<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 2000
REGISTRATION NO. 333-44937
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
------------------------------
AMENDMENT NO. 3 TO
FORM S-1/A
REGISTRATION STATEMENT
THE SECURITIES ACT OF 1933
------------------------------
LASER PHOTONICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3845 59-2058100
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
7 GREAT VALLEY PARKWAY, SUITE 222
MALVERN, PA 19355
(610) 889-1111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Former address: 2431 Impala Drive, Carlsbad, CA 92008 (760) 602-3300
JEFFREY F. O'DONNELL
CHIEF EXECUTIVE OFFICER
LASER PHOTONICS, INC.
7 GREAT VALLEY PARKWAY, SUITE 222
MALVERN, PA 19355
(610) 889-1111
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
------------------------------
COPIES TO:
MATTHIAS & BERG LLP
ATTN: JEFFREY P. BERG, ESQ.
1990 SOUTH BUNDY DRIVE
SUITE 790
LOS ANGELES, CALIFORNIA 90025-5244
PHONE: (310) 820-0083
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF NUMBER TO BE PROPOSED MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE(1) OFFERING PRICE FEE(2)
<S> <C> <C> <C> <C>
Common Stock, par value $0.01............. 394,101 $1.25(3) $ 492,629 $ 145.32
Common Stock, par value $0.01............. 740,500 $4.00(3) $ 2,962,000 $ 873.79
Common Stock, par value $0.01............. 800,000 $2.70(3) $ 2,160,000 $ 637.20
Common Stock, par value $0.01............. 20,000 $1.00(3) $ 20,000 $ 5.90
Common Stock, par value $0.01............. 537,443 $2.00(3) $ 1,074,886 $ 317.09
Common Stock, par value $0.01............. 175,000 $1.50(3) $ 262,500 $ 77.44
Common Stock, par value $0.01............. 2,068,972 $4.50(3) $ 9,310,374 $ 2,746.57
Common Stock, par value $0.01............. 1,190,819 $2.00(4) $ 2,381,638 $ 702.58
Common Stock, par value $0.01............. 37,500 $5.25(5) $ 196,875 $ 58.08
Common Stock, par value $0.01............. 1,425,000 $1.50(5) $ 2,137,500 $ 630.56
Common Stock, par value $0.01............. 595,000 $2.00(5) $ 1,190,000 $ 351.05
Common Stock, par value $0.01............. 93,104 $4.50(5) $ 418,968 $ 123.60
Common Stock, par value $0.01............. 174,000 $4.69(5) $ 816,060 $ 240.74
Common Stock, par value $0.01............. 100,000 $1.50(6) $ 150,000 $ 44.26
Common Stock, par value $0.01............. 100,000 $0.75(6) $ 75,000 $ 22.13
--------- ----------- ----------
Total..................................... 8,451,439 $23,648,427 $ 6,976.29
========= =========== ==========
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Of this amount, $4,785.30 has already been paid with the filing of this
Registration Statement.
(3) This amount is based on the per share purchase price of the shares issued by
the Company.
(4) This amount is based on the per share conversion price of the shares of
Common Stock underlying the related Series "A" Convertible Notes, all of
which have been converted.
(5) This amount is based on the per share exercise price of the shares of Common
Stock underlying the related Warrants issued by the Company.
(6) This amount is based on the number of Options granted and the per share
exercise price of the Options.
------------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
If any of the securities being registered on this Form are to be offered on
a delayed basis pursuant to Rule 415 under the Securities Act of 1933, check the
following box. /X/
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<PAGE>
LASER PHOTONICS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K.
SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS 1 THROUGH 12, PART I, OF FORM S-1
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<C> <S> <C>
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION
- ------------------------------------------------ LOCATION IN PROSPECTUS
-------------------------------------------
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover
Pages of Prospectus; Additional
Information
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors; Selected
Financial Data
4. Use of Proceeds............................ Use of Proceeds; Selling Stockholders and
Plan of Distribution
5. Determination of Offering Price............ Plan of Distribution
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Outside Front Cover Page of Prospectus;
Selling Stockholders and Plan of
Distribution
8. Plan of Distribution....................... Outside Front Cover Page of Prospectus;
Selling Stockholders and Plan of
Distribution
9. Description of Securities to Be
Registered............................... Outside Front Cover Page of Prospectus;
Dividend Policy; Shares Eligible for
Future Sale; Principal Stockholders;
Selling Stockholders and Plan of
Distribution; Description of Securities
10. Interests of Named Experts and Counsel..... Legal Matters
11. Information with Respect to the
Registrant............................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors;
Dividend Policy; Capitalization; Selected
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Compensation of Executive
Officers and Directors; Certain
Relationships and Related Transactions;
Shares Eligible for Future Sale;
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION DATED FEBRUARY 11, 2000
THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO
COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY
BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
UNDER NO CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES, IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
SUCH JURISDICTION.
<PAGE>
LASER PHOTONICS, INC.
8,451,439 SHARES
COMMON STOCK
OFFERED BY SELLING STOCKHOLDERS
------------------
This Prospectus relates to 8,451,439 shares (the "Shares") of common stock,
par value $0.01 (the "Common Stock") of Laser Photonics, Inc., a Delaware
corporation (the "Company") to be offered (the "Offering") for the account of
certain selling stockholders (the "Selling Stockholders") of the Company. The
8,451,439 shares consist of 5,926,835 shares of Common Stock currently issued in
the name of the Selling Stockholders, 2,324,604 shares of Common Stock
underlying warrants (the "Warrants") and 200,000 shares underlying certain
options (the "Options"). The Selling Stockholders directly, through agents,
brokers, dealers or underwriters to be designated, from time to time, may sell
the shares of Common Stock offered hereby from time to time on terms to be
determined at the time of sale. To the extent required by applicable law, the
specific shares to be sold, the terms of the Offering, including price, the
names of any agent, dealer or underwriter, and any applicable commission,
discount or other compensation with respect to a particular sale will be set
forth in an accompanying Prospectus Supplement. The terms and conditions of the
securities being registered by the registration statement, of which this
Prospectus forms a part, can be found in "Selling Stockholders and Plan of
Distribution," "Description of Securities" and "Certain Relationships and
Related Transactions."
The Company will receive none of the proceeds from the sale of the Shares.
However, the Company may receive gross proceeds of up to $4,759,403 from the
exercise of the Warrants and $225,000 from the exercise of the Options. 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 commission 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
Company has paid all of the costs of the Offering with respect to the Shares to
be offered by the Selling Stockholders, including the Warrant and Option
holders. See "Use of Proceeds" and "Selling Stockholders and Plan of
Distribution."
The Company's Common Stock is currently listed for trading in the
Over-The-Counter Market under the symbol "LSPT." On February 7, 2000, the market
price for the Common Stock in the Over-The-Counter Market was approximately
$16.75 per share. See "Price Range of Common Stock."
THESE SECURITIES ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION
ENTITLED "RISK FACTORS" (AT PAGE 7 OF THIS PROSPECTUS)
CONCERNING THE COMPANY AND THIS OFFERING.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is February 11, 2000
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information in this Prospectus. This
summary should be read in conjunction with, and is qualified in its entirety by,
the more detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. The Shares offered hereby
involve a high degree of risk. Investors should carefully consider the
information set forth under the heading "Risk Factors."
THE COMPANY
HISTORY OF THE COMPANY
Laser Photonics, Inc. was incorporated on November 3, 1987. Unless the
context otherwise requires, the term "Company" refers to Laser Photonics, Inc.,
a Delaware corporation ("Laser Photonics"), Laser Analytics, Inc., a
Massachusetts corporation ("Laser Analytics"), its wholly owned subsidiary, and
Acculase, Inc., a California corporation ("Acculase"), its 76.1% owned
subsidiary.
The Company's historical business strategy was the development of a wide
range of laser products using different solid-state lasers. The Company now
believes that excimer laser technology provides the basis for reliable
cost-effective systems that will increasingly be used in connection with a
variety of applications. The Company is engaged in the development, manufacture
and marketing of proprietary excimer laser and fiber optic equipment and
techniques directed initially toward the treatment of psoriasis and heart
disease, as well as other medical applications.
Between 1986 and the date of this Prospectus, the Company has sold over
1,000 lasers, usually on a private label basis, to other manufacturers. This
strategy proved to be unsuccessful, in the opinion of current management of the
Company, as the Company generated revenues from the sale of numerous of its
products, but was unable to operate profitably.
Due to the limited financial resources of the Company, the Company's
business strategy changed in 1997 to focus its efforts on excimer laser
technology in order to develop excimer laser and excimer laser delivery products
for medical applications. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." To facilitate the Company's focus on
excimer laser technology, as of January 4, 1999, the Company entered into an
agreement (the "Asset Purchase Agreement") for the sale of certain assets by the
Company and Laser Analytics, on the one hand, to Laser Analytics, Inc., a Texas
corporation (the "Buyer"), which is unaffiliated with the Company, on the other
hand. The Asset Purchase Agreement provides that the Buyer will pay and/or
assume an aggregate of $1,200,000 of the accrued and unpaid accounts payable
and/or other debts of the Company consisting in part of back rent due of
$891,694 (including interest), on facilities occupied by the Company for its
Florida office facility and a promissory note to Novantis Corporation (formerly
Ciba-Geigy) of $127,280. Completion of this transaction will result in the sale
of all of the Company's non-excimer laser business assets.
Management's decision to sell the assets of the Company's business
operations not related to the Company's excimer laser technology are consistent
with the Company's new business strategy and will result in the divestiture of
the Company's business operations which generated approximately 74% of the
Company's revenues for the period from January 1, 1998 through September 30,
1999. The closing of the sale of the assets to the Buyer has been delayed by
reason of the difficulties being experienced by the Buyer in finding financing
to complete the purchase. The Company has orally extended the closing month to
month while the Buyer continues to pursue the required financing. During the
pendency of the closing, since January, 1999, the Buyer has funded a portion of
the negative cash flow of the operations of Laser Analytics from its own funds.
If the proposed sale of assets has not closed by the end of the first quarter of
2000, it is the Company's intention to shut down all of the operations of Laser
Analytics and pay off the debts that were to be paid or assumed by the Company
from the August 9, 1999 Financing (defined below), plus any other debts that may
have accumulated. This would leave the Company with only those portions of its
operation that deal with excimer laser technology.
2
<PAGE>
The Company historically has incurred significant net losses from
operations. As of September 30, 1999, the Company had an accumulated deficit of
$22,720,604. The Company expects to continue to incur operating losses for a
period of between six (6) and nine (9) months from the date of this Prospectus
as it continues to devote significant financial resources to the marketing of
its psoriasis treatment products and expansion of operations. No assurance can
be given that the Company will only sustain losses for a period of six to nine
months or will ever be profitable. In order to achieve profitability, the
Company will have to manufacture and market its psoriasis treatment products,
which need to be accepted in the marketplace on a commercial basis. There can be
no assurances that the Company will manufacture or market any products
successfully or operate profitably in the future, or that the Company will not
require significant additional financing in order to accomplish the Company's
current business plan. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
EXCIMER LASERS TECHNOLOGY
The basis of the Company's business is its excimer laser technology. The
word "excimer" is short hand for excited dimer. A dimer describes a molecule
formed, by means of a catalyst, from two or more atoms. Solid state lasers
using, for example, a crystalline substance and medium may contain both excited
dimers and dimers in non-excited or "ground" state. In such devices, power is
supplied to increase the percentage of dimers, which are excited. In general,
such laser beams are in the infrared end of the light wave spectrum and create a
great deal of heat.
An excimer laser uses a medium in which the dimers exist only in the excited
state. The Company, using xenon chloride gas as a medium, pumps electricity in
and generates excited dimers. This system creates and excites the dimers at the
same time. Once the power is shut off, the dimers cease to exist. This type of
laser usually, though not always, generates beams in the ultraviolet ("UV") end
of the light wave spectrum. The wavelength of the beam depends largely on the
type of gas used. In the case of the Company's laser technology, the wavelengths
may vary between 174 nm and 351 nm.
The Company's initial medical applications for its excimer laser technology
are intended to be used in the treatment of psoriasis and cardiovascular
disease.
On March 17, 1998, the Company entered into a clinical trial agreement with
Massachusetts General Hospital ("MGH") to test the effect of its excimer laser
technology for treatment of psoriasis, as contrasted to the Ultraviolet "B"
("UVB") treatment currently in use to treat psoriasis. The Company began testing
its excimer laser system for the treatment of psoriasis at MGH in 1998 with a
Dose Response Study under Institutional Review Boards ("IRBs") approval. The
final data from this study was collected in December, 1998 and served as the
basis for a 510(k) submission (defined below) to the United States Food and Drug
Administration (the "FDA") on August 4, 1999. On January 27, 2000, the Company's
510(k) was issued by the FDA establishing that the Company's excimer laser
psoriasis treatment system has been determined to be substantially equivalent to
currently marketed devices for the treatment of psoriasis. With the receipt of
the 510(k), the Company is in the process of developing its marketing plan for
the introduction of its psoriasis treatment product. Assuming the availability
of adequate capital, the Company anticipates introducing its psoriasis products
in July, 2000. However, no assurance to this effect can be given.
The Company believes that its excimer laser system for treating psoriasis
may replace and/or augment the current phototherapy modalities in use to treat
the symptoms of psoriasis. The Company has tested its excimer laser system, as
it compares to the UVB therapy currently being extensively used to control
psoriasis. In using UVB, the patient stands in a light box lined with special
UVB lamps and the whole body is radiated (other than protected areas such as
eyes and genitals). The need for long periods of treatment is due to the fact
that the healthy skin, as well as the psoriasis affected skin, is being treated
in the light boxes, so that the dosage or radiation must be controlled or the
patient will be severely burned. The Company's excimer laser, however, can be
used to treat only the skin area that is affected by psoriasis. Since it is
believed that skin that is affected by psoriasis is not as susceptible to UVB
radiation, the Company believes
3
<PAGE>
that a high dose of UVB applied directly to the affected area could
significantly reduce the number of treatments and the time needed to control
psoriasis.
Further, the Company has entered into an agreement (the "MGH Agreement"),
with MGH pursuant to which the Company has obtained an exclusive, worldwide,
royalty-bearing license from MGH to develop, manufacture, use and sell products,
utilizing a pending patent which incorporates certain technology of MGH, related
to the diagnosis and treatment of certain dermatological conditions and
diseases, particularly psoriasis. No assurance can be given that the pending
patent will be issued. As of the date of this Prospectus, the Company has
generated no revenues from the MGH Agreement.
The Company's cardiovascular and vascular applications are in connection
with an experimental procedure known as Transmyocardial Revascularization
("TMR"). In August, 1997 the Company and Baxter Healthcare Corporation
("Baxter"), entered into a strategic alliance for the manufacturing and
marketing of excimer laser products for TMR (the "Baxter Agreement"). The
Company is in the process of negotiating modifications to the Baxter Agreements.
No assurance can be given that the Company will successfully complete such
negotiations.
This strategic alliance with Baxter is significant to the Company because
Baxter has, among other things: (i) purchased from the Company certain existing
excimer laser systems for cardiovascular and vascular disease; (ii) agreed to
fund the total cost of regulatory approvals worldwide for the use of the
Company's excimer laser systems for the treatment of cardiovascular and vascular
disease; and (iii) agreed to fund all sales and marketing costs related to the
introduction and marketing of the Company's equipment for treating
cardiovascular disease using TMR (the "TMR System"). Due to Baxter's strong
worldwide marketing presence and relationships with leading clinicians and
regulatory expertise, many of the significant expenses of bringing the Company's
TMR System to market are being absorbed by Baxter. In the opinion of management
of the Company, because of the significant costs being borne by Baxter and
because of the favorable terms of the Baxter Agreement, the Company's earnings
potential has not been compromised by the Baxter Agreement, while a significant
portion of the Company's risk related to the development and introduction of its
TMR System has been shifted to Baxter. As of September 30, 1999, pursuant to the
terms of the Baxter Agreement, Acculase has delivered the first two TMR Systems
to Baxter. Baxter has paid the Company an aggregate of $1,959,000, which
includes certain advances for additional excimer laser systems and CE Mark
compliance (defined below), which has been obtained.
The Company's TMR System requires pre-market approval ("PMA") prior to being
marketed in the United States. Management of Acculase met with representatives
of the FDA in January, 1995 to discuss preclinical data submission requirements
necessary to initiate human trials of the TMR System. Animal testing of the TMR
System was then performed, culminating in a study at The New York Hospital
Cornell Medical Center, which serves as the pre-clinical basis for an
Investigational Device Exemption ("IDE") that was granted by the FDA in August,
1996. In the first quarter of 1998, the IDE was transferred to Baxter from the
Company in connection with the Baxter Agreement. Depending upon the outcomes of
the Phase I study, Baxter intends to petition for the Phase II studies (defined
below) within the next ninety days. However, no assurance to this effect can be
given. Baxter is currently in discussion with the FDA for transition from Phase
I to Phase II studies. The timing for the approval for such transition is
unknown at this time. The Company believes Baxter intends to expand the Phase II
studies to a multi-site study (more than 10 institutions) and expand the
procedure to include patients who are candidates for incomplete coronary artery
bypass graft surgery ("CABG") revascularization. However, no assurance to this
effect can be given. The Company does not expect Baxter to submit PMA to the FDA
before the year 2001, and possibly later. Baxter will be required to obtain
additional IDEs for other applications of the TMR System and for other products
that the Company develops that are regulated by the FDA as medical devices.
The Company's principal executive offices are located at 7 Great Valley
Parkway, Suite 222, Malvern, PA 19355, (610) 889-1111.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Outstanding:
Before the Offering..................... 13,225,618 shares(1)
After the Offering...................... 15,875,212 shares(2)
Risk Factors and Dilution................. The securities offered hereby are highly speculative and
involve a high degree of risk. These factors include,
but are not limited to, risks related to the Company's
historical lack of profitability, the government
regulation of the Company's products, legislative and
regulatory restrictions impacting the Company's business
operations and industry and the market for the
securities offered hereby. Only investors who can afford
the loss of their entire investment should make an
investment in these securities. See "Risk Factors."
Over-the-Counter Market Symbol Common
Stock................................... LSPT
</TABLE>
- ------------------------
(1) Does not include 200,000 shares of Common Stock reserved for issuance
pursuant to the Options and 2,324,604 shares reserved for issuance pursuant
to the Warrants issued by the Company. See "Risk Factors," "Price Range of
Common Stock," "Compensation of Executive Officers and Directors--1995
Non-Qualified Option Plan: Compensation of Directors," "Description of
Securities," "Selling Stockholders and Plan of Distribution" and "Certain
Relationships and Related Transactions."
(2) Includes 2,324,604 shares, which may be issued upon the exercise of the
Warrants and 200,000 shares of Common Stock reserved for issuance pursuant
to the Options. See "Description of Securities," "Selling Stockholders and
Plan of Distribution" and "Certain Relationships and Related Transactions."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Summary Financial Information set forth below should be read in
conjunction with the audited Consolidated Financial Statements included
elsewhere herein:
<TABLE>
<CAPTION>
THE PERIOD
YEAR --------------------- YEAR ENDED NINE MONTHS NINE MONTHS
ENDED 1/1-5/22 5/23-12/31 ------------------------------ ENDED ENDED
12/31/94 95(1) 95(1) 1996 1997 1998 9/30/98 9/30/99
-------- -------- ---------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenues................. $ 5,715 $ 1,242 $ 1,408 $ 2,901 $ 3,815 $ 2,349 $ 1,891 $ 907
Net Income (loss)........ (2,234) 4,839(2) (2,124) (5,358) (2,307) (5,908) (2,920) (7,023)
Basic and diluted income
(loss) per share....... (0.35) 0.75 (0.42) (0.95) (0.35) (0.64) (0.31) (0.67)
Weighted average Shares
Outstanding(3)......... 6,312 6,312 5,000 5,620 6,531 9,288 9,286 10,547
BALANCE SHEET DATA
Working capital
(deficit).............. $ 960 $ (99) $ (610) $(1,728) $ 15 $(1,843) $ 1,921 $ 4,730
Total assets............. 2,144 1,715 5,796 3,195 7,808 4,870 6,397 10,744
Long-term debt (net of
Current portion)....... -- -- 867 283 283 70 283 49
Liabilities subject to
Compromise............. 7,930 7,564 -- -- -- -- -- --
Total stockholders'
equity (deficit)....... (6,643) (7,404) 686 (2,090) 4,929 1,841 2,362 7,474
</TABLE>
- ------------------------------
(1) The Company filed a Petition for Reorganization (the "Bankruptcy
Proceeding") under Chapter 11 of the Federal Bankruptcy Act on May 13, 1994,
Case No. 94-02608-611--Federal Bankruptcy Court--Middle District, Florida
(the "Bankruptcy Court"). An order was issued on May 22, 1995 confirming the
Company's Third Amended Plan of Reorganization (the "Bankruptcy
Reorganization" or the "Plan"). In connection with the Bankruptcy
Reorganization on May 22, 1995, the Company was required to adopt fresh
start reporting as of May 23, 1995, since the reorganization value
(approximate fair value at the date of reorganization) was less than the
total of all post-petition liabilities and allowed claims, and holders of
existing voting shares before May 23, 1995 received less than 50% of the
voting shares of the emerging entity. Accordingly, the statement of
operations for the period from January 1, 1995 through May 22, 1995 reflects
the effects of the forgiveness of debt resulting from the confirmation of
the Bankruptcy Reorganization and the effects of the adjustments to restate
assets and liabilities to reflect the reorganization value. In addition, the
accumulated deficit of the Company was eliminated and the Company's capital
structure was recast in conformity with the Bankruptcy Reorganization. As
such, the balance sheet data included in the Summary Consolidated Financial
Information set forth above, as of May 23, 1995, and December 31, 1995,
1996, 1997 and 1998, and September 30, 1998 and 1999, and the statement of
operations data set forth above for the period May 23, 1995 to December 31,
1995, the years ended December 31, 1996, 1997 and 1998, and the nine months
ended September 30, 1998 and 1999, reflect that of the Company on and after
May 23, 1995, which, in effect, is a new entity for financial reporting
purposes with assets, liabilities and a capital structure, having carrying
values not comparable with periods prior to May 23, 1995. The balance sheet
data included in the Summary Consolidated Financial information, set forth
above, as of December 31, 1994 and May 22, 1995, and the statement of
operations data, set forth above, for the year ended December 31, 1994, and
the period from January 1, 1995, to May 22, 1995, reflect that of the
Company prior to May 23, 1995. See "Business--History of the Company" and
"Business--Litigation."
(2) Includes an extraordinary gain of $5,768,405. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(3) Common Stock equivalents and convertible issues are antidilutive and,
therefore, are not included in the weighted shares outstanding during the
periods the Company incurred net losses.
6
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. ONLY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT SHOULD MAKE AN INVESTMENT IN THESE SECURITIES. IN ADDITION TO THE
FACTORS SET FORTH ELSEWHERE IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD
GIVE CAREFUL CONSIDERATION TO THE FOLLOWING RISK FACTORS IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED HEREBY.
THIS PROSPECTUS MAY BE DEEMED TO CONTAIN FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS OR HEREAFTER INCLUDED IN OTHER
PUBLICLY AVAILABLE DOCUMENTS FILED WITH THE COMMISSION, REPORTS TO THE COMPANY'S
STOCKHOLDERS AND OTHER PUBLICLY AVAILABLE STATEMENTS ISSUED OR RELEASED BY THE
COMPANY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH
COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING)
OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE (FINANCIAL OR
OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON MANAGEMENT'S BEST ESTIMATES BASED
UPON CURRENT CONDITIONS AND THE MOST RECENT RESULTS OF OPERATIONS. THESE RISKS
INCLUDE, BUT ARE NOT LIMITED TO, RISKS SET FORTH HEREIN, EACH OF WHICH COULD
ADVERSELY AFFECT THE COMPANY'S BUSINESS AND THE ACCURACY OF THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN.
THERE IS A LIMITED PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK. PERSONS WHO
MAY OWN OR INTEND TO PURCHASE SHARES OF COMMON STOCK IN ANY MARKET WHERE THE
COMMON STOCK MAY TRADE SHOULD CONSIDER THE FOLLOWING RISK FACTORS, TOGETHER WITH
OTHER INFORMATION CONTAINED ELSEWHERE IN THE COMPANY'S REPORTS, PROXY STATEMENTS
AND OTHER AVAILABLE PUBLIC INFORMATION, AS FILED WITH THE COMMISSION, PRIOR TO
PURCHASING SHARES OF THE COMMON STOCK:
LACK OF PROFITABILITY AND HISTORY OF LOSSES; BANKRUPTCY PROCEEDING. On
May 13, 1994, the Company filed the Bankruptcy Proceeding. On May 22, 1995, the
Bankruptcy Court confirmed the Company's Plan. The Company incurred losses of
$2,123,814, $5,357,968, $2,307,101, $5,908,587 and $7,023,134, for the period
from May 23, 1995 to December 31, 1995, for the years ended December 31, 1996,
1997 and 1998, and for the nine months ended September 30, 1999, respectively.
As of September 30, 1999, the Company had an accumulated deficit of $22,720,604.
The Company expects to continue to incur operating losses for a period of
between six (6) and nine (9) months from the date of this Prospectus as it
continues to devote significant financial resources to the marketing of its
psoriasis treatment products and expansion of operations. In order to achieve
profitability, the Company will have to manufacture and market its psoriasis
treatment products, which need to be accepted in the marketplace on a commercial
basis. There can be no assurance given that the Company will only sustain losses
for a period of six to nine months or that the Company will manufacture or
market any products successfully, operate profitably in the future, or that the
Company will not require significant additional financing in order to accomplish
the Company's business plan. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and "Financial
Statements."
NEED FOR ADDITIONAL FINANCING AND POTENTIAL SIGNIFICANT DILUTION TO
STOCKHOLDERS. The Company has historically financed its operations through
working capital provided from operations, loans and the private placement of
equity and debt securities. As of September 30, 1999, the Company had total
debts of $3,857,277 and had $6,619,434 of cash on hand. If the Company is not
successful in selling its non-excimer laser assets, the Company may be required
to pay the debts that were to be paid or assumed by the Buyer, plus any other
debts that may have accumulated. The Company will require additional financing
to market its psoriasis treatment products successfully. No assurance can be
given that additional financing will become available to the Company, or that
the business of the Company will ever achieve profitable operations. Further,
any additional financing may be senior to the Company's Common Stock or result
in significant dilution to the holders of the Company's Common Stock. In the
event the Company does not receive any such financing or generate profitable
operations, management may have to suspend or discontinue its business activity
or certain components thereof in its present form or cease operations
altogether. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
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ADEQUACY OF FINANCING FOR MARKETING OF THE COMPANY'S PRODUCTS. With the
receipt of approval of the Company's 510(k) by the FDA, the Company now
anticipates the need for additional financing of at least approximately
$5,000,000, in addition to the proceeds of the August 9, 1999 financing to
introduce the Company's psoriasis treatment system and implement its marketing
plan. As of the date of this Prospectus, the Company has entered into a letter
of intent with ING/Barings LLC ("ING") for a private offering of up to
$20,000,000 of the Company's securities (the "ING Financing"), which the Company
anticipates will provide the financing required to accomplish the rollout of the
Company's psoriasis product and for working capital for at least 13 months. The
date when this financing is to be completed has not been determined. No
assurance can be given that the ING Financing will be completed or if completed
will provide adequate funds for the Company to have a successful introduction of
the Company's psoriasis treatment products. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business--Excimer
Laser System for the Treatment of Psoriasis," "Financial Statement and
Supplemental Data" and "Certain Relationships and Related Transactions."
FINANCIAL RISK FROM PENDING LITIGATION AGAINST THE COMPANY. The Company has
recently been sued by CSC Healthcare, Inc. ("CSC") in connection with a dispute
over consulting fees allegedly owed by the Company to CSC. Further, the Company
has had a counterclaim filed against it in the lawsuit brought by Baxter against
The Spectranetics Corporation ("Spectranetics") in which Spectranetics claims an
undetermined amount of damages. Lastly, claims have been asserted by Ray
Hartman, a former officer and director of the Company and his wife Sandra
Hartman, who was an employee of Laser Photonics and Acculase. Each of these
claims is for a significant amount or is unknown as of the date of this
Prospectus. An adverse ruling against the Company in any of these matters could
have a material adverse effect upon the Company. See "Business--Legal
Proceedings."
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. Results of operations are
expected to fluctuate significantly from quarter to quarter, depending upon
numerous factors, including the timing and results of clinical trials; delays
associated with the FDA and other regulatory approval processes; healthcare
reform and reimbursement policies; demand for the Company's products; changes in
pricing policies by the Company or its competitors; the number, timing and
significance of product enhancements and new product announcements by the
Company and its competitors; the ability of the Company to develop, introduce
and market new and enhanced versions of the Company's products on a timely
basis; customer order deferrals in anticipation of new or enhanced products
offered by the Company or its competitors; product quality problems; personnel
changes; and changes in Company strategy. Quarter to quarter operating results
could also be affected by the timing of the receipt of individual customer
orders, order fulfillment and revenue recognition with respect to small numbers
of individual laser units, since each unit carries a high price per unit. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Markets and Marketing."
POSSIBLE LACK OF NET INCOME DUE TO HIGH AMORTIZATION OF GOODWILL AND PATENT
EXPENSES. The Company's business depends on the exploitation of a number of
technologies, some of which are the subject of patents. For financial statement
purposes, the Company is required to amortize the cost of acquisition of these
patents and licenses of patents owned by others over a period of years. In
addition, acquisitions of business operations and reorganization of existing
operations have required the Company to record certain assets as goodwill on its
financial statements and to amortize such goodwill over periods of years.
License fees paid are amortized over the life of the license and patent expenses
are amortized over the life of the patent. The impact on the current and future
financial statements of the Company is a reduction of net income in the amount
of such amortization. For 1998 and for the nine (9) months ended September 30,
1999, the total of such amortization was $1,028,035 and $771,027, respectively.
This amount of amortization, when compared to the Company's revenue for any
year, may make it very difficult for the Company to show profitability until net
revenues from operations increase significantly or until most of the items
requiring amortization have been completely amortized. However, even if the
Company's net revenues increase to an amount to offset existing levels of
amortization, no assurance can be given that in future
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years the Company will not incur other expenditures or undergo other
reorganizations which will require it to book significant additional amounts of
amortization. No assurance can be given that the Company will ever earn enough
net revenue to offset most or all of its then current amortization expenses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Financial Statements."
POSSIBLE FURTHER DILUTION FROM ISSUANCES OF COMMON STOCK TO PAY OBLIGATIONS
OF THE COMPANY. As of the date of this Prospectus, the Company has issued
5,926,835 shares of Common Stock and Warrants to purchase 2,324,604 shares of
Common Stock, at prices ranging from $1.50 to $5.25 per share in connection with
raising capital to pay its current and long term obligations and to support its
operations. The exercise of the Warrants could result in significant additional
dilution to existing stockholders, once exercised. In addition the Company has
issued 3,498,263 options to acquire shares of Common Stock to various employees,
directors and consultants of the Company. The Company also anticipates being
required to raise additional capital over the six (6) month period following the
date of this Prospectus. To the extent that additional capital is raised through
the sale of additional equity or convertible securities or additional options
are issued to obtain the services of officers, employees, directors or
consultants, the issuance of such securities could result in additional dilution
to the Company's stockholders, which dilution and cost of financing is not borne
by the other stockholders of Acculase. See "Certain Relationships and Related
Transactions."
RISKS OF OWNING LESS THAN 100% OF THE SHARES OF ACCULASE. Laser Photonics
owns 76.1% of the issued and outstanding common stock of Acculase. A significant
portion of the money raised by the Company in recent financings has been used to
loan money to Acculase. Management of the Company believes that the financing
has provided significant benefits to Acculase and that without the financing
provided by Laser Photonics, Acculase could not have obtained these benefits. To
accomplish the development of the excimer laser product, through the raising of
capital through stock sales, there has been significant dilution in stock
ownership to the stockholders of Laser Photonics. Acculase has been unable to
raise money throughout its history, largely because it is and has been a
privately owned company. Acculase has had to rely upon the Company, since the
Company obtained control of 76.1% of the common stock of Acculase, in 1995, to
raise financing to pay its costs of operations and the cost of the development
of its excimer lasers.
In connection with obtaining required financing for Acculase, Laser
Photonics has had to engage in significant financing activities, using its
equity securities, starting in 1997 and continuing through the date of this
Prospectus. The funds raised have then been used by Laser Photonics to acquire
the Lasersight License (defined below) at a cost of $4,000,000 so that Acculase
would be in compliance with the Baxter Agreements. Further, Laser Photonics has
sold stock to be able to hire employees for Acculase. Laser Photonics has had to
provide and continues to provide incentives and compensation to management of
Acculase because employees of Acculase and prospective candidates for employment
at Acculase desire stock options from Laser Photonics because of their potential
liquidity rather then stock options of Acculase, which are unlikely to have
liquidity at any foreseeable time. Laser Photonics has lent, paid or assumed
obligations of Acculase which are at least $6,700,000 to pay payroll of
employees and other operations and obligations. All such amounts lent to
Acculase were lent without any date certain as to when such loans would be
repaid. In addition, Laser Photonics has issued 821,986 options as incentives to
employees to work for Acculase. These financings and the grant of such
incentives to employees have resulted in substantial dilution to the
stockholders of Laser Photonics. Should Laser Photonics be unable to acquire the
shares of Acculase not already owned by Laser Photonics, it is likely that Laser
Photonics will have to continue to dilute the ownership of its Common Stock to
pay the operating costs of Acculase for an indefinite period of time. See
"Business--Business of the Company--Relationship with Acculase Subsidiary" and
"Business--Intellectual Property."
RISKS OF NOT ACQUIRING THE UNOWNED ACCULASE SHARES. Due to the fact that
the Company may have to continue to dilute the ownership of the stockholders of
Laser Photonics indefinitely, the Boards of
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Directors of the Company and Acculase have determined to enter into a
reorganization to make Acculase a wholly owned subsidiary of Laser Photonics.
The exact ratio of the anticipated exchange of Acculase common stock for Common
Stock of the Company will be determined by the receipt of a valuation from one
of the Company's advisors and a separate fairness opinion from an investment
banker hired by the Board of Directors of Acculase. Because of the majority
ownership of Acculase by the Company, the Company controls a sufficient number
of the issued and outstanding shares of Acculase in order to approve the
proposed reorganization. However, any Acculase stockholders that do not wish to
exchange their shares of Acculase for those of the Company may assert certain
appraisal rights under California law. Generally, under California law, when a
dissenting stockholder opposes a reorganization, which requires stockholders'
approval, such as in a reorganization in which the stockholders of Acculase may
otherwise be required to accept shares of Laser Photonics in exchange for their
shares in Acculase, the exclusive remedy of the dissenting stockholder is the
right to receive the appraised cash value of his shares of Acculase. However, in
the case where one entity (such as Laser Photonics) controls both corporations
which are the subject of the proposed reorganization, the stockholders of the
controlled entity (in this case, Acculase), may be entitled to institute an
action to attack the validity of the reorganization or to have the
reorganization set aside or rescinded. There can be no assurance that any of the
Acculase stockholders will not file such an action, or that a court will not set
aside the proposed reorganization transaction.
In the event that some or all of the Acculase stockholders exercise their
appraisal rights, decline to accept the terms of the proposed exchange of Laser
Photonics Common Stock for Acculase common stock, and wish to receive cash in
lieu thereof, and the aggregate amount sought by the dissenting Acculase
stockholders exceeds an amount to be determined by the Board of Directors, the
Company will reserve the right to terminate or postpone the reorganization until
such time as the Company has adequate funds to cash out those Acculase
stockholders who exercise their appraisal rights. See "Business--Business of the
Company--Relationship with Acculase Subsidiary" and "Business--Intellectual
Property."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS. Clinical
testing, manufacture, promotion and sale of the Company's products are subject
to extensive regulation by numerous governmental authorities in the United
States, principally the FDA, and corresponding foreign regulatory agencies. The
Federal Food, Drug, and Cosmetic Act ("FDC Act"), and other federal and state
statutes and regulations govern or influence the testing, manufacture, labeling,
advertising, distribution and promotion of medical devices. Noncompliance with
applicable requirements can result in fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of production,
refusal to authorize the marketing of new products or to allow the Company to
enter into supply contracts and criminal prosecution. The Company's excimer
laser devices, for the various applications discussed in this Prospectus will be
regulated as either a Class II or Class III (defined below) medical device.
Class II devices, such as the Company's psoriasis treatment products, claim
"substantial equivalence" to an existing (predicate) device and has received
approval under the 510(k) process from the FDA. Some Class II devices may not be
found "substantially equivalent" to existing devices, and may be assigned a new
classification, which may or may not require further clinical data or which may
have certain restrictions including post-market surveillance.
FDA approval of a PMA must be obtained prior to commercial distribution in
the United States for the TMR System. A PMA application must be supported by
extensive information, including preclinical and clinical trial data. The PMA
process is expensive, lengthy and uncertain, and a number of products for which
PMA applications have been submitted by other companies have never been approved
for marketing. If granted, the approval of the PMA application may include
significant limitations on the indicated uses for which a product may be
marketed. There can be no assurance that Baxter will be able to obtain necessary
PMA application approvals to market the Company's excimer laser systems for all,
or any, of the currently anticipated applications, or any other products, on a
timely basis, if at all. Failure by Baxter to obtain such approvals, a delay in
receipt of such approvals, the loss of previously received approvals, or failure
to comply with existing or future regulatory requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations. Although the Company has received
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and transferred to Baxter a conditionally approved IDE from the FDA, permitting
Baxter to conduct clinical trials of the TMR System, and such clinical study has
commenced, there can be no assurance that data from such studies will
demonstrate the safety and effectiveness of the TMR System for the treatment of
end stage heart disease or will adequately support a PMA application for the TMR
System. In addition, Baxter will be required to obtain additional IDEs for other
applications of the Company's excimer laser technology. There can be no
assurance that data, typically the results of animal and laboratory testing,
that may be provided by Baxter in support of future IDE submissions, will be
deemed adequate for the purposes of obtaining IDE approval or that Baxter will
obtain approval to conduct clinical studies of any such future product. Even if
IDE approval is obtained and clinical studies are conducted, there can be no
assurance that data from such studies will demonstrate the safety and
effectiveness of any such product or will adequately support a PMA application
for any such product. Manufacturers of medical devices are also required to
comply with applicable FDA good manufacturing practice ("GMP") requirements,
which include standards relating to product testing and quality assurance as
well as the corresponding maintenance of records and documentation. There is no
assurance that the Company will be able to comply with applicable GMP
requirements. See "Business--Government Regulation."
NEED TO COMPLY WITH INTERNATIONAL GOVERNMENT REGULATION. International
sales of medical devices often are subject to regulatory requirements in foreign
countries, which vary from country to country. Sale and use of the Company's
products are subject to the right to affix a Certification European (CE) ("CE
Mark") approval in the European Union ("EU") and subject to other regulatory
requirements in those and other countries. The Company has received the right to
affix a CE Mark for its TMR System but not for its fiberoptic accessories. The
time required to obtain approval for sale in foreign countries may be longer or
shorter than required for FDA approval, and the requirements may differ
materially. The FDA must approve exports of devices that require a PMA, but are
not yet approved domestically, unless they are approved for sale by any member
country of the EU or the other "listed" countries, including Australia, Canada,
Israel, Japan, New Zealand, Switzerland and South Africa, in which case they can
be exported for sale to any country without prior FDA approval. In addition, an
unapproved device may be exported without prior FDA approval to the listed
countries for investigational use in accordance with the laws of those
countries.
In addition to ISO 9001/EN46001 certification (which the Company has
received for the TMR System), which is required to market the TMR System in the
European Economic Area ("EEA"), the Company also will be required to comply with
additional individual international requirements that are outside the scope of
those required by the EEA. Failure to comply with applicable regulatory
requirements can result in fines, injunctions, civil penalties, recalls or
seizures of products, total or partial suspensions of production, refusals by
foreign governments to permit product sales and criminal prosecution.
Furthermore, changes in existing regulations or adoption of new regulations or
policies could prevent the Company from obtaining, or affect the timing of,
future regulatory approvals or clearances. There can be no assurance that the
Company will be able to obtain necessary regulatory clearances or approvals on a
timely basis or at all or that the Company will not be required to incur
significant costs in obtaining or maintaining such foreign regulatory approvals.
Delays in receipt of, or failure to receive, such approvals or clearances, the
loss of previously obtained approvals or clearances or the failure to comply
with existing or future regulatory requirements would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Government Regulation--International Product Regulation."
PENDING SALE OF CERTAIN REVENUE GENERATING ASPECTS OF BUSINESS
OPERATIONS. Management is in the process of selling all of the Company's
non-excimer laser business operations, but cannot give any assurance as to when
or whether this proposed transaction will close. Management's decision to sell
the assets of the Company's business operations not related to the Company's
excimer laser technology will result in the divestiture of the Company's
business operations which generated approximately 74% of the Company's revenues
for the period from January 1, 1998 through September 30, 1999. The closing of
the
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sale of the assets to the Buyer has been delayed by reason of the difficulties
being experienced by the Buyer in finding financing to complete the purchase.
The Company has orally extended the closing from month to month while the Buyer
continues to pursue the required financing. During the pendency of the closing,
since January, 1999, the Buyer has been funding a portion of the negative cash
flow of the operations of Laser Analytics from his own funds. If the proposed
sale of assets has not closed by the end of the first quarter of 2000, it is the
Company's intention to shut down all of the operations of the Company, other
then the Carlsbad operations of Laser Photonics and Acculase, and pay off any
debts that are unpaid at that time from the proceeds from the August 9, 1999
Financing. This would leave the Company with only those portions of the
operation that deal with excimer laser technology. No assurance can be given
that the Buyer will complete the purchase under the Asset Purchase Agreement.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business."
BAXTER'S SECURITY INTEREST IN THE COMPANY'S PATENTS AND RISK OF SIGNIFICANT
TECHNOLOGY OWNED BY ACCULASE. On August 19, 1997, Acculase executed the Baxter
Agreement, which provides for an alliance with Baxter in which the Company
granted to Baxter an exclusive worldwide right and license to manufacture and
sell certain of the Company's TMR System consisting of certain excimer laser
technology products relating to the treatment of cardiovascular and vascular
disease and the disposable products associated therewith. Baxter maintains,
pursuant to the Baxter Agreements, a security interest in all patents owned by
the Company related to the TMR System to secure the Company's performance under
the Baxter Agreements. Failure of the Company to perform its obligations under
the Baxter Agreements could result in the loss of the ownership of the patents
subject to such security interest. The Baxter Agreements were entered into with
Acculase instead of Laser Photonics because those patents and intellectual
property regarding the excimer laser are owned by Acculase rather then Laser
Photonics. Even though the Lasersight License is granted to the Company, should
Baxter somehow obtain control of those technologies and patents owned by
Acculase and Acculase should lose its rights to this technology, Laser Photonics
would be without essential elements of the excimer laser technology. Such a
situation would materially and adversely affect the Company. See
"Business--Strategic Alliance with Baxter Healthcare Corporation" and
"Business--Intellectual Property."
COMPANY'S RELIANCE ON PATENT PROTECTION AND PROPRIETARY TECHNOLOGY. The
Company's business could be adversely affected if it is unable to protect its
intellectual property, including patented and other proprietary technology,
certain of which is licensed to the Company or owned by the Company, and certain
of which is owned by the Company and licensed to and from Baxter. If the Company
or the owners or licensees of the proprietary technology are unsuccessful in
protecting their rights thereto or such technology was to infringe on
proprietary rights of third parties, that portion of the Company's business
could suffer material adverse effects. To the extent that the Company relies
upon unpatented trade secrets and know-how, there can be no assurances that such
proprietary technology will remain a trade secret or that others will not
develop substantially equivalent or superior technologies to compete with the
Company's products. In addition, there can be no assurance given that others
will not independently develop similar or superior technologies, enabling them
to provide superior products or services to those of the Company. There can be
no assurances that patentable improvements on such technology will be developed
or that existing or improved technology will have competitive advantages or not
be challenged by third parties.
The laser industry has been marked by costly and time-consuming litigation
with respect to intellectual property rights between competitors. Once the
Company begins to exploit its excimer lasers commercially, no assurances can be
given that third parties will not claim that some or all of the Company's
proprietary technology infringes on proprietary rights of others. Litigation may
be used to seek damages or to enjoin alleged infringement of proprietary rights
of others. The defense of any such litigation, whether or not meritorious, could
divert financial and other resources of the Company from the Company's business
plan and, therefore, could have a material adverse effect on the financial
condition of the Company. An adverse decision to the Company in any such
litigation could result in significant damage awards payable by the
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Company or enjoin the Company from marketing its then existing products, which
could have an adverse effect on the Company's ability to continue in business.
In the event of an adverse result in such litigation, the Company could be
required to expend significant resources to develop non-infringing technology or
to obtain licenses to the disputed technology from third parties. There can be
no assurances that the Company will have the resources to develop or license
such technology, or if so, that the Company would be successful in such
development or that any such licenses would be available on commercially
reasonable terms. Further, the Company may be required to commence litigation
against third parties to protect any proprietary technology rights of the
Company. There can be no assurances that the Company will be able to afford to
prosecute such litigation, or if so, that such litigation will be successful.
See "Business--Intellectual Property" and "Business--Legal Proceedings."
DEPENDENCE ON THIRD PARTIES FOR MANUFACTURE AND MARKETING OF PRODUCTS AND
RISKS OF ACCESS TO ALTERNATIVE SOURCES AND DELAYS. The Company does not
currently have sufficient financial resources to conduct human clinical trials
necessary to commercialize the application of the TMR System. The Company has
entered into the Baxter Agreement, pursuant to which Baxter agreed to fund and
market the Company's products. However, Baxter may terminate such funding and
marketing commitment and cease further funding at any time. If the Baxter
Agreement is terminated for any reason, there could be a material adverse effect
on the Company's financial condition and the Company may be compelled to curtail
or cease business operations related to its TMR System, altogether. Should
Baxter terminate the Baxter Agreement, the Company will have to seek out other
parties for the conducting of human clinical trials necessary to commercialize
the application of the TMR System. The Company believes that third parties would
have an economic incentive to provide such assistance to the Company due to the
fact that the Company's TMR System is believed by management of the Company to
be technically superior and less expensive than lasers from other manufacturers
used for the same medical applications. However, no assurance to this effect can
be given. Management of the Company believes that this alone could make a
strategic alliance or similar business relationship with the Company attractive
to another Company, which might assume Baxter's responsibilities under the
Baxter Agreement, although no assurance to this effect, can be given. In
addition, which there are currently no funds required to market the Company's
TMR products, as Baxter is responsible for all marketing efforts and expenses
for the TMR System, unless Baxter ceases to remain in its strategic alliance
with the Company. In such an event, the Company will either be required to
obtain additional financing, in an unknown amount, or will need to obtain a
replacement partner to complete the testing, and to market the Company's TMR
products, if approved by the FDA.
There can be no assurance that any third party would be willing or able to
meet the Company's needs in a satisfactory and timely manner, if at all. Should
the Company be unable to locate third parties willing or able to meet the
Company's needs, management may have to suspend or discontinue its business
activities or certain components thereof or cease operations altogether. The
amount and timing of resources to be devoted to these activities are not within
the control of the Company, and there can be no assurance that manufacturing and
marketing problems will not occur in the future.
Production of the Company's lasers requires specific component parts
obtained from certain suppliers. In the event that such suppliers cannot meet
the Company's needs, the Company believes that alternative suppliers could be
found. However, a change in suppliers or any significant delay in the Company's
ability to have access to such resources would have a material adverse effect on
the Company's delivery schedules, business, operating results and financial
condition. See "Business--Sources and Availability of Raw Materials."
The Company maintains limited manufacturing facilities, which may need to be
expanded in the future. The Company estimates that it will only be able to
produce 1,000 lasers per year in its facility in Carlsbad, California. Should
demand exceed that number of lasers, the Company's facilities will have to be
expanded. Although certain members of the Company's management have
manufacturing experience, the expansion of the Company's manufacturing
facilities and capabilities will subject the Company to numerous risks,
including unanticipated technological problems or delays. Such expansion will
also require
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additional sources of capital, which may not be available on commercially
reasonable terms, if at all. If demand for the Company's products becomes great
enough to require expansion of its manufacturing capability and if the Company
is unable to expand its manufacturing capabilities, the Company may be required
to enter into arrangements with others for the manufacture and packaging of its
products. There can be no assurance that the Company will be able to enter into
any such arrangements on commercially reasonable terms, or at all, or that the
Company will ever be able to establish the capability to manufacture its
products on a commercial basis, in which case the Company's business, results of
operations and financial condition would be materially adversely affected. See
"Business--Alliance with Baxter Healthcare Corporation" and "Business--Research
and Development."
