Systems, Inc.
5 Civic Plaza, Suite 100
Newport Beach, California 92660
Ladies and Gentlemen:
At your request, I have examined Amendment No. 2 to the Registration
Statement on Form S-3 filed by Urohealth Systems, Inc., a Delaware corporation
(the "Company"), with the Securities and Exchange Commission on April 15, 1997
(Registration No. 333-6397) (the "Registration Statement"), relating to the
registration under the Securities Act of 1933, as amended, of up to 9,577,661
shares of the Company's Common Stock, $0.001 par value (the "Stock"), including
8,577,661 presently issued and outstanding shares being offered by certain
selling stockholders (the "Selling Stockholders") and 1,000,000 shares of Stock
that may be issued to the former X-Cardia shareholders upon achievement of
certain milestones (the "Contingent Shares").
As counsel to the Company, I have examined the proceedings taken by the
Company in connection with the issuance and sale of the 8,577,661 shares of
Stock currently issued and outstanding and the 1,000,000 shares of Stock that
may be issued to the former X-Cardia shareholders upon achievement of certain
milestones that may be sold by the Selling Stockholders.
It is my opinion that the 8,577,661 shares of Stock that may be sold by the
Selling Stockholders are legally and validly issued and are fully paid and
nonassessable, and that upon issuance of the Contingent Shares in accordance
with the terms of the instrument granting such rights, the Contingent Shares
will be legally and validly issued, fully paid and nonassessable.
I consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to me in the Registration
Statement, the Prospectus constituting a part thereof and any amendments
thereto.
Very truly yours,
/s/ KEVIN M. HIGGINS, ESQ.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 2 to the Registration Statement (Form S-3 No. 333-6397) and related
Prospectus of UroHealth Systems, Inc. for the registration of 9,577,661 shares
of its common stock and to the incorporation by reference therein of our reports
dated June 4, 1996, with respect to the consolidated financial statements and
schedule of UroHealth Systems, Inc. included in its Transition Report (Form
10-K/A) for the nine months ended March 31, 1996, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
--------------------------------------
ERNST & YOUNG LLP
Orange County, California
April 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. 333-6397) and the related Prospectus of
UroHealth System, Inc. for the registration of 10,079,624 shares of its common
stock and the incorporation by reference therein of our report dated January 8,
1997, with respect to the financial statements of Urohealth Systems, Inc. for
the year ended June 30, 1994, included in its Transition Report (Form 10-K/A)
for the nine months ended March 31, 1996, filed with the Securities and Exchange
Commission.
/s/ CHERRY, BEKAERT & HOLLAND, L.L.P.
----------------------------------------
CHERRY, BEKAERT & HOLLAND, L.L.P.
Augusta, Georgia
April 14, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-6397) and the related Prospectus of
UROHEALTH Systems, Inc. for the registration of 10,079,624 shares of its common
stock and to the incorporation by reference therein of our report dated August
22, 1994, with respect to the consolidated statements of operations,
stockholders' equity and cash flows of UROHEALTH Systems, Inc. for the year
ended June 30, 1994, included in its Transition Report (Form 10-K/A) for the
nine months ended March 31, 1996, filed with the Securities and Exchange
Commission.
/s/ DOANE RAYMOND
--------------------------------------
Doane Raymond
Chartered Accountants
Toronto, Canada
April 14, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 and the related Prospectus of UroHealth Systems, Inc. of our report,
which included an explanatory paragraph related to the Company's ability to
continue as a going concern, dated February 24, 1994 on our audit of the
consolidated financial statements of Advanced Surgical, Inc. as of and for the
year ended December 31, 1994, of which the results are included in the June 30,
1994 consolidated results of operations of UroHealth Systems, Inc. included in
its Transition Report on Form 10-K1A for the nine months ended March 31, 1996.
We also consent to the reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 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.
333-6397) on Form S-3 of our report dated October 10, 1995, relating to the
consolidated balance sheet of Dacomed Corporation as of June 24, 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the fiscal year then ended, and our report dated December 19, 1994,
relating to the consolidated statements of operations, stockholders' equity and
cash flows for Dacomed Corporation for the fiscal year ended October 29, 1994
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
April 10, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 2 to the Registration Statement (Form S-3 No. 333-6397) and the related
Prospectus of UroHealth Systems, Inc. for the registration of 9,577,661 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 supplemental consolidated financial statements of
Richard-Allen Medical Industries, Inc. included in its Form 8-K/A, dated July 1,
1996, as amended, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
--------------------------------------
ERNST & YOUNG LLP
Kalamazoo, Michigan
April 9, 1997
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-6397) and the related Prospectus of
UroHealth System, Inc. for the registration of 10,079,624 shares of its common
stock and the incorporation by reference therein of our report dated August 23,
1993, relating to the consolidated statement of operations, stockholders'
equity, and cash flows for Richard-Allan Medical Industries for the fiscal year
ended June 30, 1993.
/s/ BDO SEIDMAN, LLP
- ---------------------------------------------------------
BDO SEIDMAN, LLP
Kalamazoo, Michigan
April 10, 1997
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement (Form S-3 No. 333-6397) and
related Prospectus of UROHEALTH Systems, Inc. for the registration of 9,577,661
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 its Current Report on Form 8-K/A dated March
15, 1997, as amended.
/s/ ERNST & YOUNG LLP
--------------------------------------
ERNST & YOUNG LLP
Palo Alto, California
April 9, 1997