UNCERTAIN MARKET ACCEPTANCE. The Company received its 510(k) for its
psoriasis treatment system on January 27, 2000. The Company is finalizing its
marketing plan for that product and assuming adequate financing is available,
intends to introduce the psoriasis treatment system July, 2000. Market
acceptance of laser treatment of psoriasis is dependent on the Company's ability
to establish, with the medical community, the clinical efficacy of excimer laser
technology to treat psoriasis. The cost of the Company's TMR products may be
significantly greater than the cost of the therapeutic capital equipment
required with balloon angioplasty, stent implantation or atherectomy procedures.
Market acceptance of laser TMR as an adjunct to coronary bypass graft surgery
and for end stage heart disease patients will depend, in part, on Baxter's
ability to establish, with the medical community, the clinical efficacy of
excimer laser TMR for end stage heart disease patients. As a result of such
factors, there can be no assurance that the marketplace will be receptive to
excimer laser technology over competing therapies. Failure of the Company's
products to achieve market acceptance would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Government Regulation," "Business--Markets and Marketing" and
"Business--Competition."
HIGHLY COMPETITIVE MARKETS; RISK OF ALTERNATIVE THERAPIES. Competition in
the market for the treatment of psoriasis and coronary artery disease ("CAD"),
and in the medical device industry generally is intense and is expected to
increase.
According to the National Psoriasis Foundation ("NPF"), there are three
(3) approaches to treat psoriasis: topical therapy (creams and lotions),
phototherapy (psoralen ultraviolet light-PUVA and UVB) and systemic medications.
The Company's excimer laser technology for the treatment of psoriasis is
intended to replace and/or augment all of the current treatment modalities. Most
of those patients suffering from psoriasis that seek treatment receive
phototherapy. Phototherapy is widely available to the suffering patient. For the
Company to be successful in marketing its psoriasis treatment products, those
doctors who prescribe phototherapy for their patients will have to accept the
Company's treatment modality for the Company's products to be widely used and
for the Company to be successful in introducing its product. No assurance can be
given that the Company will be successful in obtaining wide acceptance by the
medical community for the Company's treatment modality.
The Company's TMR System, if approved for general sale by the FDA, will
compete primarily with other suppliers of TMR equipment for the treatment of
patients with end stage heart disease and in connection with TMR as an adjunct
to coronary graft bypass surgery. Companies producing competitive products may
succeed in developing products that are more effective or less costly in
treating CAD than the TMR System, and may be more successful than the Company in
manufacturing and marketing their products. In the TMR market, the Company
competes primarily with other producers of TMR systems.
Many companies, research institutes and universities are working in a number
of disciplines to develop therapeutic devices and procedures aimed at vascular
and cardiovascular disease. Furthermore, a number of companies in the
pharmaceutical industry are working on drug therapies to treat psoriasis. Most
of these companies, research institutes and universities have substantially
greater financial, technical, manufacturing, marketing, distribution and/or
other resources that the Company. In addition, many of such companies have
experience in underlying human clinical trails of new or improved therapeutic
devices
14
<PAGE>
and procedures and obtaining FDA and other regulatory clearances of devices and
procedures for use in human health care. The Company has limited experience in
conducting and managing clinical testing and in preparing applications necessary
to gain regulatory clearances. Accordingly, other companies may succeed in
developing devices and procedures that are safer or more effective than those
proposed to be developed by the Company and in obtaining FDA clearances for such
devices and procedures more rapidly than the Company.
The Company's requirements for regulatory approval, and marketing of some of
its products for cardiovascular and vascular disease have been assumed by
Baxter. The Company's competitors spend substantial sums on research and
development for laser products in order to maintain their respective market
positions. The Company's competitors and many of its potential competitors have
substantially greater capital resources than the Company. There can be no
assurance the Company's competitors will not succeed in developing TMR products
or procedures that are more effective or more effectively marketed than products
marketed by Baxter or that render the Company's technology obsolete. Even if the
Company's products provide performance comparable or superior to competing
products, there can be no assurance the Company will be able to obtain necessary
regulatory approvals to compete against competitors in terms of manufacturing,
marketing and sales. PLC Systems, Inc. ("PLC") and Eclipse Surgical
Technologies, Inc. ("Eclipse") received regulatory approval in Europe to begin
marketing their various TMR products and received approval from the FDA to
market their TMR products in the United States. As of the date of this
Prospectus PLC and Eclipse are marketing their TMR products in the United
States. PLC and Eclipse have been marketing their products in Europe since 1996.
Earlier entrants to a market in a therapeutic area often obtain and maintain
greater market share than later entrants. The Company believes the primary
competitive factors in the market for its TMR Systems include clinical
performance, product safety and reliability, availability of third-party
reimbursement, product design specifically for TMR use, product quality, ease of
use, price, customer service and company reputation. In addition, the length of
time required for products to be developed and receive regulatory approval and
the ability to use patents or other proprietary rights to prevent sales by
competitors are also important competitive factors. Some of the medical
indications that may be treatable with TMR are currently being treated by drug
therapies or surgery and other interventional therapies, including CABG and
percutaneous transluminal coronary angioplasty ("PTCA"). A number of these
therapies are widely accepted in the medical community, have a long history of
use and continue to be enhanced frequently. There is no assurance that
procedures using TMR will be able to replace or augment such established
treatments or that clinical research will support the use of TMR. Additionally,
new surgical procedures and new drug therapies are being developed by other
parties to treat CAD. New procedures and drug therapies could be more effective,
safer or more cost-effective than TMR. The inability of TMR to replace or
augment existing therapies or to be more effective, safer or more cost-effective
than new therapies could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Government Regulation," "Business--Markets and Marketing" and
"Business--Competition."
NO MARKETING STUDIES. No independent studies with regard to the feasibility
of the Company's proposed business plan have been conducted at the expense of
the Company or by any independent third parties with respect to the Company's
present and future business prospects and capital requirements. In addition,
there can be no assurances that the Company's products will find sufficient
acceptance in the marketplace to enable the Company to fulfill its long and
short term goals, even if adequate financing is available and products are ready
for market, of which there can be no assurance. See "Business--Markets and
Marketing."
DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the skills of
its management and technical team. There is strong competition for qualified
personnel in the laser industry, and the loss of key personnel or an inability
to continue to attract, retain and motivate key personnel could adversely affect
the Company's business. There can be no assurances that the Company will be able
to retain its existing
15
<PAGE>
key personnel or to attract additional qualified personnel. The Company does not
have key-person life insurance on any of its employees. See "Management."
UNCERTAINTY RELATED TO THIRD-PARTY REIMBURSEMENT. In the United States,
healthcare providers that purchase devices with medical applications for
treatment of their patients generally rely on third-party payors, principally
federal Medicare, state Medicaid and private health insurance plans, to
reimburse all or a part of the costs and fees associated with the procedures
using these devices. The Company's marketing plan for its psoriasis treatment
products has not yet been finalized and such plan's ultimate success will be
dependent upon, among other things, the ability of healthcare providers to
obtain satisfactory reimbursement from third-party payors for medical procedures
in which the Company's psoriasis treatment products are used. The Company has
not yet applied to HCFA for the right to reimbursement for the costs of its
psoriasis treatment products. The Company expects that, when such application
for the right to reimbursement is made, the process will take from 18 to
24 months, and no assurance can be given that a favorable response will be
received from HCFA. If HCFA does not grant the right to reimbursement, it could
have a material adverse effect on the Company's business. In the case of TMR,
unlike balloon angioplasty and atherectomy, the use of laser technology for the
treatment of end stage heart disease requires the purchase of expensive capital
equipment. Two of the Company's competitors in the field of TMR treatment (PLC
Systems, Inc. and Eclipse Surgical Technologies, Inc.) have received the right
from the Health Care Finance Administration ("HCFA") to Medicare reimbursement
for the costs of such companies' TMR treatments. Since the Company's TMR System
has not yet received approval to be marketed, Baxter has not sought
reimbursement approval from HCFA. Baxter will face the same issues in having
purchasers or physicians reimbursed for psoriasis treatments using the Company's
excimer laser. Third-party payors may deny reimbursement if they determine that
a prescribed device has not received appropriate regulatory clearances or
approvals, is not used in accordance with cost-effective treatment methods as
determined by the payor, or is experimental, unnecessary or inappropriate. If
the FDA clearance or approval were received, third-party reimbursement would
also depend upon decisions by the Health Care Financing Administration ("HCFA")
for Medicare, as well as by individual health maintenance organizations, private
insurers and other payors. Potential purchasers must determine whether the
clinical benefits of the Company's TMR System justify the additional cost or
effort required to obtain prior authorization or coverage and the uncertainty of
actually obtaining such authorization or coverage. In the case of the Company's
psoriasis treatment products, if the Company obtains the necessary foreign
regulatory registrations or approvals, market acceptance of the Company's
products in international markets would be dependent, in part, upon the
availability of reimbursement within applicable healthcare payment systems.
Reimbursement and healthcare payment systems in international markets vary
significantly by country, and include both government-sponsored healthcare and
private insurance. Although the Company believes that Baxter intends to seek
international reimbursement approvals for the TMR System, there can be no
assurance that any such approvals will be obtained in a timely manner, if at
all. In the case of the Company's psoriasis treatment products, the Company
intends to seek international reimbursement approvals although the timing of
such seeking of approval has not been determined. No assurance can be given that
such approval will be obtained. Failure to receive international reimbursement
approvals could have a material adverse effect on market acceptance of the
Company's products in the international markets in which such approvals are
sought. In addition, fundamental reforms in the healthcare industry in the
United States and the EU continue to be considered, although the Company cannot
predict whether or when any healthcare reform proposals will be adopted and what
impact such proposals might have. Moreover, management is unable to predict what
additional legislation or regulation, if any, relating to the healthcare
industry or third-party coverage and reimbursement may be enacted in the future,
or what effect such legislation or regulation would have. See
"Business--Government Regulation."
PRODUCT DEFECTS; LIMITS OF PRODUCT LIABILITY INSURANCE. One or more of the
Company's products may be found to be defective after the Company has already
shipped such products in volume, requiring a product replacement. Product
returns and the potential need to remedy defects or provide replacement products
or parts could impose substantial costs on the Company and have a material
adverse effect on the Company's
16
<PAGE>
business and results of operations. The clinical testing, manufacturing,
marketing and use of the Company's devices and procedures may expose the Company
to product liability claims. The Company maintains liability insurance with
coverage limits of $3,000,000 per occurrence. Although the Company has never
been subject to a product liability claim, there can be no assurance that the
coverage limits of the Company's insurance policies are adequate or that one or
more successful claims brought against the Company would not have a material
adverse effect upon the Company's business, financial condition and results of
operations. See "Business--Product Liability Insurance."
EFFECTS OF CERTAIN REGISTRATION RIGHTS. The Company is registering pursuant
to a registration statement, of which this Prospectus forms a part, 8,451,439
shares of Common Stock, consisting of 5,926,835 shares of Common Stock currently
issued in the name of the Selling Stockholders, 2,324,604 shares of Common Stock
underlying the Warrants and 200,000 shares of Common Stock underlying the
Options. As of the date of this Prospectus the Company has 13,225,618 shares
issued and outstanding. There can be no assurance that the registration of the
shares being registered pursuant to the registration statement will not have a
material adverse effect on the market price for the Company's Common Stock
resulting from the increased number of free trading shares of Common Stock in
the market. See "Certain Relationships and Related Transactions" and
"Description of Securities."
LACK OF DIVIDENDS ON COMMON STOCK. The Company has paid no dividends on its
Common Stock to date and there are no plans for paying dividends in the
foreseeable future. The Company intends to retain earnings, if any, to provide
funds for the expansion of the Company's business. See "Dividend Policy."
POTENTIAL ANTI-TAKEOVER EFFECT OF DELAWARE LAW. The Company is subject to
certain provisions of the Delaware General Corporation Law, which, in general,
restrict the ability of a publicly held Delaware corporation from engaging in
certain "business combinations," with certain exceptions, with "interested
stockholders" for a period of three (3) years after the date of the transaction
in which the person became an "interested stockholder." The effect of such
"anti-takeover" provisions may delay, deter or prevent a takeover of the Company
which the stockholders may consider to be in their best interests, thereby
possibly depriving holders of the Company's securities of certain opportunities
to sell or otherwise dispose of their securities at above-market prices, or
limit the ability of stockholders to remove incumbent directors as readily as
the stockholders may consider to be in their best interests. See "Description of
Securities--Certain Business Combinations."
SHARES ELIGIBLE FOR FUTURE SALE; ISSUANCE OF ADDITIONAL SHARES. Future
sales of shares of Common Stock by the Company and its stockholders could
adversely affect the prevailing market price of the Common Stock and could have
a material adverse effect on the ability of the Company to raise new capital.
There are currently 6,441,123 restricted shares and 6,787,365 shares which are
freely tradable, eligible to have the restrictive legend removed pursuant to
Rule 144(k) promulgated under the Securities Act or are the subject of this
Prospectus or other registration statements. Further, the Company has granted
options to purchase up to an additional 3,498,263 shares of Common Stock,
2,369,224 of which are currently exercisable. The shares of Common Stock
underlying the Warrants to purchase up to 2,324,604 shares of Common Stock and
options to purchase up to 200,000 shares of Common Stock are the subject of a
registration statement of which this Prospectus forms a part. Sales of
substantial amounts of Common Stock in the public market, or the perception that
such sales may occur, could have a material adverse effect on the market price
of the Common Stock. Pursuant to its Certificate of Incorporation, the Company
has the authority to issue additional shares of Common Stock. The issuance of
such shares could result in the dilution of the voting power of Common Stock
purchased in the Offering. See "Shares Eligible for Future Sale."
EFFECT OF OUTSTANDING, WARRANTS AND OPTIONS. The holders of the Warrants
and options, which are outstanding and unexercised, are given an opportunity to
profit from a rise in the market price of the Common Stock, with a resulting
dilution in the interest of the other stockholders. The terms on which the
Company might obtain additional financing during the period may be adversely
affected by the existence of the Warrants and options. The holders of the
Warrants and options may exercise the Warrants and options at a
17
<PAGE>
time when the Company might be able to obtain additional capital through a new
offering of securities on terms more favorable than those provided herein. See
"Description of Securities."
LIMITATIONS ON DIRECTOR LIABILITY. The Company's Certificate of
Incorporation provides, as permitted by governing Delaware law, that a director
of the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, with certain
exceptions. These provisions may discourage stockholders from bringing suit
against a director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by stockholders on behalf of the Company against a
director. In addition, the Company's Certificate of Incorporation and Bylaws
provide for mandatory indemnification of directors and officers to the fullest
extent permitted by Delaware law. See "Management."
SETTLEMENT ORDER. In 1997, as a result of certain alleged securities law
violations in 1992 and early 1993 under prior management, the Company entered
into a Settlement Order with the Securities and Exchange Commission where it
neither admitted nor denied liability, but consented to the issuance of an
injunction against any future law violations. The alleged events occurred prior
to the Company's Bankruptcy Reorganization and involve events, which occurred
prior to the change in the Company's management and directors. There can be no
assurance that the Settlement Order will not have an adverse effect on the
Company's ability to conduct financing in the future. See "Business--Legal
Proceedings."
18
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares of
Common Stock offered hereunder. However, the Company may receive gross proceeds
of up to $4,796,903 upon the exercise of the Warrants and $225,000 upon the
exercise of the Options. The net proceeds, if any, from such transactions will
be used for working capital and general corporate purposes.
Pending full utilization of the proceeds, which may be obtained from the
exercise of the Warrants, if at all, the Company may invest the net proceeds in
short-term, investment grade, and interest-bearing securities. See "Business."
DIVIDEND POLICY
No dividend has been declared or paid by the Company since inception on the
Company's Common Stock. The Company does not anticipate that any dividends will
be declared or paid in the future on the Company's Common Stock. See
"Description of Securities."
PRICE RANGE OF COMMON STOCK
As of the date of this Prospectus, the Company has 13,225,618 shares of
Common Stock issued and outstanding. Further, the Company has issued and
outstanding warrants to purchase 2,324,604 shares of Common Stock and options
that are vested to purchase up to 2,397,431 shares of Common Stock. See
"Description of Securities."
The Company's Common Stock is listed for trading in the Over-The-Counter
Market under the symbol "LSPT." The Company's Common Stock, subsequent to the
confirmation of the Plan on May 22, 1995, has been quoted on the Electronic
Bulletin Board since approximately January 22, 1996 under the stock symbol
"LSPT."
The following table sets forth quotations for the bid and asked prices for
the Common Stock for the periods indicated below, based upon quotations between
dealers, without adjustments for stock splits, dividends, retail mark-ups,
mark-downs or commissions, and therefore, may not represent actual transactions:
<TABLE>
<CAPTION>
BID PRICES ASKED PRICES
---------------------- -----------------------
HIGH LOW HIGH LOW
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
1st Quarter........................................ 4 1/8 2 1/2 4 3/8 2 11/16
2nd Quarter........................................ 3 3/4 2 1/8 3 7/8 2 3/8
3rd Quarter........................................ 2 9/16 1 1/8 2 3/4 1 1/4
4th Quarter........................................ 3 1/16 1 1/4 3 1/4 1 3/8
YEAR ENDED DECEMBER 31, 1999
1st Quarter........................................ 4 1/4 2 3/8 4 1/2 2 17/32
2nd Quarter........................................ 6 1/2 4 5/16 6 5/8 4 1/4
3rd Quarter........................................ 6 1/2 4 6 3/4 4 1/16
4th Quarter........................................ 10 7/8 4 3/16 11 1/4 4 5/16
</TABLE>
On February 7, 2000, the closing market price for the Company's Common Stock
in the Over- The-Counter Market was approximately $16.75 per share. As of
February 7, 2000, the Company had approximately 1050 stockholders of record.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1999. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Relationships and Related
Transactions" and "Selling Stockholders and Plan of Distribution." This table
should be read in conjunction with the Consolidated Financial Statements and
related Notes included elsewhere in this Prospectus:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------
<S> <C>
NOTES PAYABLE:
Current portion............................................. $ 271,747
Long term................................................... 49,334
------------
321,081
------------
STOCKHOLDERS' EQUITY:
Common Stock, par value $0.01; 25,000,000 shares
authorized(1);
issued and outstanding 13,167,975 shares(2)............... 131,680
Additional paid-in-capital.................................. 30,063,072
Accumulated deficit......................................... (22,720,604)
------------
Total stockholders' equity.................................. 7,474,148
------------
Total capitalization........................................ $ 7,795,229
</TABLE>
- ------------------------
(1) Does not include 2,324,604 shares of Common Stock that are reserved for
issuance pursuant to the Warrants and 3,498,263 shares of Common Stock that
are reserved for issuance pursuant to certain stock options or the 200,000
shares of Common Stock that are reserved for issuance pursuant to the
Options. See "Risk Factors," "Compensation of Executive Officers and
Directors--1995 Non-Qualified Stock Option Plan--Compensation of Directors,"
"Certain Relationships and Related Transactions," "Description of
Securities" and "Selling Stockholders and Plan of Distribution."
(2) Does not give effect to the 2,324,604 shares of Common Stock underlying the
Warrants and 200,000 shares of Common Stock that are reserved for issuance
pursuant to the Options. See "Description of Securities."
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data for the years ended December 31,
1994 through 1998 set forth below are derived from the Consolidated Financial
Statements of the Company and Notes thereto. The Consolidated Balance Sheets as
of December 31, 1997 and 1998, and September 30, 1999 and the related
Consolidated Statements of Operations, Stockholders' Equity (Deficit) and Cash
Flows for the years ended December 31, 1996, 1997, and 1998, and the nine
(9) months ended September 30, 1998 and 1999 appear elsewhere in this
Prospectus. The Selected Consolidated Financial Data are qualified in their
entirety by reference to, and should be read in conjunction with, the
Consolidated Financial Statements and related Notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED TO MAY 23, TO
DECEMBER 31, MAY 22, DECEMBER 31,
1994 1995(1) 1995(1)
------------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 5,715 $ 1,242 $ 1,408
Costs and expenses............... 6,713 2,082 3,351
------- ------- -------
Loss from operations............. (998) (840) (1,942)
------- ------- -------
Other income (expenses).......... (1,236) (89) (181)
Income tax expense -- -- --
Extraordinary item-gain from
reorganization................. -- 5,768 --
Net income (loss)................ $(2,234) $ 4,839(2) $(2,124)
======= ======= =======
Basic and diluted income (loss)
per share...................... (0.35) 0.75 (0.42)
Weighted average shares(3)....... 6,312 6,312 5,000
BALANCE SHEET DATA
(AT PERIOD END):
Working capital (deficit)........ 960 (99) (610)
Total Assets..................... 2,144 1,715 5,796
Long-term debt (net of current
portion)....................... -- -- 867
Liabilities subject to
compromise..................... 7,930 7,564 --
Total stockholders' equity
(deficit)...................... (6,643) (7,404) 686
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
------------------------------ SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1998 1999
-------- -------- -------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 2,901 $ 3,815 $ 2,349 $ 1,891 $ 907
Costs and expenses............... 7,704 5,746 7,746 4,397 6,225
------- ------- ------- ------- -------
Loss from operations............. (4,802) (1,931) (5,397) (2,506) (5,318)
------- ------- ------- ------- -------
Other income (expenses).......... (556) (372) (508) (414) (1,705)
Income tax expense -- (4) (3)
Extraordinary item-gain from
reorganization................. -- -- --
Net income (loss)................ $(5,358) $(2,307) $(5,908) $(2,920) $(7,023)
======= ======= ======= ======= =======
Basic and diluted income (loss)
per share...................... (0.95) (0.35) (0.64) (0.31) (0.67)
Weighted average shares(3)....... 5,620 6,531 9,288 9,286 10,547
BALANCE SHEET DATA
(AT PERIOD END):
Working capital (deficit)........ (1,728) 15 (1,843) (1,921) 4,730
Total Assets..................... 3,195 7,808 4,870 6,397 10,744
Long-term debt (net of current
portion)....................... 283 283 70 283 49
Liabilities subject to
compromise..................... -- -- -- -- --
Total stockholders' equity
(deficit)...................... (2,090) 4,929 1,841 2,362 7,474
</TABLE>
- ------------------------------
(1) In connection with the confirmation of the Bankruptcy Reorganization on
May 22, 1995, the Company was required to adopt fresh start reporting as of
May 23, 1995 since the reorganization value (approximate fair value at the
date of reorganization) was less than the total of all post-petition
liabilities and allowed claims, and holders of existing voting shares before
May 23, 1995 received less than 50% of the voting shares of the emerging
entity. Accordingly, the statement of operations for the period January 1,
1995 through May 22, 1995 reflects the effects of the forgiveness of debt
resulting from the confirmation of the Bankruptcy Reorganization and the
effects of the adjustments to restate assets and liabilities to reflect the
reorganization value. In addition, the accumulated deficit of the Company
was eliminated and the Company's capital structure was recast in conformity
with the Bankruptcy Reorganization. As such, the consolidated financial
statements of the Company for the period from May 23, 1995 to December 31,
1995, the years ended December 31, 1996, 1997 and 1998, and the nine
(9) months ended September 30, 1998 and 1999, reflect that of the Company on
and after May 23, 1995, which, in effect, is a new entity for financial
reporting purposes with assets, liabilities, and a capital structure having
carrying values not comparable with prior periods. The consolidated
financial statements for the period from January 1, 1995 to May 22, 1995 and
the year ended December 31, 1994 reflect that of the Company prior to
May 23, 1995. See "Business--Business of the Company" and
"Business--Litigation."
(2) Includes an extraordinary gain of $5,768,405. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(3) Common Stock equivalents and convertible issues are antidilutive and,
therefore, are not included in the weighted shares outstanding during the
years the Company incurred net losses.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS, INCLUDING THE DISCLOSURES BELOW CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES.
WHEN USED HEREIN, THE TERMS "ANTICIPATES," "EXPECTS," "ESTIMATES," "BELIEVES,"
AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT, ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED
OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH MATERIAL DIFFERENCES INCLUDE THE FACTORS DISCLOSED IN THE
"RISK FACTORS" SECTION OF THIS PROSPECTUS, WHICH PROSPECTIVE PURCHASERS OF THE
SECURITIES OFFERED HEREBY SHOULD CONSIDER CAREFULLY.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
Prospectus.
OVERVIEW OF BUSINESS OPERATIONS
The Company is engaged in the development, manufacturing and marketing of
proprietary excimer laser and fiber optic equipment and techniques directed
toward the treatment of psoriasis and the treatment of cardiovascular and
vascular disease. The Company anticipates developing such equipment and
technologies to treat other medical problems. However, no assurance to this
effect can be given.
On May 13, 1994, the Company filed for Bankruptcy Reorganization. The
Company was subsequently authorized to conduct its business operations as a
debtor-in-possession subject to the jurisdiction of the Bankruptcy Court. On
May 22, 1995, the Company's Plan was confirmed by the Bankruptcy Court. The
implementation of the terms of the Plan resulted in the Company's adoption of
"fresh start" accounting. The Plan provided, that in exchange for the
forgiveness of certain unsecured debt, the Company issued to unsecured creditors
shares of the Company's Common Stock such that, following the issuance of all
Common Stock to be issued under the Plan, the unsecured creditors owned
1,000,000 shares of the Company's Common Stock, representing 20% of the issued
and outstanding Common Stock of the Company. The 7,500,000 shares of Common
Stock of the Company's prior existing stockholders were canceled and reissued
into 250,000 shares of Common Stock, which represented 5% of the then total
issued and outstanding shares of Common Stock.
The Plan further provided that Helionetics transfer to the Company 76.1% of
the common stock of Acculase. Further, during the pendency of the Bankruptcy
Proceeding, Helionetics contributed $1,000,000 in cash to the Company, which
funds were utilized for cash payments under the Plan, and Helionetics lent the
Company $300,000 to fund the cost of research and development of the Company's
excimer lasers, which loan has been repaid. Under the Plan, Helionetics received
3,750,000 shares of Common Stock of the Company, which represented 75% of the
then total issued and outstanding shares of Common Stock.
During April, 1997, Helionetics filed a voluntary petition of reorganization
("Helionetics Reorganization") with the United States Bankruptcy Court in the
Central District of California for protection under Chapter 11 of Title 11 of
the United States Bankruptcy Code. As a result, the Company wrote off its
$662,775 receivable from Helionetics as of December 31, 1996. In connection with
the Helionetics Reorganization (defined below), Helionetics disposed of all of
its holdings of the Company's Common Stock. No persons who were stockholders of
the Company immediately before the reorganization have at present any
controlling interest in the Company. On September 30, 1997, Pennsylvania
Merchant Group ("PMG"), the Company's investment banker, purchased from the
Helionetics bankruptcy estate, a note payable from Acculase to Helionetics in
the amount of $2,159,708, including accrued interest. During October, 1997, PMG
sold the note to the Company for 800,000 shares of Common Stock.
22
<PAGE>
Acculase was founded in 1985 for the purpose of commercializing products
that utilize its proprietary excimer laser and fiber optic technologies.
Acculase has focused primarily on the development of medical products for the
treatment of coronary heart disease.
The Company believes that excimer laser technology provides the basis for
reliable cost-effective systems that will increasingly be used in connection
with a variety of applications. The Company is engaged in the development of
proprietary excimer laser and fiber optic equipment and techniques directed
initially toward the treatment of coronary heart disease and psoriasis, as well
as other medical applications.
The Company's initial medical applications for its excimer laser technology
are intended to be used in the treatment of psoriasis and cardiovascular
disease.
In connection with the Company's psoriasis treatment products, the Company
has entered into the MGH Agreement pursuant to which the Company has obtained an
exclusive, worldwide, royalty-bearing license from MGH to develop, manufacture,
use and sell products, utilizing certain technology of MGH, related to the
diagnosis and treatment of certain dermatological conditions and diseases,
particularly psoriasis. On March 17, 1998, the Company entered into a clinical
trial agreement with MGH to test the effect of its excimer laser technology for
treatment of psoriasis, as contrasted to UVB treatment currently in use to treat
psoriasis. The Company began testing its excimer laser system for the treatment
of psoriasis at MGH in 1998 with a Dose Response Study under an IRB approval.
The final data from this study was collected in December, 1998 and served as the
basis for a 510(k) submission to the FDA on August 4, 1999. On January 27, 2000
the Company's 510(k) was issued by the FDA establishing that the Company's
excimer laser psoriasis system has been determined to be substantially
equivalent to currently marketed devices for the treatment of psoriasis. As of
the date of this Prospectus, the Company has generated no revenues from the MGH
Agreement and no appropriate international organization has approved any of the
Company's products for commercial use.
Due to the limited financial resources of the Company, the Company's
business strategy changed in 1997 to focus its efforts on excimer laser
technology in order to develop excimer laser and excimer laser delivery products
for medical applications. To facilitate the Company's focus on excimer laser
technology, as of January 4, 1999, the Company entered into the Asset Purchase
Agreement for the sale of certain assets by the Company and Laser Analytics, on
the one hand, to the Buyer, which is unaffiliated with the Company, on the other
hand. The Asset Purchase Agreement provides that the Buyer will pay and/or
assume an aggregate of $1,200,000 of the accrued and unpaid accounts payable
and/or other debts of the Company consisting in part of back rent due of
$891,694, on facilities occupied by the Company for its Florida office facility
and a promissory note to Novantis Corporation (formerly Ciba-Geigy) of $127,280.
Completion of this transaction will result in the sale of all of the Company's
non-excimer laser business assets.
Management's decision to sell the assets of the Company's business
operations not related to the Company's excimer laser technology are consistent
with the Company's new business strategy and will result in the divestiture of
the Company's business operations which generated approximately 74% of the
Company's revenues for the period from January 1, 1998 through September 30,
1999. The closing of the sale of the assets to the Buyer has been delayed by
reason of the difficulties being experienced by the Buyer in finding financing
to complete the purchase. The Company has orally extended the closing month to
month while the Buyer continues to pursue the required financing. During the
pendency of the closing, since January, 1999, the Buyer has funded a portion of
the negative cash flow of the operations of Laser Analytics from its own funds.
If the proposed sale of assets has not closed by the end of the first quarter of
2000, it is the Company's intention to shut down all of the operations of Laser
Analytics and pay off the debts that were to be paid or assumed by the Company
from the August 9, 1999 Financing, plus any other debts that may have
accumulated. This would leave the Company with only those portions of its
operation that deal with excimer laser technology.
23
<PAGE>
BASIS FOR PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements filed elsewhere herein have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business, and, where
applicable, in conformity with Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code," issued in November,
1990, by the American Institute of Certified Public Accountants ("SOP 90-7").
Under the provisions of SOP 90-7 and in connection with the confirmation of
the Bankruptcy Reorganization on May 22, 1995, the Company was required to adopt
fresh start reporting as of May 23, 1995, since the reorganization value
(approximate fair value at the date of reorganization) was less than the total
of all post-petition liabilities and allowed claims, and holders of existing
voting shares before May 23, 1995 received less than 50% of the voting shares of
the emerging entity. Accordingly, the consolidated statements of operations for
the period from January 1, 1995 to May 22, 1995 reflects the effects of the
forgiveness of debt resulting from the confirmation of the Bankruptcy
Reorganization and the adjustments to restate assets and liabilities to reflect
the reorganization value.
In adopting fresh start reporting, the Company was required to determine its
reorganization value, which represented the fair value of the Company before
considering liabilities and the approximate amount a willing buyer would pay for
the assets of the Company immediately after the Bankruptcy Reorganization. The
reorganization value was based upon the consideration given by Helionetics to
acquire a 75% interest in the Company. The purchase price of $1,894,122 was
determined based upon cash paid and the carrying value of the 76.1% interest in
Acculase previously owned by Helionetics, which was transferred to the Company
in connection with the Bankruptcy Reorganization.
All assets and liabilities were restated to reflect their reorganization
value in accordance with procedures specified in Accounting Principles Board
Opinion 16 "Business Combinations," as required by SOP 90-7. The portion of the
reorganization value that could not be attributed to specific tangible or
identified intangible assets was classified as reorganization value in excess of
amounts allocable to identifiable assets ("Reorganization Goodwill") and was
being amortized over five years. Because of the magnitude of the Company's
losses since emerging from the Bankruptcy Reorganization, the balance of the
Reorganization Goodwill was written off as of December 31, 1996.
In addition, the accumulated deficit of the Company was eliminated, and its
capital structure was recast in conformity with the Bankruptcy Reorganization.
As such, the consolidated balance sheets of the Company as of December 31, 1996,
1997, 1998, and September 30, 1999, and the consolidated statements of
operations for the years ended December 31, 1996, 1997 and 1998, and the nine
(9) months ended September 30, 1998 and 1999, reflect in effect, a new entity
for financial reporting purposes, as of May 23, 1995, with assets, liabilities,
and a capital structure having carrying values not comparable with periods prior
to May 23, 1995.
The Company's consolidated statements of operations for the years ended
December 31, 1996, 1997 and 1998, and the nine (9) months ended September 30,
1998 and 1999, which form a part of the Company's consolidated financial
statements for such years, reflect the consolidated results of operations of
Laser Photonics, Laser Analytics and Acculase.
24
<PAGE>
RESULTS OF OPERATIONS
The following table presents selected consolidated financial information
stated as a percentage of revenues for the years ended December 31, 1996, 1997
and 1998, and the nine (9) months ended September 30, 1998 and 1999:
<TABLE>
<CAPTION>
NINE (9) MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues........................................... 100% 100% 100% 100% 100%
Costs of sales..................................... 80 55 77 64 112
---- ---- ---- ---- ----
Gross profit....................................... 20 45 23 36 (12)
---- ---- ---- ---- ----
Selling, general and administrative expenses....... 40 57 154 101 345
Research and development........................... 30 18 53 24 138
Bad debt expense related to related party
receivable....................................... 23 1 -- -- --
Write-off reorganization...........................
Goodwill........................................... 51 --
Depreciation and amortization...................... 42 19 46 43 92
---- ---- ---- ---- ----
Loss from operations............................... (166) (50) (230) (132) (587)
Other expense...................................... (19) (10) (21) (22) (188)
---- ---- ---- ---- ----
Net loss........................................... (185)% (60)% (251)% (154)% (775)%
==== ==== ==== ==== ====
</TABLE>
RESULTS OF OPERATIONS FOR THE NINE (9) MONTHS ENDED SEPTEMBER 30, 1999 AND
1998. Total revenues for the nine (9) months ended September 30, 1999 decreased
approximately 52.0% to $906,726 from $1,890,578 for the nine (9) months ended
September 30, 1998. Total revenues for the nine (9) months ended September 30,
1999 and 1998 primarily consisted of: (i) sales of $812,820 and $1,195,578, in
the respective nine (9) month periods, of the Company's scientific and medical
lasers from the operations of the Company's Florida and Massachusetts
facilities, and (ii) revenues of $93,906 and $95,000, in the respective nine
(9) month periods, relating to the sale of the Company's excimer lasers to
Baxter and the recognition of payments made by Baxter to commercialize the
Company's excimer lasers in connection with the Baxter Agreement. Revenues on
sales of medical and scientific lasers decreased in the nine (9) months ended
September 30, 1999 from the corresponding period ended September 30, 1998 due to
reduced volume of sales and discounting on sales of medical and scientific
lasers in connection with the Company's focusing its marketing efforts on its
excimer laser systems.
Total costs and expenses during the nine (9) months ended September 30, 1999
increased approximately 41.6% to $6,225,194 from $4,396,652 during the nine
(9) months ended September 30, 1998. Total costs and expenses include: (i) cost
of sales, (ii) selling, general and administrative expenses, (iii) research and
development, and (iv) depreciation and amortization, as follows:
Cost of sales during the nine (9) months ended September 30, 1999 decreased
approximately 16.7% to $1,012,051 from $1,214,736 during the nine (9) months
ended September 30, 1998. This decrease primarily resulted from reduced sales.
As a result, cost of sales as a percentage of sales increased to
approximately 111.6% in the nine (9) months ended September 30, 1999 from 64.3%
in the nine (9) months ended September 30, 1998.
Selling general and administrative expenses during the nine (9) months ended
September 30, 1999 increased approximately 64.3% to $3,129,974 from $1,905,341
during the nine (9) months ended September 30, 1998. This increase primarily
resulted from increases in consulting and professional fees, offset by
25
<PAGE>
reductions in personnel and overhead in the Company's Florida and Massachusetts
operations pending the closing of the Asset Purchase Agreement.
Research and development during the nine (9) months ended September 30, 1999
increased to $1,256,274 from $461,168 during the nine (9) months ended
September 30, 1998. This increase primarily related to the increased amount of
funds available for research expenses during the quarter. Research and
development expenses in the nine (9) month period ended September 30, 1999 and
1998 primarily related to the development of the Company's psoriasis laser
system and to additional testing to meet CE Mark and Underwriter's Laboratory
("UL") standards for the Company's excimer lasers.
Depreciation and amortization during the nine (9) months ended
September 30, 1999 increased to $826,895 from $815,407 during the nine
(9) months ended September 30, 1998. These amounts primarily related to the
amortization of the prepaid license fee from Baxter and the depreciation of
newly acquired equipment in 1998.
Other expenses increased during the nine (9) months ended September 30, 1999
to $1,704,666 from $413,477 during the nine (9) months ended September 30, 1998.
This increase in other expenses between the respective periods resulted
primarily from a charge to interest expenses of $1,579,296 related to the
conversion feature and amortization of the discount of the Convertible Notes and
$178,285 of other interest expense during the nine (9) months ended
September 30, 1999, as compared to $418,901 of interest expense during the nine
(9) months ended September 30, 1998.
As a result of the foregoing, the Company experienced a net loss of
$7,023,134 during the nine (9) months ended September 30, 1999, as compared to a
net loss of $2,919,551 during the nine (9) months ended September 30, 1998. The
Company also experienced a net loss from operations of $5,318,468 during the
nine (9) months ended September 30, 1999, as compared to a net loss from
operations of $2,506,074 during the nine (9) months ended September 30, 1998.
See "Liquidity and Capital Resources."
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
DECEMBER 31, 1997. Total revenues for the year ended December 31, 1998
decreased approximately 38% to $2,349,448 from $3,815,330 for the year ended
December 31, 1997. Total revenues for the years ended December 31, 1998 and 1997
primarily consisted of: (i) sales of $1,580,422 and $2,960,330, in the
respective years, of the Company's scientific and medical lasers from the
operations of the Company's Florida and Massachusetts facilities, and
(ii) revenues of $769,026 and $855,000, in the respective years, relating to the
sale of the Company's excimer lasers to Baxter and the recognition of certain
payments made by Baxter to commercialize the Company's excimer lasers in
connection with the Baxter Agreement. Revenues on sales of medical and
scientific lasers decreased in 1998 due to reduced volume of sales and
discounting on sales of medical and scientific lasers in connection with the
Company's focusing its marketing efforts on its excimer laser systems.
Total costs and expenses during the year ended December 31, 1998, increased
approximately 35% to $7,746,686 from $5,746,170 during the year ended
December 31, 1997. Total costs and expenses include: (i) cost of sales,
(ii) selling, general and administrative expenses, (iii) research and
development, (iv) depreciation and amortization, and (v) certain bad debt
expenses, as follows:
Cost of sales during the year ended December 31, 1998, decreased
approximately 14% to $1,806,557 from $2,090,276 during the year ended
December 31, 1997. This decrease primarily resulted from reduced sales.
As a result, cost of sales as a percentage of sales increased to
approximately 77% in 1998 from 55% in 1997.
Selling, general and administrative expenses during the year ended
December 31, 1998 increased approximately 65% to $3,608,108 from $2,181,304
during the year ended December 31, 1997. This increase primarily resulted from:
(i) compensation recognized in 1998 of $1,318,200 related to the issuance of
warrants to PMG for financial advisory services, including the providing of a
guaranty of the Company's
26
<PAGE>
Carlsbad, California lease and the raising of a $1,000,000 bridge loan for the
Company, and (ii) consulting fees of $231,000 to CSC related to the marketing of
the Company's excimer lasers.
Research and development during the year ended December 31, 1998 increased
to $1,243,372 from $685,109 during the year ended December 31, 1997. This
increase primarily related to the availability of funds in 1998 from financings
conducted in the fourth quarter of 1997 and in 1998 as sources of funding for
research and development activities. Research and development expenses in 1998
primarily related to the development of the Company's psoriasis laser system and
to additional testing related to meet CE Mark and UL standards for the Company's
excimer lasers.
Bad debt expense related to related party receivables during the year ended
December 31, 1998 was none, as compared to $48,000 during the year ended
December 31, 1997. The Company had incurred a non-recurring bad debt expense of
$48,000 in 1997 related to the write-off of a receivable from Helionetics.
Depreciation and amortization during the year ended December 31, 1998
increased to $1,088,649 from $741,481 during the year ended December 31, 1997.
This increase related to the amortization of the prepaid license fee from Baxter
and the depreciation of newly acquired equipment in 1998.
Other expenses increased during the year ended December 31, 1998 to $508,049
from $372,361 during the year ended December 31, 1997. This increase in other
expenses between the respective years resulted primarily from increased interest
expense of $510,948 in 1998 from $386,069 in 1997.
As a result of the foregoing, the Company experienced a net loss of
$5,908,587 during the year ended December 31, 1998, as compared to a net loss of
$2,307,101 during the year ended December 31, 1997. The Company also experienced
a net loss from operations of $5,397,238 during the year ended December 31,
1998, as compared to a net loss from operations of $1,930,840 during the year
ended December 31, 1997. See "Liquidity and Capital Resources."
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996. Total revenues for the year ended December 31, 1997
increased approximately 32% to $3,815,330 from $2,901,454 for the year ended
December 31, 1996. Total revenues for the years ended December 31, 1997 and 1996
primarily consisted of sales of $2,960,330 and $2,901,454, in the respective
years, of the Company's scientific and medical lasers from the operations of the
Company's Florida and Massachusetts facilities. However, the Company generated
revenues in 1997 of $855,000, including revenues relating to the sale of its
excimer lasers to Baxter and the payments made by Baxter to commercialize the
Company's excimer lasers in connection with the Baxter Agreement.
Total costs and expenses during the year ended December 31, 1997 decreased
25% to $5,746,170 from $7,703,607 during the year ended December 31, 1996. Total
costs and expenses include: (i) cost of sales, (ii) selling, general and
administrative expenses, (iii) research and development, (iv) depreciation and
amortization, and (v) certain bad debt expenses, as follows:
Cost of sales during the year ended December 31, 1997 decreased
approximately 10% to $2,090,276 from $2,329,299 during the year ended
December 31, 1996. This decrease primarily resulted from increased efficiency in
the Company's focus on the marketing of laser products with lower margins and
the purchasing of materials at volume discounts due to improved relations with
vendors as part of the restructuring of cost controls instituted by new
management following the Bankruptcy Reorganization.
As a result, cost of sales as a percentage of sales decreased to
approximately 55% in 1997 from 80% in 1996.
Selling, general and administrative expenses during the year ended
December 31, 1997 increased approximately 88% to $2,181,304 from $1,158,841
during the year ended December 31, 1996. This increase primarily resulted from:
(i) compensation of $671,323 recognized upon issuance of stock options and
$95,625 of Common Stock issued as payment for professional services in 1997, as
compared to $326,250 of Common Stock issued as payment of a litigation
settlement (and recorded as rental expense) and
27
<PAGE>
employee compensation in 1996, (ii) payment of $71,000 in federal tax penalties
in 1997 which did not occur in 1996, and (iii) the increased focus of the
Company's excimer laser business operations to marketing in 1997 from research
and development in 1996 in connection with the execution of the Baxter Agreement
in August, 1997. The Company believes that the issuance of securities as related
to compensation and rental expenses and the cash payment of tax penalties will
be nonrecurring expenses in the future.
Research and development during the year ended December 31, 1997 decreased
to $685,109 from $850,993 during the year ended December 31, 1996. This decrease
primarily related to the Company's increased focus of the Company's excimer
laser business operations to marketing in 1997 from research and development in
1996 in connection with the execution of the Baxter Agreement in August, 1997.
Bad debt expense related to related party receivables during the year ended
December 31, 1997 decreased to $48,000 from $662,775 during the year ended
December 31, 1996. The Company incurred a bad debt expense of $662,775 in 1996
related to the write-off of a receivable from Helionetics and of $48,000 in 1997
related to the write-off of a receivable from a subsidiary of Helionetics. These
items will be nonrecurring expenses in the future. The Company has no further
dealings with Helionetics, which filed for bankruptcy reorganization under
Chapter 11 in 1997.
The Company incurred an expense of the write-off of Reorganization Goodwill
initially recognized in connection with the Bankruptcy Reorganization of
$1,486,823 during the year ended December 31, 1996, which did not occur during
the year ended December 31, 1997. The Reorganization Goodwill recognized in
connection with the Bankruptcy Reorganization represented the portion of the
reorganization value that could not be attributed to specific tangible or
identified assets, which were being amortized over five (5) years. The
Reorganization Goodwill was written-off as of December 31, 1996 because of the
magnitude of the Company's losses following the Bankruptcy Reorganization.
Depreciation and amortization during the year ended December 31, 1997
decreased to $741,481 from $1,214,876 during the year ended December 31, 1996.
This decrease related to the reduction of $1,486,823 of Reorganization Goodwill
on the Company balance sheet as of December 31, 1996.
Other expenses decreased during the year ended December 31, 1997 to $372,361
from $555,815 during the year ended December 31, 1996. This decrease in other
expenses between the respective years resulted primarily from increased interest
income of $52,280 in 1997 as compared to none in 1996.
As a result of the foregoing, the Company experienced a net loss of
$2,307,101 during the year ended December 31, 1997, as compared to a net loss of
$5,357,968 during the year ended December 31, 1996. The Company also experienced
a net loss from operations of $1,930,840 during the year ended December 31,
1997, as compared to a net loss from operations of $4,802,153 during the year
ended December 31, 1996. See "Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES. At September 30, 1999, the ratio of
current assets to current liabilities was 2.81 to 1.00 compared to 0.28 to 1.00
at December 31, 1998.
The Company has historically financed its operations through the use of
working capital provided from operations, loans and equity and debt financing.
The Company's cash flow needs for the nine (9) months ended September 30, 1999
were primarily provided from operations, loans and equity financing.
The Company experienced severe cash flow problems during the first six
(6) months of 1997 and throughout 1996 and 1995. These cash flow problems
limited the Company's ability to purchase materials and parts incorporated in
the Company's laser products, and further restricted the Company's ability to
purchase such materials at volume discounts, thereby reducing revenues from
potential sales and gross profits from concluded sales. New management
instituted policies of cost controls, improved product selection, staff
reduction, budgeting and corporate planning in 1997, which increased the
Company's business efficiencies, including decreases in cost of sales as a
percentage of sales, reduction in net losses
28
<PAGE>
and losses from operations and the focusing on a business plan aimed at excimer
laser products which management believes has greater potential of success than
the Company's laser products preceding the Bankruptcy Reorganization.
Due to the limited financial resources of the Company, the Company's
strategy changed in 1997 to focus its efforts on the Company's excimer laser
technology and expertise in order to develop a broad base of excimer laser and
excimer laser delivery products for both medical and non-medical applications.
To facilitate the Company's new focus on excimer laser technology, the Company
is in the process of selling all of the Company's non-excimer laser business. As
of January 4, 1999, the Company entered into the Asset Purchase Agreement, which
was originally scheduled to close by the end of 1999; no assurances can be given
as to when or whether such closing will occur. The Asset Purchase Agreement
provides that the Buyer will pay and/or assume an aggregate of $1,200,000 of the
accrued and unpaid accounts payable and/or other debts of the Company. The
Company intends to transfer to the Buyer certain assets of Laser Photonics and
Laser Analytics, which are related to the Company's non-excimer laser business.
The closing of the Asset Purchase Agreement has been delayed by reason of the
difficulties being experienced by the Buyer in finding financing to complete the
purchase. The Company has orally extended the closing from month to month while
the Buyer continues to pursue the required financing. During the pendency of the
closing, since January, 1999, the Buyer has been funding a portion of the
negative cash flow of the operations of Laser Analytics from his own funds.
Management's decision to sell the assets of the Company business operations
not related to the Company's excimer laser technology will result in the
divestiture of the Company's business operations, which have generated
approximately 74% of the Company's revenues for the period from January 1, 1998
through September 30, 1999. At September 30, 1999 and December 31, 1998, total
assets related to the Company's non-excimer laser business operations, which are
the subject of the Asset Purchase Agreement, were $587,678 and $806,335,
respectively, and total liabilities were $1,200,000 and $1,200,000,
respectively, at each such date. Revenues from such operations for the nine
(9) months ended September 30, 1999 and 1998 were $807,000 and $1,796,000,
respectively, and for the years ended December 31, 1998, 1997 and 1996 were
$1,580,000, $2,960,000 and $2,901,000, respectively. Losses from operations
during the corresponding nine (9) month periods were $932,000 and $524,000,
respectively, and during the corresponding annual periods were $995,000,
$647,000 and $926,000, respectively. As of the date of this Prospectus, the
Company has received $153,435 as a deposit against the purchase price. No
assurance can be given that the Buyer will complete the purchase under the Asset
Purchase Agreement, or, if not, that the Company will be able to find an
alternative on as favorable terms to the Company as the Asset Purchase
Agreement. If the proposed transaction should not close, then the Company
intends to close down such operations and the Company would have to pay all the
obligations related to the Company's non-excimer laser business operations,
which are proposed to be assumed by the Buyer.
Although the Company has developed strategic alliances with Baxter related
to the Company's excimer lasers, there can be no assurances that the Company
will ever develop significant revenues or profitable operations with respect to
this new business plan.
From September, 1997 through September, 1999, the Company issued certain
securities, including shares of Common Stock and other derivative securities
convertible or exercisable into shares of Common Stock, in order to finance the
Company's business operations. All of the shares of Common Stock and the shares
of Common Stock underlying such derivative securities are being registered in
this Prospectus.
Cash and cash equivalents were $6,619,434, as of September 30, 1999, as
compared to $174,468, as of December 31, 1998. This increase was primarily
attributable to the receipt of $2,380,000 in cash proceeds from the offering of
the Convertible Notes in March, 1999 and of $9,310,374 from the gross proceeds
of an equity offering of the Company's securities in August, 1999, offset by
$3,843,190 of net cash used in operations during the nine (9) months ended
September 30, 1999.
29
<PAGE>
As of September 30, 1999, the Company had long-term borrowings in the
aggregate amount of $49,334, less the current portion. As of December 31, 1998,
the Company had long-term borrowings in the aggregate amount of $69,893, less
the current portion. The decrease in long-term borrowings relates to payments of
certain scheduled obligations, including: (a) obligations payable in the total
amount of $282,559, pursuant to the Plan, to former members of the Board of
Directors of the Company. The notes related to those obligations went into
default in the first quarter of 1999. The Company paid these notes from the
proceeds of the $2,380,000 Convertible Note offering received by the Company in
April, 1999, which notes were converted into equity of the Company on August 2,
1999; (b) promissory notes payable in the total amount of $165,298, pursuant to
the Plan, to the former unsecured creditors of the Company. Interest accrues at
the prime rate and is payable quarterly until October 1, 1999. This promissory
note is delinquent, as of the date of this Prospectus; (c) secured promissory
notes payable in the total amount of $127,860 (which are included in the
financial statements in liabilities in excess of assets held for sale) pursuant
to the Plan, to Novatis Corp., formerly known as CIBA-GEIGY. Interest accrues at
the rate of 10% per annum and is payable quarterly through May 5, 1997, and,
thereafter, with monthly principal and interest payments of $6,384 through May,
1999. This promissory note is secured by the assets of Laser Analytics. This
promissory note is delinquent, as of the date of this Prospectus, and is
anticipated to be assumed by the Buyer of the Laser Analytics assets. In the
event the Buyer does not close on the purchase of the Laser Analytics assets,
the Company will continue to be obligated to pay this promissory note; (d) a
promissory note payable to the U.S. Treasury for delinquent taxes in the amount
of $26,039. This note bears interest at the rate of 9% per annum, payable in
monthly principal and interest installments of $5,000 through December, 1999.
This promissory note is secured by all assets of the Company. This promissory
note is current, as of the date of this Prospectus; (e) unsecured promissory
notes payable to various creditors in the aggregate amount of $54,051. These
notes are payable with interest at 9% per annum, in various monthly principal
and interest installments through July, 2000. These promissory notes are
current, as of the date of this Prospectus (f) a secured promissory note in the
amount of $18,091, payable to Laser Center of America, with interest at the rate
of 9% per annum, in monthly installments of principal and interest of $1,258,
through January, 2001. This promissory note is current, as of the date of this
Prospectus; and (g) an unsecured promissory note in the amount of $52,622,
payable to the lessor of the Carlsbad facility, with interest at 10% per annum,
in monthly installments of principal and interest of $1,775 through
December 31, 2002. The payments on this promissory note are current.
Net cash used in operating activities was $2,083,230, $993,851 and
$1,010,589 for the years ended December 31, 1998, 1997 and 1996, respectively.
Net cash used in operating activities during the years ended December 31, 1998,
1997 and 1996 primarily consisted of net losses (after giving effect to the debt
forgiveness in connection with the Bankruptcy Reorganization), increases in net
current liabilities (1997 only) and decreases in net current assets (1997 and
1996 only), offset by depreciation and amortization, the payment in the
Company's securities of compensation and fees for services, bad debt expenses
with respect to a related party receivable (1997 and 1996 only), decreases in
net current liabilities (1998 and 1996 only) and increases in net current assets
(1998 only).
Net cash used in operating activities was $3,843,190 and $1,502,344 for the
nine (9) months ended September 30, 1999 and 1998, respectively. Net cash used
in operating activities during the nine (9) months ended September 30, 1999
primarily consisted of net losses, offset by depreciation and amortization,
increases in interest related to the conversion features of the Convertible
Notes, compensation recognized upon the issuance of stock options and increases
in net current assets and decreases in net current liabilities. Net cash used in
operating activities during the nine (9) months ended September 30, 1998
primarily consisted of net losses and decreases in current net assets, offset by
depreciation and amortization, increases in interest related to the conversion
features of the Convertible Notes, stock issued to pay fees for legal services
and decreases in current net liabilities.
Net cash used in investing activities was $145,758, $4,093,293 and $308,924
for the years ended December 31, 1998, 1997 and 1996, respectively. In the year
ended December 31, 1998, the Company
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utilized $116,158 to purchase equipment and for the construction of a laser to
be used as a demonstration model. In the year ended December 31, 1997, the
Company utilized $4,001,926 to make payments to Baxter to acquire licenses under
the Baxter Agreement, $37,541 to purchase certain equipment and $73,000 as an
advance payment to a related party, which was offset by the receipt of $19,174
from the sale of certain equipment. In the year ended December 31, 1996, the
Company utilized $292,900 as an advance payment to Helionetics and $16,024 to
purchase certain equipment. These advances to Helionetics were made at a time
when the Company was under different management and was a majority-owned
subsidiary of the related party.
Net cash used in investing activities was $36,988 and $116,291 for the nine
(9) months ended September 30, 1999 and 1998, respectively. The Company utilized
$36,988 during the nine (9) months ended September 30, 1999 and $116,291 during
the nine (9) months ended September 30, 1998, to acquire equipment for the
Company's business operations.
Net cash provided by financing activities was $1,177,524, $6,313,076 and
$1,258,427 during the years ended December 31, 1998, 1997 and 1996,
respectively. In the year ended December 31, 1998, the Company utilized $135,187
to reduce certain debt obligations, which was offset by the receipt of $35,751
of proceeds from the sale of Common Stock and $1,276,960 from the proceeds of
the issuance of the Acculase Notes. In the year ended December 31, 1997, the
Company received $6,259,077 from the sale of Common Stock and warrants, $71,094
of proceeds from certain notes payable and $140,448 as capital contributions
from Helionetics, which was offset by the payment of $157,543 on certain notes
payable. The Company used the proceeds from a financing of approximately
$6,260,000 during the year ended December 31, 1997, as follows: $4,000,000 for
acquisition of the Lasersight license, approximately $500,000 for costs of the
financing, and the remainder to pay current operating expenses. In the year
ended December 31, 1996, the Company received capital contributions of $529,622,
$703,500 from the exercise of stock options and $92,952 from the proceeds from
certain notes payable, offset by payments on notes payable of $67,647.
Net cash provided by financing activities was $10,325,144 and $880,748
during the nine (9) months ended September 30, 1999 and 1998, respectively. In
the nine (9) months ended September 30, 1999, the Company received $2,380,000 in
proceeds from the offering of the Convertible Notes, $8,540,544 from the
proceeds of the issuance of Common Stock in August, 1999, $11,340 from the
proceeds of payments of certain related party notes payable, $18,750 upon the
exercise of warrants into 12,500 shares of Common Stock, and $86,485 from the
proceeds of other notes payable, which was offset by the utilization of $473,213
for payment of certain debts, $72,162 for payment of certain related party notes
payable and $166,600 for certain costs related to the issuance of the
Convertible Notes and the Unit Warrants. During the 9 months ended
September 30, 1999, the Company used the proceeds from those financings as
follows: approximately $3,000,000 to Acculase for operations, and the remainder
to pay operating expenses of Laser Photonics, leaving cash on hand in the amount
of approximately $6,619,434. In the nine (9) months ended September 30, 1998,
the Company received proceeds of $1,000,000 from a convertible bridge loan in
July and August, 1998, which was converted into 500,000 shares of Common Stock
in December, 1998, and $35,751 of proceeds from the issuance of Common Stock,
which was offset by the utilization of $155,003 to pay certain debts. See
"Certain Relationships and Related Transactions."
As of September 30, 1999, the Company had total debts of $3,857,277 and cash
on hand of $6,619,434. The Company anticipates the need to obtain additional
financing of at least $5,000,000 to introduce its psoriasis treatment products
and to implement its marketing plan. A portion of the proceeds from such
financing and the cash on hand will be required to pay the Company's debts in
full.
With the completion of the development of the psoriasis product, the Company
now anticipates the need for approximately $5,000,000 in addition to the
proceeds of the August 9, 1999 Financing. As of the date of this Prospectus, the
Company has entered into a letter of intent with ING for the ING Financing, in
the amount of up to $20,000,000, which the Company's anticipates will provide
the financing required to
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accomplish the rollout of the Company's psoriasis product and for working
capital for at least 13 months. The date when this financing is to be completed
has not yet been determined. No assurance can be given that the ING Financing
will be completed or if completed will provide adequate funds for the Company to
have a successful introduction of the Company's psoriasis treatment products.
See "Business-Excimer Laser System for the Treatment of Psoriasis," "Financial
Statements and Supplementary Data" and "Certain Relationships and Related
Transactions."
The Company's ability to expand business operations is currently dependent
on financing from external sources. There can be no assurance that changes in
the Company's manufacturing and marketing research and development plans or
other changes affecting the Company's operating expenses and business strategy
will not result in the expenditure of such resources before such time or that
the Company will be able to develop profitable operations prior to such date, or
at all, or that the Company will not require additional financing at or prior to
such time in order to continue operations. There can be no assurance that
additional capital will be available on terms favorable to the Company, if at
all. To the extent that additional capital is raised through the sale of
additional equity or convertible debt securities, the issuance of such
securities could result in additional dilution to the Company's stockholders.
Moreover, the Company's cash requirements may vary materially from those now
planned because of results of marketing, product testing, changes in the focus
and direction of the Company's marketing programs, competitive and technological
advances, the level of working capital required to sustain the Company's planned
growth, litigation, operating results, including the extent and duration of
operating losses, and other factors. In the event that the Company experiences
the need for additional capital, and is not able to generate capital from
financing sources or from future operations, management may be required to
modify, suspend or discontinue the business plan of the Company. See "Risk
Factors."
SEASONAL FACTORS
Seasonality is not a significant factor in medical laser sales. Budgetary
cycles and funding are spread out in various hospitals, chains and
organizations, so that funding is not as cyclical as in the scientific laser
market.
IMPACT OF INFLATION
The Company has not operated in a highly inflationary period, and its
management does not believe that inflation has had a material effect on sales or
expenses.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") recently issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted as of
December 31, 1999. SFAS No. 133 establishes standards for reporting financial
and descriptive information regarding derivatives and hedging activity. Since
the Company does not have any derivative instruments, this standard will have no
impact on the Company's financial position or results of operations.
FASB 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" and FASB 134, "Accounting for Mortgage-Backed Securities Retained
after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," were issued in 1998 and are not expected to impact the Company's
future financial statement disclosures, results of operations or financial
position.
YEAR 2000
One of the major challenges facing any company whose products or services
rely on the operation of computers or other equipment containing computer chips
is the issue of Year 2000 compliance. Many
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existing computer programs use only two digits to identify a year in the date
field. If not corrected, many computer applications could fail or create
erroneous results by or at the Year 2000.
During the last eighteen months, the Company has maintained a program to
reduce the risk from Year 2000 computer failures by its suppliers. Under this
program, all key suppliers were contacted, or supplied or made available their
Year 2000 readiness statements. Small vendors offering contract manufacturing
services that were unresponsive to the requests for Year 2000 information are in
each case one of multiple sources for the given service or product.
The Company has inventory for all current orders, as well as orders
anticipated in the first quarter of 2000. The Company's production methods
require the use of electric power and other municipal provided services, but has
been informed that these are Year 2000 compliant. The loss of power or water
would not significantly impact scheduled production unless the condition exists
for more than a week, although no assurance can be given to that effect.
The Company's design and development system relies exclusively on a paper
and hardcopy based system. There are documents created by computer aided
systems, but all are subject to design control by hardcopy. Management believes
that this design method protects the Company against catastrophic failure of any
computer system, and although the loss of all of the Company's computer systems
would slow the design process, it would not affect current designs, nor would it
result in a loss of data, although no assurance can be given to that effect. In
some cases, it could be necessary to restore or recreate data in electronic
form, which could take several weeks to accomplish. Management believes that, in
such a circumstance, the impact on the production of machines and on research
and development to be small, although no assurance can be given to that effect.
Since January 1, 2000, the Company has not experienced any adverse impact
from the transition to the Year 2000, although no assurance can be given that
the Company's suppliers or customers have not been affected in a manner that is
not yet apparent. In addition, some computer programs may not have been
programmed to process the Year 2000 as a leap year, and negative consequences
therefrom remain unknown.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is not currently exposed to market risks due to changes in
interest rates and foreign currency rates and therefore the Company does not use
derivative financial instruments to address risk management issues in connection
with changes in interest rates and foreign currency rates.
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BUSINESS
The following should be read in conjunction with the Company's Consolidated
Financial Statements and the related Notes thereto, contained elsewhere in this
Prospectus. This Prospectus contains forward-looking statements, which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Unless the context
otherwise requires, the term "Company" refers to Laser Photonics, Laser
Analytics and Acculase.
HISTORY OF THE COMPANY
The Company historically has pursued a strategy of development of a wide
range of laser products using different solid state lasers, including solid
state Ruby, Nd: YAG, frequency-doubled Nd: YAG and Alexandrite lasers, all for
medical applications. Since 1986, the Company has sold over 1,000 lasers,
usually on a private label basis to other manufacturers. This strategy proved to
be unsuccessful, in the opinion of current management of the Company as the
Company generated revenues from the sale of numerous of its products, but was
unable to operate profitably. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
On May 13, 1994, the Company filed for Bankruptcy Reorganization. The
Company was subsequently authorized to conduct its business operations as a
debtor-in-possession subject to the jurisdiction of the Bankruptcy Court. The
Plan included, among other things, that in exchange for the forgiveness of
certain unsecured debt, the Company issued to its unsecured creditors shares of
the Company's Common Stock in such an amount that, following the issuance of all
Common Stock to be issued under the Plan, the unsecured creditors owned
1,000,000 shares of the Company's Common stock, representing 20% of the issued
and outstanding shares of Common Stock of the Company. The shares of Common
Stock of the Company's prior existing stockholders were canceled and reissued
into 250,000 shares of Common Stock, which represented 5% of the then total
issued and outstanding shares of Common Stock. The remaining 75% of the
Company's Common Stock was owned by Helionetics.
Acculase was founded in 1985 for the purpose of commercializing products
that utilize its proprietary excimer laser and fiber optic technologies.
Acculase has focused primarily on the development of medical products for the
treatment of coronary heart disease.
The Acculase excimer laser power source was developed to perform a variety
of materials processing applications. The Acculase overall system, designated
the pulsed excimer laser, was developed for microsurgical applications. The
first medical application of the overall system, designated the excimer laser
system, was approved by the FDA under IDE No. G920163 for use in the treatment
of occlusive coronary artery disease as an adjunct to CABG. Acculase chose not
to pursue completion of such IDE due to the lack of funds to pay the costs of
and to recruit patients into the necessary studies.
Due to the limited financial resources of the Company, the Company's
strategy changed in 1997 to focus its efforts on the Company's excimer laser
technology in order to develop a broad base of excimer laser and excimer laser
delivery products for medical applications. The Company believes that excimer
laser technology provides the basis for reliable cost-effective systems that
will increasingly be used in connection with a variety of applications. The
Company is engaged in the development of proprietary excimer laser and fiber
optic equipment and techniques directed initially toward the treatment of
psoriasis and coronary heart disease, as well as other medical applications.
BUSINESS OF THE COMPANY
The Company is engaged in the development, manufacturing and marketing of
proprietary excimer laser and fiber optic equipment and techniques directed
toward the treatment of psoriasis and cardiovascular and vascular disease. The
Company anticipates developing such equipment and technologies to treat other
medical problems as well as non-medical applications. However, no assurance to
this effect can be given.
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The Company's initial medical applications for its excimer laser technology
are intended to be used in the treatment of psoriasis and cardiovascular
disease.
The Company began testing its excimer laser system for the treatment of
psoriasis at MGH in 1998 with a Dose Response Study under IRB approval. The
final data from this study was collected in December, 1998. This data served as
the basis for a 510(k) submission to the FDA on August 27, 1999. On January 27,
2000 the FDA issued the 510(k) for the Company's psoriasis treatment products.
The Company's psoriasis treatment system has been determined to be substantially
equivalent to currently marketed devices for the treatment of psoriasis. Despite
the receipt of a 510(k) for the Company's psoriasis treatment products, the
Company must raise at least $5,000,000 to implement a marketing plan for the
Company's psoriasis treatment products. The plan is not yet completed and the
Company is seeking the financing required. No assurance can be given that the
necessary funds will be raised and if raised that the Company will be able to
successfully implement a marketing plan. As of the date of this Prospectus, the
Company has entered into a letter of intent with ING for the ING Financing, in
the amount of up to $20,000,000, which the Company's anticipates will provide
the financing required to accomplish the rollout of the Company's psoriasis
product and for working capital for at least 13 months. The date when this
financing is to be completed has not yet been determined. No assurance can be
given that the ING Financing will be completed or if completed will provide
adequate funds for the Company to have a successful introduction of the
Company's psoriasis treatment products.
The Company's cardiovascular and vascular applications are in connection
with an experimental procedure known as TMR, in which the Company's TMR System
is currently in Phase I Human Clinical trials. The Company and Baxter are
engaged in a strategic alliance for the development and marketing of excimer
laser products for TMR.
The Company entered into certain agreements with respect to the
manufacturing and marketing of its excimer lasers and delivery systems in 1997
with Baxter. Although the Company has developed a strategic alliance with Baxter
related to the Company's excimer lasers for the treatment of cardiovascular and
vascular disease using the TMR System, there can be no assurances that the
Company will ever develop significant revenues or profitable operations with
respect to the Company's TMR System. See "Business--Strategic Alliance with
Baxter Healthcare Corporation" and "Business--Excimer Laser Systems for the
Treatment of Psoriasis."
RELATIONSHIP WITH ACCULASE SUBSIDIARY. Laser Photonics owns 76.1% of the
issued and outstanding common stock of Acculase. In addition to Laser Photonics,
there are approximately eight other stockholders of Acculase, including certain
former officers and directors of the Company. Helionetics filed a petition for
bankruptcy reorganization in 1997 and is no longer a stockholder of Acculase.
Acculase owns certain technologies related to the Company's excimer lasers and
their delivery systems. The loss of any of these technologies to the Company
could have a material adverse effect upon the business of the Company. See
"Business--Strategic Alliance with Baxter Healthcare Corporation" and
"Business--Intellectual Property."
In the early 1990's, Acculase was unable to raise equity or debt financing
to further the development of its excimer laser technology. Only with the
initial assistance of Helionetics, and that of Laser Photonics, was Acculase
able to obtain the capital needed to develop its excimer laser products and,
consequently, develop the business relationship with Baxter. See
"Business--Strategic Alliance with Baxter Healthcare Corporation."
Of the stockholders of Acculase, only Laser Photonics participates in the
day-to-day management of Acculase or contributes any financing to the operations
or the development of Acculase. Laser Photonics has been required to engage in
significant financing activities since 1997 to obtain the funding necessary to
support Acculase's ability to develop its excimer laser products. Acculase has
been unable to raise money throughout its history, largely because it is and has
been a privately owned company. Acculase has had to rely upon the Company, since
the Company obtained control of the 76.1% of the common stock of
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Acculase, in 1995, to raise financing to capitalize the development of its
excimer lasers. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" and "Certain Relationships and Related
Transactions."
On September 18, 1997, Laser Photonics, PMG and Baxter agreed, in connection
with fulfilling the obligations of the parties under the Baxter Agreement, that
Laser Photonics needed to acquire a license (the "Lasersight License") from
Lasersight Patents, Inc. ("Lasersight"), an unaffiliated third party, for
certain patents which relate to the use of excimer lasers for the cardiovascular
and vascular markets. On September 23, 1997, Baxter purchased certain patent
rights to related patents from Lasersight for $4,000,000, and in December, 1997,
Laser Photonics received from Baxter the Lasersight License. Laser Photonics
then paid $4,000,000 to Baxter for the transfer of the Lasersight License,
having raised the funds from a private placement of Laser Photonics securities.
In the event that Baxter terminates the Baxter Agreement, Baxter will grant to
Laser Photonics an exclusive sublicense of all of Baxter's rights under the
Lasersight License. In such event, Laser Photonics will acknowledge and agree
that upon the grant of such exclusive sublicense, Laser Photonics will assume
all obligations and liabilities of Baxter under the Lasersight License. See
"Business--Excimer Laser System for Treatment of TMR Strategic Alliance with
Baxter Healthcare Corporation," "Business--Intellectual Property" and "Certain
Relationships and Related Transactions."
Management of the Company believes that the provision of financing and
management assistance to Acculase has provided a significant benefit in the
development of the Acculase technology to Acculase and the Acculase
stockholders, other than the Company, and that Acculase could not have obtained
any of these benefits without the financial and management assistance provided
by Laser Photonics. This has resulted in significant dilution in ownership of
Laser Photonics to the stockholders of Laser Photonics, without dilution to the
ownership interest of the stockholders of Acculase. Laser Photonics has lent,
paid or assumed obligations of Acculase which are at least $6,700,000 to pay
payroll of employees and other operations and obligations. All such amounts lent
to Acculase were lent without any date certain as to when such loans would be
repaid. In addition, Laser Photonics has issued 821,986 options as incentives to
employees to work for Acculase.
Management of the Company believes that this situation will continue until
such time as Acculase is generating enough revenue that it can finance its
operations from internally generated cash flow. No assurance can be given that
Acculase will ever be able to finance its operations from internally generated
cash flow. Thus, the Company may have to continue to dilute the ownership of the
stockholders of Laser Photonics indefinitely. The Boards of Directors of the
Company and Acculase have voted to merge. The exact ratio of the anticipated
exchange of Acculase common stock for Common Stock of the Company will be
determined by the receipt of separate fairness opinions from investment bankers
to be hired by each of the Boards of Directors. Because of the majority
ownership of Acculase by the Company, the Company controls a sufficient number
of the issued and outstanding shares of Acculase in order to approve the
proposed reorganization. However, generally, under California law, when a
dissenting stockholder opposes a reorganization, such as a merger in which the
stockholders of Acculase may be required to accept shares of Laser Photonics in
consideration for the exchange of their shares in Acculase, the exclusive remedy
of the dissenting stockholder is the right to receive the appraised cash value
of his shares in Acculase.
However, the case where one entity (such as Laser Photonics) controls both
corporations which are the subject of the proposed reorganization, the
stockholders of the controlled entity (in this case Acculase), may be entitled
to institute an action to attack the validity of the reorganization or to have
the reorganization set aside or rescinded. There can be no assurance that any of
the Acculase stockholders will not file such an action, or that a court will not
set aside the proposed reorganization transaction.
In the event that some or all of the Acculase stockholders exercise their
appraisal rights, decline to accept the terms of the proposed exchange of Laser
Photonics Common Stock for Acculase common stock, and wish to receive cash in
lieu thereof, and the aggregate amount sought by the Acculase stockholders
exceeds an amount to be determined by the Board of Directors, the Company will
reserve the right to
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terminate the reorganization until such time as the Company has adequate cash to
cash out those Acculase stockholders who exercise their appraisal rights.
EXCIMER LASERS TECHNOLOGY
The basis of the Company's business is its excimer laser technology. The
word "excimer" is short hand for excited dimer. A dimer describes a molecule
formed, by means of a catalyst, from two or more atoms. Solid state lasers
using, for example, a crystalline substance and medium may contain both excited
dimers and dimers in non-excited or "ground" state. In such devices, power is
supplied to increase the percentage of dimers, which are excited. In general,
such laser beams are in the infrared end of the light wave spectrum and create a
great deal of heat.
An excimer laser uses a medium in which the dimers exist only in the excited
state. The Company, using xenon chloride gas as a medium, pumps electricity in
and generates excited dimers. This system creates and excites the dimers at the
same time. Once the power is shut off, the dimers cease to exist. This type of
laser usually, though not always, generates beams in the ultraviolet ("UV") end
of the light wave spectrum. The wavelength of the beam depends largely on the
type of gas used. In the case of the Company's laser technology, the wavelengths
may vary between 174 nm and 351 nm.
Many lasers cut things, but different lasers do so in different ways. An
excimer laser, sometimes called a "cold laser," having photon energy greater
than most organic bonds, cuts organic material by directly breaking bonds that
hold the organic material together ("photoablation"). Other lasers, sometimes
called "hot lasers," involve vibrating water molecules, which create steam, and
which in turn cut organic material ("thermal ablation").
Management of the Company believes that a cold laser has significant
advantages over a hot laser. However, no assurance to this effect can be given.
The Company's competitors for the TMR System, PLC and Eclipse, are using either
a homium (Ho:YAG) laser technology or CO2 laser technology (both of which are
hot lasers). Most of the myocardium (75%-80%) is composed of water, while the
rest is organic material. The technologies of the Company's competitors require
a surgeon or cardiologist to send one or more high-energy "pulses" through the
myocardium to create the desired channels. These high-energy pulses are absorbed
by the water in the myocardium. These high-energy pulses cause the water in the
myocardium to turn to steam while ablation is taking place. The conversion of
water to steam is accompanied by a volume increase of approximately 1,500 times.
In the opinion of management of the Company, it is likely that the steam created
from this thermal ablation will travel into the tissue surrounding the TMR
channels, which can greatly extend the zone of thermal injury. The patients who
might benefit from this type of treatment already have compromised cardiac
function and cannot afford to lose additional muscle function around each
channel to thermal injury. In contrast to the use of the Ho:YAG and the CO2
lasers, the excimer laser is not absorbed by water and thus there is little or
no steam created by photoablation. Management believes that no thermal injury
occurs from photoablation. However, no assurance to this effect can be given.
There can be both mechanical and chemical effects to the myocardium by using the
excimer laser. These mechanical and chemical effects include the creation of
gases and the vaporization of water. The bubbles created by this creation of
gases and vaporization of water can cause tearing in tissue within the
myocardium, which is not considered by management of the Company to be
significant. The use of the Ho:YAG and the CO2 lasers also causes this type of
vapor bubble formation. See "Business--Competition."
Some of the companies attempting to develop laser driven TMR technologies
use flexible fibers capable of delivering the laser energy either through a
small incision in the chest or percutaneously through a catheter inserted in the
femoral artery in the groin. This method of delivering laser energy has certain
obstacles in optimizing the delivery of that energy. Management of the Company
believes that using an excimer laser has the following additional benefits over
hot lasers: (i) creation of TMR channels will avoid the formation of steam
bubbles to the brain; and (ii) the excimer laser allows for the more rapid
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creation of TMR channels (discussed below) leading to less operating room time.
See "Business--Strategic Alliance with Baxter Healthcare Corporation."
EXCIMER LASER SYSTEM FOR THE TREATMENT OF PSORIASIS.
GENERAL. As of the date of this Prospectus, the Company has developed an
excimer laser and laser delivery system for the treatment of psoriasis.
Psoriasis or autogenic skin cell proliferation is a chronic inflammatory skin
disease for which there is no known cure, but for which there are many different
treatments, both topical and systemic, that can clear psoriasis for periods of
time. Plaque psoriasis, the most common form, is characterized by inflamed
lesions topped with silvery white scales. Psoriasis can be limited to a few
plaques or it can cover moderate to extensive areas of skin. No one knows
exactly what causes psoriasis, although it is believed to be an immune medical
disorder. Normal skin cells mature in 28 to 30 days, but psoriasis skin cells
take only three to six days to mature, thus creating the silvery white scales.
According to the National Psoriasis Foundation ("NPF"), there are three
(3) approaches to treat psoriasis: topical therapy (creams and lotions),
phototherapy (PUVA and UVB) and systemic medications. The Company's excimer
laser technology for the treatment of psoriasis, if successful, is intended to
replace and/or augment all of the current treatment modalities.
The NPF estimates that psoriasis that affects more than 7 million Americans
and that between 150,000 and 260,000 new cases occur each year. An estimated 10%
to 20% of the afflicted eventually contract psoriatic arthritis, which attacks
the ligaments around joints. Both genders are affected by the condition, being
slightly more prevalent among women. Approximately 10% to 15% of the people who
suffer from psoriasis are under the age of ten. The NPF further estimates that
over 1,500,000 patients suffering from psoriasis are treated by dermatologists
each year and that the overall current yearly cost to treat psoriasis estimated
to be from $1.6 to $3.2 billion. In addition to cost, the NPF estimates that
56 million hours of work are lost each year by psoriasis sufferers.
Approximately 400 people in the United States per year die from complications
caused by psoriasis. An additional 400 people per year receive Social Security
benefits for disability due to psoriasis symptoms each year. Management of the
Company believes that one-half or more of all psoriasis sufferers respond to
currently available ultraviolet light treatments, which could receive the
benefits of the Company's proposed treatment. According to the NPF, UVB
treatments are considered to be one of the most effective therapies for moderate
to severe psoriasis with the least risk. However, no assurance to this effect
can be given.
AGREEMENTS WITH MASSACHUSETTS GENERAL HOSPITAL. On March 17, 1998, the
Company entered into a clinical trial agreement with MGH (the "Clinical Trial
Agreement") to compare the effect of excimer laser light using its excimer laser
technology to the current UVB treatment being used to treat psoriasis. The
Company provided prototype laser equipment for pre-clinical dose response
studies. The Company has agreed to support the clinical trials with a research
grant of approximately $160,000, of which $50,000 has been paid as of the date
of this Prospectus. The final data from the study was collected in December,
1998, and formed the basis for a 510(k) submission to the FDA on August 4, 1999.
On January 27, 2000, the Company's 510(k) was issued by the FDA establishing the
Company's excimer laser psoriasis system has been determined to be substantially
equivalent to currently marketed devices for the treatment of psoriasis. See
"Business--Government Regulation," "Business--Markets and Marketing,"
"Business--Competition" and "Business--Intellectual Property."
The Company believes that its excimer laser system for treating psoriasis
may replace and/or augment the current phototherapy modalities in use to treat
the symptoms of psoriasis. The Company has tested its excimer laser system, as
it compares to the UVB therapy currently being extensively used to control
psoriasis. In using UVB, the patient stands in a light box lined with special
UVB lamps and the whole body is radiated (other than protected areas such as
eyes and genitals). The need for long periods of treatment is due to the fact
that the healthy skin, as well as the psoriasis affected skin, is being treated
in the light boxes, so that the dosage or radiation must be controlled or the
patient will be severely burned. The Company's
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excimer laser, however, can be used to treat only the skin area that is affected
by psoriasis. Since it is believed that skin that is affected by psoriasis is
not as susceptible to UVB radiation, the Company believes that a high dose of
UVB applied directly to the affected area significantly reduces the number of
treatments and the time needed to control psoriasis.
On November 26, 1997, the Company and MGH entered into the MGH Agreement,
pursuant to which the Company paid $37,500 to MGH, and has further agreed to pay
MGH $50,000 upon issuance by the United States Patent and Trademark Office of
any patent right (which has not yet occurred as of the date of this Prospectus)
and an additional $50,000 upon approval by the FDA of the first 510(k), PMA or
PMA Supplement (which has not occurred as of the date of this Prospectus).
Under the MGH Agreement, the Company obtained an exclusive, worldwide,
royalty-bearing license from MGH to develop, manufacture, use and sell products,
utilizing a pending patent which incorporates certain technology of MGH, related
to the diagnosis and treatment of certain dermatological conditions and
diseases, particularly psoriasis. Beginning with the first commercial sale of
the products in any country, on any sales of products made anywhere in the world
by the Company, or its affiliates and sublicensees, the Company has agreed to
pay royalties to MGH, as follows: (i) 4% of the net sales price, so long as the
products manufactured, used or sold are covered by a valid claim of patent
licensed exclusively to the Company; (ii) 2% of the net sales price whenever the
products manufactured, used or sold are covered by a valid claim licensed
exclusively to the Company; and (iii) 1% of the net sales price whenever the
products manufactured, used or sold, on which no royalty is payable under items
(i) and (ii) above, during the ten year period following the first commercial
sales anywhere in the world. In addition to the royalties provided for above,
the Company has agreed to pay MGH 25% of any and all non-royalty income,
including license fees and milestone payments received from affiliates or
sublicensees of the Company. See "Business--Intellectual Property."
The licensed technology is the subject of a currently pending provisional
patent application filed with the United States Patent and Trademark Office by
MGH. As of the date of this Prospectus, the pending patent has not been
approved. The Company has agreed to use its best efforts to develop and make
commercially available products with respect to the licensed technology within
certain time frames defined in the MGH Agreement, or MGH may have the right to
cancel the exclusive license or convert any exclusive license to a non-exclusive
license. See "Business--Intellectual Property."
TREATMENT OF PSORIASIS USING EXCIMER LASERS. The Company expects that the
number of treatments that will be needed to control psoriasis using the
Company's excimer laser treatment system should decrease from over 30 to less
than 10. Further, the Company estimates that the typical treatment time using
the Company's excimer laser treatment system will be greatly reduced. However,
no assurance to this effect can be given. The other benefits to the use of the
Company's excimer laser treatment system should be to reduce or eliminate the
side effects of current treatment modalities. UVB treatments have the same long
term effects as chronic sun exposure, which causes skin cancer and/or premature
skin aging. It is hoped that by treating only the psoriasis affected skin with
the Company's excimer laser treatment system, total radiation dosage will be
reduced, thereby reducing the chances of cancer and premature skin aging.
However, no assurances to this effect can be given.
The Company's excimer laser equipment designed to treat psoriasis generates
UV light with a wavelength of 308 nm. The UVB light currently being used in
phototherapy of psoriasis has a wavelength of 310 nm. The Company believes that
the Company's excimer laser treatment system will be effective in replacing
other methods of treating psoriasis with UVB light. However, no assurance to
this effect can be given. The Company believes that the use of fiber optics to
deliver UV light allows for precise control of the light and an ability to
deliver the light to areas that are currently not excisable with standard
treatments (i.e., the scalp). The Company believes that its excimer laser
treatment system should become the preferred method to treat many psoriasis
plaques because management believes that it can intensely treat affected areas
without affecting healthy skin with radiation that would otherwise cause adverse
side effects. Current UVB therapy cannot deliver such dosages without causing
sickness as a result of radiation. The
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more intense excimer plaque doses will result in faster and fewer visits, all
with fewer side effects. The very narrow band of radiation from the excimer
laser will also help avoid potential mutanagenic effects of broadband UV light
sources. There can be no assurances that the Company's excimer laser technology
will be successful in treating psoriasis or result in commercially viable
products. See "Business--Government Regulation."
On January 2, 1998, the Company and R. Rox Anderson, M.D. ("Anderson"),
entered into a consulting agreement (the "Anderson Agreement"), wherein Anderson
agreed to provide consulting services to the Company in connection with an IDE
for the development of data in connection with the proposed psoriasis treatment
products the Company is attempting to develop. Anderson is paid at the rate of
$1,000 per day, when services are provided specifically at the request of the
Company. As of May 21, 1999, the Company established a Scientific Advisory
Committee, of which Dr. Anderson is the Chairman, for the purpose of providing
management with critical analysis of business opportunities and potential
strategies for the Company's excimer laser business. See "Management--Scientific
Advisory Board."
EXCIMER LASER SYSTEM FOR TREATMENT OF TMR
GENERAL. Heart muscle, like all tissues of the body, must be constantly
supplied with oxygen in order to function effectively. Oxygen is delivered to
the myocardium by the blood, which is distributed to the myocardium through the
right and left coronary arteries. If these arteries are narrowed or blocked as a
result of atherosclerosis, oxygen-rich blood cannot supply the metabolic demand
of the myocardium. Cardiovascular disease eventually may cause ischemia
myocardium (oxygen-starved heart tissue), often evidenced by severe and
debilitating angina (chest pains caused by lack of oxygen to the heart muscle),
which can progress to myocardial infarction (the death of an area of the heart
muscle). Advanced multi-vessel ischemic heart disease is typically treated with
bypass surgery.
The Company's TMR System for the treatment of coronary heart disease creates
new channels for blood to flow to ischemic (oxygen-starved) heart muscle tissue.
Rather than opening narrowed coronary arteries, the TMR System is intended to
treat ischemic myocardium directly. This is accomplished by lasing small
channels through ischemic areas of the heart, which connect directly with the
left ventricle of the heart, a reservoir of oxygen-rich blood. Management
believes that these channels may provide new pathways for blood flow into the
heart muscle. However, there can be no assurances to this effect.
CARDIOVASCULAR DISEASE AND ALTERNATIVE TREATMENT METHODS. According to the
American Heart Association, cardiovascular disease, the partial or total
blockage of arteries, is the leading cause of death and disability in the United
States. Coronary artery disease accounts for approximately one million, or
one-half, of all deaths in the United States annually. Approximately 1,500,000
new cases of heart attacks or angina are reported each year. Over 13,000,000
Americans suffer from coronary heart disease and 350,000 new cases of heart
disease are diagnosed every year in the United States.
Atherosclerosis, the principal form of cardiovascular disease, is
characterized by a progressive narrowing of the coronary arteries due to
accumulated plaque (lesions) on the walls of the arteries, which supply
oxygenated blood to the heart, potentially resulting in angina and damage to the
heart. Typically, the condition worsens over time and often leads to heart
attack or death. More than 6,000,000 Americans experience anginal symptoms per
year. Drug therapy may be effective for mild cases of coronary artery disease
and angina, either through medical effects on the arteries that improve blood
flow without reducing plaque or by decreasing the rate of formation of
additional plaque (i.e., by reducing blood levels of cholesterol).
The primary therapeutic options for treatment of coronary artery disease are
drug therapy, PTCA or balloon angioplasty, including techniques, which augment
or replace PTCA, such as stent placement and atherectomy, and CABG or open heart
bypass surgery. The objective of each of the different approaches is to increase
blood flow through the coronary arteries to the heart. According to the American
Hospital
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Association, approximately 1,100 hospitals in the United States perform
cardiovascular related surgical procedures.
According to the 1998 Heart and Stroke Facts Statistics published by the
American Heart Association, approximately 573,000 coronary bypass operations
were performed on 360,000 patients and 434,000 balloon angioplasty procedures
were performed in the United States on approximately 408,000 patients in 1995.
The American Heart Association estimates the cost of cardiovascular disease in
1997 at $259.1 billion, including physician and nursing services, hospital and
nursing home services, medications and lost productivity resulting from
disability. Hospital charges for bypass surgery are typically between $25,000 to
$45,000, and bypass surgery requires prolonged hospitalization and extensive
recuperation periods. The Company estimates that approximately $700,000,000 of
this market would have been applicable to the Company's TMR System, had it been
approved by the FDA in 1997, for use for TMR procedures that are not an adjunct
to coronary graft bypass surgery. However, no assurance to this effect can be
given.
CABG is an open chest procedure developed in the 1960s in which conduit
vessels are taken from elsewhere in the body and grafted to the blocked coronary
arteries so that blood can bypass the blockage. CABG typically requires use of a
heart-lung machine to render the heart inactive (to allow the surgeon to operate
on a still, relatively bloodless heart) and involves prolonged hospitalization
and patient recovery periods. Accordingly, it is generally reserved for patients
with severe cases of coronary artery disease or those who have previously failed
to receive adequate relief of their symptoms from PTCA or related techniques.
Unfortunately, most bypass grafts fail within one to fifteen years following the
procedure. Repeating the surgery ("re-do bypass surgery") is possible, but is
made more difficult because of scar tissue and adhesions that typically form as
a result of the first operation. The American Heart Journal estimates that 12%
of all CABG procedures in the United States are re-do bypass surgeries.
Moreover, for many patients, CABG is inadvisable for various reasons, such as
the severity of the patient's overall condition, the extent of coronary artery
disease or the small size of the blocked arteries.
PTCA is a less-invasive alternative to CABG, which was introduced as an
approved procedure in the early 1980s. PTCA is a procedure in which a
balloon-tipped catheter is inserted into an artery, typically near the groin,
and guided to the areas of blockage in the coronary arteries. The balloon is
then inflated and deflated at each blockage site, thereby rupturing the blockage
and stretching the vessel. Although the procedure is usually successful in
widening the blocked channel, the artery often renarrows within six months of
the procedure, a process called "restenosis," often necessitating a repeat
procedure. A variety of techniques for use in conjunction with PTCA have been
developed in an attempt to reduce the frequency of restenosis, including stent
placement and atherectomy. Stents are small metal frames delivered to the area
of blockage using a balloon catheter that is deployed or expanded within the
coronary artery. The stent is a permanent implant intended to keep the channel
open. Atherectomy is a means of using mechanical, laser or other techniques at
the tip of a catheter to cut or grind away plaque.
When these treatment options are exhausted, the patient is left with no
viable surgical alternative other than, in limited cases, heart transplantation.
TMR, currently under clinical investigation by the Company and available from
certain other companies, offers potential relief to a large class of patients
with end stage heart disease. There are an estimated 120,000 people worldwide
per year that qualify for TMR under the conditions set forth above.
STRATEGIC ALLIANCE WITH BAXTER HEALTHCARE CORPORATION. On August 19, 1997,
Acculase and Baxter executed the Baxter Agreement, which provides for an
alliance with Baxter in which the Acculase granted to Baxter an exclusive
worldwide right and license to manufacture and sell the Company's TMR System
consisting of certain excimer laser technology products relating to the
treatment of cardiovascular and vascular disease and the disposable products
associated therewith. The Company agreed to manufacture the TMR System to the
specifications of Baxter at a schedule of prices, based upon the volume of TMR
Systems purchased by Baxter from the Company. Pursuant to the Baxter Agreement,
the Company agreed, for a period of five years, not to engage in any business
competitive with the laser products licensed by Baxter. Further, Baxter
maintains, pursuant to the Baxter Agreement, a security interest in all patents
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owned by the Company related to the TMR System to secure the Company's
performance under the Baxter Agreement and licenses. Failure of the Company to
perform its obligations under the Baxter Agreement could result in the loss of
the patents subject to such security interest. The Baxter Agreement expires upon
the expiration of the last to expire of the licensed patents, which is currently
scheduled to expire in 2008. However, Baxter may terminate the Baxter Agreement
at any time upon five days' written notice. Due to Baxter's strong worldwide
marketing presence, relationships with leading clinicians and regulatory
expertise, Baxter is absorbing many of the significant expenses of bringing the
Company's TMR products to market. See "Business--Intellectual Property,"
"Business--Research and Development" and "Business--Markets and Marketing."
Pursuant to the terms of the Baxter Agreement, Baxter has delivered the
first two TMR Systems to Baxter. Baxter has paid the Company an aggregate of
$1,959,000, which includes certain advances for additional excimer laser systems
and CE Mark compliance (which has been obtained), a requirement for Baxter to
sell the TMR Systems within the EEA. In addition, Baxter has agreed to: (i) pay
to the Company a royalty of 5% of the sales price received for each disposable
product sold in the United States and 10% of the sales price received for each
disposable product sold throughout the rest of the world, or if the laser
equipment is sold on a "per treatment" basis, the imputed average sales price
based on average sales other than on a "per treatment" basis, calculated
quarterly for such disposable products sold, adjusted to amortize and recapture,
over a 36-month period, Baxter's cost of manufacturing such products;
(ii) purchase from the Company certain existing excimer laser systems for
cardiovascular and vascular disease; (iii) fund the total cost of obtaining
regulatory approvals worldwide for the use of the TMR System for the treatment
of cardiovascular and vascular disease; (iv) fund all sales and marketing costs
related to the introduction and marketing of the TMR System to treat
cardiovascular and vascular disease; and (v) pay a per unit price on a reducing
scale from $75,000 to $45,000 per TMR System, based on the number of TMR Systems
purchased by Baxter. Prices for TMR Systems may be adjusted annually after three
years, based upon changes in costs of materials (but not overhead or profit
margin). See "Business--Government Regulation," "Business--Markets and
Marketing," "Business--Competition" and "Business--Intellectual Property."
In September, 1997, the Company, PMG and Baxter agreed, in connection with
fulfilling the obligations of the parties under the Baxter Agreement, that the
Company needed to acquire the Lasersight License, for a certain patent, which
relates to the use of excimer lasers for the cardiovascular and vascular
markets. On September 23, 1997, Baxter purchased certain patents rights to
related patents from Lasersight for $4,000,000. In December, 1997, the Company
acquired from Baxter a license to the patent rights for $4,000,000, from the
proceeds of a private placement of the Company's securities. See
"Business--Intellectual Property" and "Certain Relationships and Related
Transactions."
TMR TREATMENT USING EXCIMER LASERS. TMR is a surgical procedure, which may
be performed on the beating heart, in which a laser device is used to create
pathways through the myocardium directly into the heart chamber and as an
adjunct to coronary graft bypass surgery. The pathways through the myocardium
are intended to enable improved perfusion, or blood supply, to the myocardium
from the heart chamber, reducing angina in the patient. TMR potentially can be
performed using any of several different surgical approaches, including open
chest surgery, minimally invasive surgery through small openings in the chest or
percutaneous surgery, involving the use of a laser-tipped catheter threaded
through a peripheral artery. The Company is pursuing a treatment protocol using
small openings in the chest for better access to the myocardium. In connection
with TMR as an adjunct to open heart surgery, the treatment protocol calls for
the patient's chest to be open. TMR, in some protocols, is designed to be less
invasive and less expensive than bypass surgery. Also, TMR may be useful in
conjunction with angioplasty or bypass surgery to obtain more complete
revascularization. TMR potentially offers end-stage heart disease patients, who
are not candidates for PTCA or CABG, a means to alleviate their symptoms and
improve their quality of life. No assurance can be given that the TMR System
will be found to be effective in relieving symptoms of CAD or that it will
receive government approval for commercialization. See "Business--Government
Regulation."
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The main challenge in treating atherosclerosis is to allow blood flow to the
heart muscle without significantly damaging the heart. TMR does not target the
coronary arteries for treatment. During the TMR procedure, the patient is given
general anesthesia, and an incision is made in the patient's side between the
ribs exposing the heart. Laser systems competitive with the TMR System use much
greater energy and power levels, and are required to synchronize the laser pulse
with the electrocardiogram to protect the patient from adverse arrhythmias, or
excessive energy levels, if the heart is not full of blood, thereby acting as a
laser pulse "backstop." The TMR System does not need this synchronization due to
the lower overall power and energy requirements of the excimer laser. Animal
research results using the Company's TMR System have indicated excimer laser
channels remain open for extended periods of time, whereas no such data is
available from any of the other competitive laser TMR products. Management
believes that these open channels may provide pathways for oxygenated blood from
the ventricle to the heart muscle to get into the heart muscle, which is the
ultimate purpose of such procedures as CABG and angioplasty. However, no
assurance to this effect can be given.
Based on clinical results to date, the Company believes that its TMR System
will provide the following benefits, including: (i) use as an alternative to
bypass or angioplasty procedures or on patients who would otherwise not be
suitable for coronary bypass surgery; (ii) the TMR System may allow the surgeon
to provide oxygenated blood to areas of the heart muscle that are not accessible
by coronary bypass grafts. With the advent of these procedures, where CABG
surgery is performed on a beating heart, management believes that TMR will be an
effective complement to this procedure. TMR can be performed on the anterior,
posterior and lateral walls of the heart, while the procedures usually are only
performed on the anterior wall of the heart; (iii) management believes the
medical costs associated with the use of the TMR System will be less than the
costs of traditional bypass surgery, which requires a larger surgical team, more
supporting equipment and a longer hospital stay. The cost of TMR in some
situations may also be less than angioplasty, when combinations of additional
devices, such as atherectomy catheters, stents or intravascular ultrasound, are
required; (iv) since the use of the TMR System is less invasive and does not
involve stopping and starting the heart, the patient may recover more quickly
than if conventional bypass techniques were used, with a potentially reduced
risk of complications, as compared with the risks associated with bypass
surgery; and (v) TMR may potentially be used on post-transplant patients
suffering from chronic rejection atherosclerosis. Presently, the only treatment
for this condition is re-transplantation. No assurance can be given that any of
these benefits will be obtained by patients receiving TMR or that, if they are,
such benefits will result in revenues or profitable operations to the Company,
or the FDA will approve the TMR System. See "Business--Government Regulation."
SALE OF THE COMPANY'S NON-EXCIMER LASER ASSETS AND BUSINESS
Due to the Company's focus on excimer laser technology, the Company is in
the process of selling all of the Company's non-excimer laser businesses. The
Company historically developed a wide range of laser products using different
solid state lasers. This strategy proved to be unsuccessful, in the opinion of
current management of the Company, as the Company generated revenues from the
sale of numerous of its products, but was unable to operate profitably. Due to
the limited financial resources of the Company, the Company's strategy changed
in 1997 to focus its efforts on excimer laser technology in order to develop a
broad base of excimer laser and excimer laser delivery products for both medical
and non-medical applications. The Company's non-excimer laser business that is
to be sold involved laser applications and products, which have been sold in two
markets, medical applications and scientific applications.
As of January 4, 1999, the Company entered into the Asset Purchase
Agreement, which provides that the Buyer will pay and/or assume an aggregate of
$1,200,000 of the accrued and unpaid accounts payable and/or other debts of the
Company. Completion of this transaction will result in the sale of all of the
Company's non-excimer laser business assets. Management's decision to sell the
assets of the Company's business operations not related to the Company's excimer
laser technology will result in the divestiture of the Company's business
operations, which generated approximately 74% of the Company's revenues for the
period from January 1, 1998 through September 30, 1999. The closing of the sale
of the assets to the
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Buyer has been delayed by reason of the difficulties being experienced by the
Buyer in finding financing to complete the purchase. The Company has orally
extended the closing from month to month while the Buyer continues to pursue the
required financing. During the pendency of the closing, since January 1999, the
Buyer has been funding a portion of the negative cash flow of the operations of
Laser Analytics from its own funds. If the proposed sale of assets has not
closed by the end of the first quarter of 2000, it is the Company's intention to
shut down all of the operations of the Company, other then the Carlsbad
operation of Laser Photonics and Acculase, and pay off any debts that are unpaid
at that time from the proceeds from the August 9, 1999 Financing. This would
leave the Company with only those portions of the operation that deal with
excimer laser technology. See "Business" and "Financial Statements."
THE COMPANY'S FORMER LASER PRODUCTS. The Company has historically produced
other laser applications and products. These lasers were sold in two markets,
medical applications and scientific applications.
In the first of these markets, the Company developed a number of medical
lasers, such as Ruby Laser Systems, ND: YAG Laser Systems and Alexandrite Laser
Systems. Only the Ruby Laser System has generated any meaningful revenues to the
Company since 1995. Set forth below is a brief summary of the Company's
non-excimer medical laser systems. None of the Company's financial resources are
being expended on these products because the Company has focused its resources
on the Company's laser products for treating psoriasis and the TMR System:
RUBY LASER SYSTEM. The use of solid-state laser systems, such as
dermatology for the treatment of benign pigmented lesions of the skin, such as
nevus of ota, moles, age spots and tattoos, represents an extension of the
Company's scientific ruby laser technology, a technology that was one of the
earliest laser systems developed by the Company for commercial use. Laser energy
created by the ruby laser is highly absorbed by pigmented lesions, but poorly
absorbed by normal skin. Using the ruby laser system, therefore, allows the
physician to treat the skin lesion effectively without anesthesia and without
causing normal pigmented changes or scarring. The Company began manufacturing
and shipping these systems in August, 1991 on a private label basis. The
manufacturing/distribution agreement with the customer officially terminated in
1993. In May, 1995, the Company resumed production of the ruby laser using a
distributor network for marketing the product. Ruby laser revenue for fiscal
years ended December 31, 1996, 1997 and 1998, were $37,000, $180,000 and
$65,000, respectively. Sales were limited due to prolonged engineering time to
develop the higher energy, longer pulse width system and by the inability of the
Company's customer to establish a strong distribution network while awaiting the
upgraded product.
SCIENTIFIC LASER SYSTEMS. The Company's scientific products had been sold
into niche markets for use principally in applications such as spectroscopy,
calibration, alignment and ultra-fast event measurement by universities,
government and private industry research laboratories. The Company had
manufactured and marketed scientific products based on a wide range of
technologies which include: nitrogen laser systems, nitrogen pumped dye laser
systems, solid state mid infrared laser systems, as well as laser diodes and
laser diode spectrometers.
In February, 1989, the Company acquired Laser Analytics, formerly a
wholly-owned subsidiary of Spectra Physics, Inc., an unaffiliated third party.
From the date of the acquisition until the date of this Prospectus, the Company
has funded the continued development efforts focused primarily on improvements
in the production of tunable infrared laser diodes. This technology uses a
spectrometer based on the Company's tunable infrared laser diode to measure
naturally occurring, non-radioactive stable isotopes in exhaled breath. These
measurements are useful in diagnosing such medical problems as diabetes, lung
and liver dysfunction and digestive tract diseases, such as the detection of
helicobacter pylori, which has been shown to be a precursor to liver and stomach
cancer.
The Company's tunable diode lasers are based on lead-salt semiconductor
technology for use in advanced research, such as high-resolution molecular
spectroscopy, combustion diagnostic studies and atmospheric chemistry. These are
"high end" instruments designed for research, which require a high level of
sophistication and performance. These lasers are sold both as a standardized
unit and as a customized
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unit. In addition, the Company has designed a system using the tunable diode
laser technology for pollution monitoring applications.
GOVERNMENT REGULATION
The Company's proposed products and its research and development activities
are subject to regulation by numerous governmental authorities, principally, the
FDA and corresponding state and foreign regulatory agencies. The FDC Act, the
regulations promulgated thereunder, and other federal and state statutes and
regulations, govern, among other things, the pre-clinical and clinical testing,
design, manufacture, safety, efficacy, labeling, storage, record keeping,
advertising and promotion of medical devices and drugs, including the products
currently under development by the Company. Product development and approval
within this regulatory framework takes a number of years and involves the
expenditure of substantial resources.
UNITED STATES PRODUCT REGULATION. In the United States, medical devices are
classified into three different classes, Class I, II and III, on the basis of
controls deemed necessary to reasonably ensure the safety and effectiveness of
the device. Class I devices are subject to general controls (i.e. labeling,
pre-market notification and adherence to the FDA's GMP requirements and quality
system regulations "QSR"). Class II devices are subject to general and special
controls (i.e. performance standards, postmarket surveillance, patient
registries and FDA guidelines). Class III devices are those, which must receive,
premarket approval by the FDA to ensure their safety and effectiveness (i.e.
life-sustaining, life-supporting and implantable devices, or new devices, which
have been found not to be substantially equivalent to legally marketed devices).
CLEARANCE PROCEDURE. Before a new medical device can be marketed, such as
the Company's excimer laser for the treatment of psoriasis, marketing clearance
must be obtained through a premarket notification under Section 510(k) of the
FDC Act or a PMA application under Section 515 of the FDA Act. A 510(k)
clearance will typically be granted by the FDA, if it can be established that
the device is substantially equivalent to a "predicate device," which is a
legally marketed Class I or II device or a preamendment Class III device (i.e.
one that has been marketed since a date prior to May 28, 1976) for which the FDA
has not called for PMAs. The FDA has been requiring an increasingly rigorous
demonstration of substantial equivalence, which may include a requirement to
submit human clinical trial data. It generally takes four (4) to twelve
(12) months from the date of a 510(k) submission to obtain clearance, but it may
take longer. Acculase filed its 510(k) for its psoriasis product on August 4,
1999. On January 27, 2000, the FDA issued the 501(k) for the Company's psoriasis
product. The Company's excimer laser psoriasis system has been determined to be
substantially equivalent to currently marketed devices for the treatment of
psoriasis. Now that the Company has received its 510(k) it may begin marketing
its psoriasis product, assuming adequate funds are available for that purpose.
The FDA may determine that a medical device is not substantially equivalent
to a predicate device, or that additional information is needed before a
substantial equivalence determination can be made for purposes of obtaining a
510(k) clearance. A "not substantially equivalent" determination, or a request
for additional information, may prevent or delay the market introduction of new
products that fall into this category. For any devices that are cleared through
the 510(k) process, modifications or enhancements that could significantly
affect the safety or effectiveness, or that constitute a major change in the
intended use of the device, will require new 510(k) submissions.
A PMA application may be required, if a proposed device is not substantially
equivalent to a legally marketed Class I or II device, or if it is a
preamendment Class III device for which the FDA has called for PMAs. A PMA
application must be supported by valid scientific evidence to demonstrate the
safety and effectiveness of the device, typically including the results of
clinical trials, bench tests and laboratory and animal studies. The PMA must
also contain a complete description of the device and its components, and a
detailed description of the methods, facilities and controls used to manufacture
the device. In addition, the submission must include the proposed labeling,
advertising literature and any training materials. The PMA
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process can be expensive, uncertain and lengthy, and a number of devices for
which FDA approval has been sought by other companies have never been approved
for marketing.
Upon receipt of a PMA application, the FDA makes a threshold determination
as to whether the application is sufficiently complete to permit a substantive
review. If the FDA so determines, the FDA will accept the application for
filing. Once the submission is accepted for filing, the FDA begins an in-depth
review of the PMA. The FDA review of a PMA application generally takes one to
three years from the date the PMA is accepted for filing, but may take
significantly longer. The review time is often significantly extended by the
FDA's asking for more information or clarification of information already
provided in the submission. During the review period, an advisory committee,
typically a panel of outside clinicians may be convened to review and evaluate
the application and provide a recommendation to the FDA as to whether the device
should be approved. The FDA accords substantial weight to, but is not bound by,
the recommendation of the advisory panel. Toward the end of the PMA review
process, the FDA generally will conduct an inspection of the manufacturer's
facilities to ensure compliance with applicable GMP requirements, which include
elaborate testing, control documentation and other quality assurance procedures.
The Company has not yet undergone an FDA GMP inspection, and does not anticipate
that it will undergo such an inspection until after filing of an initial PMA
application by Baxter for the TMR System.
If FDA evaluations of both the PMA application and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which usually contain a number of conditions that must be met
in order to secure final approval of the PMA. When and if those conditions have
been fulfilled to the satisfaction of the FDA, the FDA will issue a PMA approval
letter, authorizing marketing of the device for certain indications. If the
FDA's evaluation of the PMA application or manufacturing facilities is not
favorable, the FDA will deny approval of the PMA application or issue a
"non-approvable" letter. The FDA may determine that additional clinical trials
are necessary, in which case the PMA may be delayed for one or more years, while
additional clinical trials are conducted and submitted in an amendment to the
PMA. Modifications to a device that is the subject of an approved PMA, its
labeling or manufacturing process, may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the submission of
the same type of information required for an initial PMA, except that the
supplement is generally limited to that information needed to support the
proposed change from the product covered by the original PMA.
HUMAN CLINICAL TRIALS. If human clinical trials of a device are required,
either for a 510(k) submission or a PMA application, or, in the opinion of the
FDA, if the device presents a "significant risk," the sponsor of the trial
(usually the manufacturer or the distributor of the device) must file an IDE
application prior to commencing human clinical trials. The IDE application must
be supported by data, typically including the results of animal and laboratory
testing. If the IDE application is approved by the FDA and one or more
appropriate IRBs, human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a "nonsignificant risk" to the patient, a sponsor
may begin the clinical trial after obtaining approval for the study by one or
more appropriate IRBs without the need for FDA approval. Submission of an IDE
does not give assurance that the FDA will approve the IDE and, if it is
approved, there can be no assurance that the FDA will determine that the data
derived from the studies support the safety and efficacy of the device or
warrant the continuation of clinical studies.
Sponsors of clinical trials are permitted to sell investigational devices
distributed in the course of the study, provided such compensation does not
exceed recovery of the costs of manufacture, research, development and handling.
An IDE supplement must be submitted to and approved by the FDA before a sponsor
or investigator may make a change to the investigational plan that may affect
its scientific soundness or the rights, safety or welfare of human subjects.
STATUS OF THE COMPANY'S PMA APPLICATION FOR THE TMR SYSTEM. The TMR System
is anticipated to be regulated as a Class III medical device and to require PMA
approval prior to being marketed in the United States. Although the Company has
received an IDE from the FDA permitting the Company to conduct
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clinical trials of its TMR System in the United States, and such clinical study
has commenced, there can be no assurance that data from such studies will
demonstrate the safety and effectiveness of the TMR System or will adequately
support a PMA application for the product. In the first quarter of 1998, the IDE
was transferred to Baxter from the Company in connection with the Baxter
Agreement. In addition, Baxter may be required to obtain additional IDEs for
other applications of the TMR System, and for other products that the Company
develops that are regulated by the FDA as medical devices. There is no assurance
that data, typically the results of animal and laboratory testing, that may be
provided by Baxter in support of future IDE applications, will be deemed
adequate for the purpose of obtaining IDE approval or that Baxter will obtain
approval to conduct clinical studies of any such future product.
Management of Acculase met with representatives of the FDA in January, 1995
to discuss preclinical data submission requirements necessary to initiate human
trials of the TMR System. Animal testing of the TMR System was then performed in
collaboration with several heart research institutions in the United States,
culminating in a study at The New York Hospital Cornell Medical Center, which
serves as the pre-clinical basis for an IDE that was granted by the FDA in
August, 1996. All of the Company's rights under the IDE have been assigned to
Baxter. Pursuant to this IDE, Phase I human clinical studies began at New York
Hospital Cornell Medical Center and at Good Samaritan Hospital in Los Angeles,
California. The IDE submission provides for the TMR System to be used in
open-heart procedures on patients diagnosed with end stage heart disease. The
Phase I study only includes patients that are suffering from ischemia and
angina, and who are not candidates for CABG or for balloon angioplasty.
Depending upon the outcomes of the Phase I study, the Company is advised that
Baxter intends to submit clinical protocols t6o begin the Phase II studies
before mid-2000. Baxter is currently in discussions with the FDA for transition
from Phase I to Phase II. The Company is advised that Baxter intends to expand
the Phase II studies to a multi-site study (more than 10 institutions). However,
no assurance to this effect can be given. The Company does not expect Baxter to
submit a PMA to the FDA before the year 2001, and possibly later.
ONGOING REGULATION. If clearance or approval is obtained, any device
manufactured or distributed by the Company will be subject to pervasive and
continuing regulation by the FDA. The Company will be subject to routine
inspection by the FDA and will have to comply with the host of regulatory
requirements that usually apply to medical devices marketed in the United
States, including labeling regulations, GMP requirements, Medical Device
Reporting ("MDR") regulation (which requires a manufacturer to report to the FDA
certain types of adverse events involving its products), and the FDA's
prohibitions against promoting products for unapproved or "off-label" uses. The
Company's failure to comply with applicable regulatory requirements could result
in enforcement action by the FDA, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Food and Drug Administration Modernization Act of 1997 makes changes to
the device provisions of the FDC Act and other provisions in the FDC Act
affecting the regulation of devices. Among other things, the changes will affect
the IDE, 510(k) and PMA processes, and also will affect device standards and
data requirements, procedures relating to humanitarian and breakthrough devices,
tracking and postmarket surveillance, accredited third party review and the
dissemination of off-label information. The Company cannot predict how or when
these changes will be implemented or what effect the changes will have on the
regulation of the Company's products and anticipated products.
If the FDA believes that a company is not in compliance with law, it can
institute proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against that company, its
officers and its employees. Failure to comply with the regulatory requirements
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, regulations regarding the
manufacture and sale of the Company's products are subject to change. The
Company cannot predict the effect, if any, that such changes might have on its
business, financial condition or results of operations.
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In complying with the GMP and QSR regulations, manufacturers must continue
to expend time, money and effort in product, record keeping and quality control
to assure that the product meets applicable specifications and other
requirements. The FDA periodically inspects device manufacturing facilities in
the United States in order to assure compliance with applicable GMP
requirements. The Company is required by the FDA, under GMP guidelines, to carry
certain inventories of its medical lasers for emergency medical service.
Typically, major service problems must be responded to within 24 hours. The
Company is not required by any regulatory body to keep inventories on hand to
meet service or delivery issues. Certain raw materials have lead times of
greater than sixteen (16) weeks. The Company keeps a safety stock of these items
when appropriate. The Company estimates that less than $100,000 of current
inventory is set-aside for safety stock. Failure of the Company to comply with
the GMP regulations or other FDA regulatory requirements could have a material
adverse effect on the Company's business, financial condition or results of
operations.
OTHER REGULATION. The Company is also subject to the Radiation Control for
Health and Safety Act with laser radiation safety regulations administered by
the Center for Devices and Radiological Health ("CDRH") of the FDA. These
regulations require laser manufacturers to file new product and annual reports,
to maintain quality control, product testing and sales records, to incorporate
certain design and operating features in lasers sold to end users and to certify
and label each laser sold (except those sold to private label customers) as
belonging to one of four classes, based on the level of radiation from the laser
that is accessible to users. Various warning labels must be affixed and certain
protective devices installed, depending on the class of product. CDRH is
empowered to seek fines and other remedies for violations of the regulatory
requirements. To date, the Company has filed the documentation with CDRH for its
laser products requiring such filing, and has not experienced any difficulties
or incurred significant costs in complying with such regulations.
THIRD PARTY REIMBURSEMENT IN THE UNITED STATES. In the United States,
healthcare providers, including hospitals and physicians, that purchase devices
with medical applications for treatment of their patients, generally rely on
third-party payors, principally federal Medicare, state Medicaid and private
health insurance plans, to reimburse all or a part of the costs and fees
associated with the procedures performed using these devices. A particular
treatment is generally purchased by hospitals, which then bill various
third-party payors, such as government programs and private insurance plans, for
the healthcare services provided to their patients. Third-party payors may deny
reimbursement if they determine that a prescribed device has not received
appropriate regulatory clearances or approvals, is not used in accordance with
cost-effective treatment methods, as determined by the payor, or is
experimental, unnecessary or inappropriate. If the FDA clearance or approval
were received, third-party reimbursement would also depend upon decisions by
HCFA for Medicare, as well as by individual health maintenance organizations,
private insurers and other payors.
The Company's marketing plan for its psoriasis treatment products has not
yet been finalized and such plan's ultimate success will be dependent upon,
among other things, the ability of healthcare providers to obtain satisfactory
reimbursement from third-party payors for medical procedures in which the
Company's psoriasis treatment products are used. The Company has not yet applied
to HCFA for the right to reimbursement for the costs of its psoriasis treatment
products. The Company expects that, when such application for the right to
reimbursement is made, the process will take from 18 to 24 months, and no
assurance can be given that a favorable response will be received from HCFA. If
HCFA does not grant the right to reimbursement, it could have a material adverse
effect on the Company's business.
Certain third-party payors, such as Medicare, determine whether to provide
coverage for a particular procedure and then reimburse hospitals for inpatient
medical services at a prospectively fixed rate based on the diagnosis related
group ("DRG") to which the case is assigned. DRG assignment is based on the
diagnosis of the patient and the procedures performed. The fixed rate of
reimbursement established by Medicare is independent of the hospital's cost
incurred for the specific case and the specific devices used. Medicare and other
third-party payors are increasingly scrutinizing whether to cover new products
and the
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level of reimbursement for covered products. In April, 1999, HCFA announced that
as of July 1, 1999, Medicare intermediaries and carriers would be instructed to
cover the costs of TMR for patients with certain severe angina, which have not
responded to standard medical treatment. No assurance can be given that HCFA's
policy change will result in the generation of revenue to the Company. It is
important that the hospital and physician providers, the insurance industry, the
health plan underwriters, employers and patients understand the clinical and
economic benefits of TMR, as indicated by the IDE studies. Study results are
concurrent with the quality of care and economic issues currently driving the
healthcare market. The market for the Company's products also could be adversely
affected by future legislation to reform the nation's healthcare system or by
changes in industry practices regarding reimbursement policies and procedures.
Third-party payors that do not use prospectively fixed payments increasingly
use other cost-containment processes that may pose administrative hurdles to the
use of the Company's products. Potential purchasers must determine whether the
clinical benefits of the Company's TMR Systems justify the additional cost or
the additional effort required to obtain prior authorization or coverage and the
uncertainty of actually obtaining such authorization or coverage.
Physician services are reimbursed by Medicare based on a physician fee
schedule coding system. There is no assurance the codes that will be used for
submitting claims for TMR procedures using the Company's products will result in
Medicare payment levels that physicians consider to be adequate. These codes and
their associated weights are used by many other third-party payors, in addition
to Medicare. A failure by physicians to receive what they consider to be
adequate reimbursement for the TMR procedures, in which the Company's products
are used, could have a material adverse effect on the Company's business,
financial condition and results of operations.
INTERNATIONAL PRODUCT REGULATION. The Company has received ISO 9001/EN46001
certification for its psoriasis and its TMR systems. This authorizes the Company
to affix a CE Mark to its products as evidence that they meet all European
Community quality assurance standards and compliance with applicable European
medical device directives for the production of its medical devices. This will
enable the Company to market its products in all of the member countries of the
EU. The Company also will be required to comply with additional individual
national requirements that are outside the scope of those required by the EEA.
Failure to comply with applicable regulatory requirements can result in fines,
injunctions, civil penalties, recalls or seizures of products, total or partial
suspensions of production, refusals by foreign governments to permit product
sales and criminal prosecution. Furthermore, changes in existing regulations or
adoption of new regulations or policies could prevent the Company from
obtaining, or affect the timing of, future regulatory approvals or clearances.
There can be no assurance that the Company will be able to obtain necessary
regulatory clearances or approvals on a timely basis or at all or that the
Company will not be required to incur significant costs in obtaining or
maintaining such foreign regulatory approvals. Delays in receipt of, or failure
to receive, such approvals or clearances, the loss of previously obtained
approvals or clearances or the failure to comply with existing or future
regulatory requirements would have a material adverse effect on the Company's
business, financial condition and results of operations. Any enforcement action
by regulatory authorities with respect to past or future regulatory
noncompliance could have a material adverse effect on the Company's business,
financial condition and results of operations.
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ISO standards were developed by the International Organization for Standards
("ISO") of the European Community ("EC") as a tool for companies interested in
increasing productivity, decreasing cost and increasing quality. The EC uses ISO
standards to provide a universal framework for quality assurance and to ensure
the good quality and services across borders. The ISO 9000 standards have
facilitated trade throughout the EC, and businesses and governments throughout
the world are recognizing the benefit of the globally accepted uniform
standards. Any manufacturer utilized for purposes of manufacturing the Company's
products will be required to ISO certification to facilitate the highest quality
products and for the easiest market entry in cross-border marketing. This will
enable the Company to market its products in all of the member countries of the
EU. The Company also will be required to comply with additional individual
national requirements that are outside the scope of those required by the EEA.
Failure to comply with applicable regulatory requirements can result in fines,
injunctions, civil penalties, recalls or seizures of products, total or partial
suspensions of production, refusals by foreign governments to permit product
sales and criminal prosecution. Furthermore, changes in existing regulations or
adoption of new regulations or policies could prevent the Company from
obtaining, or affect the timing of, future regulatory approvals or clearances.
There can be no assurance that the Company will be able to obtain necessary
regulatory clearances or approvals on a timely basis or at all or that the
Company will not be required to incur significant costs in obtaining or
maintaining such foreign regulatory approvals. Delays in receipt of, or failure
to receive, such approvals or clearances, the loss of previously obtained
approvals or clearances or the failure to comply with existing or future
regulatory requirements would have a material adverse effect on the Company's
business, financial condition and results of operations. Any enforcement action
by regulatory authorities with respect to past or future regulatory
noncompliance could have a material adverse effect on the Company's business,
financial condition and results of operations.
The time required to obtain approval for sale in various foreign countries
may be longer or shorter than that required for FDA approval for United States
sales and the requirements may differ. In addition, there may be foreign
regulatory barriers other than premarket approval. The FDA must approve exports
of devices that require a PMA, but are not yet approved domestically, unless
they are approved for sale by any member country of the EEA and the other
"listed" countries, including Australia, Canada, Israel, Japan, New Zealand,
Switzerland and South Africa, in which case, they can be exported for sale to
any country without prior FDA approval. In addition, an unapproved device may be
exported without prior FDA approval to the listed countries for investigational
use in accordance with the laws of those countries. To obtain FDA export
approval when required, Baxter must provide the FDA with data and information to
demonstrate that the device: (i) is not contrary to public health and safety;
and (ii) has the approval of the country to which it is intended for export. To
allow the FDA to determine that export of a device is not contrary to public
health and safety, the applicant is required to submit basic data regarding the
safety of the device, unless the device is the subject of an FDA-approved IDE
and the device will be marketed or used for clinical trials in the importing
country for the same intended use, or at least two IRBs in the United States
have determined that the device is a non-significant risk device and the device
will be marketed or used for clinical trials in the importing country for the
same intended use. the applicant also must submit a letter to the FDA from the
foreign country approving importation of the device.
Now that the Company has obtained the CE Mark approval for its excimer laser
products, it will be subject to continued supervision by the notified body and
will be required to report any serious adverse incidents to the appropriate
authorities. The Company also will be required to comply with additional
national requirements that are outside the scope of EEA regulations. As of the
date of this Prospectus, no application has been made outside the United States.
The Company is informed that Baxter anticipates that it will be in a position to
distribute the TMR System in Europe and Japan, once the necessary filings have
been approved. No assurance can be given that distribution will occur when
anticipated by Baxter, if at all. Even if distribution begins, no assurance can
be given that distribution of the TMR System by Baxter will result in sales of
the TMR System or revenues or profits to the Company.
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FOREIGN THIRD PARTY REIMBURSEMENTS. If the Company obtains the necessary
foreign regulatory registrations or approvals, market acceptance of the
Company's products in international markets would be dependent, in part, upon
the availability of reimbursement within prevailing healthcare payment systems.
Reimbursement and healthcare payment systems in international markets vary
significantly by country, and include both government sponsored healthcare and
private insurance. Although Baxter intends to seek international reimbursement
approvals, there can be no assurance any such approvals will be obtained in a
timely manner, if at all. Failure to receive international reimbursement
approvals could have a material adverse effect on market acceptance of the
Company's products in the international markets in which such approvals are
sought.
The Company believes the overall escalating cost of medical products and
services has led, and will continue to lead, to increased pressures on the
healthcare industry, both foreign and domestic, to reduce the cost of products
and services, including products offered by the Company. There can be no
assurance in either the United States or international markets that third-party
reimbursement and coverage will be available or adequate, that current
reimbursement amounts will not be decreased in the future or that future
legislation, regulation or reimbursement policies of third-party payors will not
otherwise adversely affect the demand for the Company's products or its ability
to sell its products on a profitable basis. The unavailability of third-party
payor coverage or the inadequacy of reimbursement could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, fundamental reforms in the healthcare industry in the United States
and Europe continue to be considered, although the Company cannot predict
whether or when any healthcare reform proposals will be adopted and what impact
such proposals might have.
Reimbursement systems in international markets vary significantly by country
and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. Many international markets have
government managed healthcare systems that control reimbursement for new devices
and procedures. In most markets, there are private insurance systems as well as
government managed systems. There can be no assurance that reimbursement for the
Company's products will be available in the United States or in international
markets under either government or private reimbursement systems, or that
physicians will support and advocate reimbursement for procedures using the
Company's products. Failure by hospitals and other users of the Company's
products to obtain reimbursement from third-party payors, or changes in
government and private third-party payors' policies toward reimbursement for
procedures employing the Company's products, would have a material adverse
effect on the Company's ultimate business prospects. Moreover, management is
unable to predict what additional legislation or regulation, if any, relating to
the healthcare industry or third-party coverage and reimbursement may be enacted
in the future, or what effect such legislation or regulation would have.
SOURCES AND AVAILABILITY OF RAW MATERIALS.
Management believes that the Company currently has good relationships with
vendors of materials for its lasers. Most major components and raw materials,
including solid state laser rods, laser crystals, optics and electro-optic
devices are available from a variety of sources. The Company does not rely on
sole source vendors. Cash flow constraints are the main limiting factors in
parts availability.
DEPENDENCE ON CUSTOMERS
The Company recognized revenue from Baxter equaling 26% of gross revenues
for the year ended December, 1998 and for the nine months ended September 30,
1999. No single customer, other than Baxter, accounted for sales in excess of
10% in 1998 or in the nine months ended September 30, 1999.
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PRODUCT WARRANTIES
The Company's standard warranty on most products is one year for parts and
labor. Consumables have a ninety (90) day warranty period. Selected medical
products have a 12-month parts only warranty. During the warranty period, the
Company pays shipping charges one way. In connection with the Baxter Agreement,
the Company has agreed to warrant products for twelve (12) months from the date
of delivery to Baxter's customer or eighteen (18) months from the date shipped
by the Company, whichever is less. The Company warrants that its products are
free from defects in workmanship, materials and handling. The Company has
established a reserve for warranty costs based upon the estimated costs to be
incurred over the warranty period of the Company's products. The Company does
not provide the right to return units of its TMR System. In some cases,
demonstration equipment is sent to the customer prior to the sale to determine
suitability. In rare cases, the Company has allowed returns when accompanied by
a substantial restocking fee. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PRODUCT LIABILITY INSURANCE
The Company maintains liability insurance with coverage limits of $3,000,000
per occurrence. Although the Company has never been subject to a product
liability claim, there can be no assurance that the coverage limits of the
Company's insurance policies will be adequate or that one or more successful
claims brought against the Company would not have a material adverse effect upon
the Company's business, financial condition and results of operations.
RESEARCH AND DEVELOPMENT
The Company's research and development emphasis has shifted from pure
research to product modification and development to meet new market demands.
Baxter does not pay for any research and development for the Company's
cardiovascular and vascular related product applications. However, Baxter is
paying for all costs related to regulatory matters, which, if successful, will
enable the commercial sales of the Company's excimer laser system for TMR. The
Company's strategy is to utilize and modify its existing excimer laser
technology and component base to develop new products and applications in
targeted medical and scientific markets. In addition to internal development,
the Company may take advantage of opportunities, if they arise, in the current
laser market environment of consolidation and market specialization by
continuing to seek out and acquire both products and technology at a cost the
Company believes to be lower than the cost of the internal development of
significant products.
The Company does not have any present acquisition plans. Because the
Company's products are focused in specific niche medical markets, the Company
does not believe the decline in research and development expenditures will
affect the Company's abilities to be competitive in these markets.
The Company began testing its excimer laser system for the treatment of
psoriasis at MGH in 1998 with a Dose Response Study under IRBs approval. The
final data from this study was collected in December, 1998. This data served as
the basis for a 510(k) submission to the FDA on August 4, 1999. On January 27,
2000, the FDA issued the 501(k) for the Company's psoriasis product. The
Company's excimer laser psoriasis system has been determined to be substantially
equivalent to currently marketed devices for the treatment of psoriasis. Now
that the Company has received its 510(k) it may begin marketing its psoriasis
product, assuming adequate funds are available for that purpose. For the nine
months ended September 30, 1999 and the years ended December 31, 1998, 1997 and
1996, the Company expended $1,256,274, $1,243,372, $685,109 and $850,993,
respectively, on all research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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ENVIRONMENTAL CONCERNS
The Company's medical lasers are not believed to cause any environmental
concerns. The Company does not knowingly use any products known to harm the
environment. All solvents and cleaners are biodegradable. Cooling systems, where
applicable, use refrigerants, which are free of toxic materials. Many medical
lasers are of solid-state construction, so no hazardous gases or liquid dyes are
used in their operation or manufacture. In winter months, medical laser cooling
systems are filled with an ethylene glycol and water mixture to prevent freezing
during shipment. This mixture must be removed and discarded upon installation.
The Company intends to discontinue or sell off the segment of its business
relating to the commercialization of these types of lasers.
The Company's TMR Systems and its laser intended to be used to treat
psoriasis utilizes xenon-chloride gas as a lasing medium. The chlorine component
of this gas is extremely corrosive and must be handled with care. Although only
a small quantity of gas is present in each laser, proper handling is essential
for safe operation. Depleted gas is reacted prior to disposal. Excimer lasers
are common in hospitals and laboratories and the methods for disposal and
handling of these gases is well known. Management of the Company believes that
the use of these gases is not expected to impact the desirability of these
lasers in the market place.
MARKETS AND MARKETING
The Company historically has marketed its scientific products through a
direct sales force in the United States and through a network of distributors
outside of the United States, although no foreign sales have been made in 1998
and 1999. The Company has historically promoted its products through attendance
at tradeshows, advertising in scientific journals and industry magazines and
direct mail programs. The Company has not yet determined how it will market its
excimer laser system for the treatment of psoriasis. With the assistance of
Healthworld, the Company is developing its marketing approach for the excimer
laser psoriasis treatment system. The Company anticipates that will require at
least $5,000,000 to implement is anticipated marketing plan.
To assist the Company in developing its marketing plan on May 11, 1999, the
Company entered in an agreement with Healthworld, of which Steven Girgenti, a
director of the Company, is Chairman and Chief Executive Officer, for provision
of various services relating to the marketing of the Company's products. The
services include: (i) advertising and promotion, (ii) development of market
research and strategy; and (iii) preparation and consulting on media and
publicity. The term of the agreement is indefinite but may be terminated by
either party on ninety days notice. Compensation for these services is
approximately $40,000 per month, plus reimbursement of expenses and payment of a
15% commission on advertising purchases. Services beyond those budgeted by the
parties are to cost $104 per person hour, which is materially less then the
normal hourly rate charged by Healthworld for such services. In lieu of a higher
hourly rate, the Company on May 11, 1999 issued to Healthworld warrants (the
"Healthworld Warrants") to purchase 174,000 shares of the Company's Common Stock
at an exercise price of $4.69 per share. On the date of grant of the Healthworld
Warrants, the price of the Common Stock was $4.69. These Warrants have a term of
ten years and vest to the extent of 14,500 shares of Common Stock on the
eleventh day of each month, beginning June 11, 1999, during the term of the
agreement. Under a separate agreement, Healthworld provides: (i) two fulltime
managed-care specialists to make calls on potential customers for a period of
seven months at a cost of $30,000 per month; (ii) 20 fulltime sale
representatives to market among dermatologists for a period of four months at a
cost of $125,000 per month; and (iii) certain general management services for a
period of seven months at $10,000 per month. Under separate agreements,
Healthworld will provide certain medical education and publishing services
(approximately $700,000 in fees and costs over a period in excess of one year)
and general public relations services ($10,000 per month). With the assistance
of Healthworld, the Company is currently testing various marketing strategies
for the rollout of the psoriasis treatment system. The Company anticipates
completing its marketing plan
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and introducing its psoriasis treatment system in July, 2000. See "Certain
Relationships and Related Transactions."
In connection with the Baxter Agreement, the Company will market its TMR
Systems under the Baxter name. Baxter has also assumed the obligation to fund
the total costs of obtaining regulatory approvals worldwide for the use of the
TMR System for the treatment of cardiovascular and vascular disease and to fund
all sales and marketing costs relating to the introduction and marketing of the
TMR System to treat cardiovascular and vascular disease. The Company does not
anticipate that Baxter will be ready to market the TMR System in the United
States prior to the end of 2001. Due to Baxter's strong worldwide market
presence, relationships with leading clinicians and regulatory expertise, many
of the significant expenses of bringing some of the Company's excimer laser
systems to market are being absorbed by Baxter. In the opinion of management of
the Company, because of the significant costs being borne by Baxter, the
Company's earnings potential has not been compromised by the Baxter Agreement,
whereas the Company's risk related to development and introduction of its TMR
System has been shifted to Baxter. It is anticipated that, once government
approval has been received for marketing of the Company's TMR System, the
relationship with Baxter will be a significant marketing and competitive
advantage to the Company. However, no assurance to this effect can be given.
COMPETITION
The markets for the Company's proposed products are extremely competitive.
The Company directly and indirectly competes with other businesses, including
businesses in the laser industry. In many cases, these competitors are
substantially larger and more firmly established than the Company. In addition,
many of such competitors have greater marketing and development budgets and
substantially greater capital resources than the Company. Accordingly, there can
be no assurance that the Company will be able to achieve and maintain a
competitive position in the Company's industry. The Company believes that its
competitive success will be based on its ability to create and maintain
scientifically advanced technology, attract and retain scientific personnel,
obtain patent or other protection for its products, obtain required regulatory
approvals and manufacture and successfully market its products either directly
or through outside parties.
The Company does not have comparable resources with which to invest in
research and development and advertising and is at a competitive disadvantage
with respect to its ability to develop products. The Company may also encounter
difficulties in customer acceptance because it is likely to be perceived as a
new entrant into the market whose identity is not yet well known and whose
reputation and commercial longevity is not yet established. Substantial
marketing and promotional costs, possibly in excess of what the Company can
afford, may be required to overcome barriers to customer acceptance. The Company
expects substantial direct competition, both from existing competitors and from
new market entrants. Larger and more established competitors may seek to impede
the Company's ability to establish a market share for any products, which may be
developed by the Company through competitive pricing activities. Also,
prospective customers for the Company's products may be reluctant to disrupt
relationships with well-established distributors of products, which may be
comparable in quality or pricing to any of the Company's products. The failure
to gain customer acceptance of the Company's excimer laser technology would have
a material adverse effect on the Company.
Market acceptance of laser treatment of psoriasis is dependent on the
Company's ability to establish with the medical community the clinical efficacy
of excimer laser technology to treat psoriasis. As a result of such factors,
there can be no assurance that the marketplace will be receptive to excimer
laser technology over competing therapies. Failure of the Company's products to
achieve market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations.
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Competition in the market for the treatment of CAD, and in the medical
device industry generally, is intense and is expected to increase. The Company
competes primarily with other producers of TMR devices for patients with end
stage heart disease. Many companies, research institutes and universities are
working in a number of disciplines to develop therapeutic devices and procedures
aimed at vascular and cardiovascular disease. Some of the Company's competitors
and potential competitors have substantially greater name recognition and
capital resources than does the Company and also may have greater resources and
expertise in the areas of research and development, obtaining regulatory
approvals, manufacturing and marketing. There can be no assurance that the
Company's competitors will not succeed in developing TMR products or procedures
that are more effective or more effectively marketed than products marketed by
the Company or that render the Company's technology obsolete. In addition, even
if the Company's products yield performance comparable to competing products,
there can be no assurance the Company will be able to obtain necessary
regulatory approvals to compete against competitors in manufacturing, marketing
and selling its products. The Company believes that the primary competitive
factors in the interventional cardiovascular market are: the ability to treat
safely end stage heart disease patients; the impact of managed care practices
and procedure costs; ease of use; and research and development capabilities.
Certain companies, including PLC and Eclipse, have completed enrollment in
randomized clinical trials of products and procedures involving TMR that compete
with those offered by the Company, and have received regulatory approvals in
Europe to begin commercially marketing their respective TMR devices. PLC and
Eclipse have also received approval from the FDA to commercially market their
TMR products in the United States. Earlier entrants in the market in a
therapeutic area often obtain and maintain greater market share than later
entrants. Furthermore, the length of time required for products to be developed
and receive regulatory approval and the ability to use patents or other
proprietary rights to prevent sales by competitors are also important
competitive factors.
INTELLECTUAL PROPERTY
INTELLECTUAL PROPERTY POLICY. The Company regards its technological
processes and product designs as proprietary and seeks to protect its rights in
them through a combination of patents, internal procedures and non-disclosure
agreements. The Company also utilizes licenses from third parties for processes
and designs used by the Company, which are proprietary to other parties. The
Company believes that its success will depend in part on the protection of its
proprietary information and patents, and the acquisition of licenses of
technologies from third parties.
There can be no assurances as to the range or degree of protection any
patent or registration which may be owned or licensed by the Company will
afford, that such patents or registrations will provide any competitive
advantages for the Company, or that others will not obtain patents or
registrations similar to any patents or registrations owned or licensed by the
Company. There can be no assurances that any patents or registrations owned or
licensed by the Company will not be challenged by third parties, invalidated,
rendered unenforceable or designed around, or that the Company's competitors
will not independently develop technologies which are substantially equivalent
or superior to the technologies owned or licensed by the Company and which do
not infringe patents or proprietary rights of the Company. There can be no
assurances that the Company or any licensor to the Company will be successful in
protecting its proprietary rights. There can be no assurances that any pending
patent or registration applications or future applications will result in the
issuance of a patent or registration.
To the extent that the Company relies upon trade secrets and unpatented
know-how, and the development of new products and improvements of existing
products in establishing and maintaining a competitive advantage in the market
for the Company's products and services, there can be no assurances that such
proprietary technology will remain a trade secret or be available to the
Company, or that others will not develop substantially equivalent or superior
technologies to compete with the Company's products and services.
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Any asserted claims or litigation to determine the validity of any third
party infringement claims could result in significant expense to the Company or
any licensor of such technology and divert the efforts of the Company's
technical and management personnel, whether or not such litigation is resolved
in favor of the Company or any such licensor. In the event of an adverse result
in any such litigation, the Company or any such licensor could be required to
expend significant time and resources to develop non-infringing technology or to
obtain licenses to the disputed technology from third parties. There can be no
assurances that the Company or any such licensor would be successful in such
development or that any such licenses would be available to the Company on
commercially reasonable terms, if at all. See "Business--Legal Proceedings."
Although the Company believes its patents to be of significant value,
successful litigation against these patents by a competitor could have a
material adverse effect on the Company's business, financial condition and
results of operations. No assurance can be given that the existing patents will
be held valid if challenged that any additional patents will be issued or that
the scope of any patent protection will exclude competitors. The breadth of
claims in medical technology patents involves complex legal and factual issues,
and therefore, can be highly uncertain.
The Company also relies upon unpatented proprietary technology and trade
secrets that it seeks to protect, in part, through confidentiality agreements
with employees and other parties. No assurance can be given that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, that others will not independently develop or otherwise acquire
substantially equivalent proprietary technology and trade secrets or disclose
such technology or that the Company can meaningfully protect its rights in such
unpatented technology. In addition, others may hold or receive patents, which
contain claims that may cover products developed by the Company.
PATENTS ISSUED. The Company owns 26 patents and Acculase owns an additional
five (5) patents, worldwide. Of the Company's patents, 22 are issued in the
United States and one each is issued in Canada, Switzerland, France and Great
Britain. Of the five (5) patents owned by Acculase, all patents are filed in the
United States, two patents are filed in each of Australia, Canada, Israel, and
one is filed in the EU, France, Germany, Japan, Switzerland/Liechtenstein and
Great Britain.
In connection with the sale of assets related to the Company's non-excimer
laser business, approximately 26 of these patents are being sold to the Buyer of
those assets. All of the patents being sold relate to non-excimer laser
technology. No assurance can be given that the sale of assets will be completed.
See "Business--Sale of the Company's Non-Executive Laser Assets and Business."
In connection with the Company's excimer laser technology, the Company has
been issued four (4) patents. The first patent, which was issued in January,
1990, provides patent protection until 2007 and covers the Company's base
excimer laser design. The second patent, which was issued in May, 1990, provides
patent protection until 2007 and covers a liquid filled flexible laser light
guide. The third patent, which was issued in May, 1991, provides patent
protection until 2007, and covers a means of measuring optical fiber power
output. The fourth patent, which was issued in September, 1991, provides patent
protection until 2008 and relates to the laser optical fiber coupling apparatus
used in the Company's excimer lasers. The Company also has one U.S. patent
application pending relating to a proprietary laser catheter design, which
application was initially denied. The Company has not continued to pursue this
patent application. Baxter has retained the right to pursue this patent
application. Baxter and the management of the Company do not believe that Baxter
will pursue this patent application, as there is no economic justification for
pursuing this patent application at this time. See "Business--Legal
Proceedings."
The Company also received patents for its base excimer laser design in
Australia in November, 1991, Canada in December, 1992, and Israel in February,
1993. The Australian, Canadian, and Israeli patents provide protection until
August, 2004, December, 2009, and August, 2008, respectively. Patent
applications are pending in these countries and in Japan for a fiber optic laser
catheter design.
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All of the patents issued to the Company and all applications for Letters
Patent related to the Company's excimer laser technology have been pledged by
the Company to Baxter pursuant to the Baxter Agreement and act as security for
the obligations of the Company under and pursuant to the Baxter Agreement. See
"Business--Strategic Alliance with Baxter Healthcare Corporation."
LICENSED TECHNOLOGY. In September 18, 1997, the Company, PMG and Baxter
agreed, in connection with fulfilling the obligations of the parties under the
Baxter Agreement, that the Company needed to acquire a license from Lasersight
for certain patents which relate to the use of excimer lasers for the
cardiovascular and vascular markets. In the event that Baxter terminates the
Baxter Agreement, Baxter will grant to the Company an exclusive sublicense of
all of Baxter's rights under the Lasersight License. In such event, the Company
will acknowledge and agree that upon the grant of such exclusive sublicense, the
Company will assume all obligations and liabilities of Baxter under the
Lasersight License. See "Business--Strategic Alliance with Baxter Healthcare
Corporation."
On November 26, 1997, the Company and MGH entered into the MGH Agreement,
pursuant to which the Company paid $37,500 to MGH, and has further agreed to pay
MGH $50,000 upon issuance by the United States Patent and Trademark Office of
any patent right (which has not yet occurred as of the date of this Prospectus)
and an additional $50,000 upon approval by the FDA of the first 510(k), PMA or
PMA Supplement (which has not occurred as of the date of this Prospectus).
Under the MGH Agreement, the Company obtained an exclusive, worldwide,
royalty-bearing license from MGH to develop, manufacture, use and sell products,
utilizing a pending patent which incorporates certain technology of MGH, related
to the diagnosis and treatment of certain dermatological conditions and
diseases, particularly psoriasis. Beginning with the first commercial sale of
the products in any country, on any sales of products made anywhere in the world
by the Company, or its affiliates and sublicensees, the Company has agreed to
pay royalties to MGH, as follows: (i) 4% of the net sales price, so long as the
products manufactured, used or sold are covered by a valid claim of patent
licensed exclusively to the Company; (ii) 2% of the net sales price whenever the
products manufactured, used or sold are covered by a valid claim licensed
exclusively to the Company; and (iii) 1% of the net sales price whenever the
products manufactured, used or sold, on which no royalty is payable under items
(i) and (ii) above, during the ten year period following the first commercial
sales anywhere in the world. In addition to the royalties provided for above,
the Company has agreed to pay MGH 25% of any and all non-royalty income,
including license fees and milestone payments received from affiliates or
sublicensees of the Company. See "Business--Intellectual Property."
The licensed technology is the subject of a currently pending provisional
patent application filed with the United States Patent and Trademark Office by
MGH. As of the date of this Prospectus, the pending patent has not been
approved. The Company has agreed to use its best efforts to develop and make
commercially available products with respect to the licensed technology within
certain time frames defined in the MGH Agreement, or MGH may have the right to
cancel the exclusive license or convert any exclusive license to a non-exclusive
license. See "Business--Intellectual Property."
EMPLOYEES
As of January 31, 2000, the Company had 53 full-time employees. These
employees include three (3) executive officers, four (4) technical, four
(4) administrative and two (2) clerical personnel. The Company intends to hire
additional personnel as the development of the Company's business makes such
action appropriate. The loss of the services of key employees could have a
material adverse effect on the Company's business. Since there is intense
competition for qualified personnel knowledgeable of the Company's industry, no
assurances can be given that the Company will be successful in retaining and
recruiting needed personnel. See "Management."
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The Company's employees are not represented by a labor union or covered by a
collective bargaining agreement, and the Company believes it has good relations
with its employees. The Company provides its employees with certain benefits,
including health insurance.
PROPERTIES
The Company entered into a lease on August 4, 1998, with an unaffiliated
third party consisting of 11,500 square feet of office space, manufacturing and
warehousing located at 2431 Impala Drive, Carlsbad, California, 92008. The term
of the lease is 57 months, commencing December 1, 1998. The lease cost is $8,050
per month. There are two five-year options to extend the term of the lease, for
a total occupancy of approximately 15 years, if desired by the Company. The
performance of this lease is guaranteed by PMG. The Company's Carlsbad facility
houses the Company's manufacturing and development operations for the Company's
excimer laser business. Management of the Company believes that this facility
will provide adequate space for such business over the four years from the date
of this Prospectus and that the location in Carlsbad is convenient for the
attraction of skilled personnel in the future, although no assurance can be
given to that effect. See "Certain Relationships and Related Transactions."
The Company currently occupies approximately 12,000 square feet of office
and light manufacturing space in Orlando, Florida, at a monthly rent of $11,000
per month, on a month-to-month basis. The Company is at risk of being evicted
from these offices. At December 31, 1999 the Company was delinquent in the
payment of certain rental obligations on such lease. The landlord in connection
with delinquent rent has sued the Company, and obtained a judgment against the
Company, which, as of December 31, 1999, totals $891,700 including accumulated
interest. A portion of this judgment has been paid and the balance of the
judgment and the accumulated delinquent rent are anticipated to be assumed by
the purchaser of the non-excimer laser assets. No assurance can be given that
the asset sale will close and that the obligation of this judgment and
accumulated rent will be assumed by or paid by the Buyer. If the proposed sale
of assets has not closed by the end of the first quarter of 2000, it is the
Company's intention to shut down all of the operations of Laser Analytics and
pay off the debts that were to be paid or assumed by the Company from the
August 9, 1999 Financing, plus any other debts that may have accumulated. See
"Business--Sale of the Company's Non-Excimer Laser Assets" and "Business--Legal
Proceedings--Lease Disputes."
The Company's Laser Analytics subsidiary occupies a 13,000 square foot
office and light manufacturing facility in Wilmington, Massachusetts, which
commenced in December, 1996, for a five-year period, at $5,600 per month. This
lease is with an unaffiliated third party.
The Company has entered into a lease to occupy approximately 1,850 square
feet of office space in Radnor, Pennsylvania for its corporate headquarters. The
Company will take occupancy on or about April 1, 2000. The lease has a 5-year
term and provides for a monthly rent ranging from approximately $4,940 per month
to $5,555 per month over the term of the lease. Temporarily, the Company's
executive headquarters is located at 7 Great Valley Parkway, Suite 222, Malvern,
PA 19355, where the Company occupies a small suite of offices on a
month-to-month basis.
LEGAL PROCEEDINGS
BANKRUPTCY REORGANIZATION. The Company filed the Bankruptcy Proceeding on
May 13, 1994 (Case No. 94-02608-611). The Plan was confirmed on May 22, 1995.
See "Business--History of the Company."
SETTLEMENT ORDER. In 1997, the Company entered into a Settlement Order with
the Commission where it neither admitted nor denied alleged securities law
violations in 1992 and early 1993 under prior management, but consented to the
issuance of an injunction against any future violation of law. The alleged
events occurred prior to the Bankruptcy Reorganization and involve events, which
occurred prior to the change in the Company's management and directors. The
current management and directors have no connection with this proceeding. No
monetary damages were sought.
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LEASE DISPUTE. On April 21, 1998, City National Bank of Florida, Trustee
("Landlord") filed suit against the Company for unpaid rent for the Company's
facility in Orlando. CITY NATIONAL BANK OF FLORIDA, TRUSTEE V. LASER
PHOTONICS, INC., Circuit Court, Ninth Judicial District, Orange County, Florida,
#CI198-3526. Plaintiff subsequently obtained a final judgment which, including
interest and late fees, totaled approximately $891,700 as of December 31, 1999.
The Buyer has agreed, as part of the purchaser price, to assume this obligation.
No assurance can be given that the asset sale will close and that the obligation
for this judgment will be assumed by or paid by the Buyer of the non-excimer
laser assets. If the proposed sale of assets has not closed by the end of the
first quarter of 2000, it is the Company's intention to shut down all of the
operations of Laser Analytics and pay off the debts that were to be paid or
assumed by the Company from the August 9, 1999 Financing, plus any other debts
that may have accumulated. In such an event the Company intends to pay the
judgment from available cash on hand. See "Business--Sale of the Company's
Non-Excimer Laser Assets and Business" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
CSC HEALTHCARE DISPUTE. On or about December 13, 1999, CSC
Healthcare, Inc. ("CSC") filed a Complaint against the Company in San Diego
County, California, Superior Court, assigned Case No. GIN002037. The Complaint
contains causes of action for breach of contract, work, labor, services and
materials at on agreed price, reasonable value of work, labor and services,
accounts stated and open book account. In essence, the Complaint alleges the
failure to pay for professional services performed by CSC, plus expenses, and
seeks compensatory damages of $1,520,246, interest, attorneys' fees and costs of
suit. The Company filed an answer to the Complaint on January 13, 2000. The
Company has paid substantial sums to CSC for services and expenses and believes
that the amount claimed by CSC in the Complaint is substantially overstated. The
Company is hopeful that settlement of this matter will be reached, although no
assurances to that effect can be given. If settlement is not reached, the
Company will vigorously defend this action. Since this proceeding has just been
initiated and no discovery has taken place, all relevant facts which may affect
the outcome are not known to the Company, and the Company is not able to
evaluate the likelihood of a favorable or unfavorable outcome, or to estimate
the amount or range of possible gain or loss.
DISPUTE WITH THE HARTMANS. On November 19, 1999, the Company's Board of
Directors voted to terminate Raymond A. Hartman as an officer and employee and
Sandra Hartman, the wife of Raymond Hartman, as an employee of the Company and
of all subsidiaries of the Company. In addition, the Board of Directors of
Acculase terminated Raymond Hartman as an officer and employee and Sandra
Hartman as an employee of Acculase. Finally, the stockholders of Acculase
removed Raymond Hartman as a director of Acculase. Raymond Hartman resigned as a
director of Laser Photonics as of January 31, 2000. Prior to the terminations,
both Mr. and Ms. Hartman were offered a severance benefit package under which
they would tender resignations, in lieu of the terminations, and enter into
part-time consulting agreements. The Hartmans declined this offer and, through
counsel, alleged wrongful termination by the Company and have threatened legal
action. The Company hopes that this matter can be amicably resolved, although no
assurances to that effect can be given. If settlement is not reached and
litigation is commenced by the Hartmans, the Company will vigorously defend this
matter. Since no proceeding has been initiated and no discovery has taken place,
all relevant factors, which may affect the outcome, are not known to the
Company, and the Company cannot evaluate the likelihood of a favorable or
unfavorable outcome, or to estimate the amount or range of possible gain or
loss.
LITIGATION BETWEEN BAXTER AND SPECTRANETICS. Acculase is a co-plaintiff
with Baxter in Civil Action No. 99-512 RRM in the United States District Court
for the District of Delaware. The Second Amended Complaint ("Complaint") alleges
claims for patent infringement against defendant The Spectranetics Corporation
("Spectranetics"). Specifically, the First Cause of Action of the Complaint
alleges that Acculase is the owner of United States Patent Number 4,891,818 (the
"818 patent") and that Baxter holds an exclusive license to the 818 patent in
the field of cardiovascular and vascular applications. It further alleges that
Spectranetics manufactures, distributes and sells excimer lasers and related
products, including
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the Spectranetics CVX-300 excimer laser system, that infringe the 818 patent in
the field in which Baxter holds an exclusive license. It seeks an injunction
against such infringement, damages in an amount to be proven at trial, enhanced
damages for willful infringement, attorneys' fees based upon a finding that this
is an "extraordinary case" and costs. The Second and Third Causes of Action of
the Complaint claim infringement of other patents and do not involve Acculase.
Spectranetics has filed an Answer and Counterclaims. The Answer admits
issuance of the 818 patent and that Spectranetics manufacturers, distributes and
sells the Spectranetics CVX-300 excimer laser system, but denies that it
infringes the 818 patent. The Answer also raises affirmative defenses. Only the
First Claim of the Counterclaim for declaratory judgment of invalidity,
unenforceability and non-infringement of the 818 patent is directed against
Acculase. It alleges that this is an "exceptional case" supporting an award of
reasonable attorneys' fees, costs and expenses in favor of Spectranetics. The
other patents which are the subject of the Second and Third Causes of Action of
the Complaint are also the subject of the First Claim of the Counterclaim and do
not include Acculase. The Counterclaim includes other claims for antitrust
violations, interference with existing economic relationships, interference with
prospective economic advantage and misappropriation and misuse of confidential
information, which are directed against Baxter. A responsive pleading to the
Counterclaim has not yet been filed. Baxter is bearing the legal fees and costs
associated with this action. Acculase bears no responsibility therefore.
Except as set forth above, the Company knows of no material legal actions,
pending or threatened, or judgment entered against the Company or any executive
officer or director of the Company, in his capacity as such.
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MANAGEMENT
The directors of the Company currently have terms which will end at the next
annual meeting of the stockholders of the Company or until their successors are
elected and qualify, subject to their prior death, resignation or removal.
Officers serve at the discretion of the Board of Directors. There are no family
relationships among any of the Company's directors and executive officers.
The following sets forth certain biographical information concerning the
current members of the Board of Directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME POSITION AGE
- ---- -------- --------
<S> <C> <C>
Warwick Alex Charlton..................... Non-Executive Chairman of the Board of Directors 40
Jeffrey F. O'Donnell...................... Director, President and Chief Executive Officer 40
Dennis McGrath............................ Chief Financial Officer and Vice President--Finance 43
and Administration
Michael Allen............................. Vice President--Sales and Marketing 45
John J. McAtee, Jr........................ Director 62
Alan R. Novak............................. Director 65
Harry Mittelman, M.D...................... Director 58
Steven Girgenti........................... Director 54
Samuel E. Navarro......................... Director 44
</TABLE>
WARWICK ALEX CHARLTON was appointed to the Board of Directors and became the
Non-Executive Chairman of the Board of Directors on March 8, 1999. Mr. Charlton
has 19 years of business experience, consisting of ten years of line management
experience and nine years in the consulting profession (previously with Booz
Allen & Hamilton and the Wilkerson Group). Mr. Charlton received an honors
degree in Marketing from the University of Newcastle and an MBA form Cranfield
Institute of Technology. Mr. Charlton was formerly a Vice President of CSC, with
which the Company is currently in litigation. See "Business--Legal Proceedings,"
"Compensation of Executive Officers and Directors--Compensation of Directors"
and "Certain Relationships and Related Transactions."
JEFFREY F. O'DONNELL has served as a director of the Company and the
Company's President and Chief Executive Officer since November, 1999.
Mr. O'Donnell served as the President of X-SITE Medical from March, 1999 to
November, 1999 and from 1995 to March, 1999, he filled several senior positions
at Radiance Medical Systems, Inc., including serving as President and Chief
Executive Officer from October, 1997 to March, 1999. From January, 1994 to May,
1995, Mr. O'Donnell was the President and Chief Executive Officer of Kensey Nash
Corporation, a medical device manufacturer of cardiology products.
Mr. O'Donnell is currently a director of Radiance Medical Systems, Escalon
Medical Corporation and X-SITE Medical, Inc. Mr. O'Donnell graduated from La
Salle University with a B.S. in business administration.
DENNIS MCGRATH was appointed Chief Financial Officer and Vice
President--Finance and Administration in January, 2000. From September, 1999 to
January, 2000, Mr. McGrath served as the Chief Financial Officer of the Think
New Ideas division of AnswerThink Consulting Group, Inc., a public company
specializing in installing and managing computer systems and software. From 1996
to 1999, Mr. McGrath was the Chief Financial Officer and Executive
Vice-President--Operations of TriSpan Internet commerce solutions, a technology
consulting company. Mr. McGrath is a certified public accountant and graduated
with a B.S. in accounting from La Salle University in 1979. Mr. McGrath holds a
license from the states of Pennsylvania and New Jersey as a Certified Public
Accountant.
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MICHAEL ALLEN was appointed Vice President--Sales and Marketing in January,
2000. From September 1998 to December 1999, Mr. Allen was Director of North
American Sales for KaraVision, Inc., a public company which manufactures
intra-stromal corneal rings. From October, 1990 to September, 1998, Mr. Allen
was a distributor for the New Jersey area for Smith and Nephew Plc, a public
U.K. company, selling orthopedic spine trauma and joint reconstruction products
to hospitals and surgeons. Mr. Allen received a B.S. from the University of
Wisconsin in 1977.
JOHN J. MCATEE, JR., has been a member of the Board of Directors of the
Company since March 4, 1998. From March 4, 1998 until March 8, 1999, Mr. McAtee
served as the Non-Executive Chairman of the Board of Directors. From 1990 to
1996, Mr. McAtee was Vice Chairman of Smith Barney, Inc. (now Salomon Smith
Barney), one of the world's largest banking and brokerage firms. Before that, he
was a partner in the New York law firm of Davis Polk & Wardwell for more than
twenty years. Mr. McAtee is a graduate of Princeton University and Yale Law
School. Mr. McAtee is also a director of U.S. Industries, Inc., a diversified
industrial corporation.
ALAN R. NOVAK was appointed to the Board of Directors of the Company in
October, 1997. Mr. Novak is Chairman of Infra Group, L.L.C., an international
project finance and development company. He is also Chairman of Lano
International, Inc., a real estate development company, and a director of
Strategic Partners (Holdings) Limited, an international airport and seaport
development company. Mr. Novak is a graduate of Yale University, Yale Law
School, and Oxford University as a Marshall Scholar. Mr. Novak practiced law at
Cravath, Swaine & Moore and Swidler & Berlin, Chartered. His public service
includes three years as an officer in the United States Marine Corp., a U.S.
Supreme Court clerkship with Justice Potter Stewart, Senior Counsel, Senator E.
M. Kennedy, Senior Executive Assistant to Undersecretary of State, Eugene
Rostow, and the Executive Director of President Johnson's Telecommunications
Task Force. Mr. Novak was appointed by President Carter and served for five
years as Federal Fine Arts Commissioner.
HARRY MITTELMAN, M.D., was appointed to the Board of Directors on April 20,
1999. Dr. Mittelman graduated from of the University of Kansas, School of
Medicine in 1967. Dr. Mittelman practices medicine as a Cosmetic and Plastic
Surgeon and Otolaryngologist. Dr. Mittelman was a Foundation Board Member of the
American Academy of Facial Plastic and Reconstruction Surgery, 1997-1998 and was
the Chairman of the Laser Surgery and Safety Committee; American Academy of
Cosmetic Surgery, 1991-1993. Dr. Mittelman also is an Associate Clinical
Professor of Medicine at Stanford University Hospital and Medical Center.
STEVEN GIRGENTI was appointed to the Board of Directors on April 20, 1999.
Mr. Girgenti has served as Chairman of the Board and Chief Executive Officer of
Healthworld Corporation, a public company ("Healthworld") since August 1997.
Mr. Girgenti co-founded Girgenti, Hughes, Butler & McDowell, Inc. a wholly owned
subsidiary of Healthworld, in April, 1986, and has served as its President and
Chief Executive Officer since 1986. In 1969, Mr. Girgenti began working in the
pharmaceutical industry for advertising companies specializing in medical
communications, including William Douglas McAdams. Prior to that, Mr. Girgenti
held a variety of positions with pharmaceutical companies, including Director of
Marketing Research and Product Manager for DuPont pharmaceuticals and Manager of
Commercial Development for Bristol-Myers Squibb Company.
SAMUEL E. NAVARRO has been a director of the Company since January, 2000.
Mr. Navarro is an acknowledged authority on the medical device and health care
business and since 1999 has served as the Global Head of Health Care Corporate
Finance at ING Barings LLC. Prior to joining ING\Barings, Mr. Navarro was
managing director of equity research for the medical technology sector for the
Union Bank of Switzerland. Mr. Navarro holds a B.S. in engineering from the
University of Texas, an M.S. degree in engineering from Stanford University and
an M.B.A. from the Wharton School.
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SCIENTIFIC ADVISORY BOARD. In May, 1999, the Company established a
Scientific Advisory Board, to consist of persons experienced in the use of
advanced treatment for various types of psoriasis. The Scientific Advisory Board
members consist of:
R. Rox Anderson M.D., was appointed to the Advisory Board on May 21, 1999
and serves as its Chairman. One of his tasks will be the identification and
recruitment of other knowledgeable members. Dr. Anderson is the Research
Director of the Massachusetts General Hospital Laser Center. Dr. Anderson has
performed extensive research and written scholarly papers on various areas of
dermatology, including treatment by laser irradiation procedures. Dr. Anderson
holds a B.S. from the Massachusetts Institute of Technology and an Medical
Doctor degree from the Harvard Medical School. See "Business--Excimer Laser
System for the treatment of Psoriasis" and "Certain Relationships and Related
Transactions."
Franz Hillenkamp, who was appointed to the Advisory Board in January, 2000,
is currently the Director of the Institute for Medical Physics and Biophysics,
Medical Faculty of the Westfalische Wilhelms Universitat in Munster, German
Federal Republic. Professor Hillenkamp has performed extensive research and
served as chairman of a number of symposia on the applications of lasers for
various medical treatments. Professor Hillenkamp holds a PhD in Engineering from
the Technische Universitat in Munich and has served as a visiting professor at
the University of Maryland (Munich campus), Goethe University (Frankfurt), and
Harvard Medical School.
Kenneth Arndt, M.D., who was appointed to the Advisory Board in January,
2000, is a Co-Director, Cosmetic Surgey and Laser Center, Harvard Medical
Faculty Physicians at the Beth Israel Deaconess Medical Center in Boston.
Dr. Arndt is a Professor of Dermatology at Harvard Medical School, where an
endowed professorship of dermatology has been established in his name.
Dr. Arndt has published nearly 200 scholarly articles and books on various
aspects of dermatology. Dr. Arndt has received a Presidential Citation from the
American Society for Lasers in Surgery and Medicine. Dr. Arndt received his M.D.
from Yale Medical School.
Peter Whittaker, PhD., who was appointed to the Advisory Board in January,
2000, is the Director of Laser Research at the Heart Institute of Good Samaritan
Hospital in Los Angeles. Dr. Whittaker has published approximately 150 articles
and book chapters on the treatment of cardiovascular disease. Dr. Whittaker
received a Bachelor of Science in Physics from the University of Nottingham and
a PhD in Biophysics from the University of Western Ontario.
Warrick L. Morrison, M.D., who was appointed to the Advisory Board in
January, 2000, is a Professor of Dermatology at Johns Hopkins School of Medicine
and a practicing dermatologist at the Greater Baltimore Medical Center.
Dr. Morrison has served as a visiting professor at approximately 15 medical
centers, including Columbia University, Harvard University, and Yale University,
and published between 150 and 200 articles, books and book chapters on various
aspects of dermatology, including radiation treatment. Dr. Morrison received his
Bachelor of Medicine and Bachelor of Surgery from the University of Sydney.
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COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning compensation
of certain of the Company's executive officers, including the Company's Chief
Executive Officer and all executive officers (the "Named Executives") whose
total annual salary and bonus exceeded $100,000, for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS PAYOUTS
--------------------------------------------- ------------------------------------ ------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
COMPENSATION AWARDS(S) OPTIONS/SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($) ($) (#) ($) ($)
- --------------------------- -------- -------- -------- ------------ ---------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jeffrey O'Donnell(1)........ 1999 $ 35,632 2000 216,667
Raymond A. Hartman 1999 $248,546
(CEO)(2)..................
1998 $125,008 0 0 0 0 0 0
1997 $125,000(4) 0 0 0 250,000 0 270
Chaim Markheim (CFO)(3)..... 1999 $150,962 180,000
1998 $125,008 0 12,000 0 250,000 0 0
</TABLE>
- ------------------------------
(1) Mr. O'Donnell began serving as the Company's Chief Executive Officer on
November 19, 1999.
(2) Mr. Hartman served as the Company's Chief Executive Officer from October,
1997 to November, 1999.
(3) Mr. Markheim served as the Company's Chief Financial Officer and Chief
Operating Officer until January 15, 2000.
(4) Includes paid and accrued salary for each such fiscal year.
EMPLOYMENT AGREEMENT WITH JEFFREY F. O'DONNELL. As of November 19, 1999,
the Company entered into a three-year employment agreement with Jeffrey F.
O'Donnell to serve as the Company's President and Chief Executive Officer.
Mr. O'Donnell's base salary is $265,000 per year, subject to upward adjustment
from time to time by the Board of Directors. In addition, Mr. O'Donnell was
granted options to acquire up to 650,000 shares of the Company's Common Stock at
an exercise price of $4.625. Of these options, 216,667 are currently vested,
another 216,667 will vest on November 19, 2000, and 216,666 will vest on
November 19, 2001, so long as Mr. O'Donnell remains employed by the Company.
Under the employment agreement and the option agreement, if the Company
terminates Mr. O'Donnell, other than for "cause" (which definition includes
nonperformance of duties or competition of the employee with the Company's
business), then he will receive severance pay ranging from one to two years'
compensation, and 50% of all unvested options will vest immediately.
EMPLOYMENT AGREEMENT WITH DENNIS MCGRATH. As of November 24, 1999, the
Company entered into a three-year employment agreement with Dennis M. McGrath to
serve as the Company's Chief Financial Officer and Vice President of Finance and
Administration, replacing Chaim Markheim who now acts as a Consultant to the
Company. Mr. McGrath's base salary is $200,000 per year, subject to upward
adjustment from time to time by the Board of Directors. In addition,
Mr. McGrath was granted, as of November 24, 1999, options to acquire up to
350,000 shares of the Company's Common Stock at an exercise price of $5.50. Of
these options, 116,667 are currently vested, another 116,667 will vest on
November 24, 2000, and 116,666 will vest on November 24, 2002, so long as
Mr. McGrath remains employed by the Company. Under the employment agreement and
the option agreement, if the Company terminates Mr. McGrath, other than for
"cause" (which definition includes nonperformance of duties or competition of
the employee with the Company's business), then he will receive severance pay
ranging from one to two years' compensation, and 50% of all unvested options
will vest immediately.
EMPLOYMENT AGREEMENT WITH MICHAEL ALLEN. As of January 28, 2000, the
Company entered into an employment agreement with Michael Allen to serve as the
Company's Vice President of Sales and Marketing. Mr. Allen's base salary is
$140,000 per year, subject to upward adjustment from time to time by
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the Board of Directors. In addition, Mr. Allen was granted, as of January 28,
2000, options to acquire up to 150,000 shares of the Company's Common Stock at
an exercise price of $13.50. Of these options, 50,000 are currently vested,
another 50,000 will vest on January 28, 2001, and 50,000 will vest on
January 28, 2002, so long as Mr. Allen remains employed by the Company.
OPTION/SAR GRANTS TABLE
The following table sets forth certain information concerning grants of
stock options to certain of the Company's executive officers, including the
Named Executives for the year ended December 31, 1999:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATE
OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUALS GRANTS TERM(1)
------------------------------------------------------- ---------------------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE)(1) DATE(1) 5% ($) 10% ($)
- ---- ------------ ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey O'Donnell......... 650,000 55% 4.625 11/04 5,704,372 7,985,481
Chaim Markheim............ 180,000 15% 2.875 8/04 1,894,672 2,526,364
Dennis McGrath............ 350,000 30% 5.50 11/04 2,765,335 3,993,624
</TABLE>
- ------------------------
(1) This chart assumes a market price of $10.50 for the Common Stock, the
closing price for the Company's Common Stock in the Over-The-Counter Market
as of December 31, 1999, as the assumed market price for the Common Stock
with respect to determining the "potential realizable value" of the shares
of Common Stock underlying the options described in the chart, as reduced by
any lesser exercise price for such options. Further, the chart assumes the
annual compounding of such assumed market price over the relevant periods,
without giving effect to commissions or other costs or expenses relating to
potential sales of such securities. The Company's Common Stock has a very
limited trading history. These values are not intended to forecast the
possible future appreciation, if any, price or value of the Common Stock.
OPTION EXERCISES IN 1999
No Named Executive exercised any stock option in 1999.
1995 NON-QUALIFIED OPTION PLAN
On January 2, 1996, the Company adopted the Company's 1995 Non-Qualified
Option Plan for key employees, officers, directors and consultants, and reserved
up to 500,000 options to be granted thereunder. The option exercise price is not
less than 100% of market value on the date granted; 40% of granted options vest
immediately; 30% vest beginning one year after grant; and the remaining 30% vest
and may be exercised beginning two (2) years from grant.
No options may be exercised more than ten (10) years after grant, options
are not transferable (other than at death), and in the event of complete
termination "for cause" (other than death or disability) or "voluntary"
termination, all "unvested" options automatically terminate.
On January 2, 1996, the Company granted a total of 335,000 options at
exercise prices from $0.75 to $1.50 per share to certain directors, employees
and consultants.
LIMITATION ON DIRECTORS' LIABILITIES; INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation and Bylaws designate the relative
duties and responsibilities of the Company's officers, establish procedures for
actions by directors and stockholders and other
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items. The Company's Certificate of Incorporation and Bylaws also contain
extensive indemnification provisions, which permit the Company to indemnify its
officers and directors to the maximum extent provided by Delaware law. Pursuant
to the Company's Certificate of Incorporation and under Delaware law, directors
of the Company are not liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty, except for liability in connection with a
breach of duty of loyalty, for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases illegal under Delaware law or any transaction in
which a director has derived an improper personal benefit.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
The Company has no compensatory plans or arrangements which relate to the
resignation, retirement or any other termination of an executive officer or key
employee with the Company, a change in control of the Company or a change in
such executive officer's or key employee's responsibilities following a change
in control.
COMPENSATION AND AUDIT COMMITTEES; COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
The Board has a Compensation Committee comprised of John J. McAtee, Jr. and
Alan R. Novak, and an Audit Committee comprised Jeffrey F. O'Donnell, John J.
McAtee, Jr. and Alan R. Novak. Messrs. McAtee and Novak may be deemed to be
outside/non-employee directors. The Board has no standing committee on
nominations or any other committees performing equivalent functions.
The Compensation Committee reviews and approves the annual salary and bonus
for each executive officer (consistent with the terms of any applicable
employment agreement), reviews, approves and recommends terms and conditions for
all employee benefit plans (and changes thereto) and administers the Company's
stock option plans and such other employee benefit plans as may be adopted by
the Company from time to time.
The Audit Committee reports to the Board regarding the appointment of the
independent public accountants of the Company, the scope and fees of the
prospective annual audit and the results thereof, compliance with the Company's
accounting and financial policies and management's procedures and policies
relative to the adequacy of the Company's system of internal accounting
controls.
COMPENSATION OF DIRECTORS
On April 10, 1998, the Company's Board of Directors adopted a resolution
creating a stock plan for outside/non-employee members of the Board of
Directors. Pursuant to the stock plan each outside/ non-employee director is to
receive an annual grant of options, in addition to any other consideration they
may receive to purchase up to 20,000 shares of Common Stock as compensation, at
an exercise price equal to the market price of the Common Stock on the last
trading day of the preceding year (the "Option Plan for Outside Directors"). The
options granted pursuant to the Option Plan for Outside Directors vest at the
rate of 5,000 options per quarter during each quarter in which such person has
served as a member of the Board of Directors. See "Certain Relationships and
Related Transactions."
The Company has obtained directors' and officers' liability insurance with a
$2,500,000 limit of liability and a $2,500,000 excess coverage. The policy
period expires on February 24, 2000. The Company intends to renew such policy or
obtain comparable coverage after the expiration of such policy. However, there
can be no assurances to this effect.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONVERTIBLE DEBT AND CONVERSION OF CONVERTIBLE DEBT
In 1995, the Company sold an aggregate of $500,000 in six-month convertible
secured notes in a private transaction, pursuant to an exemption from
registration under Regulation S promulgated under the Securities Act. The
Company also issued to such investors warrants to purchase up to 500,000 shares
of Common Stock, which expired in 1995 due to the Company's meeting of certain
filing requirements. The noteholders were also granted a transferable one-year
option to purchase 134,000 additional shares at $2.25 per share, and 134,000
shares at $3.00 per share, which were exercised in 1996, and 107,000 shares at
$3.75 per share, which expired without exercise. In January and April, 1996, the
notes were converted into an aggregate of 538,583 shares of Common Stock at a
conversion price of $0.96 per share. In April, 1996, an additional 30,000 shares
were issued pursuant to Regulation S as payment of past due rent valued at
$60,000.
During July and August, 1998, Acculase issued $1,000,000 of the promissory
notes (the "Acculase Notes"), to three accredited investors. The Acculase Notes
were guaranteed by the Company. Interest was payable annually and could be paid
in cash or in the Company's Common Stock at the Company's option. All of the
funds received by the Company from issuance of the Acculase Notes were applied
to fund current operations and to pay current obligations. The entire amount of
principal was automatically converted in 500,000 shares of the Company's Common
Stock, at a conversion price of $2.00 per share, on December 31, 1998. As of
December 31, 1998, the price of the Company's common stock was $2.81. In
addition, the Company issued 37,443 shares in payment of accrued interest as of
April 30, 1999. The shares issued in conversion of the Acculase Notes are being
registered in a registration statement of which this Prospectus forms a part.
In March, 1999, the Company issued to 38 accredited investors $2,380,000 of
units of its securities (the "Units"), each Unit consisting of: (i) $10,000
principal amount of convertible promissory notes (the "Convertible Notes"); and
(ii) common stock purchase warrants to purchase up to 2,500 shares of Common
Stock (the "Unit Warrants"). On August 2, 1999, the Convertible Note holders
converted the Convertible Notes and accrued and unpaid interest thereon into
1,190,819 shares of Common Stock at a conversion price of $2.00 per share. On
March 29, 1999, the price of the Common Stock was $4.63. The Company used the
proceeds of this financing to fund marketing, research and development expenses,
the purchase of equipment relating to the manufacture of the Company's excimer
lasers, other operating activities, and the payment of certain liabilities. The
shares issued from the conversion of the Convertible Notes are being registered
in a registration statement of which this Prospectus forms a part.
The Unit Warrants are exercisable into an initial 1,250 shares of Common
Stock at any time after purchase until March 31, 2004. The balance of the Unit
Warrants are exercisable into an additional 1,250 shares of Common Stock (the
"Contingent Shares") if the Unit holder voluntarily converted at least a portion
of the principal amount of the Convertible Note, that make up a portion of the
Unit, into shares of Common Stock. As of the date of this Prospectus, all of the
Unit holders converted their Convertible Notes into shares of Common Stock,
aggregating 1,190,819 shares of Common Stock, including 819 shares of Common
Stock to convert accrued and unpaid interest. As such, each Unit holder has a
fully vested Unit Warrant to purchase 2,500 shares of Common Stock at $2.00 per
share. The Unit Warrants provide that they may be adjusted in the event that the
Company issues shares of Common Stock for consideration of less than $2.00 per
share. In such event, the per share exercise price of the Unit Warrants will be
adjusted to the issue price of such additionally issued shares of Common Stock.
The 595,000 shares underlying the Unit Warrants are being registered in a
registration statement, of which this Prospectus forms a part.
On August 9, 1999, the Company completed the offering of 2,068,972 shares of
Common Stock at a price of $4.50 per share, resulting in aggregate gross
proceeds to the Company of $9,310,374 (the "August 9, 1999 Financing"). The
Company paid PMG a commission of 8% of the gross proceeds, or $744,830, plus
$25,000 for reimbursement of offering expenses, and issued to PMG warrants to
purchase
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<PAGE>
93,104 shares of Common Stock at an exercise price of $4.50 per share. On the
date of the closing of the August 9, 1999 Financing, the price of the Company's
Common Stock was $5.19 per share. The Company has used part of the proceeds of
this financing to pay marketing expenses, research and development expenses and
for working capital. As of September 30, 1999, the Company had $6,619,434 of
cash on hand.
CERTAIN ISSUANCES TO FORMER AFFILIATES
On January 2, 1996, the Company issued 25,000 shares of Common Stock to
Susan E. Barnes, the wife of Bernard B. Katz, a former director and Chairman of
the Board of the Company, in consideration for her personal guaranty of $81,000
in lease obligations associated with the Company's Andover, Massachusetts
facility. On the date of this issuance of securities, there was no price quote
for the Company's Common Stock. On February 22, 1996, the Company agreed to
issue to Ms. Barnes 50,000 shares of Common Stock at a value of $1.00 per share
for services she arranged to provide in connection with raising $1.5 million to
finance the Company's emergence from the Bankruptcy Proceeding. On the date of
this issuance of securities, the Company's stock had no trading price.
In October, 1996, the Company issued an additional 100,000 shares of Common
Stock to Ms. Barnes in connection with a second guaranty of the Andover lease
and lease extension, after the lease went into default and the landlord
threatened immediate eviction. At the time of the issuance of these securities
the trading price of the Common Stock was approximately $2.80. This second
personal guaranty was secured by a pledge of 391,360 shares of her personally
owned Helionetics common stock. All guarantees of Ms. Barnes have been
terminated.
ISSUANCES OF SHARES, OPTIONS AND WARRANTS
On January 2, 1996, the Company adopted the Company's 1995 Non-Qualified
Option Plan for key employees, officers, directors and consultants, and reserved
up to 500,000 shares of Common Stock for which options could be granted
thereunder. On January 2, 1996, the Company granted a total of 335,000 options
at an exercise price of $1.50 per share to certain directors, employees and
consultants for financial consulting services, for compensation in lieu of cash,
for services rendered to assist the Company in being traded on the NASDAQ
Bulletin Board, and for services in completing the Company's Chapter 11
Reorganization. On the date of this issuance of securities, there was no price
quote for the Company's Common Stock.
During 1996, the Company issued 151,000 shares of Common Stock and options
to purchase up to 62,500 shares of Common Stock in exempt transactions to key
employees and consultants for services rendered and as compensation at an
exercise price of $2.50 per share. Included were issuances to certain former
officers and directors for services rendered, as follows: (i) Steven A. Qualls
(10,000 shares), (ii) Chaim Markheim (5,000 shares) and (iii) Maxwell Malone
(5,000 shares). On the date of this issuance of securities, the price of the
Company's Common Stock was $2.88.
During 1997, the Company issued a total of 105,000 shares of Common Stock to
Don Davis, Esq., the Company's former legal counsel, as a consultant in
connection with legal services rendered to the Company. The services included,
but were not limited to, general representation of the Company and securities
disclosure work in relation to the Company's continuing obligation to provide
reports pursuant to the Exchange Act. On the date of this issuance of
securities, the price of the Company's Common Stock was trading in a range from
$0.75 to $1.31.
On May 27, 1997, the Company issued to Raymond A. Hartman options to acquire
250,000 shares of Common Stock at an exercise price of $0.50 per share with a
five (5) year term, contingent upon his completion of the excimer laser for TMR
in a fashion such that it could be manufactured for less than $25,000 per unit
and perform at least as well, if not better than, the Company's existing laser
products. On April 5, 1999, the Board of Directors determined that
Mr. Hartman's efforts and accomplishments had fulfilled such contingency. On
May 22, 1997 the Board of Directors further resolved that the options referenced
above be deemed vested. At the date of this issuance of securities, the price of
the Company's Common Stock was $0.75. On April 9, 1999, the price of the
Company's Common Stock was $4.81.
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<PAGE>
On July 1, 1997, the Company granted a total of 108,500 options at an
exercise price of $1.00 per share to certain employees and consultants. On the
date of this issuance of securities, the price of the Company's Common Stock was
$1.05.
On October 31, 1997, the Company issued options to purchase up to 20,000
shares of Common Stock at an exercise price of $1.00 per share to a former
director of the Company. On the date of this issuance of securities, the price
of the Company's Common Stock was $5.25.
In October, 1997, in satisfaction of all compensation owed by the Company to
K.B. Equities, Inc. ("KB Entities"), an affiliate of Mr. Katz and Ms. Barnes,
for consulting services rendered to the Company in 1997, the Board of Directors
granted options to acquire 100,000 shares of Common Stock to K.B. Equities at an
exercise price of $0.75 per share, with a term of seven (7) years. Mr. Katz
resigned from the Board of Directors of the Company on October 9, 1997. On the
date of this issuance of securities, the price of the Company's Common Stock was
$3.75.
In August, 1997, the Company issued options to purchase up to 211,899 shares
of Common Stock to the following persons, who are now or have been in the recent
past officers and directors of the Company, at an exercise price of $1.25 per
share with a term of five (5) years: (i) Chaim Markheim (20,250 options),
(ii) Raymond A. Hartman (20,250 options), (iii) Alan R. Novak (71,399 options),
and (iv) John J. McAtee, Jr. (100,000 options). On the date of this issuance of
securities, the price of the Company's Common Stock was $1.50.
On December 15, 1997, the Company issued warrants to PMG and an employee of
PMG to purchase up to 300,000 shares of Common Stock at an exercise price of
$2.00 per share, which expire on December 15, 2002. The Warrants were issued to
PMG as compensation for investment banking and advisory services. The 300,000
shares underlying the warrants are being registered in a registration statement,
of which this Prospectus forms a part. On the date of this issuance of
securities, the price of the Company's Common Stock was $3.75.
On April 10, 1998, the Company issued options to Chaim Markheim to purchase
up to 250,000 shares of Common Stock, at an exercise price of $2.875 per share,
with a five (5) year term. On the date of this issuance of securities, the price
of the Company's Common Stock was $3.00.
On April 10, 1998, the Company issued options to purchase up to 100,000
shares of Common Stock, at the exercise price of $2.875 per share, with a
five-year term, and 20,000 shares of Common Stock, to certain consultants for
services rendered. The 20,000 shares were issued for services rendered at a
$1.00 per share. On the date of this issuance of securities, the price of the
Company's Common Stock was $2.875.
In conformity with the provisions of the Option Plan for Outside Directors,
on April 10, 1998, the Company granted to John J. McAtee and Alan R. Novak
options to purchase up to 20,000 shares of Common Stock at an exercise price of
$2.875 per share for services rendered during 1998. On the date of grant of
these stock options, the price of the Company's Common Stock was $2.875.
On March 8, 1999, the Company granted to Messrs. McAtee and Novak an
additional 20,000 options under the Option Plan for Outside Directors to
purchase a like number of shares of Common Stock at an exercise price of $2.8125
per share for services as a outside member of the Board of Directors to be
rendered during 1999. All of these options are vested as of the date of this
Prospectus. On the date of grant of these stock options, the price of the
Company's Common Stock was $2.875.
Upon Warwick Alex Charlton's joining the Company's Board of Directors on
March 8, 1999, Mr. Charlton was granted options under the Option Plan for
Outside Directors, to purchase 20,000 shares of Common Stock at an exercise
price of $2.8125 per share for services to be rendered during 1999. On the date
of grant of these stock options, the price of the Company's Common Stock was
$2.88. Of these options all are vested as of the date of this Prospectus.
Not in connection with the Option Plan for Outside Directors, on March 8,
1999, the Company granted to Mr. Charlton, options to acquire 150,000 shares of
Common Stock at $3.00 per share. On the
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<PAGE>
date of this issuance of securities, the price of the Company's Common Stock was
$2.875. All of such options are vested as of the date of this Prospectus.
Upon Steve Girgenti and Harry Mittelman joining the Company's Board of
Directors on April 20, 1999, each was granted options to purchase 15,000 shares
of Common Stock, at an exercise price of $2.8125 per share, for services to be
rendered during 1999. On the date of grant of these stock options, the price of
the Company's Common Stock was $4.63. As of the date of this Prospectus all of
these options are vested.
Not in connection with the Option Plan for Outside Directors, on April 20,
1999, the Company granted to Mr. Girgenti and Dr. Mittelman options, all of
which are vested, to acquire up to 50,000 shares of Common Stock at $4.75 per
share. On the date of grant of these stock options, the price of the Company's
Common Stock was $4.63. All of such options are vested as of the date of this
Prospectus.
In 1999, in respect of the period August, 1998, through March, 1999, the
Company granted to its current legal counsel, Matthias & Berg LLP ("M&B"),
options to acquire an aggregate of 17,864 shares of the Company's Common Stock,
at exercise prices between $1.50 and $5.10 per share, in each case equal to 85%
of the trading price of the Company's Common Stock on the last day of the month
in respect of which the options were granted. The options are exercisable for a
period of 120 months from the date of grant. These options were issued as a part
of a fee agreement between the Company and M&B, whereby M&B received options
having an exercise price equal to 20% of its monthly fees in the form of Common
Stock of the Company, valued at the closing bid price on the last day of each
month. M&B agreed to forego collection of such fees in cash, and use, the
uncollected fees against exercise price of the options.
On April 5, 1999, the Company issued to a non-executive employee options to
purchase 50,000 shares of the Company's Common Stock, at an exercise price of
$3.1875. Such options vest, pursuant to a schedule, over a period of five
(5) years. On the date of this issuance of securities, the price of the
Company's Common Stock was $4.56.
On August 9, 1999, the Company issued 2,068,972 shares of the Company's
Common Stock in connection with the August 9, 1999 Financing. The Company paid
PMG a commission of 8% of the gross proceeds, or $744,000, $25,000 for
reimbursement of expenses and, for each $1,000,000 of gross proceeds received by
the Company, a warrant to purchase 10,000 shares of Common Stock at $4.50 per
share (an aggregate of 93,104 warrants). On the date of the closing of the
August 9, 1999 financing, the price of the Company's Common Stock was $5.19. The
2,068,972 shares of Common Stock sold in the August 9, 1999 Financing are being
registered in a registration statement, of which this Prospectus forms a part.
On May 11, 1999, the Company, in exchange for various marketing services to
be provided by Healthworld at a discounted rate of $104 per person hour, which
is materially less then the normal hourly rate charged by Healthworld for such
services, granted the Healthworld Warrants to purchase 174,000 shares of the
Company's Common Stock at an exercise price of $4.69 per share. On the date of
grant of the Healthworld Warrants, the price of the Common Stock was $4.69. The
Warrants have a term of ten years and are fully vested.
On of August 26, 1999, the Company issued options to Chaim Markheim to
purchase up to 180,000 shares of Common Stock, at an exercise price of $5.25 per
share, with a five (5) year term. Of these options, 100,000 are vested, and the
remaining 80,000 shall vest over two years as long as Mr. Markheim continues to
be retained by the Company as a Consultant. On the date of this issuance of
securities, the price of the Company's Common Stock was $5.25.
On November 19, 1999, Jeffrey O'Donnell, the Company's President and Chief
Executive Officer was granted options to acquire up to 650,000 shares of the
Company's Common Stock at an exercise price of $4.625. Of these options, 216,667
are currently vested, another 216,667 shall vest on November 19, 2000, and
216,666 will vest on November 19, 2002 as long as Mr. O'Donnell remains employed
by the Company. If Mr. O'Donnell is terminated by the Company other than for
"cause" (which definition includes nonperformance of duties or competition of
the employee with the Company's business), 50% of all
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unvested options will vest immediately. On the date of grant of the options the
price of the Company's Common Stock was $4.625.
As of November 24, 1999, Dennis McGrath was granted options to acquire up to
350,000 shares of the Company's Common Stock at an exercise price of $5.50. Of
these options, 116,667 are currently vested, another 116,667 will vest on
November 24, 2000, and 116,666 will vest on November 24, 2002 as long as
Mr. McGrath remains employed by the Company. If the Company terminates
Mr. McGrath, other than for "cause" (which definition includes nonperformance of
duties or competition of the employee with the Company's business), 50% of all
unvested options will vest immediately. On the date of grant of the options the
price of the Company's Common Stock was $5.50 per share.
On December 7, 1999, the Company granted to Samuel E. Navarro options to
acquire up to 100,000 shares of Common Stock at an exercise price of $5.9375 per
share. Of these options, 33,334 are currently vested, 33,333 shall vest on
December 7, 2000, and 33,333 shall vest on December 7, 2002 as long as
Mr. Navarro remains a director of the Company. On the date of grant the price of
the Company's Stock was $5.9375.
Michael Allen was granted, as of January 28, 2000, options to acquire up to
150,000 shares of the Company's Common Stock at an exercise price of $13.50. Of
these options, 50,000 are currently vested, another 50,000 will vest on
January 28, 2001, and 50,000 will vest on January 28, 2002, so long as
Mr. Allen remains employed by the Company. On the date of the grant, the price
of the Company's Common Stock was $14.125.
CERTAIN ISSUANCES OF SECURITIES
In September and October, 1997, the Company privately sold to 25 accredited
investors a total of 679,500 restricted shares of Common Stock in a private
placement at a price of $1.25 per share. The price of the Common Stock at the
time of these transactions was approximately $3.50 per share. The Company sold
an additional 28,601 shares at a price of $1.25 per share in the third quarter
of 1997. The price of the Common Stock on the date of this transaction was $2.56
per share. These funds were used in part to pay outstanding accounts payable and
to make a partial payment on delinquent Federal and State taxes outstanding. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In September, 1997, PMG purchased from Helionetics, with the approval of the
Federal Bankruptcy Court in the pending Helionetics Chapter 11 Bankruptcy
Proceeding, all debt owed by Acculase to Helionetics. In October, 1997, the
Company purchased the debt owing by Acculase, in the amount of $2,159,708, from
PMG in consideration of 800,000 shares of Common Stock or $2.70 per share. On
the date of the issuance of these securities, the price of the Company's Common
Stock was approximately $3.00 per share.
In November, 1997, the Company issued 1,500,000 shares of Common Stock and
750,000 warrants (the "Warrants") to 37 accredited investors, with an exercise
price of $4.00 per share and a term of five (5) years, in a private placement,
resulting in gross proceeds of $6,000,000 to the Company. The price of the
Common Stock on November 30, 1997, was $5.06 per share. The Company also issued
150,000 warrants and paid a commission of $480,000 to PMG as a placement agent
fee. The warrants have an exercise price of $4.00 per share and provide that in
the event that the Company issues shares of Common Stock for consideration of
less than $4.00 per share, the per share exercise price will be adjusted to the
issue price of such additionally issued shares of Common Stock. In December,
1998, the Company issued shares of its Common Stock at $1.50 per share, which
reduced the exercise price of the 900,000 warrants was $1.50 per share. The
shares underlying these warrants are being registered pursuant to a registration
statement, of which this Prospectus forms a part. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The Company has agreed to issue to PMG an additional 75,000 warrants (the
"Contingent Warrants") at a purchase price of $0.001 per share, at such time as
any of the other related 750,000 warrants have been exercised. The Contingent
Warrants will be exercisable for a period of five (5) years following the date
of
71
<PAGE>
issue, at an exercise price equal to the average closing bid price for the
Common Stock for the ten (10) trading days preceding the date of issue. The
Contingent Warrants may be redeemed by the Company, upon 30 days' notice, at a
redemption price of $0.10 per share, if the closing bid price of the Common
Stock exceeds $8.00 per share for a period of thirty consecutive trading days.
In July, 1998, the Company granted warrants to acquire 300,000 shares of
Common Stock to PMG at an exercise price of $2.00 per share in consideration for
the guarantee, by PMG, of a lease of office space in Carlsbad, California for
the Company and the raising of a bridge loan of $1,000,000. Such warrants are
exercisable at anytime until July 15, 2003. The price of the Company's Common
Stock on July 15, 1998 was $2.125.
On December 31, 1998, the Company sold to Mr. and Mrs. Richard A. Hansen an
aggregate of 100,000 shares of the Company's restricted Common Stock $1.50 per
share. The price of the Common Stock at December 30, 1998, was $2.50 per share.
Mr. Hansen is the President of PMG, one of the Company's investment bankers.
These shares are being registered pursuant to a registration statement of which
this Prospectus forms a part.
OTHER TRANSACTIONS
As of May 11, 1999, the Company entered into the agreement with Healthworld,
of which Steven Girgenti, a director of the Company, is Chairman and Chief
Executive Officer, for provision of various services relating to the marketing
of the Company's products. The services include: (i) advertising and promotion;
(ii) development of market research and strategy; and (iii) preparation and
consulting on media and publicity. The term of the agreement is indefinite, but
may be terminated by either party on ninety days' notice. Compensation for these
services is approximately $40,000 per month, plus reimbursement of expenses and
payment of a 15% commission on media buys. Services beyond those budgeted by the
parties are to cost $104 per person hour. Under a separate agreement,
Healthworld will provide, as of October 1, 1999: (i) two fulltime managed-care
specialists to make calls on potential customers for a period of seven months at
a cost of $30,000 per month; (ii) 20 fulltime sale representatives to market
among dermatologists for a period of four months at a cost of $125,000 per
month; and (iii) certain general management services for a period of seven
months at $70,000 per month. Under separate agreements, Healthworld will provide
certain medical education and publishing services (approximately $700,000 in
fees and costs over a period in excess of one year) and general public relations
services ($10,000 per month). See "Management."
As of May 21, 1999, the Company granted Rox Anderson, M.D. options to
acquire up to 250,000 shares of Common Stock, exercisable at $5.16 per share, of
which 100,000 are currently vested. The remainder will vest ratably over a
three-year period and, in addition, are contingent on either approval by the FDA
of a 510(k) submission by the Company or the FDA's approval of the Company's
excimer laser to be regulated as a Class II device for the treatment of
psoriasis. See "Business--Excimer Laser System for the Treatment of Psoriasis"
and "Management."
At December 31, 1997 and 1998 and September 30, 1999, the Company had
advances outstanding to Chaim Markheim, the former Chief Operating Officer and a
former Director of the Company of $25,000, $54,600 and $54,600, respectfully. As
of September 30, 1999, the Company owed a total of $75,180 to Raymond A.
Hartman, the former President and Director of the Company. This obligation
includes $72,000 for commissions earned in connection with the Baxter Agreement.
The Company believes that all such transactions with affiliates of the
Company have been entered into on terms no less favorable to the Company than
could have been obtained from independent third parties. The Company intends
that any transactions and loans with officers, directors and five percent (5%)
or greater stockholders, following the date of this Prospectus, will be on terms
no less favorable to the Company than could be obtained from independent third
parties and will be approved by a majority of the independent, disinterested
directors of the Company.
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<PAGE>
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
The following table reflects, as of January 14, 2000, the beneficial Common
Stock ownership of: (a) each director of the Company, (b) each Named Executive
(See "Compensation of Executive Officer and Directors"), (c) each person known
by the Company to be a beneficial holder of five percent (5%) or more of its
Common Stock, and (d) all executive officers and directors of the Company as a
group:
<TABLE>
<CAPTION>
PERCENT
NUMBER OF --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES# BEFORE OFFERING AFTER OFFERING
- ------------------------------------ --------- --------------- --------------
<S> <C> <C> <C>
Warwick Alex Charlton(1)................................ 170,000 1.27 1.06
Jeffrey F. O'Donnell(2)................................. 226,667 1.61 1.28
Dennis McGrath(3)....................................... 116,667 ** **
Michael Allen(4)........................................ 50,000 ** **
Alan R. Novak(5)........................................ 160,000 1.20 0.82
John J. McAtee, Jr.(6).................................. 239,000 1.79 0.97
Steven Girgenti(7)...................................... 210,000 1.56 1.31
Harry Mittelman(8)...................................... 266,514 1.88 0.20
Samuel E. Navarro(9).................................... 33,334 ** **
Joseph E. Gallo, Trustee(10)............................ 987,943 7.43 0.14
Pennsylvania Merchant Group(11)......................... 869,840 6.34 1.10
Richard Hansen(11)...................................... 869,840 6.34 1.10
Clifford Kalista(12).................................... 550,000 4.08 1.55
Platinum Partners, LP(13)............................... 759,000 5.74 4.56
Calvin Hori and Hori Capital Management, Inc.(13)....... 933,100 7.05 5.55
All directors and officers as a group
(9 persons)(14)....................................... 1,447,182 10.03 6.51
</TABLE>
- ------------------------
# Pursuant to the rules of the Commission, shares of Common Stock which an
individual or group has a right to acquire within 60 days pursuant to the
exercise of options or warrants are deemed to be outstanding for the purpose
of computing the percentage ownership of such individual or group, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
** Less than 1%.
(1) Includes options to purchase 170,000 shares of Common Stock.
Mr. Charlton's address is 304 Old Colony Road, Hartsdale, New York 10530.
See "Certain Relationships and Related Transactions."
(2) Includes 10,000 shares in the name of 531 E. Lancaster Ave. LLC of which
Mr. O'Donnell is a principal and options to purchase 216,667 shares of
Common Stock. Does not include options to purchase up to 433,333 shares of
Common Stock, which vest over the next two years. Mr. O'Donnell's address
is 7 Great Valley Parkway, Suite 222, Malvern, PA 19355. See "Certain
Relationships and Related Transactions."
(3) Includes options to purchase 116,667 shares of Common Stock. Does not
include options to purchase up to 233,333 shares of Common Stock, which
vest over the next two years. Mr. McGrath's address is 7 Great Valley
Parkway, Suite 222, Malvern, PA 19355. See "Certain Relationships and
Related Transactions."
(FOOTNOTES CONTINUE ON THE FOLLOWING PAGE)
73
<PAGE>
(FOOTNOTES FROM THE PRIOR PAGE)
(4) Includes options to purchase 50,000 shares of Common Stock. Does not
include options to purchase up to 100,000 shares of Common Stock, which
vest over the next two years. Mr. Allen's address is 7 Great Valley
Parkway, Suite 222, Malvern, PA 19355. See "Certain Relationships and
Related Transactions."
(5) Includes 28,601 shares of Common Stock, which are being registered in a
registration statement of which this Prospectus forms a part and options to
purchase up to 111,399 shares of Common Stock. Mr. Novak's address is 3050
K Street, NW, Suite 105, Washington, D.C. 20007. See "Certain Relationships
and Related Transactions."
(6) Includes 84,000 shares which are being registered in a registration
statement of which this Prospectus forms a part and options to purchase up
to 140,000 shares of Common Stock. Mr. McAtee's address is Two Greenwich
Plaza, Greenwich, Connecticut 06830. See "Certain Relationships and Related
Transactions."
(7) Includes options to purchase 65,000 shares of Common Stock. On May 11, 1999
the Company issued to Healthworld, of which Mr. Girgenti is Chairman and
Chief Executive Officer, the Healthworld Warrants to purchase 174,000
shares of the Company's Common Stock at an exercise price of $4.69 per
share. These Warrants have a term of ten years and vest to the extent of
14,500 shares of Common Stock on the eleventh day of each month, beginning
June 11, 1999. As of 60 days after the date of this Prospectus, 145,000
Warrants are vested and all of the shares underlying the Warrants are being
registered in a Registration Statement of which this Prospectus forms a
part. Mr. Girgenti's address is Healthworld Corporation, 100 Avenue of the
Americas, 8th Floor, New York, New York 10013. See "Certain Relationships
and Related Transactions."
(8) Includes 123,514 shares of Common Stock, warrants to purchase 63,000 shares
and options to purchase 65,000 shares of Common Stock. Dr. Mittelman also
owns, as Trustee of two family trusts, 10,000 shares and warrants to
purchase up to 5,000 shares of Common Stock. Of these shares and underlying
shares, 219,100 are being registered in a Registration Statement of which
this Prospectus forms a part. Dr. Mittelman's address is 2200 Sand Hill
Road, Suite 110, Menlo Park, CA 94025. See "Certain Relationships and
Related Transactions."
(9) Includes options to purchase 33,334 shares of Common Stock. Does not
include options to purchase up to 66,661 shares of Common Stock, which vest
over the next two years. Mr. Navarro's address is 55 East 52nd St., 33rd
Floor, New York, NY 10055. See "Certain Relationships and Related
Transactions."
(10) Includes 925,443 shares of Common Stock and 62,500 warrants to purchase
shares of Common Stock. Mr. Gallo is the Trustee of four (4) trusts, which
own these securities. All of the shares of Common Stock and the shares
underlying the Warrants are being registered in a registration statement,
of which this Prospectus forms a part. Mr. Gallo's address is 600 Yosemite
Blvd., Modesto, California 95354. See "Certain Relationships and Related
Transactions."
(11) Includes 269,840 shares of Common Stock and 500,000 warrants to purchase
shares of Common Stock. This figure also includes 25,000 shares of Common
Stock owned by Penelope Hansen, wife of Richard Hansen in her own name.
100,000 of these shares are being registered in a Registration Statement
of which this Prospectus forms a part. The address of Pennsylvania
Merchant Group Ltd. ("PMG") and Mr. Hansen is Four Falls Corporate Center,
West Conshohocken, Pennsylvania 19428. See "Certain Relationships and
Related Transactions--Convertible Debt and Conversion of Convertible
Debt." See "Certain Relationships and Related Transactions."
(FOOTNOTES CONTINUE ON THE FOLLOWING PAGE)
74
<PAGE>
(FOOTNOTES FROM THE PRIOR PAGE)
(12) Includes 300,000 shares of Common Stock and 250,000 warrants to purchase
shares of Common Stock. 50,000 shares and 250,000 shares underlying the
warrants are being registered in a Registration Statement of which this
Prospectus forms a part. Mr. Kalista is employed by Pennsylvania Merchant
Group Ltd. His address is Four Falls Corporate Center, West Conshohocken,
Pennsylvania 19428. See "Certain Relationships and Related Transactions."
(13) The listed persons, Calvin Hori ("Hori"), Hori Capital Management, Inc.
("Hori Capital") and Platinum Partners, LP ("Platinum") have jointly filed
an Amendment No. 1 to Schedule 13D (the "Schedule 13D"), dated
December 1, 1997, with respect to 933,100 shares of Common Stock. The
Schedule 13D provides, in pertinent part, that: (a) Hori, Hori Capital and
Platinum may be deemed to be the beneficial owners of 759,000 of these
shares, and (b) Hori and Hori Capital may be deemed to be the beneficial
owners of an additional 174,100 of these shares. The address for each of
the listed persons is One Washington Mall, Boston, Massachusetts 02108.
(14) Includes 251,115 shares of Common Stock and options and warrants to
purchase up to 1,187,860 shares of Common Stock.
75
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, par value $0.01 per share. As of the date of this Prospectus,
there were issued and outstanding 13,225,618 shares of Common Stock. There were
also issued and outstanding warrants to purchase up to 2,324,604 shares of
Common Stock and options to purchase up to 3,498,263 shares of Common Stock.
As of September 15, 1999, the Company's stockholders adopted amendments to
the Company's Certificate of Incorporation to increase the authorized number of
shares of Common Stock from 10,000,000 shares to 25,000,000 shares.
COMMON STOCK
Holders of the Common Stock are entitled to cast one vote for each share
held of record, to receive such dividends as may be declared by the Board of
Directors out of legally available funds and to share ratably in any
distribution of the Company's assets after payment of all debts and other
liabilities, upon liquidation, dissolution or winding up. Holders of the Common
Stock do not have preemptive rights or other rights to subscribe for additional
shares, and the Common Stock is not subject to redemption. The outstanding
shares of Common Stock are validly issued, fully paid and nonassessable.
Under Delaware law, each holder of a share of Common Stock is entitled to
one vote per share for each matter submitted to the vote of the stockholders,
and cumulative voting is allowed for the election of directors, if provided for
in the Certificate of Incorporation. The Company's Certificate of Incorporation
does not provide for cumulative voting.
WARRANTS
The Company has issued and outstanding Warrants to purchase 2,349,604 shares
of Common Stock to various investors in the Company at exercise prices ranging
from $1.50 up to $5.25 per share, all of which are currently exercisable. All of
these warrants are being registered in a registration statement, of which this
Prospectus forms a part. See "Certain Relationships and Related Transactions."
OPTIONS
The Company has issued and outstanding options to purchase 3,498,263 shares
of Common Stock to various employees, officers, directors and consultants of the
Company, at exercise prices ranging from $0.50 to $5.94 per share, 2,369,224 of
which are currently exercisable. See "Compensation of Executive Officers and
Directors--1995 Non-Qualified Stock Option Plan--Compensation of Directors" and
"Certain Relationships and Related Transactions."
TRANSFER AGENT
The transfer agent for the Common Stock is American Stock Transfer & Trust
Co., 6201 Fifteenth Avenue, Brooklyn, New York 10015.
CERTAIN BUSINESS COMBINATIONS AND OTHER PROVISIONS OF THE CERTIFICATE OF
INCORPORATION
Delaware law contains a statutory provision, which is intended to curb
abusive takeovers of Delaware corporations. The effect of such "anti-takeover"
provisions may delay, deter or prevent a takeover of the Company which the
stockholders may consider to be in their best interests, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of their securities at above-market prices, or limit the
ability of stockholders to remove incumbent directors as readily as the
stockholders may consider to be in their best interests.
76
<PAGE>
Section 203 of the Delaware General Corporation Law addresses the problem by
preventing certain business combinations of the corporation with interested
stockholders within three years after such stockholders become interested.
Section 203 provides, with certain exceptions, that a Delaware corporation may
not engage in any of a broad range of business combinations with a person or an
affiliate, or associate of such person, who is an "interested stockholder" for a
period of three (3) years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person becoming an
interested stockholder, or the business combination, is approved by the Board of
Directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquired 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
such person an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is: (i) the owner of
fifteen percent (15%) or more of the outstanding voting stock of the corporation
or (ii) an affiliate or associate of the corporation and who was the owner of
fifteen percent (15%) or more of the outstanding voting stock of the corporation
at any time within the three (3) year period immediately prior to the date on
which it is sought to be determined whether such person is an interested
stockholder.
77
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
There are, as of the date of this Prospectus, 5,901,835 shares of Common
Stock currently issued in the name of the Selling Stockholders, 2,324,604 shares
of Common Stock underlying the Warrants and 200,000 shares of Common Stock
underlying the Options which may be sold from time to time directly by the
Selling Stockholders to purchasers. Alternatively, the Selling Stockholders may
from time to time offer the shares of 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 the shares for whom they may act as agent. The Selling Stockholders and any
underwriters, dealers or agents that participate in the distribution of the
shares of Common Stock may be deemed to be underwriters and any profit on the
sale of shares by them and any discounts, commissions or concessions received by
any such underwriters, dealers or agents may be deemed to be underwriting
discounts and commissions under the Securities Act. At the time a particular
offer of shares is made, to the extent required, a Prospectus Supplement will be
distributed which will set forth the specific shares to be sold and the terms of
the offering, including the name or names of any underwriters, dealer-agents,
any discounts, commissions or concessions allowed or reallowed or paid to
dealers.
The shares of 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 negotiated prices.
The Company has paid all of the expenses incident to the offering of the
shares of the Common Stock offered by the Selling Stockholders, other than
commissions and discounts of underwriters, dealers or agents and the fees and
expenses of counsel to the Selling Stockholders.
As of the date of this Prospectus, except for John J. McAtee, Jr., Alan R.
Novak and Harry Mittelman, who are directors of the Company, and Joseph E.
Gallo, as trustee, Clifford Kalista, Richard Hansen and PMG, who are 5% or
greater beneficial stockholders, none of the Selling Stockholders or their
affiliates is a director, executive officer or 5% or greater beneficial
stockholder of the Company.
The following table sets forth certain information related to the number of
shares of Common Stock and shares underlying the Warrants, which may be offered
by the Selling Stockholders pursuant to this Prospectus:
<TABLE>
<CAPTION>
SHARES UNDERLYING
WARRANTS AND
SELLING STOCKHOLDERS SHARES(1) OPTIONS(2) TOTAL SHARES
- -------------------- --------- ----------------- ------------
<S> <C> <C> <C>
531 East Lancaster Avenue LLC(3)....................... 10,000 10,000
Abruzzese, Frank A..................................... 11,000 11,000
Accrued Investments, Inc............................... 7,500 7,500
Adams, Dennis.......................................... 92,500 21,250 113,750
Alderfer, Joy.......................................... 2,000 2,000
Allsopp, David S....................................... 57,900 57,900
Arkin, Robert.......................................... 25,000 12,500 37,500
Auch, Fran M........................................... 13,000 13,000
Austin, Van............................................ 5,000 5,000
Batansky, Norman....................................... 6,000 6,000
Belz, David & Robyn.................................... 3,000 3,000
Belz, David, Profit Sharing Plan....................... 8,000 8,000
Blancho, Eric.......................................... 11,000 11,000
Bowler, Mary E......................................... 17,218 5,000 22,218
Bowyer, Arvel(4)....................................... 150,000 150,000
Brooks Provisions...................................... 25,000 25,000
Brown, William P....................................... 10,000 10,000
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
SHARES UNDERLYING
WARRANTS AND
SELLING STOCKHOLDERS SHARES(1) OPTIONS(2) TOTAL SHARES
- -------------------- --------- ----------------- ------------
<S> <C> <C> <C>
Burkhardt, Robert...................................... 5,000 5,000
Campbell, Frank J., III................................ 105,000 105,000
Campbell, Frank; IRA................................... 50,000 25,000 75,000
Cardiovascular/Thoracic Def. Partnership............... 20,000 20,000
Carewell, S.a.r.l...................................... 20,000 20,000
Chapman, Donald........................................ 100,000 50,000 150,000
Constantine, Harry & Phoebe............................ 10,000 10,000
Corby, Dan............................................. 5,106 2,500 7,606
Cornell, John E., Trustee.............................. 2,000 2,000
Coutts (Jersey Limited)(5)............................. 240,000 20,000 260,000
Cullen, Alice.......................................... 10,000 10,000
Dandridge, Victor, III................................. 20,000 20,000
Decosimo, Joseph....................................... 20,000 20,000
DeCarlo, Anthony & Ellen............................... 5,107 2,500 7,607
DeMento, B. Robert & Linda............................. 6,000 6,000
DeMento, Biagio & Cosima............................... 25,000 25,000
DeMoss Foundation...................................... 150,000 50,000 200,000
Ecker Family Partnership............................... 30,000 7,500 37,500
Ecker, Amir............................................ 12,500 10,000 22,500
Ecker, Amir; IRA....................................... 167,500 45,000 212,500
EDJ Limited............................................ 65,000 17,500 82,500
Edwards, Joanne........................................ 15,500 6,250 21,750
Emerson Investment Group(4)............................ 50,000 50,000
Evancich, Joseph M. & Linda............................ 8,000 8,000
Faillace, Peter J., Jr.(5)............................. 7,000 7,000
First, Lawrence & Lorraine............................. 5,000 5,000
Fischer, John David.................................... 2,000 2,000
Frary, Richard S....................................... 7,500 7,500
Fuller, Jay M. & Sandee................................ 25,000 12,500 37,500
Gale, James, Trustee................................... 12,500 6,250 18,750
Gallo, Joseph E., Trustee, Ernest J. Gallo Trust....... 179,148 179,148
Gallo, Joseph E., Trustee, Ernest J. Gallo Trust....... 179,148 179,148
Gallo, Joseph E., Trustee, Joseph C. Gallo Trust....... 179,147 179,147
Gallo, Joseph E., Trustee, Children's Family Trust..... 409,722
Galman, Barry.......................................... 5,000 5,000
Garre, Sam III IRA..................................... 10,000 10,000
Gibbs, Richard......................................... 36,875 8,438 45,313
Goodwin, Richard C..................................... 22,000 22,000
Gruber, Jon D. and Linda W.(7)......................... 106,250 43,750 150,000
Gruber McBaine International........................... 25,000 25,000
Haimovitch, Larry...................................... 22,500 6,250 28,750
Hansen Penelope S. & Richard A.(8)..................... 100,000 100,000
Healthworld Corporation(9)............................. 174,000 174,000
Holmes Partners, LP.................................... 6,250 6,250
Hutchins, William Wells................................ 10,000 10,000
Jacobson, Ricky........................................ 3,000 3,000
Jordanov, Betty........................................ 5,000 5,000
Kalista, Clifford(10).................................. 50,000 250,000 300,000
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
SHARES UNDERLYING
WARRANTS AND
SELLING STOCKHOLDERS SHARES(1) OPTIONS(2) TOTAL SHARES
- -------------------- --------- ----------------- ------------
<S> <C> <C> <C>
Keszeli, Alexander..................................... 2,000 2,000
Kim, James J........................................... 20,000 20,000
Kozloff, Judith IRA.................................... 2,000 2,000
Kreitler, Richard...................................... 20,000 20,000
Lagunitas Partners, LP................................. 243,750 81,250 325,000
Lancaster Investment Partners, L.P..................... 175,000 100,000 275,000
Legion Fund, Ltd....................................... 12,500 12,500
Leicht, Phillip; Rollover IRA.......................... 25,000 12,500 37,500
Lennon, James J. and Carolyn........................... 10,000 10,000
Losty, Mary M.......................................... 125,000 12,500 137,500
Lyerly, J. Edward...................................... 3,000 3,000
Maguire, Alexander IRA................................. 10,000 10,000
Mandeville, Josephine.................................. 10,000 10,000
Marsh, Harry C., Jr.................................... 20,000 20,000
Martin, Larry.......................................... 100,000 100,000
Martorelli, Michael A.................................. 10,000 10,000
Mazer, Irving.......................................... 75,625 25,312 100,937
Mazer, Irving--Special Account......................... 7,500 2,500 10,000
McAtee, John J., Jr.(11)............................... 99,000 99,000
McCarthy, Cornelius & Gail............................. 2,250 2,250
McKernan, Thomas & Ann................................. 12,500 6,250 18.750
McQueen, Scott......................................... 35,000 5,000 40,000
Melgen, Saloman E. and Flor............................ 50,000 25,000 75,000
Millridge Corporation.................................. 30,000 30,000
Mitchell, Keith IRA.................................... 4,000 4,000
Mittelman, Harry & Brenda.............................. 15,000 7,500 22,500
Mittelman, Harry(12)................................... 81,000 33,000 114,100
Mittelman, Harry, (Trustee, Spencer Mittelman)(12)..... 6,500 3,250 9,750
Mittelman, Harry, Rollover IRA(12)..................... 45,000 22,500 67,500
Mittelman, Harry; (Trustee, Drew Kaplow)(12)........... 3,500 1,750 5,250
Murphy, Kathleen E..................................... 10,000 10,000
Novak, Alan R.(13)..................................... 28,601 28,601
O'Conner, Daniel J..................................... 75,000 25,000 100,000
O'Conner, Pamela F..................................... 25,000 12,500 37,500
Orbis Pension Trustees Ltd............................. 200,000 200,000
Papa, Vincent.......................................... 10,000 10,000
Parke, David........................................... 7,000 7,000
Parlby, George......................................... 7,500 24,000 31,500
Pennsylvania Merchant Group............................ 593,104 593,104
Petersen, Eric C. & Ellen C............................ 41,000 12,500 53,500
Petras, Robert J. & Christine M........................ 13,106 2,500 15,606
Phipps, Arnold A., III................................. 27,000 27,000
Porter Partners, L.P................................... 185,000 72,500 257,500
Porter, Barry.......................................... 75,000 75,000
Porter, Jeffrey........................................ 50,000 50,000
Post, Charles CRT...................................... 125,000 62,500 187,500
Post, Charles, Trustee................................. 67,000 67,000
Prince, Leonide........................................ 43,500 18,750 62,250
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
SHARES UNDERLYING
WARRANTS AND
SELLING STOCKHOLDERS SHARES(1) OPTIONS(2) TOTAL SHARES
- -------------------- --------- ----------------- ------------
<S> <C> <C> <C>
ProFutures Special Equities Fund LLP................... 187,500 187,500
Rawlings, Peter S.(14)................................. 200,000 200,000
Rice, William Phipps................................... 10,000 10,000
Robins, Barry.......................................... 30,282 15,000 45,282
Robins, Charles M...................................... 37,500 6,250 43,750
Roytman, Leonid........................................ 10,000 5,000 15,000
Roytman, Leonid; IRA................................... 52,500 6,250 58,750
Saquish Trust.......................................... 5,500 5,500
Shafran, George P...................................... 25,000 12,500 37,500
Shafran, Tom........................................... 12,500 6,250 18,750
Sheridan, James M...................................... 5,000 5,000
Smith, Michael H....................................... 70,000 70,000
Snavely, Peter D., Jr.(15)............................. 52,500 6,250 58,750
Sonz Partners. LP...................................... 50,000 25,000 75,000
Sprague, Joseph G...................................... 10,000 10,000
Stein, Elliot, Jr...................................... 6,250 6,250
Sterious, John G....................................... 10,000 10,000
Sugarman, Family Partners.............................. 40,000 40,000
Sugarman, Jason........................................ 5,500 5,500
Sunapee Partners....................................... 15,000 15,000
Talmor Capital......................................... 10,000 10,000
Teal Fund, LP.......................................... 12,500 31,250 43,750
Tecce, Frederick IRA................................... 10,000 10,000
Torrone, Robert F. Associates.......................... 10,000 10,000
Troster, Ruth Lois..................................... 2,000 2,000
Volpe, Brown Whelan & Co............................... 37,500 37,500
Walling, Richard C., Gen. Ptr.......................... 15,000 15,000
Walsh, Charles J. & Carol W............................ 5,000 5,000
Watkinson, William J., IRA............................. 19,000 5,000 24,000
Weaver, James M., IRA.................................. 80,000 25,000 105,000
Williams, A. Morris & Ruth W........................... 20,000 20,000
Williams, William D.................................... 10,000 10,000
Williams & Kilkowski................................... 18,000 18,000
Wittenbraker, Carolyn.................................. 6,000 3,000 9,000
Wood, Greg............................................. 25,000 25,000
Yeagley, Jonathan...................................... 2,000 2,000
--------- --------- ---------
Totals................................................. 5,926,835 2,524,604 8,451,439
========= ========= =========
</TABLE>
- ------------------------
(1) Consists of shares issued in various placements of the Companies
securities.
(2) Consists of warrants issued from time to time. See "Certain Relationships
and Related Transactions."
(3) Jeffrey O'Donnell, President and a director of the company, is a principal
of 531 E. Lancaster Ave LLC.
(4) As transferee of original option holder. Arvel Bowyer has contracted to
sell these options to Clifford Kalista and Richard Hansen.
(5) Includes warrants registered in the name of Hare & Co., an affiliated
company.
81
<PAGE>
(6) Includes the number of Shares and Warrants registered in the names of the
persons set forth hereinafter, as follows: (a) Peter J. Faillace, Jr., C/F
Matthew Faillace (3,500 Shares), and (b) Peter J. Faillace, Jr., C/F Adam
Faillace (3,500 Shares).
(7) Includes the number of Shares and Warrants registered in the names of the
persons set forth hereinafter, as follows: (a) Jon D. and Linda W. Gruber
(35,700 Shares and 18,750 Warrants), and (b) Gruber & McBaine International
(50,000 Shares and 25,000 Warrants).
(8) Includes 75,000 shares in the name of Richard A. Hansen and 25,000 shares
in the name of Penelope S. Hansen.
(9) Steven Girgenti, a director of the Company, is President of Healthworld.
(10) Includes the number of Shares registered in the names of the persons set
forth hereinafter, as follows: (a) Clifford Kalista (47,000 Shares), and
(b) Phyllis Kalista (3,000 Shares); and 250,000 Warrants registered in the
names of Clifford Kalista and Phyllis Kalista.
(11) Includes 84,000 Shares. Mr. McAtee disclaims beneficial ownership of the
16,000 shares registered in the names of Elizabeth P. McAtee and John C.C.
McAtee, who are his adult children. John J. McAtee, Jr. is a member of the
Board of Directors of the Company.
(12) Includes 123,514 shares of Common Stock, warrants to purchase 63,000
shares and options to purchase 65,000 shares of Common Stock.
Dr. Mittelman owns, as Trustee of two family trusts, 10,000 shares and
warrants to purchase up to 5,000 shares of Common Stock. Dr. Mittelman is
a member of the Board of Directors of the Company.
(13) Mr. Novak is a member of the Board of Directors of the Company.
(14) Includes the number of Shares registered in the names of the persons set
forth hereinafter, as follows: (a) Peter S. Rawlings (160,000 Shares), and
(b) Sarah P. Rawlings (40,000 Shares).
(15) Includes the number of Shares and Warrants registered in the names of the
persons set forth hereinafter, as follows: (a) Perry D. Snavely, Jr.
(40,000 Shares), and (b) Perry D. Snavely IRA (12,500 Shares and 6,250
Warrants.)
82
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, the Company had issued and outstanding
13,225,618 shares of Common Stock. There are currently 6,438,253 shares of
Common Stock, which are restricted shares, and 6,787,365 shares which are freely
tradable or eligible to have the restrictive legend removed pursuant to
Rule 144(k) promulgated under the Securities Act. Further, the Company has
issued and outstanding options to purchase up to 3,498,263 shares of Common
Stock, 2,397,431 of which are currently exercisable, and warrants to purchase up
to 2,324,604 shares of Common Stock.
Holders of restricted securities must comply with the requirements of
Rule 144 in order to sell their shares in the open market. In general, under
Rule 144 as currently in effect, any affiliate of the Company and any person (or
persons whose sales are aggregated) who has beneficially owned his or her
restricted shares for at least one year, may be entitled to sell in the open
market within any three-month period in brokerage transactions or to market
makers a number of shares that does not exceed the greater of: (i) 1% of the
then outstanding shares of the Company's Common Stock (approximately 130,944
shares immediately after this Offering), or (ii) the average weekly trading
volume reported in the principal market for the Company's Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain limitations on manner of sale, notice requirement and
availability of current public information about the Company. Non-affiliates who
have held their restricted shares for two years are entitled to sell their
shares under Rule 144 without regard to any of the above limitations, provided
they have not been affiliates of the Company for the three months preceding such
sale.
The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of shares for sale will have on the
market price of Common Stock. Nevertheless, sales of significant amounts of
Common Stock could adversely affect the prevailing market price of the Common
Stock, as well as impair the ability of the Company to raise capital through the
issuance of additional equity securities.
LEGAL MATTERS
Certain matters with respect to the validity of the Shares offered by the
Selling Stockholders will be passed upon for the Company by Matthias & Berg LLP,
Los Angeles, California. As of the date of this Prospectus Matthias & Berg LLP
holds options for 17,864 shares of the Company's Common Stock exercisable at
various prices between $1.50 and $5.10 per share.
EXPERTS
The audited Consolidated Financial Statements and related Notes of Laser
Photonics, Inc. and subsidiaries including the consolidated balance sheets at
December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 1996, 1997 and 1998, included elsewhere in this Prospectus, have
been so included in reliance on the report of Hein + Associates LLP, independent
certified public accountants, given on the authority of such firm as experts in
auditing and accounting.
83
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission, a registration statement on
Form S-1 (the "Registration Statement") under the Securities Act with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Securities, reference is made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements made in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference to such exhibits.
The Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Public Reference Room of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048; and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of the Registration Statement and the exhibits and
schedules thereto may be obtained from the Public Reference Room of the
Commission at its principal office in Washington, D.C. at prescribed rates. In
addition, such materials may be accessed electronically at the Commission's site
on the World Wide Web, located at http://www.sec.gov.
The Company is currently subject to the reporting requirements of the
Exchange Act and in accordance therewith files reports, proxy and information
statements and other information with the Commission. Such reports, proxy and
information statements and other information may be inspected and copied at the
Public Reference Room of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington D.C. 20549; and at the regional offices of the Commission at 7
World Trade Center, Suite 1300, New York, New York 10048; and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of such
materials can be obtained from the Public Reference Section of the Commission at
its principal office in Washington, D.C. at prescribed rates. In addition, such
materials may be accessed electronically at the Commission's site on the World
Wide Web, located at http://www.sec.gov. The Company intends to furnish its
stockholders with annual reports containing audited financial statements and
such other periodic reports as the Company may determine to be appropriate or as
may be required by law.
84
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INDEPENDENT AUDITOR'S REPORT................................ F-2
CONSOLIDATED BALANCE SHEETS--December 31, 1997 and 1998, and
September 30, 1999 (unaudited)............................ F-3
CONSOLIDATED STATEMENTS OF OPERATIONS--For the Years Ended
December 31, 1996, 1997 and 1998, and for the Nine Months
Ended September 30, 1998 and 1999 (unaudited)............. F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DEFICIT)--For the Years Ended December 31, 1996, 1997
and 1998 and for the Nine Months Ended September 30, 1999
(unaudited)............................................... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS--For the Years Ended
December 31, 1996, 1997 and 1998, and for the Nine Months
Ended September 30, 1998 and 1999 (unaudited)............. F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-8
PRO FORMA FINANCIAL INFORMATION (unaudited)................. F-28
PRO FORMA BALANCE SHEET--September 30, 1999 (unaudited)..... F-29
PRO FORMA STATEMENT OF OPERATIONS--For the Year Ended
December 31, 1998 (unaudited)............................. F-30
PRO FORMA STATEMENT OF OPERATIONS--For the Nine Months Ended
September 30, 1999 (unaudited)............................ F-31
NOTES TO PRO FORMA FINANCIAL STATEMENTS (unaudited)......... F-32
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Laser Photonics, Inc. and subsidiaries
Carlsbad, California
We have audited the accompanying consolidated balance sheets of Laser
Photonics, Inc. and subsidiaries (the "Company") as of December 31, 1997 and
1998, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the years in the three year period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Laser
Photonics, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
April 8, 1999
F-2
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDAIRIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------
1997 1998 1999
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 1,225,932 $ 174,468 $ 6,619,434
Accounts receivable, net of allowance for doubtful
accounts of $75,000, $68,000, and $0 (unaudited) at
December 31, 1997 and 1998, and September 30, 1999.... 343,465 34,676 --
Receivable from related party........................... 25,000 54,600 54,600
Inventories............................................. 951,209 458,343 627,167
Prepaid expenses........................................ 66,463 -- 37,268
----------- ------------ ------------
Total current assets.................................. 2,612,069 722,087 7,338,469
PROPERTY AND EQUIPMENT, net............................... 141,432 127,190 159,686
PATENT COSTS, net of accumulated amortization of $23,965,
$32,318 and $38,583 (unaudited) at December 31, 1997 and
1998, and September 30, 1999............................ 60,833 52,480 46,215
PREPAID LICENSE FEE, net of accumulated amortization of
$41,667, $541,667, and $916,667 (unaudited) at
December 31, 1997 and 1998, and September 30, 1999...... 3,958,333 3,458,333 3,083,333
EXCESS OF COST OVER NET ASSETS OF ACQUIRED COMPANY, net of
accumulated amortization of $1,342,614, $1,862,296, and
$2,252,058 (unaudited) at December 31, 1997 and 1998,
and September 30, 1999.................................. 995,955 476,273 86,512
OTHER ASSETS.............................................. 39,682 33,932 29,532
----------- ------------ ------------
TOTAL ASSETS.............................................. $ 7,808,304 $ 4,870,295 $ 10,743,747
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable and long-term debt..... $ 573,782 $ 620,581 $ 271,747
Payable to related party................................ 36,222 136,002 75,180
Accounts payable........................................ 859,559 404,666 777,537
Accrued payroll and related expenses.................... 400,222 393,339 398,183
Other accrued liabilities............................... 631,808 666,852 636,260
Customer deposits....................................... -- -- 199,036
Deferred revenue........................................ 95,000 343,906 250,000
----------- ------------ ------------
Total current liabilities............................. 2,596,593 2,565,346 2,607,943
NOTES PAYABLE AND LONG-TERM DEBT, less current portion.... 282,559 69,893 49,334
LIABILITIES IN EXCESS OF ASSETS HELD FOR SALE............. -- 393,665 612,322
----------- ------------ ------------
Total liabilities..................................... 2,879,152 3,028,904 3,269,599
----------- ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 8
and 12)................................................. -- -- --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 25,000,000 shares
authorized, 9,247,083, 9,895,684 and 13,167,975
(unaudited) shares issued and outstanding at
December 31, 1997 and 1998, and September 30, 1999.... 92,471 98,957 131,680
Additional paid-in capital.............................. 14,625,564 17,439,904 30,063,072
Accumulated deficit..................................... (9,788,883) (15,697,470) (22,720,604)
----------- ------------ ------------
Total stockholders' equity............................ 4,929,152 1,841,391 7,474,148
----------- ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $ 7,808,304 $ 4,870,295 $ 10,743,747
=========== ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales................................. $ 2,901,454 $ 2,960,330 $ 1,580,422 $ 1,795,578 $ 812,820
Other................................. -- 855,000 769,026 95,000 93,906
----------- ----------- ----------- ----------- -----------
2,901,454 3,815,330 2,349,448 1,890,578 906,726
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales......................... 2,329,299 2,090,276 1,806,557 1,214,736 1,012,051
Selling, general and administrative... 1,158,841 2,181,304 3,608,108 1,905,341 3,129,974
Research and development.............. 850,993 685,109 1,243,372 461,168 1,256,274
Bad debt expense related to related
party receivable.................... 662,775 48,000 -- -- --
Impairment recognized on
reorganization goodwill............. 1,486,823 -- -- -- --
Depreciation and amortization......... 1,214,876 741,481 1,088,649 815,407 826,895
----------- ----------- ----------- ----------- -----------
7,703,607 5,746,170 7,746,686 4,396,652 6,225,194
----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS.................... (4,802,153) (1,930,840) (5,397,238) (2,506,074) (5,318,468)
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense...................... (392,000) (386,069) (510,948) (418,901) (1,757,581)
Interest income....................... -- 52,280 8,907 -- --
Other................................. (163,815) (38,572) (6,008) 5,424 52,915
----------- ----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAX
EXPENSE............................... (5,357,968) (2,303,201) (5,905,287) (2,919,551) (7,023,134)
INCOME TAX EXPENSE...................... -- (3,900) (3,300) -- --
----------- ----------- ----------- ----------- -----------
NET LOSS................................ $(5,357,968) $(2,307,101) $(5,908,587) $(2,919,551) $(7,023,134)
=========== =========== =========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE........ $ (0.95) $ (0.35) $ (0.64) $ (0.31) $ (0.67)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE SHARES................. 5,619,668 6,531,190 9,287,507 9,286,285 10,547,130
=========== =========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996, 1997, AND 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1996................. 5,000,000 $ 50,000 $ 2,760,028 $ (2,123,814) $ 686,214
Conversion of convertible debentures and
related accrued interest.............. 538,583 5,386 519,896 -- 525,282
Exercise of stock options............... 268,000 2,680 700,820 -- 703,500
Stock issued for prior year services.... 148,500 1,485 171,640 -- 173,125
Stock issued for rent................... 30,000 300 59,700 -- 60,000
Stock issued as compensation............ 177,500 1,775 264,475 -- 266,250
Capital contribution from Helionetics... -- -- 853,669 -- 853,669
Net Loss................................ -- -- -- (5,357,968) (5,357,968)
---------- -------- ----------- ------------ -----------
BALANCES, December 31, 1996............... 6,162,583 61,626 5,330,228 (7,481,782) (2,089,928)
Sale of stock and warrants, net of
expenses.............................. 2,179,500 21,795 6,237,282 -- 6,259,077
Stock issued for services............... 105,000 1,050 94,575 -- 95,625
Stock issued to purchase debt and
accrued interest...................... 800,000 8,000 2,151,708 -- 2,159,708
Capital contributions from
Helionetics........................... -- -- 140,448 -- 140,448
Compensation recognized upon issuance of
stock options......................... -- -- 671,323 -- 671,323
Net Loss................................ -- -- -- (2,307,101) (2,307,101)
---------- -------- ----------- ------------ -----------
BALANCES, December 31, 1997............... 9,247,083 92,471 14,625,564 (9,788,883) 4,929,152
Conversion of convertible notes
payable............................... 600,000 6,000 1,144,000 -- 1,150,000
Sale of stock........................... 28,601 286 35,465 -- 35,751
Warrants issued for services............ -- -- 1,318,200 -- 1,318,200
Stock issued for services............... 20,000 200 19,800 -- 20,000
Allocation of proceeds from notes
payable due to beneficial conversion
feature............................... -- -- 296,875 -- 296,875
Net Loss................................ -- -- -- (5,908,587) (5,908,587)
---------- -------- ----------- ------------ -----------
BALANCES, December 31, 1998............... 9,895,684 98,957 17,439,904 (15,697,470) 1,841,391
Allocation of proceeds from notes
payable due to beneficial conversion
feature (unaudited)................... -- -- 1,115,625 -- 1,115,625
Proceeds from issuance of warrants
(unaudited)........................... -- -- 368,900 -- 368,900
Compensation recognized upon issuance of
stock options (unaudited)............. -- -- 299,650 -- 299,650
Stock options issued for services
(unaudited)........................... -- -- 2,607 -- 2,607
Conversion of note, net of unamortized
debt issuance costs (unaudited)....... 1,190,819 11,908 2,297,907 -- 2,309,815
Sale of stock, net of expenses
(unaudited)........................... 2,068,972 20,690 8,519,854 -- 8,540,544
Proceeds from exercise of warrants
(unaudited)........................... 12,500 125 18,625 -- 18,750
Net loss (unaudited).................... -- -- -- (7,023,134) (7,023,134)
---------- -------- ----------- ------------ -----------
BALANCES, September 30, 1999 (unaudited).. 13,167,975 $131,680 $30,063,072 $(22,720,604) $ 7,474,148
========== ======== =========== ============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss...................... $(5,357,968) $(2,307,101) $(5,908,587) $(2,919,551) $(7,023,134)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization.............. 1,214,876 741,581 1,088,650 815,407 826,895
Allowance for doubtful
accounts.................. -- (25,000) -- (3,000) 14,415
Amortization of debt
issuance costs............ -- -- -- -- 67,004
Interest expense related to
beneficial conversion
feature and amortization
of discount on convertible
notes..................... -- -- 296,875 296,875 1,512,292
Impairment recognized on
reorganization goodwill... 1,486,823 -- -- -- --
Bad debt expense related to
related party
receivable................ 662,775 48,000 -- -- --
Stock issued to pay
interest.................. 25,282 168,268 -- -- 1,644
Warrants issued for
services.................. -- -- 1,318,200 -- --
Stock issued for services... -- 95,625 20,000 20,000 --
Stock issued for rent....... 60,000 -- -- -- --
Stock issued as
compensation.............. 266,250 -- -- -- --
Stock options issued for
services.................. -- -- -- -- 2,607
Compensation recognized upon
issuance of stock
options................... -- 671,323 -- -- 299,650
Changes in operating assets
and liabilities:
Accounts receivable....... (127,066) 64,970 168,789 169,677 87,240
Inventories............... (35,147) (60,198) 40,105 (163,453) (75,605)
Prepaid expenses and other
assets.................. 16,838 (63,350) (1,576) (28,697) (8,451)
Accounts payable.......... 17,830 161,273 355,379 137,204 335,302
Accrued payroll and
related expenses........ 317,923 (270,259) 36,893 36,081 43,691
Accrued research
consulting fees......... -- -- 291,000 -- 9,000
Other accrued
liabilities............... 440,995 (313,983) (37,864) (34,425) (40,870)
Customer deposits......... -- -- -- -- 199,036
Deferred revenue.......... -- 95,000 248,906 171,538 (93,906)
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities................ (1,010,589) (993,851) (2,083,230) (1,502,344) (3,843,190)
----------- ----------- ----------- ----------- -----------
</TABLE>
(continued)
F-6
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and
equipment............................ (16,024) (37,541) (116,158) (116,291) (36,988)
Proceeds from disposal of property and
equipment............................ -- 19,174 -- -- --
Acquisition of patents and licenses.... -- (4,001,926) -- -- --
Advances to related parties............ (292,900) (73,000) (29,600) -- --
---------- ----------- ----------- ---------- -----------
Net cash used in investing
activities......................... (308,924) (4,093,293) (145,758) (116,291) (36,988)
---------- ----------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock and
warrants............................. -- 6,259,077 35,751 35,751 8,540,544
Proceeds from exercise of warrants..... -- -- -- -- 18,750
Proceeds from notes payable............ 92,952 71,094 1,276,960 -- 86,485
Payments on notes payable.............. (67,647) (157,543) (135,187) (155,003) (473,213)
Proceeds from issuance of convertible
notes payable and warrants........... -- -- -- 1,000,000 2,380,000
Payments for debt and warrant issuance
costs................................ -- -- -- -- (166,600)
Payments on related party notes
payable.............................. -- -- -- -- (72,162)
Advances from related parties.......... -- -- -- -- 11,340
Capital contributions from Parent
Company.............................. 529,622 140,448 -- -- --
Proceeds from exercise of stock
options.............................. 703,500 -- -- -- --
---------- ----------- ----------- ---------- -----------
Net cash provided by financing
activities......................... 1,258,427 6,313,076 1,177,524 880,748 10,325,144
---------- ----------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ (61,086) 1,225,932 (1,051,464) (737,887) 6,444,966
CASH AND CASH EQUIVALENTS, beginning of
period................................. 61,086 -- 1,225,932 1,225,932 174,468
---------- ----------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of
period................................. $ -- $ 1,225,932 $ 174,468 $ 488,045 $ 6,619,434
========== =========== =========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest............................. $ 189,021 $ 158,939 $ 137,572 $ -- $ 22,275
========== =========== =========== ========== ===========
Income taxes......................... $ -- $ -- $ -- $ -- $ --
========== =========== =========== ========== ===========
Non-cash transactions:
Conversion of convertible debentures
to common stock.................... $ 500,000 $ -- $ 1,150,000 $ -- $ 2,308,171
========== =========== =========== ========== ===========
Note payable issued to acquire
leasehold improvements............. $ -- $ -- $ 70,000 $ -- $ --
========== =========== =========== ========== ===========
Note payable issued to acquire
equipment.......................... $ -- $ -- $ -- $ -- $ 17,335
========== =========== =========== ========== ===========
Stock issued to purchase debt and
accrued interest................... $ -- $ 2,159,708 $ -- $ -- $ --
========== =========== =========== ========== ===========
Stock issued for accrued prior year
services........................... $ 173,125 $ -- $ -- $ -- $ --
========== =========== =========== ========== ===========
Reclassification of Helionetics
advances to additional paid-in
capital............................ $ 324,047 $ -- $ -- $ -- $ --
========== =========== =========== ========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
1. ORGANIZATION AND NATURE OF OPERATIONS:
NATURE OF OPERATIONS--Laser Photonics, Inc. and subsidiaries (the "Company")
operates in one segment and is principally engaged in the development,
manufacture and marketing of laser systems and accessories for medical and
scientific applications and, through its approximately 76% owned subsidiary,
AccuLase, Inc., is developing excimer laser and fiber optic equipment and
techniques directed toward the treatment of coronary heart disease and
psoriasis.
BANKRUPTCY FILING AND PLAN OF REORGANIZATION--On May 13, 1994, the Company
filed a voluntary petition of reorganization with the U.S. Bankruptcy Court in
the Middle District of Florida for protection under Chapter 11 of Title 11 of
the U.S. Bankruptcy Code. Out of the reorganization, Helionetics, Inc.
(Helionetics) acquired a 75% interest in the Company in exchange for cash and
the contribution of its 76.1% interest in AccuLase, Inc. Helionetics has since
filed for bankruptcy and sold its interests such that it is no longer a
shareholder of the Company.
The acquisition of AccuLase has been accounted for as a purchase and the
results of operations of AccuLase have been included in these consolidated
financial statements since May 23, 1995.
After emerging from the reorganization, all assets and liabilities of the
Company were restated to reflect their reorganization value in accordance with
procedures specified in Accounting Principles Board Opinion 16 "BUSINESS
COMBINATIONS" (APB16) as required by SOP 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code." The portion of the reorganization
value that could not be attributed to specific tangible or identified intangible
assets was classified as reorganization value in excess of amounts allocable to
identifiable assets ("Reorganization Goodwill") and was being amortized over
five years. Because of the magnitude of the Company's losses since emerging from
bankruptcy, the balance was considered impaired and written off as of December
31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries, Laser
Analytics, Inc. and AccuLase, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
STATEMENT OF CASH FLOWS--For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS--In the event that facts and
circumstances indicate that the cost of long lived assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is required.
STOCK BASED COMPENSATION--The Company has elected to follow Accounting
Principles Board Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES"
(APB25) and related interpretations in accounting for its employee stock
options. In accordance with FASB Statement No. 123 "ACCOUNTING FOR STOCK-BASED
COMPENSATION" (FASB123), the Company will disclose the impact of adopting the
fair value accounting of employee stock options. Transactions in equity
instruments with non-employees for goods or services have been accounted for
using the fair value method as prescribed by FASB123.
F-8
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
REVENUE RECOGNITION--Sales revenues are recognized upon shipment of products
to customers. Deferred revenue relates to payments received under the Baxter
Agreement (See Note 12) in advance of delivery of related product.
INVENTORIES--Inventories are stated at the lower of cost or market,
determined by the first-in, first-out method.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation of property and equipment is calculated using the straight-line
method over the estimated useful lives (ranging from 3 to 7 years) of the
respective assets. The cost of normal maintenance and repairs is charged to
operating expenses as incurred. Material expenditures which increase the life of
an asset are capitalized and depreciated over the estimated remaining useful
life of the asset. The cost of properties sold, or otherwise disposed of, and
the related accumulated depreciation or amortization are removed from the
accounts, and any gains or losses are reflected in current operations.
INTANGIBLE ASSETS--Patents and license fees are carried at cost less
accumulated amortization which is calculated on a straight-line basis over the
estimated useful lives of the assets, which range from eight to twelve years.
Excess of cost over net assets of acquired company represents the goodwill
recorded by Helionetics for the purchase of AccuLase that has been "pushed down"
to the Company. The balance is being amortized using the straight-line basis
over 5 years.
Management believes these intangibles are recoverable from future revenue
upon commercialization of the excimer laser product and, in its opinion, are not
impaired at December 31, 1997 and 1998.
ACCRUED WARRANTY COSTS--Estimated warranty costs are provided for at the
time of sale of the warranted product. The Company generally extends warranty
coverage for one year from the date of sale.
USE OF ESTIMATES--The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
the Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes. Actual
results could differ from those estimates.
The Company's financial statements are based upon a number of significant
estimates, including the allowance for doubtful accounts, obsolescence of
inventories, the estimated useful lives selected for property and equipment and
intangible assets, realizability of deferred tax assets, estimated future
warranty costs, and penalties and interest for delinquent payroll taxes. Due to
the uncertainties inherent in the estimation process, it is at least reasonably
possible that these estimates will be further revised in the near term and such
revisions could be material.
RESEARCH AND DEVELOPMENT--Research and development costs are charged to
operations in the period incurred.
CONCENTRATIONS OF CREDIT RISK--Credit risk represents the accounting loss
that would be recognized at the reporting date if counterparties failed
completely to perform as contracted. Concentrations of credit risk (whether on
or off balance sheet) that arise from financial instruments exist for groups of
customers or counterparties when they have similar economic characteristics that
would cause their ability to meet contractual obligations to be similarly
affected by changes in economic or other conditions described below. In
accordance with FASB Statement No. 105, "DISCLOSURE OF INFORMATION ABOUT
FINANCIAL INSTRUMENTS
F-9
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
WITH OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF
CREDIT RISK" the credit risk amounts shown do not take into account the value of
any collateral or security.
The Company operates primarily in one industry segment and a geographic
concentration exists because the Company's customers are generally located in
the United States. Financial instruments that subject the Company to credit risk
consist principally of accounts receivable.
As of December 31, 1998, the Company maintained cash in banks that was
approximately $28,000 in excess of the federally insured limit.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The estimated fair values for financial
instruments under FAS No. 107, "DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS", are determined at discrete points in time based on relevant market
information. These estimates involve uncertainties and cannot be determined with
precision. The fair value of cash is based on its demand value, which is equal
to its carrying value. The fair values of notes payable are based on borrowing
rates that are available to the Company for loans with similar terms,
collateral, and maturity. The estimated fair values of notes payable approximate
their carrying values.
INCOME TAXES--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "ACCOUNTING FOR INCOME
TAXES". Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
LOSS PER SHARE--Basic earnings per share excludes dilution and is calculated
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. All such securities or other contracts as of December 31, 1996, 1997 and
1998 were anti-dilutive and excluded in the computation of basic earnings per
share.
IMPACT OF RECENTLY ISSUED STANDARDS--In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133
(FASB133), "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," This
statement is effective for fiscal years beginning after June 15, 1999. Earlier
application is encouraged; however, the Company does not anticipate adopting
FASB133 until the fiscal year beginning January 1, 2000. FASB133 requires that
an entity recognize all derivatives as assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company does
not believe the adoption of FASB133 will have a material impact on assets,
liabilities or equity. The Company has not yet determined the impact of FASB133
on the income statement or the impact on comprehensive income.
RECLASSIFICATIONS--Certain reclassifications have been made to prior year's
consolidated financial statements to conform with the current presentation. Such
reclassifications had no effect on net loss.
INTERIM FINANCIAL INFORMATION--The September 30, 1998 and 1999 financial
statements have been prepared by the Company without audit. In the opinion of
management, the accompanying unaudited
F-10
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of the Company's financial
position as of September 30, 1999 and the results of their operations and cash
flows for the nine month periods ended September 30, 1998 and 1999. The results
of operations for the nine month periods ended September 30, 1998 and 1999 are
not necessarily indicative of those that will be obtained for the entire fiscal
year.
3. BASIS OF PRESENTATION:
As shown in the accompanying financial statements, the Company has reported
significant net losses for the years ended December 31, 1996, 1997, 1998 and the
nine months ended September 30, 1999 resulting in an accumulated deficit of
$22,720,604 as of September 30, 1999.
During 1997 and 1998, the Company took steps to mitigate the losses and
enhance its future viability, as follows. AccuLase entered into a Master
Technology Agreement with Baxter Healthcare Corporation (see Note 12) under
which AccuLase has received $1,550,000 and will receive additional purchase
commitments and future royalty payments. During 1998, the Company received
proceeds of $1,150,000 through the issuance of convertible debentures, which
were converted into 600,000 shares of the Company's common stock on
December 31, 1998. The Company's board of directors authorized management to
pursue the sale of the assets of Laser Photonics, Inc. and Laser
Analytics, Inc. or consider the closure of their operations.
Additionally, during March 1999, the Company issued convertible notes
generating gross proceeds of approximately $2,300,000 to the Company. Also, the
Company anticipates delivering certain lasers to Baxter under its agreement with
them during the first quarter of 2000, which will generate an additional
$600,000 cash to the Company. The Company also raised approximately $8,500,000
in the third quarter of 1999 from the sale of common stock. Finally, management
expects to raise additional working capital through the issuance of debt and
equity securities (See Note 12). Management believes that these actions will
allow the Company to continue as a going concern.
4. INVENTORIES:
Inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------- -------------
1997 1998 1999
---------- -------- -------------
<S> <C> <C> <C>
Raw materials..................................... $1,255,107 $229,199 $378,023
Work-in-progress.................................. 435,854 249,144 249,144
Finished goods.................................... 79,772 -- --
---------- -------- --------
1,770,733 478,343 627,167
Allowance for obsolescence........................ (819,524) (20,000) --
---------- -------- --------
$ 951,209 $458,343 $627,167
========== ======== ========
</TABLE>
F-11
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1997 1998 1999
--------- -------- -------------
<S> <C> <C> <C>
Machinery and equipment............................ $ 248,439 $ 18,434 $ 23,982
Furniture and fixtures............................. 53,708 49,988 96,736
Leasehold improvements............................. -- 76,688 78,716
--------- -------- --------
302,147 145,110 199,434
Accumulated depreciation and amortization.......... (160,715) (17,920) (39,748)
--------- -------- --------
$ 141,432 $127,190 $159,686
========= ======== ========
</TABLE>
Depreciation expense amounted to $258,304, $171,777, $60,615, $44,381, and
$55,868 at December 31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1998 and 1999, respectively.
F-12
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
6. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- -------------
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Accrued consulting fees............................. $ -- $291,000 $300,000
Accrued interest.................................... 87,482 163,983 171,334
Accrued property taxes.............................. 123,828 41,918 45,743
Accrued royalty..................................... 54,733 62,020 62,020
Accrued warranty.................................... 100,000 -- --
Customer deposits................................... 76,588 -- --
Other accrued liabilities........................... 189,177 107,931 57,163
-------- -------- --------
$631,808 $666,852 $636,260
======== ======== ========
</TABLE>
7. CONVERTIBLE NOTES PAYABLE:
On March 31, 1999, the Company issued to various investors securities
consisting of: (i) $2,380,000 principal amount of 7% Series A Convertible
Subordinated Notes (the "Subordinated Notes"); and (ii) common stock purchase
warrants to purchase up to 595,000 shares of Common Stock (the "Unit Warrants").
Interest accrued through June 15, 1999 was paid on July 27, 1999. On August 2,
1999, the convertible notes were voluntarily converted into common stock at
$2.00 per share plus a warrant for every two shares of common stock.
The Unit Warrants are exercisable into an initial 297,500 shares of Common
Stock at any time after purchase until March 31, 2004. The balance of the Unit
Warrants are exercisable into an additional 297,500 shares of Common Stock (the
"Contingent Shares") if the Unit holder has voluntarily converted at least a
portion of the principal amount of the Subordinated Note that make up a portion
of the Unit into shares of Common Stock. The amount of Contingent Shares that
may be acquired by a Unit Warrant holder will be proportionate to the ratio of
the amount of principal of the Subordinated Notes which are converted into
shares of Common Stock over the original principal amount of the Subordinated
Notes. The exercise price of the Unit Warrants is $2.00 per share of Common
Stock. The Unit Warrants provide that they may be adjusted in the event that the
Company issues shares of Common Stock for consideration of less than $2.00 per
share. In such event, the per share exercise price of the Unit Warrants will be
adjusted to the issue price of such additionally issued shares of Common Stock.
Gross proceeds from the sale of the securities were $2,380,000. Since, the
convertible debt and the warrants have similar terms and the same in-the-money
value, the fair values were assumed to be the same and the proceeds were
allocated on a pro rata basis. Of the proceeds, $396,667 has been allocated to
the warrants. The market price of the Company's common stock on the commitment
date was $2.75 per share, resulting in a beneficial conversion of $0.75 per
share. The aggregate amount of the beneficial conversion was $1,115,625. The
discount on the notes related to the beneficial conversion and warrants was
charged to interest expense on the date of issuance since they were immediately
convertible.
F-13
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
8. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------- -------------
1997 1998 1999
--------- --------- -------------
<S> <C> <C> <C>
Notes payable--unsecured creditors, interest at prime
rate, quarterly interest only payments beginning
October 1, 1995, principal due October 1, 1999,
unsecured............................................... $ 282,559 $ 282,559 $ --
Notes payable--unsecured creditors, interest at prime
rate, quarterly interest only payments beginning
October 1, 1995, principal due October 1, 1999,
unsecured. Interest past due............................ 165,298 165,298 165,298
Note payable--creditor, interest at 10%, monthly interest
only payments through May 5, 1997, thereafter monthly
interest and principal payments of $6,384 through
May 1999, unsecured. Payments past due.................. 127,860 127,860 127,860
Note payable--U.S. Treasury, interest at 9%, payable in
monthly principal and interest installments through
July 2000, unsecured. Payments past due................. 131,094 58,554 26,039
Notes payable--various creditors, interest at 9%, payable
in various monthly principal and interest installments
through July 2000, unsecured. Payments past due......... 100,726 85,250 42,218
Note payable--creditor, interest at 9%, payable in monthly
principal and interest installments of $1,258 through
January 2001, collateralized by personal property of the
Company. Payments past due.............................. 48,804 28,813 18,091
Note payable--creditor, interest at 13.5% payable in
monthly principal and interest installments of $1,552
through May 2000, collateralized by personal property
of the Company.......................................... -- -- 11,813
Note payable--lessor, interest at 10%, payable in monthly
principal and interest installments of $1,775 through
December 31, 2002, unsecured............................ -- 70,000 57,622
--------- --------- ---------
856,341 818,334 448,941
Less amount included in liabilities in excess of assets
held for sale........................................... -- (127,860) (127,860)
Less current maturities................................... (573,782) (620,581) (271,747)
--------- --------- ---------
$ 282,559 $ 69,893 $ 49,334
========= ========= =========
</TABLE>
F-14
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
8. NOTES PAYABLE AND LONG-TERM DEBT: (CONTINUED)
As a result of the past due payments on some of the notes listed above, the
notes are callable at the option of the holder. Therefore, these notes have been
classified as current. Aggregate maturities required on notes payable and
long-term debt at December 31, 1998 are due in future years as follows:
<TABLE>
<S> <C>
1999.............................................. $748,441
2000.............................................. 26,274
2001.............................................. 23,425
2002.............................................. 20,194
--------
$818,334
========
</TABLE>
9. STOCKHOLDERS' EQUITY:
In 1995, the Company sold an aggregate of $500,000 in six month convertible,
secured notes in a private transaction to four offshore corporations. In
January and April 1996, the notes and related accrued interest were converted
into 538,583 shares of common stock of the Company.
In conjunction with the issuance of convertible notes payable in 1995, the
Company granted to the note holders a transferable one year option to purchase
375,000 additional shares of the Company's common stock, exercisable as follows:
(1) 134,000 shares at $2.25 per share, (2) 134,000 shares at $3.00 per share,
and (3) 107,000 shares at $3.75 per share. During July and August of 1996,
268,000 of these options were exercised for proceeds of $703,500. The remaining
107,000 options expired during 1996.
On January 2, 1996, the Company adopted the 1995 Non-Qualified Option Plan
(the Plan) for key employees, officers, directors, and consultants, and provided
for up to 500,000 options to be issued thereunder. The option exercise price
shall not be less than 100% of market value on the date granted, 40% of granted
options vest immediately and may be exercised immediately; 30% vest and may be
exercised beginning 12 months after grant; and the remaining 30% vest and may be
exercised beginning 24 months from grant. No options may be exercised more than
10 years after grant, options are not transferable (other than at death), and in
the event of complete termination "for cause" (other than death or disability)
or "voluntary" termination, all "unvested" options automatically terminate.
In January 1996, the Board approved the grant of options to certain key
employees and consultants, to purchase 335,000 shares of common stock under the
Plan. On the date of grant, 110,000 options were vested and the balance vested
in 1997 and 1998. The options were granted with an exercise price of $1.50 per
share and are exercisable through January 2006.
F-15
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
In February 1996, the board approved the issuance of 50,000 shares of common
stock to the Company's chairman, and 98,500 shares of common stock and options
to purchase 62,500 shares of common stock to consultants for services rendered
during 1995. The options were granted with an exercise price of $2.50 per share,
are fully vested and are exercisable through February 2001.
In April 1996, the board approved the issuance of 30,000 shares of common
stock as payment of past due rent valued at $60,000.
In October 1996, the Board approved the issuance of 125,000 shares of common
stock to the Company's chairman for consulting services rendered and 52,500
shares of common stock to employees and consultants for services rendered. The
Company has recognized $266,250 in compensation expense related to these
services for the year ended December 31, 1996.
During May 1997, the Board granted options to purchase 250,000 shares of
common stock at $0.50 per share to the Company's president. The options vest
immediately and expire in May 2002. The Company has recognized $62,500 in
compensation expense related to these options for the year ended December 31,
1997.
On July 1, 1997, the Board approved the grant of options to certain
employees and consultants to purchase 108,500 shares of common stock at an
exercise price of $1.00 per share. The options vest immediately and expire in
July 2007. The Company has recognized $56,030 in compensation expense related to
these options for the year ended December 31, 1997.
During August 1997, the Board granted options to purchase 211,899 shares of
common stock at $1.25 per share to certain officers and directors of the
Company. The options vest immediately and expire in August 2002. The Company has
recognized $172,168 in compensation expense related to these options for the
year ended December 31, 1997.
In August 1997, the Company's board of directors authorized the sale of
750,000 shares of common stock at $1.25 per share through an investment banker
("the investment banker") pursuant to Regulation D under the Securities Act of
1933. In 1997, the Company sold 679,500 shares of common stock for $849,375. In
1998, the Company sold 28,601 shares of common stock for $35,751.
On September 30, 1997, an investment banker purchased from the Helionetics
bankruptcy estate the note payable from AccuLase to Helionetics. During
October 1997, the investment banker sold such note to the Company for 800,000
shares of the Company's common stock. The stock was valued at $2,159,708 which
represents the cash payment the Company could have made to settle the principal
and accrued interest on the note.
On October 10, 1997, the Board granted options to a former director to
purchase 100,000 shares of common stock at an exercise price of $0.75. On
October 31, 1997, the Board granted options to a former director to purchase
20,000 shares of common stock at an exercise price of $1.00. These options vest
immediately and expire in October 2004. The Company has recognized $380,625 as
compensation expense related to these options for the year ended December 31,
1997.
In October 1997, the Company's board of directors authorized the sale of
1,500,000 shares of common stock at $4.00 per share through an investment banker
("the investment banker") pursuant to Regulation D under the Securities Act of
1933. Each share issued had attached a share purchase warrant to
F-16
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
purchase a share of common stock for each two shares purchased in the offering
for a period of five years at $4.00 per share. In the event these warrants are
exercised, then the Company must issue the investment banker one additional
warrant for every ten warrants exercised, exercisable for a period of five years
at an exercise price equal to the average closing bid price for the common stock
for the ten trading days preceding the date of issuance. As of December 31,
1997, the Company sold 1,500,000 shares of common stock for $6,000,000. In
connection with this sale, the Company granted the investment banker warrants to
purchase 150,000 at $4.00 per share for a period of five years. The warrants
provide that they may be adjusted in the event that the Company issues shares of
common stock for consideration of less than $4.00 per share. In such event, the
per share exercise price will be adjusted to the issue price of such
additionally issued shares of common stock. In December, 1998, the Company
issued shares of its common stock at $1.50 per share. The effect of such
issuance was to reduce the exercise price of these 900,000 warrants to $1.50 per
share.
In April 1998, the Company issued 20,000 shares of common stock in exchange
for legal services of $20,000.
In April 1998, the Board granted options to purchase 390,000 shares of
common stock to certain officers and directors of the Company. The options are
exercisable at $2.88 per share which was the market price on the date of grant.
The options were fully vested at December 31, 1998 and expire in April 2003.
During July and August, 1998, the Company arranged to have AccuLase, issue
$1,000,000 of 10% convertible promissory notes to various investors. The
convertible notes were guaranteed by the Company. Interest was payable annually
in cash or in the Company's common stock at the Company's option. The entire
principal was due and payable in one payment on or before December 31, 1998. The
holders of the convertible notes may convert any or all outstanding balances
into the Company's common stock at a conversion price of $2.00 per share at any
time. The market price of the Company's common stock on the date the convertible
notes were issued was $2.59 per share. The Company recorded $296,875 as a
deferred financing cost which was recorded as expense in 1998. All balances
outstanding as of the maturity date of the convertible notes, if not paid,
automatically convert into shares of the Company's common stock at a conversion
price of $2.00 per share. The holders of convertible notes converted the notes
into 500,000 shares. Additional shares will be issued subsequently in exchange
for accrued but unpaid interest.
In addition, in December 1998, the Company issued a note payable to the
President of the Company's investment banker for $150,000 in cash. The note is
convertible to shares of the Company's restricted common stock at $1.50 per
share at the option of the holder of the note. The note was converted to 100,000
shares of stock in December 1998.
In 1998, the Company issued warrants to acquire 600,000 shares of the
Company's common stock at $2.00 per share to its investment banker for services
provided. The Company recognized expense of $1,318,200 upon issuance of the
warrants.
In May 1999, the Company issued 250,000 options to purchase shares of common
stock at an exercise price of $5.16 per share. The options vest as follows:
100,000 vest immediately and the remaining 150,000 vest over a three year period
and are contingent upon receiving certain FDA approvals. Compensation expense of
$299,650 was recorded during May 1999 as required under FASB 123.
F-17
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
In June 1999, the stockholders of the Company voted to increase the
authorized number of shares of common stock to 25,000,000 shares.
On August 9, 1999, the Company completed an offering of 2,068,972 shares of
common stock at a price of $4.50 per share for gross proceeds of $9,310,374. In
connection with the offering, the Company paid a commission to Pennsylvania
Merchant Group (PMG) of 8% of the gross proceeds raised plus $25,000 for
expenses. In addition, for each $1,000,000 of gross proceeds, PMG will receive a
warrant to purchase 10,000 shares of common stock at $4.50 per share.
From January 1, 1999 to January 31, 2000, the Company issued 1,942,864
options to purchase shares of common stock at exercise prices ranging from $2.44
to $5.94 per share. The exercise prices represented the fair market value of the
Company's common stock on the date of grant, determined by the average of the
bid and ask price of the Company's common stock in the Over-the-Counter Market.
A summary of option transactions during 1996, 1997, and 1998 under the Plan
follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
SHARES AVERAGE
--------- EXERCISE PRICE
<S> <C> <C>
Outstanding at January 1, 1996.............................. -- --
Granted................................................. 397,500 1.66
Expired/canceled........................................ -- --
------- ----
Outstanding at December 31, 1996............................ 397,500 1.66
Granted................................................. -- --
Expired/canceled........................................ -- --
------- ----
Outstanding at December 31, 1997............................ 397,500 1.66
Granted................................................. -- --
Expired/canceled........................................ -- --
------- ----
Outstanding at December 31, 1998............................ 397,500 1.66
======= ====
</TABLE>
At December 31, 1998, all plan options to purchase shares were exercisable
at prices ranging from $1.50 to $2.50 per share.
F-18
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
If not previously exercised the outstanding plan options will expire as
follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
YEAR ENDING DECEMBER 31, SHARES EXERCISE PRICE
- ------------------------ --------- --------------
<S> <C> <C>
2001................................................ 62,500 $2.50
2002................................................ -- --
2003................................................ -- --
2004................................................ -- --
2005................................................ -- --
2006................................................ 335,000 1.50
------- -----
397,500 $1.66
======= =====
</TABLE>
A summary of non-plan option transactions during 1996, 1997, and 1998
follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at January 1, 1996.............................. 375,000 $3.00
Granted................................................... -- --
Exercised................................................. (268,000) 2.63
Expired/canceled.......................................... (107,000) 3.75
--------- -----
Outstanding at December 31, 1996............................ -- --
Granted................................................... 690,399 0.86
Expired/canceled.......................................... -- --
--------- -----
Outstanding at December 31, 1997............................ 690,399 0.86
Granted................................................... 390,000 2.88
Expired/canceled.......................................... -- --
--------- -----
Outstanding at December 31, 1998............................ 1,080,399 $1.59
========= =====
</TABLE>
At December 31, 1998, all non-plan options to purchase shares were
exercisable at prices ranging from $0.50 to $2.88.
If not previously exercised the outstanding non-plan options will expire as
follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
YEAR ENDING DECEMBER 31, SHARES EXERCISE PRICE
- ------------------------ --------- --------------
<S> <C> <C>
2002................................................ 570,399 $0.87
2003................................................ 390,000 2.88
2004................................................ 120,000 0.79
--------- -----
1,080,399 $1.59
========= =====
</TABLE>
As stated in Note 2, the Company has not adopted the fair value accounting
prescribed by FASB123 for employees. Had compensation cost for stock options
issued to employees been determined based on
F-19
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
the fair value at grant date for awards in 1996, 1997 and 1998 consistent with
the provisions of FASB123, the Company's net loss and net loss per share would
have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss....................................... $(5,502,273) $(2,965,259) $(6,784,686)
=========== =========== ===========
Net loss per share............................. $ (0.98) $ (0.45) $ (0.73)
=========== =========== ===========
</TABLE>
The fair value of each option is estimated on the date of grant using the
present value of the exercise price and is pro-rated based on the percent of
time from the grant date to the end of the vesting period. The weighted average
fair value of the options granted during 1996, 1997 and 1998 was $1.08, $1.75
and $1.97, respectively. The following assumptions were used for grants in 1996;
risk-free interest rate of 4.9%; expected lives of two years; dividend yield of
0%; and expected volatility of 148%. The following assumptions were used for
grants in 1997; risk-free interest rate equal to the yield on government bonds
and notes with a maturity equal to the expected life for the month the options
were granted; expected lives of two years; dividend yield of 0%, and expected
volatility of 134%. The following assumptions were used for grants in 1998;
risk-free interest rate of 5.6%; expected lives of two years; dividend yield of
0%; and expected volatility of 137%.
AccuLase has reserved 800,000 shares of its common stock for issuance under
a noncompensatory employee stock option plan. Options are exercisable over a
period of up to ten years from the date of grant. During 1992, 28,500 options
were granted at an exercise price of $2.80 per share. In 1995, options for
14,500 were canceled. At December 31, 1998, the remaining 14,000 options are
exercisable.
On February 4, 1998, the majority of the stockholders of the Company voted
to increase the authorized number of common shares to 15,000,000.
10. INCOME TAXES:
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
CURRENT
Federal................................................... $ -- $ -- $ --
State..................................................... -- 3,900 3,300
------ ------ ------
-- 3,900 3,300
------ ------ ------
DEFERRED
Federal................................................... -- -- --
State..................................................... -- -- --
------ ------ ------
-- -- --
------ ------ ------
INCOME TAX EXPENSE.......................................... $ -- $3,900 $3,300
====== ====== ======
</TABLE>
F-20
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
10. INCOME TAXES: (CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Current deferred tax assets:
Accounts receivable, principally due to allowances for
doubtful accounts...................................... $ 29,000 $ 27,000
Compensated absences, principally due to accrual for
financial reporting purposes........................... 8,000 21,000
Warranty reserve, principally due to accrual for
financial reporting purposes........................... 39,000 19,000
Inventory obsolescence reserve........................... 316,000 409,000
Stock option compensation................................ 260,000 769,000
Accrued expenses......................................... 35,000 63,000
Deferred revenue......................................... 39,000 --
UNICAP................................................... -- 34,000
----------- -----------
726,000 1,342,000
Less valuation allowance................................. (726,000) (1,342,000)
----------- -----------
Net current deferred tax assets........................ $ -- $ --
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Noncurrent deferred tax assets:
Tax credit carryforwards................................. $ 329,000 $ 334,000
Net operating loss carryforwards......................... 5,301,000 6,534,000
Depreciation and amortization............................ 21,000 101,000
Capitalized research and development costs............... 323,000 339,000
----------- -----------
5,974,000 7,308,000
Less valuation allowance................................. (5,974,000) (7,308,000)
----------- -----------
Net noncurrent deferred tax assets..................... $ -- $ --
=========== ===========
</TABLE>
At December 31, 1998, Laser Photonics and AccuLase had net operating loss
carryforwards of approximately $7,438,000 and $9,508,000, which expire in
various years through 2018. These net operating losses are subject to annual
limitations imposed by the Internal Revenue Code due to change in control of the
Companies.
F-21
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
10. INCOME TAXES: (CONTINUED)
Total income tax expense differed from the amounts computed by applying the
U.S. federal statutory tax rates to pre-tax income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Total expense (benefit) computed by applying the U.S.
statutory rate.......................................... (34.0)% (34.0)% (34.0)%
Permanent differences..................................... 47.8 25.7 14.6
State income taxes........................................ -- 0.2 --
Effect of valuation allowance............................. (13.8) 8.3 19.4
----- ----- -----
--% 0.2% --%
===== ===== =====
</TABLE>
11. RELATED PARTY TRANSACTIONS:
During April 1997, Helionetics filed a voluntary petition of reorganization
with the U.S. Bankruptcy Court in the Central District of California for
protection under Chapter 11 of Title 11 of the U.S. Bankruptcy Code. As a
result, the Company wrote off its $662,775 receivable from Helionetics as of
December 31, 1996.
The Company also advanced $48,000 to Helionetics during 1997 which was
subsequently written off.
The Company has agreed to pay commissions to an officer of the Company for
efforts in securing the Baxter Agreement (See Note 12). In 1998, the Company
recognized $72,000 of commission expense related to this agreement. In addition,
the Company has received advances from the officer for operating expenditures.
At December 31, 1997 and 1998 and September 30, 1999, the amounts due to the
officer were $36,222, $136,002, and $75,180, respectively.
At December 31, 1997 and 1998 and September 30, 1999, the Company had
$25,000, $54,600 and $54,600 respectively, due from an officer of the Company
for advances made.
F-22
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES:
LEASES--The Company leases its main facility under a month-to-month
operating lease which requires monthly payments of $11,000. AccuLase leases its
facility under a non-cancelable operating lease which expires during 2003. The
Company's other subsidiary leases its facility under a non-cancelable operating
lease which expires during 2001. Rental expense for these leases amounted to
$376,000, $346,000 $298,000, $193,000 and $247,000 for the years ended
December 31, 1996, 1997 and 1998 and the nine months ended September 30, 1998
and 1999, respectively. The future annual minimum payments under the non-
cancelable leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1999................................................ $164,000
2000................................................ 170,000
2001................................................ 170,000
2002................................................ 97,000
2003................................................ 64,000
--------
Total minimum lease payments................................ $665,000
========
</TABLE>
LITIGATION--On April 21, 1998, City National Bank of Florida, Trustee
("Landlord") filed suit against the Company for unpaid rent for the Company's
facility in Orlando. City National Bank of Florida, Trustee received a final
judgment as of January 4, 1999 of approximately $695,000, with interest
thereafter until paid at the rate of 18% per annum. The purchaser of the
Company's non-excimer laser (see below) business has agreed, as part of the
purchase price, to assume this obligation. As of December 31, 1998, the Company
has accrued for the judgement, which is included in liabilities in excess of
assets held for sale.
On November 19, 1999, the Company's Board of Directors voted to terminate
Raymond A. Hartman as an officer and employee and Sandra Hartman, the wife of
Raymond Hartman, as an employee of the Company and of all subsidiaries of the
Company. In addition, the Board of Directors of Acculase terminated Raymond
Hartman as an officer and employee and Sandra Hartman as an employee of
Acculase. Finally, the shareholders of Acculase removed Raymond Hartman as a
director of Acculase. Prior to the terminations, both Mr. and Ms. Hartman were
offered a severance benefit package under which they would tender resignations,
in lieu of the terminations, and enter into part-time consulting agreements.
Raymond Hartman's proposed agreement provided for the payment over two years of
a fee equal to 125% of his most recent annual salary. Sandra Hartman's proposed
agreement provided for the payment over six months of a fee equal to 75% of her
most recent semi-annual salary. The Hartmans declined this offer and, through
counsel, alleged wrongful termination by the Company and have threatened legal
action. The Company hopes that this matter can be amicably resolved, although no
assurances to that effect can be given. If settlement is not reached and
litigation is commenced by the Hartmans, the Company will vigorously defend this
matter. Since no proceeding has been initiated and no discovery has taken place,
all relevant factors which may affect the outcome are not known to the Company,
and the Company cannot evaluate the likelihood of a favorable or unfavorable
outcome, or to estimate the amount or range of possible gain or loss.
On or about December 13, 1999, CSC Healthcare, Inc. ("CSC") filed a
Complaint against the Company alleging the failure to pay for professional
services allegedly performed by CSC, plus expenses,
F-23
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
and seeking compensatory damages of $1,520,246, interest, attorneys' fees and
costs of suit. The Company's Chairman of the Board of Directors was formerly a
Vice-President of CSC. The Company has paid substantial sums to CSC for services
and expenses and believes that the amount claimed by CSC in the Complaint is
completely overstated. The Company is hopeful that settlement of this matter
will be reached, although no assurances to that effect can be given. If
settlement is not reached, the Company will vigorously defend this action. Since
this proceeding has just been initiated and no discovery has taken place, all
relevant facts which may affect the outcome are not known to the Company, and
the Company is not able to evaluate the likelihood of a favorable or unfavorable
outcome, or to estimate the amount or range of possible gain or loss.
The Company is involved in certain other legal actions and claims arising in
the ordinary course of business. The lawsuits are in the discovery stage.
Management believes, based on discussions with legal counsel, that such
litigation and claims will be resolved without a material effect on the
Company's financial position.
BAXTER AGREEMENT--On August 19, 1997, AccuLase executed a series of
Agreements with Baxter Healthcare Corporation ("Baxter"). These Agreements
provided among other things for the following:
<TABLE>
<S> <C> <C>
1. AccuLase granted to Baxter an exclusive world-wide right and license to
manufacture and sell the AccuLase Laser and disposable products
associated therewith, for the purposes of treatment of cardiovascular
and vascular diseases.
2. In exchange Baxter agreed to:
a) Pay AccuLase $700,000 in cash at closing, agreed to pay
AccuLase an additional $250,000 in cash three months after
closing, and agreed to pay an additional $600,000 upon
delivery of the first two commercial excimer lasers. The
Company was recognizing the amount receivable from Baxter on
the percent complete method as costs were incurred. As of
March 31, 1999, the Company had fulfilled its commitment for
the development of the demonstration lasers and the revenues
under this section of the Agreement have been fully
recognized.
b) To pay AccuLase a royalty equal to 10% of the "End User
Price" for each disposable product sold, or if the laser
equipment is sold on a per treatment basis, the "imputed"
average sale price based on "non" per procedure sales.
Royalty revenues will be recognized as Baxter begins selling
product covered by the agreement and the Company is entitled
to receipt of the royalties.
c) To purchase from AccuLase excimer laser systems for
cardiovascular and vascular disease. Revenues for the sale
of excimer laser systems will be recognized upon shipment by
the Company.
d) To fund the total cost of obtaining regulatory approvals
world-wide for the use of the AccuLase laser and delivery
systems for the treatment of cardiovascular and vascular
disease. Baxter has funded a portion of the cost of
obtaining regulatory approvals world-wide. The Company has
recognized revenue under this provision as reimbursable
costs have been incurred.
</TABLE>
F-24
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
<TABLE>
<S> <C> <C>
e) To fund all sales and marketing costs related to the
cardiovascular and vascular business. The Company does not
anticipate any revenues. The costs of sales and marketing
the excimer lasers will be incurred and expensed by Baxter
in the generation of its revenue from the sale of the
excimer products. The Company will receive its compensation
through the royalty revenues provided under 2 (b) above.
AccuLase agreed to manufacture the excimer laser system to
3. specifications for Baxter. Baxter agreed to pay a fixed price per laser
for the first 8 lasers to be manufactured by AccuLase, and thereafter
to pay unit prices on a reducing scale of from $75,000 to $45,000 per
laser, based upon the annual number of lasers sold to Baxter.
4. AccuLase agreed for a period of five years not to engage in any
business competitive with the laser products for cardiovascular and
vascular applications licensed to Baxter.
5. AccuLase has granted Baxter a security interest in all of its patents
to secure performance under the Baxter Agreement. The agreement expires
upon the expiration of the last to expire license patent, however,
Baxter may terminate the agreement at any time.
</TABLE>
Revenues recognized on the Baxter Agreement for the years ended December 31,
1997 and 1998 and nine months ended September 30, 1998 and 1999 were $855,000,
$769,000, $695,000 and $94,000, respectively, and represented 22%, 33%, 47% and
14%, respectively, of total revenues.
LICENSE AGREEMENT WITH BAXTER AND LASER SIGHT--On September 23, 1997, Baxter
purchased from a third party patent rights to related patents for the use of an
excimer laser to oblate tissue in vascular and cardio vascular applications for
$4,000,000. The oblation technology underlying the patents has been successfully
used in other applications for many years. In December 1997, the Company
acquired a license to the patent rights from Baxter entitling the Company to
sell an excimer laser and related products for use in cardiovascular procedures.
A prepaid license fee was recorded on the Company's books based on the
$4,000,000 cash payment made by the Company to Baxter to acquire the license.
LICENSE AGREEMENT WITH GENERAL HOSPITAL--On November 26, 1997, the Company
entered into a license agreement with The General Hospital Corporation
("General") whereby General grants the Company an exclusive, worldwide,
royalty-bearing license pertaining to Phototherapy Methods and Systems. The
license entitles the Company to commercially develop, manufacture, use and
distribute products using the Phototherapy Methods and Systems. In consideration
for the use of the license, the Company has agreed to pay General $12,500 for
costs incurred prior to the effective date of the agreement, $25,000 upon
execution of the agreement, $50,000 upon issuance by the U.S. Patent and
Trademark Office of any Patent right, and $50,000 upon approval by the U.S. Food
and Drug Administration of the First NDA 510(k), PMA or PMA Supplement. The
Company has agreed to pay royalties of 4% of the net sales price on products
that are covered by a valid claim of any patent right licensed exclusively to
the Company, 2% of net sales price on products covered by a valid claim of any
patent right licensed non-exclusively to the Company, 1% of net sales of
products on which no royalty is payable for the next ten years following the
first commercial sale and 25% of all non-royalty income. To date, payments under
the agreement have been expensed. The remaining payments under the agreement
will be evaluated when due to determine if the payments should be capitalized as
acquired license agreements. This determination will be dependent on evaluation
of technological feasibility at that time.
F-25
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
CLINICAL TRIAL AGREEMENT WITH MASSACHUSETTS GENERAL HOSPITAL--On March 17,
1998, the Company entered into a clinical trial agreement with Massachusetts
General Hospital. The Company has agreed to support the clinical trials with a
research grant of approximately $160,000, payable $50,000 upon execution of the
agreement, $60,000 upon collection of final data from the study (which was
completed in December 1998) and $50,000 upon delivery of the final report to
serve as the basis for a 510 (k) submission to the FDA. At December 31, 1998,
$60,000 was accrued and payable under the agreement.
AGREEMENT WITH CSC HEALTHCARE--In November 1998 the Company entered into a
consulting agreement with CSC Healthcare ("CSC") to assist the Company in its
commercialization efforts of its Excimer technologies. For the year ended
December 31, 1998, the Company incurred expense with CSC of $157,600 for
services under the agreement and $73,500 for expenses. Additional consideration
of $157,600 is payable in the event that the company raises more than $6,000,000
in subsequent financing. At December 31, 1998, $231,000 was accrued and payable
under the agreement.
MARKETING AGREEMENT WITH HEALTHWORLD CORPORATION--In May 1999, the Company
entered in an agreement with Healthworld Corporation ("Healthworld"), of which
Steven Girgenti, a director of the Company, is Chairman and Chief Executive
Officer, for provision of various services relating to the marketing of the
Company's products for a monthly fee of $40,000, plus reimbursement of expenses
and payment of a 15% commission on advertising purchases. Services beyond those
budgeted by the parties are to cost $104 per person hour, which is generally
less then the normal hourly rate charged by Healthworld for such services. In
lieu of a higher hourly rate, the Company on May 11, 1999 issued to Healthworld
warrants to purchase 174,000 shares of the Company's Common Stock at an exercise
price of $4.69 per share. These Warrants have a term of ten years and vest to
the extent of 14,500 shares of Common Stock on the eleventh day of each month,
beginning June 11, 1999. Under a separate agreement, Healthworld provides:
(i) two fulltime managed-care specialists to make calls on potential customers
for a period of seven months at a cost of $30,000 per month; (ii) 20 fulltime
sale representatives to market among dermatologists for a period of four months
at a cost of $125,000 per month; and (iii) certain general management services
for a period of seven months at $10,000 per month. Under separate agreements,
Healthworld will provide certain medical education and publishing services
(approximately $700,000 in fees and costs over a period in excess of one year)
and general public relations services ($10,000 per month).
EMPLOYMENT AGREEMENTS--In November and December 1999, the Company entered
into three three - year employment agreements with a combined base salary is
$605,000 per year.
PROPOSED SALE OF ASSETS--On January 4, 1999, the Company entered into an
agreement with a third party to sell certain assets of its non-excimer laser
business operations, subject to the assumption of $1,200,000 of liabilities. The
completion of the transaction is still pending. The assets and liabilities
F-26
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
attributed to this transaction have been classified in the consolidated balance
sheet as liabilities in excess of assets held for sale. The amounts included in
the financial statements consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------ -------------------
<S> <C> <C>
ASSETS:
Accounts receivable............................... $ 140,000 $ 73,020
Inventories....................................... 452,761 359,542
Prepaid expenses and other assets................. 73,789 49,372
Property and equipment, net....................... 139,785 105,744
---------- ----------
Total assets.................................... 806,335 587,678
---------- ----------
LIABILITIES:
Accounts payable.................................. 810,272 772,703
Accrued payroll and related expenses.............. 43,776 82,623
Accrued property taxes............................ 111,962 111,962
Other accrued liabilities......................... 106,130 104,852
Note payable...................................... 127,860 127,860
---------- ----------
Total liabilities............................... 1,200,000 1,200,000
---------- ----------
LIABILITIES IN EXCESS OF ASSETS HELD FOR SALE....... $ 393,665 $ 612,322
========== ==========
</TABLE>
Revenues of the related operations were $2,901,000, $2,960,000, $1,580,000,
$1,125,000 and $807,000 for the years ended December 31, 1996, 1997 and 1998 and
for the nine months ended September 30, 1998 and 1999, respectively. Loss from
the related operations was $926,000, $647,000, $995,000, $524,000 and $932,000
for the years ended December 31, 1996, 1997 and 1998 and for the nine months
ended September 30, 1998 and 1999, respectively.
F-27
<PAGE>
LASER PHOTONICS, INC.
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following pro forma financial information is presented to reflect the
proposed sale of certain assets of the non-excimer laser business operations of
Laser Photonics, Inc. (the Company) in exchange for the buyer's assumption of
certain liabilities, pursuant to an asset purchase agreement dated January 4,
1999. Subsequent to the sale, the Company will liquidate the remaining assets
which will not be used in its excimer laser operations.
The accompanying pro forma financial information includes:
1. A Pro Forma Balance Sheet as of September 30, 1999, prepared as if
the transaction occurred as of that date.
2. Pro Forma Statements of Operations for the year ended December 31,
1998 and the nine months ended September 30, 1999, prepared as if the
transactions occurred at January 1, 1998.
The assumptions used in preparing the pro forma adjustments are described in
the footnotes to the pro forma financial statements. However, due to the
uncertainties inherent in the assumption process, it is at least reasonably
possible that the assumptions might require further revision and that such
revision could be material.
The pro forma financial information should be read in conjunction with the
historical financial statements of Laser Photonics, Inc., which were used to
prepare the pro forma financial information. The historical Laser Photonics,
Inc. financial statements are contained in its Form 10-K for the year ended
December 31, 1998 and its Form 10-Q for the nine months ended September 30,
1999.
The pro forma financial information presented is not necessarily indicative
of future operations or the actual results that would have occurred had the
transactions been consummated at the beginning of the periods indicated.
F-28
<PAGE>
LASER PHOTONICS, INC.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 6,619,000 $ -- $ 6,619,000
Receivable from related party....................... 55,000 -- 55,000
Inventories......................................... 627,000 -- 627,000
Prepaid expenses.................................... 37,000 -- 37,000
----------- --------- -----------
Total current assets.............................. 7,338,000 -- 7,338,000
PROPERTY AND EQUIPMENT, net........................... 160,000 -- 160,000
PREPAID LICENSE FEE, net.............................. 3,083,000 -- 3,083,000
OTHER................................................. 76,000 -- 76,000
GOODWILL, net......................................... 87,000 -- 87,000
----------- --------- -----------
TOTAL ASSETS.......................................... $10,744,000 $ -- $10,744,000
=========== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable--current portion...................... $ 272,000 $ -- $ 272,000
Accounts payable.................................... 778,000 -- 778,000
Accrued payroll and related expenses................ 398,000 -- 398,000
Other accrued liabilities........................... 636,000 -- 636,000
Payable to related party............................ 75,000 -- 75,000
Customer deposits................................... 199,000 -- 199,000
Deferred revenue.................................... 250,000 -- 250,000
----------- --------- -----------
Total current liabilities......................... 2,608,000 -- 2,608,000
NOTES PAYABLE, less current portion................... 50,000 -- 50,000
LIABILITIES IN EXCESS OF ASSETS HELD FOR SALE......... 612,000 (a) (612,000) --
----------- --------- -----------
Total liabilities................................. 3,270,000 (612,000) 2,658,000
STOCKHOLDERS' EQUITY.................................. 7,474,000 (a) 612,000 8,086,000
----------- --------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $10,744,000 $ -- $10,744,000
=========== ========= ===========
</TABLE>
F-29
<PAGE>
LASER PHOTONICS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
-------------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Sales............................................. $ 1,580,000 (b) $(1,580,000) $ --
Other............................................. 769,000 -- 769,000
----------- ----------- -----------
2,349,000 (1,580,000) 769,000
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales..................................... 1,806,000 (b) (1,515,000) 291,000
Selling, general and administrative............... 3,608,000 (b) (846,000) 2,762,000
Research and development.......................... 1,243,000 (b) (164,000) 1,079,000
Depreciation and amortization..................... 1,089,000 (b) (50,000) 1,039,000
----------- ----------- -----------
7,746,000 (2,575,000) 5,171,000
----------- ----------- -----------
LOSS FROM OPERATIONS................................ (5,397,000) 995,000 (4,402,000)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense.................................. (511,000) -- (511,000)
Other, net........................................ 3,000 -- 3,000
----------- ----------- -----------
(508,000) -- (508,000)
----------- ----------- -----------
LOSS BEFORE INCOME TAX EXPENSE...................... (5,905,000) 995,000 (4,910,000)
INCOME TAX EXPENSE.................................. 3,000 -- 3,000
----------- ----------- -----------
NET LOSS............................................ $(5,908,000) $ 995,000 $(4,913,000)
=========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE.................... $ (0.64) $ (0.53)
=========== ===========
WEIGHTED AVERAGE SHARES............................. 9,287,507 9,287,507
=========== ===========
</TABLE>
F-30
<PAGE>
LASER PHOTONICS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Sales.............................................. $ 813,000 (b) $ (807,000) $ 6,000
Other.............................................. 94,000 -- 94,000
----------- -------- ----------- -----------
907,000 (807,000) 100,000
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales...................................... 1,012,000 (b) (1,007,000) 5,000
Selling, general and administrative................ 3,130,000 (b) (577,000) 2,553,000
Research and development........................... 1,256,000 (b) -- 1,256,000
Depreciation and amortization...................... 827,000 (b) (34,000) 793,000
----------- ----------- -----------
6,225,000 (1,618,000) 4,607,000
----------- ----------- -----------
LOSS FROM OPERATIONS................................. (5,318,000) 811,000 (4,507,000)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense................................... (1,758,000) (b) 121,000 (1,637,000)
Other.............................................. 53,000 (b) -- 53,000
----------- ----------- -----------
(1,705,000) 121,000 (1,584,000)
----------- ----------- -----------
LOSS BEFORE INCOME TAX EXPENSE....................... (7,023,000) 932,000 (6,091,000)
INCOME TAX EXPENSE................................... -- -- --
----------- ----------- -----------
NET LOSS............................................. $(7,023,000) $ 932,000 $(6,091,000)
=========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE..................... $ (0.67) $ (0.58)
=========== ===========
WEIGHTED AVERAGE SHARES.............................. 10,547,130 10,547,130
=========== ===========
</TABLE>
F-31
<PAGE>
LASER PHOTONICS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(a) To reflect the proposed sale of certain assets of the non-excimer laser
business operations of the Company in exchange for the buyer's assumption of
certain liabilities resulting in a gain on sale of net assets of $612,000.
(b) To eliminate the results of the Company's non-excimer laser business
operations.
F-32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVES, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION 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 ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.................... 2
Summary Consolidated Financial
Information......................... 6
Risk Factors.......................... 7
Use of Proceeds....................... 19
Dividend Policy....................... 19
Price Range of Common Stock........... 19
Capitalization........................ 20
Selected Consolidated Financial
Data................................ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 34
Management............................ 61
Compensation of Executive Officers and
Directors........................... 64
Certain Relationships and Related
Transactions........................ 67
Voting Securities and Principal
Stockholders........................ 73
Description of Securities............. 76
Selling Stockholders and Plan of
Distribution........................ 78
Shares Eligible for Future Sale....... 83
Legal Matters......................... 83
Experts............................... 83
Additional Information................ 84
Financial Statements.................. F-1
</TABLE>
LASER PHOTONICS, INC.
8,451,439 SHARES
COMMON STOCK
OFFERED BY
SELLING STOCKHOLDERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the Offering
described in this Registration Statement, other than the underwriting discount,
will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 6,976.29
Legal, Accounting Fees and Expenses.........................
Printing Expenses...........................................
Miscellaneous...............................................
-----------
Total...................................................
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Certificate of Incorporation generally provides for the
maximum indemnification of a corporation's officers and directors as permitted
by law in the State of Delaware. Delaware law empowers a corporation to
indemnify any person who was or is a party or who is threatened to be made a
party to any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, except in the case of
an action by or in the right of the corporation, by reason of the fact that he
or she is or was a director, officer, employee or agent of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or other enterprise. Depending on the
character of the proceeding, a corporation may indemnify against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding if the person indemnified acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceedings, had no
reasonable cause to believe his or her conduct was unlawful.
A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or other
enterprise, against expenses, including amounts paid in settlement and
attorney's fees actually and reasonably incurred by him or her in connection
with the defense or settlement of the action or suit if he or she acted in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the corporation. Indemnification may not be
made for any claim, issue or matter as to which such a person has been adjudged
by a court of competent jurisdiction, after exhaustion of all appeals therefrom,
to be liable to the corporation or for amounts paid in settlement to the
corporation unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above, or in defense of any claim, issue or matter
therein, he or she must be indemnified by the corporation against expenses,
including attorney's fees, actually and reasonably incurred by him in connection
with the defense. Any indemnification under this section, unless ordered by a
court or advanced pursuant to this section, must be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be
II-1
<PAGE>
made: (a) by the stockholders; (b) by the board of directors by majority vote of
a quorum consisting of directors who were not parties to the action, suit or
proceeding; (c) if a majority vote of a quorum consisting of directors who were
not parties to the action, suit or proceeding so orders, by independent legal
counsel in a written opinion; or (d) if a quorum consisting of directors who
were not parties to the action, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
The certificate of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he or she is not entitled to be indemnified
by the corporation. The provisions of this section do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
The indemnification and advancement of expenses authorized in or ordered by
a court pursuant to this section: (a) does not exclude any other rights to which
a person seeking indemnification or advancement of expenses may be entitled
under the articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either an action in
his or her official capacity or an action in another capacity while holding his
or her office, except that indemnification, unless ordered by a court pursuant
to this section or for the advancement of any director or officer if a final
adjudication establishes that his or her acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action; and (b) continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Further, the Company may enter into agreements of indemnification with its
directors to provide for indemnification to the fullest extent permitted under
Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Except as otherwise provided above, the Company believes all of the
foregoing issuances of securities were made solely to accredited investors in
transactions exempt from registration under Section 4(2) of the Securities Act.
CONVERTIBLE DEBT AND CONVERSION OF CONVERTIBLE DEBT
In 1995, the Company sold an aggregate of $500,000 in six-month convertible
secured notes in a private transaction, pursuant to an exemption from
registration under Regulation S promulgated under the Securities Act. The
Company also issued to such investors warrants to purchase up to 500,000 shares
of Common Stock, which expired in 1995 due to the Company's meeting of certain
filing requirements. The noteholders were also granted a transferable one-year
option to purchase 134,000 additional shares at $2.25 per share, and 134,000
shares at $3.00 per share, which were exercised in 1996, and 107,000 shares at
$3.75 per share, which expired without exercise. In January and April, 1996, the
notes were converted into an aggregate of 538,583 shares of Common Stock at a
conversion price of $0.96 per share. In April, 1996, an additional 30,000 shares
were issued pursuant to Regulation S as payment of past due rent valued at
$60,000.
During July and August, 1998, Acculase issued $1,000,000 of the promissory
notes (the "Acculase Notes"), to three accredited investors. The Acculase Notes
were guaranteed by the Company. Interest was payable annually and could be paid
in cash or in the Company's Common Stock at the Company's option. All of the
funds received by the Company from issuance of the Acculase Notes were applied
to fund current operations and to pay current obligations. The entire amount of
principal was automatically converted in 500,000 shares of the Company's Common
Stock, at a conversion price of $2.00 per share, on
II-2
<PAGE>
December 31, 1998. As of December 31, 1998, the price of the Company's common
stock was $2.81. In addition, the Company issued 37,433 shares in payment of
accrued interest as of April 30, 1999.
In March, 1999, the Company issued to 38 accredited investors $2,380,000 of
units of its securities (the "Units"), each Unit consisting of: (i) $10,000
principal amount of convertible promissory notes (the "Convertible Notes"); and
(ii) common stock purchase warrants to purchase up to 2,500 shares of Common
Stock (the "Unit Warrants"). On August 2, 1999, the Convertible Note holders
converted the Convertible Notes and accrued and unpaid interest thereon into
1,190,819 shares of Common Stock at a conversion price of $2.00 per share. On
March 29, 1999, the price of the Common Stock was $4.63. The Company used the
proceeds of this financing to fund marketing, research and development expenses,
the purchase of equipment relating to the manufacture of the Company's excimer
lasers, other operating activities, and the payment of certain liabilities.
The Unit Warrants are exercisable into an initial 1,250 shares of Common
Stock at any time after purchase until March 31, 2004. The balance of the Unit
Warrants are exercisable into an additional 1,250 shares of Common Stock (the
"Contingent Shares") if the Unit holder voluntarily converted at least a portion
of the principal amount of the Convertible Note, that make up a portion of the
Unit, into shares of Common Stock. As of the date of this Registration
Statement, all of the Unit holders converted their Convertible Notes into shares
of Common Stock, aggregating 1,198,819 shares of Common Stock, including 819
shares of Common Stock to convert accrued and unpaid interest. As such, each
Unit holder has a fully vested Unit Warrant to purchase 2,500 shares of Common
Stock at $2.00 per share. The Unit Warrants provide that they may be adjusted in
the event that the Company issues shares of Common Stock for consideration of
less than $2.00 per share. In such event, the per share exercise price of the
Unit Warrants will be adjusted to the issue price of such additionally issued
shares of Common Stock.
On August 9, 1999, the Company completed the offering of 2,068,972 shares of
Common Stock at a price of $4.50 per share, resulting in aggregate gross
proceeds to the Company of $9,310,374 (the "August 9, 1999 Financing"). The
Company paid PMG a commission of 8% of the gross proceeds, or $744,830, plus
$25,000 for reimbursement of offering expenses, and issued to PMG warrants to
purchase 93,104 shares of Common Stock at an exercise price of $4.50 per share.
On the date of the closing of the August 9, 1999 Financing, the price of the
Company's Common Stock was $5.19 per share. The Company has used part of the
proceeds of this financing to pay marketing expenses, research and development
expenses and for working capital. As of September 30, 1999, the Company had
$6,619,434 of cash on hand.
CERTAIN ISSUANCES TO FORMER AFFILIATES
On February 14, 1996, the Company issued 25,000 shares of Common Stock to
Susan E. Barnes, the wife of Bernard B. Katz, a former director and Chairman of
the Board of the Company, in consideration for her personal guaranty of $81,000
in lease obligations associated with the Company's Andover, Massachusetts
facility. On the date of this issuance of securities, there was no price quote
for the Company's Common Stock. On February 22, 1996, the Company agreed to
issue to Ms. Barnes 50,000 shares of Common Stock at a value of $1.00 per share
for services she arranged to provide in connection with raising $1.5 million to
finance the Company's emergence from the Bankruptcy Proceeding. On the date of
this issuance of securities, there was no price quote for the Company's Common
Stock.
In October, 1996, the Company issued an additional 100,000 shares of Common
Stock to Ms. Barnes in connection with a second guaranty of the Andover lease
and lease extension, after the lease went into default and the landlord
threatened immediate eviction. At the time of the issuance of these securities
the trading price of the Common Stock was approximately $2.80. This second
personal guaranty was secured by a pledge of 391,360 shares of her personally
owned Helionetics common stock. All guarantees of Ms. Barnes have been
terminated.
II-3
<PAGE>
ISSUANCES OF SHARES, OPTIONS AND WARRANTS
On February 14, 1996, the Company adopted the Company's 1995 Non-Qualified
Option Plan for key employees, officers, directors and consultants, and reserved
up to 500,000 shares of Common Stock for which options could be granted
thereunder. On January 2, 1996, the Company granted a total of 335,000 options
at an exercise price of $1.50 per share to certain directors, employees and
consultants for financial consulting services, for compensation in lieu of cash,
for services rendered to assist the Company in being traded on the NASDAQ
Bulletin Board, and for services in completing the Company's Chapter 11
Reorganization. On the date of this issuance of securities, there was no price
quote for the Company's Common Stock.
During 1996, the Company issued 151,000 shares of Common Stock and options
to purchase up to 62,500 shares of Common Stock in exempt transactions to key
employees and consultants for services rendered and as compensation at an
exercise price of $2.50 per share. Included were issuances to certain former
officers and directors for services rendered, as follows: (i) Steven A. Qualls
(10,000 shares), (ii) Chaim Markheim (5,000 shares) and (iii) Maxwell Malone
(5,000 shares). On the date of this issuance of securities, the price of the
Company's Common Stock was $2.88.
During 1997, the Company issued a total of 105,000 shares of Common Stock to
Don Davis, Esq., the Company's former legal counsel, as a consultant in
connection with legal services rendered to the Company. The services included,
but were not limited to, general representation of the Company and securities
disclosure work in relation to the Company's continuing obligation to provide
reports pursuant to the Exchange Act. On the date of this issuance of
securities, the price of the Company's Common Stock was trading in a range from
$0.75 to $1.31.
On May 27, 1997, the Company issued to Raymond A. Hartman options to acquire
250,000 shares of Common Stock at an exercise price of $0.50 per share with a
five (5) year term, contingent upon his completion of the excimer laser for TMR
in a fashion such that it could be manufactured for less than $25,000 per unit
and perform at least as well, if not better than, the Company's existing laser
products. On April 5, 1999, the Board of Directors determined that
Mr. Hartman's efforts and accomplishments had fulfilled such contingency. On
May 22, 199,7 the Board of Directors further resolved that the options
referenced above be deemed vested. At the date of this issuance of securities,
the price of the Company's Common Stock was $0.75. On April 9, 1999, the price
of the Company's Common Stock was $4.81.
On July 1, 1997, the Company granted a total of 108,500 options at an
exercise price of $1.00 per share to certain employees and consultants. On the
date of this issuance of securities, the price of the Company's Common Stock was
$1.05.
On October 31, 1997, the Company issued options to purchase up to 20,000
shares of Common Stock at an exercise price of $1.00 per share to a former
director of the Company. On the date of this issuance of securities, the price
of the Company's Common Stock was $5.25.
In October, 1997, in satisfaction of all compensation owed by the Company to
K.B. Equities, Inc. ("KB Entities"), an affiliate of Mr. Katz and Ms. Barnes,
for consulting services rendered to the Company in 1997, the Board of Directors
granted options to acquire 100,000 shares of Common Stock to K.B. Equities at an
exercise price of $0.75 per share, with a term of seven (7) years. Mr. Katz
resigned from the Board of Directors of the Company on October 9, 1997. On the
date of this issuance of securities, the price of the Company's Common Stock was
$3.75.
In August, 1997, the Company issued options to purchase up to 211,899 shares
of Common Stock to the following persons, who are now or have been in the recent
past officers and directors of the Company, at an exercise price of $1.25 per
share with a term of five (5) years: (i) Chaim Markheim (20,250 options),
(ii) Raymond A. Hartman (20,250 options), (iii) Alan R. Novak (71,399 options),
and (iv) John J. McAtee, Jr. (100,000 options). On the date of this issuance of
securities, the price of the Company's Common Stock was $1.50.
II-4
<PAGE>
On December 15, 1997, the Company issued warrants to PMG and an employee of
PMG to purchase up to 300,000 shares of Common Stock at an exercise price of
$2.00 per share, which expire on December 15, 2002. The Warrants were issued to
PMG as compensation for investment banking and advisory services. On the date of
this issuance of securities, the price of the Company's Common Stock was $3.75.
On April 10, 1998, the Company issued options to Chaim Markheim to purchase
up to 250,000 shares of Common Stock, at an exercise price of $2.875 per share,
with a five (5) year term. On the date of this issuance of securities, the price
of the Company's Common Stock was $3.00.
On April 10, 1998, the Company issued options to purchase up to 100,000
shares of Common Stock, at the exercise price of $2.875 per share, with a
five-year term, and 20,000 shares of Common Stock, to certain consultants for
services rendered. The 20,000 shares were issued for services rendered at a
$1.00 per share. On the date of this issuance of securities, the price of the
Company's Common Stock was $2.875.
In conformity with the provisions of the Option Plan for Outside Directors,
on April 10, 1998, the Company granted to John J. McAtee and Alan R. Novak
options to purchase up to 20,000 shares of Common Stock at an exercise price of
$2.875 per share for services rendered during 1998. On the date of grant of
these stock options, the price of the Company's Common Stock was $2.875.
On March 8, 1999, the Company granted to Messrs. McAtee and Novak an
additional 20,000 options under the Option Plan for Outside Directors to
purchase a like number of shares of Common Stock at an exercise price of $2.8125
per share for services as a outside member of the Board of Directors to be
rendered during 1999. All of these options are vested as of the date of this
Registration Statement. On the date of grant of these stock options, the price
of the Company's Common Stock was $2.875.
Upon Warwick Alex Charlton's joining the Company's Board of Directors on
March 8, 1999, Mr. Charlton was granted options under the Option Plan for
Directors, to purchase 20,000 shares of Common Stock at an exercise price of
$2.8125 per share for services to be rendered during 1999. On the date of grant
of these stock options, the price of the Company's Common Stock was $2.88. Of
these options all are vested as of the date of this Registration Statement.
Not in connection with the Option Plan for Outside Directors, on March 8,
1999, the Company granted to Mr. Charlton, options to acquire 150,000 shares of
Common Stock at $3.00 per share. On the date of this issuance of securities, the
price of the Company's Common Stock was $2.875. All of such options are vested
as of the date of this Registration Statement.
Upon Steve Girgenti and Harry Mittelman joining the Company's Board of
Directors on April 20, 1999, each was granted options to purchase 15,000 shares
of Common Stock, at an exercise price of $2.8125 per share, for services to be
rendered during 1999. On the date of grant of these stock options, the price of
the Company's Common Stock was $4.63. As of the date of this Registration
Statement all of these options are vested.
Not in connection with the Option Plan for Outside Directors, on April 12,
1999, the Company granted to Mr. Girgenti and Dr. Mittelman options, all of
which are vested, to acquire up to 50,000 shares of Common Stock at $4.75 per
share. On the date of this issuance of securities, the price of the Company's
Common Stock was $4.63. All of such options are vested as of the date of this
Prospectus.
In 1999, in respect of the period August, 1998, through June, 1999, the
Company granted to its current legal counsel, Matthias & Berg LLP ("M&B"),
options to acquire an aggregate of 17,864 shares of the Company's Common Stock,
at exercise prices between $1.50 and $5.10 per share, in each case equal to 85%
of the trading price of the Company's Common Stock on the last day of the month
in respect of which the options were granted. The options are exercisable for a
period of 120 months from the date of grant. These options were issued as a part
of a fee agreement between the Company and M&B, whereby M&B received options
having an exercise price equal to 20% of its monthly fees in the form of Common
Stock of
II-5
<PAGE>
the Company, valued at the closing bid price on the last day of each month. M&B
agreed to forego collection of such fees in cash, and use, the uncollected fees
against exercise price of the options.
On April 5, 1999, the Company issued to a non-executive employee options to
purchase 50,000 shares of the Company's Common Stock, at an exercise price of
$3.1875. Such options vest, pursuant to a schedule, over a period of five
(5) years. On the date of this issuance of securities, the price of the
Company's Common Stock was $4.56.
On August 9, 1999, the Company issued 2,068,972 shares of the Company's
Common Stock in connection with the August 9, 1999 Financing. The Company paid
PMG a commission of 8% of the gross proceeds, or $744,000, $25,000 for
reimbursement of expenses and, for each $1,000,000 of gross proceeds received by
the Company, a warrant to purchase 10,000 shares of Common Stock at $4.50 per
share (an aggregate of 93,104 warrants). On the date of the closing of the
August 9, 1999 Financing, the price of the Company's Common Stock was $5.19. The
2,068,972 shares of Common Stock sold in the August 9, 1999 Financing are being
registered in this Registration Statement.
On May 11, 1999, the Company, in exchange for various marketing services to
be provided by Healthworld at a discounted rate of $104 per person hour, which
is materially less then the normal hourly rate charged by Healthworld for such
services, granted Healthworld the Healthworld Warrants to purchase 174,000
shares of the Company's Common Stock at an exercise price of $4.69 per share. On
the date of grant of the Healthworld Warrants, the price of the Common Stock was
$4.69. The Warrants have a term of ten years and are fully vested.
On August 26, 1999, the Company issued options to Chaim Markheim to purchase
up to 180,000 shares of Common Stock, at an exercise price of $5.25 per share,
with a five (5) year term. Of these options, 100,000 are vested, and the
remaining 80,000 shall vest over two years as long as Mr. Markheim continues to
be retained by the Company as a Consultant. On the date of this issuance of
securities, the price of the Company's Common Stock was $5.25.
On November 19, 1999, Jeffrey O'Donnell, the Company's President and Chief
Executive Officer was granted options to acquire up to 650,000 shares of the
Company's Common Stock at an exercise price of $4.625. Of these options, 216,667
are currently vested, another 216,667 shall vest on November 19, 2000, and
216,666 will vest on November 19, 2002 as long as Mr. O'Donnell remains employed
by the Company. If Mr. O'Donnell is terminated by the Company other than for
"cause" (which definition includes nonperformance of duties or competition of
the employee with the Company's business), 50% of all unvested options will vest
immediately. On the date of grant of the options the price of the Company's
Common Stock was $4.625.
As of November 24, 1999, Dennis McGrath was granted options to acquire up to
350,000 shares of the Company's Common Stock at an exercise price of $5.50. Of
these options, 116,667 are currently vested, another 116,667 will vest on
November 24, 2000, and 116,666 will vest on November 24, 2002 as long as
Mr. McGrath remains employed by the Company. If the Company terminates
Mr. McGrath, other than for "cause" (which definition includes nonperformance of
duties or competition of the employee with the Company's business), 50% of all
unvested options will vest immediately. On the date of grant of the options the
price of the Company's Common Stock was $5.50.
On December 7, 1999, the Company granted to Samuel E. Navarro options to
acquire up to 100,000 shares of Common Stock at an exercise price of $5.9375 per
share. Of these options, 33,334 are currently vested, 33,333 shall vest on
December 7, 2000, and 33,333 shall vest on December 7, 2002 as long as
Mr. Navarro remains a director of the Company. On the date of grant the price of
the Company's Stock was $5.9375.
Michael Allen was granted, as of January 28, 2000, options to acquire up to
150,000 shares of the Company's Common Stock at an exercise price of $13.50. Of
these options, 50,000 are currently vested, another 50,000 will vest on
January 28, 2001, and 50,000 will vest on January 28, 2002, so long as
Mr. Allen
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<PAGE>
remains employed by the Company. On the date of the grant, the price of the
Company's Common Stock was $14.125.
CERTAIN ISSUANCES OF SECURITIES
In September and October, 1997, the Company privately sold to 25 accredited
investors a total of 679,500 restricted shares of Common Stock in a private
placement at a price of $1.25 per share. The price of the Common Stock at the
time of these transactions was approximately $3.50 per share. The Company sold
an additional 28,601 shares at a price of $1.25 per share in the third quarter
of 1997. The price of the Common Stock on the date of this transaction was $2.56
per share. These funds were used in part to pay outstanding accounts payable and
to make a partial payment on delinquent Federal and State taxes outstanding.
In September, 1997, PMG purchased from Helionetics, with the approval of the
Federal Bankruptcy Court in the pending Helionetics Chapter 11 Bankruptcy
Proceeding, all debt owed by Acculase to Helionetics. In October, 1997, the
Company purchased the debt owing by Acculase, in the amount of $2,159,708, from
PMG in consideration of 800,000 shares of Common Stock or $2.70 per share. On
the date of the issuance of these securities, the price of the Company's Common
Stock was approximately $3.00.
In November, 1997, the Company issued 1,500,000 shares of Common Stock and
750,000 warrants (the "Warrants") to 37 accredited investors, with an exercise
price of $4.00 per share and a term of five (5) years, in a private placement,
resulting in gross proceeds of $6,000,000 to the Company. The price of the
Common Stock on November 30, 1997, was $5.06 per share. The Company also issued
150,000 warrants and paid a commission of $480,000 to PMG as a placement agent
fee. The warrants have an exercise price of $4.00 per share and provide that in
the event that the Company issues shares of Common Stock for consideration of
less than $4.00 per share, the per share exercise price will be adjusted to the
issue price of such additionally issued shares of Common Stock. In December,
1998, the Company issued shares of its Common Stock at $1.50 per share, which
reduced the exercise price of the 900,000 warrants was $1.50 per share.
The Company has agreed to issue to PMG an additional 75,000 warrants (the
"Contingent Warrants") at a purchase price of $0.001 per share, at such time as
any of the other related 750,000 warrants have been exercised. The Contingent
Warrants will be exercisable for a period of five (5) years following the date
of issue, at an exercise price equal to the average closing bid price for the
Common Stock for the ten (10) trading days preceding the date of issue. The
Contingent Warrants may be redeemed by the Company, upon 30 days' notice, at a
redemption price of $0.10 per share, if the closing bid price of the Common
Stock exceeds $8.00 per share for a period of thirty consecutive trading days.
In July, 1998, the Company granted warrants to acquire 300,000 shares of
Common Stock to PMG at an exercise price of $2.00 per share in consideration for
the guarantee, by PMG, of a lease of office space in Carlsbad, California for
the Company and the raising of a bridge loan of $1,000,000. Such warrants are
exercisable at anytime until July 15, 2003. The price of the Company's Common
Stock on July 15, 1998 was $2.125. The shares underlying these warrants are
being registered pursuant to a registration statement, of which this Prospectus
forms a part.
On December 31, 1998, the Company sold to Mr. and Mrs. Richard A. Hansen an
aggregate of 100,000 shares of the Company's restricted Common Stock $1.50 per
share. The price of the Common Stock at December 30, 1998, was $2.50 per share.
Mr. Hansen is the President of PMG, one of the Company's investment bankers.
II-7
<PAGE>
OTHER TRANSACTIONS
As of May 21, 1999, the Company granted Rox Anderson, M.D. options to
acquire up to 250,000 shares of Common Stock, exercisable at $5.16 per share, of
which 100,000 are currently vested. The remainder will vest ratably over a
three-year period and, in addition, are contingent on either approval by the FDA
of a 510(k) submission by the Company or the FDA's approval of the Company's
excimer laser to be regulated as a Class II device for the treatment of
psoriasis.
ITEM 16(A)
<TABLE>
<CAPTION>
EXHIBITS
- ---------------------
<C> <S>
3.1(a) Certificate of Incorporation (6)
3.1(b) Amendment to Certificate of Incorporation dated as of
June 10, 1999 (6)
3.1(c) Amendment to Certificate of Incorporation dated as of
June 23, 1999 (6)
3.2 Bylaws(1)
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Matthias & Berg LLP*
10.1 Lease Agreement (Andover, Massachusetts)(1)
10.2 Lease Agreement (Orlando, Florida)
10.3 Lease Agreement (San Diego, California)(2)
10.4(a) Lease Agreement (Carlsbad, California) dated August 4, 1998.
(6)
10.4(b) Guarantee of Lease by PMG. (6)
10.5 Patent License Agreement between the Company and Patlex
Corporation(3)
10.6 Master Technology Agreement between the Company and Baxter
Healthcare Corporation, dated July 28, 1997(4)
10.7 License Agreement between the Company and Baxter Healthcare
Corporation, dated August 19, 1997(4)
10.8 Manufacturing Agreement between the Company and Baxter
Healthcare Corporation, dated August 19, 1997(5)
10.9 Clinical Trial Agreement between Massachusetts General
Hospital, R. Rox Anderson and Laser Photonics dated
March 17, 1998. (6)
10.10 Consulting Agreement dated as of January 21, 1998 between
Laser Photonics and Rox Anderson, M.D. (6)
10.11(a) Asset Purchase Agreement dated January 4, 1999 between the
Company and Laser Analytics, Inc. (6)
10.11(b) Amendment No. 1 to Asset Purchase Agreement. (6)
10.12 Employment Agreement with Jeffrey F. O'Donnell, dated
November 19, 1999.
10.13 Employment Agreement with Dennis M. McGrath, dated
November 24, 1999.
10.14 Employment Agreement with Michael Allen, dated January 28,
2000.
10.15 Lease between the Company and Radnor Center Associates,
dated April 1, 2000.
10.16 Approval Letter from the Food and Drug Administration, dated
January 27, 2000.
22.1 List of subsidiaries of the Company(6)
24.1 Consent of Hein + Associates LLP
24.2 Consent of Matthias & Berg LLP (included in Exhibit 5.1)*
25.1 Power of Attorney (included on signature page)
27 Financial Data Schedules
</TABLE>
II-8
<PAGE>
<TABLE>
<C> <S>
99.1 Registrant's Third Amended Plan of Reorganization(1)
99.2 Order Confirming Registrant's Third Amended Plan of
Reorganization, as modified(1)
99.3 Letter of March 22, 1995 from Coopers & Lybrand, directed to
Laser Photonics, Inc.(1)
</TABLE>
- ------------------------
* To be filed by amendment.
(1) Filed as part of the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
(2) Filed as part of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
(3) Filed as part of the Company's Annual Report on Form 10-K for the year ended
December 31, 1987.
(4) Incorporated by reference as part of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, and subject to a currently
pending request for Confidential Treatment with the Commission.
(5) The terms of this Agreement are confidential commercial information, which
the Commission has determined need not be disclosed.
(6) Previously filed with this Registration Statement.
ITEM 16(B) FINANCIAL STATEMENT SCHEDULES
The following schedules have been filed as part of this Registration
Statement.
II VALUATION AND QUALIFYING ACCOUNTS
All other schedules have been omitted because they are not required, not
applicable, or the information is otherwise set forth in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) 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; and
(iii) 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.
(2) For the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from registration any of the
securities being registered that remain unsold at the end of the Offering.
(4) To the extent that Shares registered hereunder are not issued by the
Company, then the Company shall de-register such Shares.
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<PAGE>
In addition, the undersigned Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities 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 of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
For purposes of determining any liability under the Securities 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 Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
For the purposes of determining any liability under the Securities 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.
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<PAGE>
SIGNATURES AND POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Carlsbad, California on
February 11, 2000.
<TABLE>
<S> <C> <C>
LASER PHOTONICS, INC.
By: /s/ JEFFREY F. O'DONNELL
-----------------------------------------
Jeffrey F. O'Donnell
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
<C> <S> <C>
/s/ WARWICK ALEX CHARLTON
- ------------------------------ Chairman of the Board of February 11, 2000
Warwick Alex Charlton Directors
/s/ JEFFREY F. O'DONNELL
- ------------------------------ President, Chief Executive February 11, 2000
Jeffrey F. O'Donnell Officer and Director
/s/ ALAN R. NOVAK
- ------------------------------ Director February 11, 2000
Alan R. Novak
/s/ JOHN J. MCATEE, JR.
- ------------------------------ Director February 11, 2000
John J. McAtee, Jr.
/s/ STEVEN GIRGENTI
- ------------------------------ Director February 11, 2000
Steven Girgenti
/s/ HARRY MITTELMAN
- ------------------------------ Director February 11, 2000
Harry Mittelman, M.D.
/s/ SAM NAVARRO
- ------------------------------ Director February 11, 2000
Sam Navarro
</TABLE>
II-11
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
For the year ended December 31, 1998:
Accumulated amortization--patent costs....... $ 23,965 $ 8,353 $ -- $ 32,318
========== ========== ======== ==========
Accumulated amortization--prepaid license
fee........................................ $ 41,667 $ 500,000 $ -- $ 541,667
========== ========== ======== ==========
Accumulated amortization--excess of cost over
net assets of acquired companies........... $1,342,614 $ 519,682 $ -- $1,862,296
========== ========== ======== ==========
Allowance for doubtful accounts.............. $ 75,000 $ -- $ 7,000 $ 68,000
========== ========== ======== ==========
Allowance for inventory obsolescence......... $ 819,524 $ 239,776 $ -- $1,059,300
========== ========== ======== ==========
For the year ended December 31, 1997:
Accumulated amortization--patent costs....... $ 15,612 $ 8,353 $ -- $ 23,965
========== ========== ======== ==========
Accumulated amortization--prepaid license
fee........................................ $ -- $ 41,667 $ -- $ 41,667
========== ========== ======== ==========
Accumulated amortization--excess of cost over
net assets of acquired companies........... $ 822,830 $ 519,784 $ -- $1,342,614
========== ========== ======== ==========
Allowance for doubtful accounts.............. $ 100,000 $ -- $ 25,000 $ 75,000
========== ========== ======== ==========
Allowance for inventory obsolescence......... $ 996,299 $ -- $176,775 $ 819,524
========== ========== ======== ==========
For the year ended December 31, 1996:
Accumulated amortization--patent costs....... $ 7,259 $ 8,353 $ -- $ 15,612
========== ========== ======== ==========
Accumulated amortization--excess of cost over
net assets of acquired companies........... $ 303,148 $ 519,682 $ -- $ 822,830
========== ========== ======== ==========
Accumulated amortization--reorganization
goodwill................................... $ 222,600 $1,914,425 $ -- $2,137,025
========== ========== ======== ==========
Allowance for doubtful accounts.............. $ 100,000 $ -- $ -- $ 100,000
========== ========== ======== ==========
Allowance for inventory obsolescence......... $1,477,000 -- $480,701 $ 966,299
========== ========== ======== ==========
</TABLE>
<PAGE>
WEBB INTERNATIONAL, INC.
Licensed Real Estate Broker
June 27, 1996
Mr. Steve Qualls
Laser Photonics, Inc.
12351 Research Parkway
Orlando, Florida 32826
Re: Proposal to Lease 12351 Central Florida Parkway
Dear Steve:
Effective May 13, 1996 Laser has reduced its lease area to approximately 12,610
sf.. At your request, this letter is to outline the terms for Laser Photonics
"Laser", continued occupancy of a portion of the building located at 12351
Central Florida Parkway.
AREA: +/- 12,610 sf as illustrated on the attached drawings.
TERM: Month to Month, with 60 day written notice for termination.
RENEWAL: None.
BASE NNN MONTHLY RENT:
The base rent shall be $10,000 on the first of each month,
plus state sales tax. Late rent penalty is 5%. Interest on
unpaid rent compounds daily at 0.05%.
OPERATING EXPENSE:
Laser shall pay all other expenses associated with the
property, including but not limited to the following: building
and site maintenance (except lawn), all utilities, elevator
service, and the existing fire and security monitoring system.
Laser shall maintain all mechanical systems that service the
building except, the air conditioning equipment that only
services the Hughes Training space.
The Base rent has been reduced to offset the expenses
associated the Hughes Training, Inc occupancy of the building,
including but not limited to water, sewer, and electricity.
LEASEHOLD IMPROVEMENTS: Area is leased in "as is condition".
SECURITY: Laser is to provide security as Laser requires for their space.
1
<PAGE>
PARKING: The site has approximately 129 auto parking spaces. Thirty unassigned
spaces will be allocated to Laser.
SURRENDER: Laser shall return the space in good order and condition.
SIGNAGE: Laser may be required to share a monument type sign if the Park does
not permit 2 monument signs to be placed at the entrance drive. Signage must be
approved by the Landlord.
CANCELLATION: Landlord or Laser may cancel the lease anytime upon 60 days
advance written notice.
INSURANCE: Laser will provide Liability Insurance and all insurance required by
law.
If you have any questions, please contact me.
Sincerely,
WEBB INTERNATIONAL, INC.
/s/ Daniel B. Webb
Daniel B. Webb
Vice President
2
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into and
made effective as of November 19, 1999, by and between Laser Photonics, Inc.
("Employer") and Jeffrey F. O'Donnell ("Employee").
RECITALS
WHEREAS, Employer is desirous of hiring Employee as one of its
key employees;
WHEREAS, Employee is willing to accept employment as an
employee of Employer;
WHEREAS, the parties hereto desire to set forth herein the
responsibilities of Employee and the expectations of Employer;
WHEREAS, Employee is granting Employee certain Non-qualified
Stock Options, the terms of which are incorporated herein by this reference;
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual covenants and obligations herein contained, the parties hereto agree
as follows:
AGREEMENT
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts employment with Employer, upon the terms and conditions set forth in
this Agreement.
2. TERM OF EMPLOYMENT. The employment of Employee pursuant to the terms
of this Agreement shall commence as of November 19, 1999, and shall continue
until November 18, 2002, unless sooner terminated pursuant to the provisions
hereof (the "Term").
3. DUTIES.
3.1. BASIC DUTIES. Subject to the direction and control of the
Board of Directors of Employer, Employee shall serve as the President of
Employer and shall fulfill all duties and obligations of such office.
1
<PAGE>
3.2. OTHER DUTIES OF EMPLOYEE. In addition to the foregoing,
Employee shall perform such other or different duties related to those set forth
in Paragraph 3.1 as may be assigned to him from time to time by Employer;
PROVIDED, HOWEVER, that any such additional assignment shall be at a level of
responsibility commensurate with that set forth in Paragraph 3.1.
3.3. TIME DEVOTED TO EMPLOYMENT. Employee shall devote his
full time to the business of Employer during the term of this Agreement to
fulfill his obligations hereunder.
3.4. PLACE OF PERFORMANCE OF DUTIES. The services of Employee
shall be performed at Philadelphia, Pennsylvania.
3.5 ELECTION TO BOARD OF DIRECTORS. At the first meeting of
the Board of Directors of Employer on or after the date hereof, Employee shall
be appointed a director of Employer and shall serve in that capacity until the
next annual meeting of shareholders of Employer.
4. COMPENSATION AND METHOD OF PAYMENT.
4.1 TOTAL COMPENSATION. As compensation under this Agreement,
Employer shall pay and Employee shall accept the following:
(a) For each year of this Agreement, measured from the
effective date hereof, base compensation ("Base
Salary") of Two Hundred Sixty-Five Thousand Dollars
($265,000), with such upward adjustments as may be
approved from time to time by the Board of Directors
of Employer. Such adjustments may be based on the
performance of Employee, the value of Employee to
Employer or any other factors considered relevant by
Employer.
(b) Employer shall reimburse Employee for all reasonable
travel, entertainment and other expenses incurred or
paid by Employee in connection with, or related to,
the performance of Employee's duties,
responsibilities or services under this Agreement,
upon presentation by the Employee of documentation,
expense statements, vouchers and/or such other
supporting information as Employer may request.
(c) Participation in Employer's employee fringe benefit,
health insurance, life insurance, key man insurance
and other programs in effect from time to time for
employees of Employer and its affiliates at
comparable levels of responsibility. Participation
will be in accordance with any applicable policies
adopted by Employer. Employee shall be entitled to
vacations, absences for illness, and to similar
benefits of employment, and shall be subject to such
policies and procedures as may be adopted by
Employer.
2
<PAGE>
(d) Nonqualified options to acquire up to 650,000 shares
of Employer's Common Stock at an exercise price of
$4.625 per share, subject to the terms of such
options as set forth in the Stock Option Agreement
attached hereto as Exhibit "A."
(e) Employee shall be entitled to an automobile allowance of
$1,000 per month.
4.2 PAYMENT OF COMPENSATION. Employer shall pay the
compensation provided for in Section 4 hereof as follows:
(a) Employer shall pay the base compensation in cash,
semi-monthly in twenty-four equal installments or in
accordance with Employer's payroll practices for all
its employees, but in no event less frequently than
monthly.
(b) Employer shall pay in cash the reimbursement of such
discretionary expenses provided in Section 4 hereof.
5. TERMINATION OF AGREEMENT.
5.1. BY NOTICE. This Agreement and the employment of Employee
hereunder, may be terminated by Employee or Employer upon ninety (90) days'
written notice of termination. Notwithstanding anything to the contrary herein,
in the event that Employee shall be terminated for an occurrence described in
Section 5.2(b) which shall be the subject of an effective Disability Policy,
Employee shall not be entitled to receive any further payment from Employer
other than Employer's obligation to pay regular premiums to maintain the
effectiveness of such Disability Policy following the date from which Employee
shall be entitled to receive payment under such Disability Policy.
5.2 OTHER TERMINATION BY EMPLOYER. Employer may terminate
Employee immediately for any of the reasons set forth below:
(a) For "Cause," immediately upon written notice from
Employer to the Employee. For the purpose of this Section 5.2, "Cause" for
termination shall be deemed to include only (i) the direct or indirect
competition by Employee with Employer (as hereinafter defined in Section 6; (ii)
the conviction of Employee of a felony or an act involving moral turpitude;
(iii) the drug or alcohol abuse by Employee, but only if Employee fails to seek
appropriate counseling or fails to complete a prescribed counseling program; and
(iv) the failure of Employee to comply with any material term of this Agreement
or the failure by Employee to perform his duties at a level of competency which
is normal and customary for employees in similar positions in similar types of
business after written notice of such noncompliance or nonperformance is
received by Employee and failure by Employee to comply or perform within (10)
days of the receipt of such written notice, counting as the first day of the ten
(10) day period the first business day after receipt of such notice.
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(b) Upon the Disability of the Employee. As used in
this Agreement, the term "Disability" shall mean the inability of the Employee,
due to a physical or mental disability, for a period of thirty (30) days,
whether or not consecutive, during any sixty (60) day period to perform the
normal and customary services required of Employee pursuant to this Agreement. A
determination of disability shall be made by a physician satisfactory to both
Employee and the Employer, PROVIDED THAT, if Employee and the Employer do not
agree on a physician, Employee and Employer shall each select a physician and
such two physicians together shall select a third physician, whose determination
as to disability shall be binding on the parties.
(c) Death of Employee.
5.3 OTHER TERMINATION OF EMPLOYEE. Employee may terminate this
Agreement for "Good Reason." "Good Reason" shall mean the following unless such
circumstances are fully corrected within ten (10) days after the Employee
notifies Employer in writing that he intends to terminate his employment for
Good Reason:
(i) the assignment, without the Employee's
prior written consent to another person, of Employee's primary duties that the
Employee was responsible for during the term of this Agreement, or a significant
adverse alteration in the nature or status of the Employee's employment from
those in effect during the term of this Agreement; or
(ii) any reduction by Employer in Employee's
aggregate compensation (other than as agreed to by Employee) in effect on the
date hereof or as the same may be increased after such date;
5.4 EFFECT OF TERMINATION.
(a) TERMINATION DUE TO EXPIRATION OF EMPLOYMENT
PERIOD. If Employee's employment is terminated due to the expiration of the
Term, Employer shall pay Employee the compensation (including accrued bonuses,
if any) and benefits due to Employee under Section 4 through the last day of
Employee's actual employment hereunder.
(b) TERMINATION FOR CAUSE. In the event that
Employee's employment is terminated for "Cause" pursuant to Section 5(a),
Employer shall pay Employee the compensation (not including accrued bonuses, if
any) and benefits due to Employee under Section 4 through the last day of
Employee's actual employment hereunder.
(c) OTHER TERMINATION. In the event that Employee's
employment is terminated by Employer other then under Section 5.2, Employer
shall pay Employee the compensation (including prorated bonuses, if any) and
benefits under Section 4 which would have been payable to Employee for a period
equal to the lesser of remainder of the Term or three hundred and sixty-five
(365) days. However, in the event that Employee's employment is terminated by
Employer other then under Section 5.2 or Employee terminates for Good Reason
under Section
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5.4(e), within the first twelve months from the commencement of the Term,
Employer shall pay Employee the compensation (including prorated bonuses, if
any) and benefits under Section 4 which would have been payable to Employee
for period equal to two years from the commencement date of the Term, less
all amounts actually paid to Employee by Employer from the commencement date
of the Term to the date of termination.
(d) TERMINATION FOR DEATH OF DISABILITY. If
Employee's employment is terminated by reason of death or disability pursuant to
Section 5.2(b) or (c), Employer shall pay the estate of Employee or Employee, as
the case may be, the compensation and benefits under Section 4 which would
otherwise be payable to Employee up to the end of the month in which the
termination of this Agreement for such death or disability occurred.
(e) TERMINATION FOR GOOD REASON. In the event the
Employee's employment is terminated by him for "Good Reason" pursuant to Section
5.3 Employer shall pay the Employee the compensation (including accrued bonuses,
if any) and benefits under Section 4 which would have otherwise been payable to
Employee for a period equal to the lesser of the remainder of the Term or three
hundred sixty-five (365) days.
(f) TERMINATION BY EMPLOYEE NOT FOR GOOD REASON. In
the event Employee's employment is terminated by him not for "Good Reason", as
defined in Section 5.3, Employer shall pay Employee the compensation (not
including accrued bonus, if any) and benefits due Employee under Section 4
through the last day of Employee's actual employment.
6. PROPERTY RIGHTS AND OBLIGATIONS OF EMPLOYEE.
6.1. TRADE SECRETS. For purposes of this Agreement, "trade
secrets" shall include without limitation any and all financial, cost and
pricing information and any and all information contained in any drawings,
designs, plans, proposals, customer lists, records of any kind, data, formulas,
specifications, concepts or ideas, where such information is reasonably related
to the business of Employer, has been divulged to or learned by Employee during
the term of his employment by Employer, and has not previously been publicly
released by duly authorized representatives of Employer or otherwise lawfully
entered the public domain.
6.2. PRESERVATION OF TRADE SECRETS. Employee will preserve as
confidential all trade secrets pertaining to Employer's business that have been
obtained or learned by him by reason of his employment. Employee will not,
without the prior written consent of Employer, either use for his own benefit or
purposes or disclose or permit disclosure to any third parties, either during
the term of his employment hereunder or thereafter (except as required in
fulfilling the duties of his employment), any trade secret connected with the
business of Employer.
6.3. TRADE SECRETS OF OTHERS. Employee agrees that he will not
disclose to Employer or induce Employer to use any trade secrets belonging to
any third party.
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6.4. PROPERTY OF EMPLOYER. Employee agrees that all documents,
reports, files, analyses, drawings, designs, tools, equipment, plans (including,
without limitation, marketing and sales plans), proposals, customer lists,
computer software or hardware, and similar materials that are made by him or
come into his possession by reason of and during the term of his employment with
Employer are the property of Employer and shall not be used by him in any way
adverse to Employer's interests. Employee will not allow any such documents or
things, or any copies, reproductions or summaries thereof to be delivered to or
used by any third party without the specific consent of Employer. Employee
agrees to deliver to the Board of Directors of Employer or its designee, upon
demand, and in any event upon the termination of Employee's employment, all of
such documents and things which are in Employee's possession or under his
control.
6.5 NON-COMPETITION BY EMPLOYEE.
6.5.1 GENERAL. Employee agrees during the two years following
the termination of his Employment, not to recruit, engage in passive hiring
efforts, solicit or induce any person or entity who, during such two-year
period, or within one (1) year prior to the termination of Employee's employment
with Employer, was an employee, agent, representative or sales person of
Employer or any of its affiliates ("Employer Group") to leave or cease his
employment or other relationship with Employer Group for any reason whatsoever
or hire or engage the services of such person for Employee in any business
substantially similar to or competitive with that in which Employer Group was
engaged during the Employee's employment.
6.5.2 NON-SOLICITATION OF CUSTOMERS. Employee acknowledges
that in the course of his employment, he will learn about Employer Group's
business, services, materials, programs and products and the manner in which
they are developed, marketed, served and provided. Employee knows and
acknowledges that Employer Group has invested considerable time and money in
developing its programs, agreements, offices, representatives, services,
products and marketing techniques and that they are unique and original.
Employee further acknowledges that Employer Group must keep secret all pertinent
information divulged to Employee about Employer Group business concepts, ideas,
programs, plans and processes, so as not to aid Employer Group's competitors.
Accordingly, Employer Group is entitled to the following protection, which
Employee agrees is reasonable:
Employee agrees that for a period of two (2) years following the
termination of his employment, he will not, on his own behalf or on behalf of
any person, firm, partnership, association, corporation, or other business
organization, entity or enterprise, knowingly solicit, call upon, or initiate
communication or contact with any person or entity or any representative of
any person or entity, with whom Employee had contact during his employment,
with a view to the sale or the providing of any product, equipment or service
sold or provided or under development by Employer Group during the period of
two (2) years immediately preceding the date of Employee's termination. The
restrictions set forth in this section shall apply only to persons or
entities with whom Employee had actual contact during the two (2) years prior
to termination of his employment with a view
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toward the sale or providing of any product, equipment or service sold or
provided or under development by Employer Group.
6.5.3 NON-COMPETITION. Employee acknowledges that he will be a
"high impact" person in Employer Group's business who is in possession of
selective and specialized skills, learning abilities, customer contacts, and
customer information as a result of his relationship with Employer Group and
prior experience, and agrees that Employer Group has a substantial business
interest in the covenant described below. Employee, therefore, agrees for a
period of two (2) years from the termination of his employment, not to, either
directly, whether as an employee, sole proprietor, partner shareholder, joint
venture or the like, in the same or similar capacity in which he worked for
Employer Group, compete with Employer Group in the manufacture, marketing or
sales of excimer laser technology in connection with interventional cardiology,
psoriasis or any other field in which Employer enters or considers entering
into, provided Employee has actual knowledge of such field. The territory in
which this non-competition covenant shall apply will be limited to the area
commensurate with the territory in which Employee marketed, sold or provided
products or services for Employer Group during the two years preceding
termination of Employment.
6.6 SURVIVAL PROVISIONS AND CERTAIN REMEDIES. Unless otherwise
agreed to in writing between the parties hereto, the provisions of this Section
6 shall survive the termination of this Agreement. The covenants in this Section
6 shall be construed as separate covenants and to the extent any covenant shall
be judicially unenforceable, it shall not affect the enforcement of any other
covenant. In the event Employee breaches any of the provisions of this Section
6, Employee agrees that Employer shall be entitled to injunctive relief in
addition to any other remedy to which Employer may be entitled.
7. CHANGE OF CONTROL.
(a) For the purpose of this Agreement, a "Change of Control"
shall mean:
(i) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) or the Securities
Exchange Act of 1934, and as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 45% or more of either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"), which acquisition is effected without the consent
of at least a majority in interest of the Board of Directors of Employer as of
the date hereof. Specifically excluded from this definition is the sale of
shares by Employer in any offering of its securities effectuated through any
resolution of a majority of the Board of Directors as constituted from time to
time.
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board;
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(iii) Approval by the shareholders of the Company of
(i) a complete liquidation or dissolution of the Company or (ii) the sale of
other disposition of all or substantially all of the assets of the Company.
(b) Employer and Employee hereby agree that, if Employee is in
the employ of Employer of the date on which a Change on Control occurs (the
"Change of Control Date"), Employer will continue to employ Employee and
Employee will remain in the employ of Employer for the period commencing on the
Change of Control Date and ending on the expiration of the Term, to exercise
such authority and perform such duties as are commensurate with the authority
being exercised and duties being performed by Employee immediately prior to the
Change of Control Date. If after a Change of Control, Employee is requested and,
in his role and absolute discretion consents to change his principal business
location, Employer will reimburse Employee for his relocation expenses,
including without limitation, moving expenses, temporary living and travel
expenses, temporary living and travel expenses for a time while arranging to
move his residence to the changed location, closing costs, if any, associated
with the sale of his existing residence and the purchase of a replacement
residence at the changed location, plus an additional amount representing a
gross-up of any state or federal taxes payable by Employee as a result of any
such reimbursements. If Employee shall not consent to change his business
location, Employee may continue to provide services required of him hereunder in
Philadelphia, Pennsylvania and Employer shall continue to maintain an office for
Employee at that location with the Company's office prior to the Change of
Control Date.
(c) During the remaining Term after the Change of Control
Date, Employer will continue to honor the terms of this Agreement, including
payment of the compensation set forth in Section 4 herein.
(d) If during the remaining Term on or after the Change of
Control Date (i) Employee's employment is terminated by the Company other than
for "Cause" (as defined in Section 5.2(a) hereof), or (ii) there shall have
occurred a material reduction in Employee's compensation or employment related
benefits, or a material change in Employee's status, working conditions or
management responsibilities, or a material change in the business objectives or
policies of Employer and Employee voluntarily terminates employment within sixty
(60) days of any such occurrence, or the last in a series of occurrences, the
Employee shall be entitled to receive as a severance payment, subject to the
provisions of subparagraphs (e) and (f) below, a lump-sum payment equal to 200%
of Employee's current Base Salary (the "Lump-sum Payment") in addition to any
other compensation that may be due and owing to Employee under Section 4 hereof.
(e) The amounts payable to Employee under any other
compensation arrangement maintained by the Company which became payable, after
payment of the lump-sum provided for in paragraph (d), upon or as a result of
the exercise by Employee of rights which are contingent on a Change of Control
(and would be considered a "parachute payment" under Internal Revenue Code 280G
of the Internal Revenue Code of 1986, as amended (the "Code"), shall be reduced
to the extent
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necessary so that such amounts, when added to such lump-sum, do not exceed
100% of the Employee's "base amount" as defined in Code Section
280G(b)(3)(A). Any such excess amount shall be deferred and paid in the next
tax year.
(f) In the event of a proposed Change in Control, Employer
will allow Employee to participate in all meetings and negotiations related
thereto.
8. GENERAL PROVISIONS.
8.1. NOTICES. Any notices or other communications required or
permitted to be given hereunder shall be given sufficiently only if in writing
and served personally or sent by certified mail, postage prepaid and return
receipt requested, addressed as follows:
If to Employer: Laser Photonics, Inc.
2431 Impala Drive
Carlsbad, California 92008
Fax: (760) 602-3320
If to Employee: Jeffrey F. O'Donnell
126 Rossmore Drive
Malvern, Pennsylvania 19355
Fax: (610) 304-0942
However, either party may change his/its address for purposes of this Agreement
by giving written notice of such change to the other party in accordance with
this Paragraph 7.1. Notices delivered personally shall be deemed effective as of
the day delivered and notices delivered by mail shall be deemed effective as of
three days after mailing (excluding weekends and federal holidays).
8.2. CHOICE OF LAW AND FORUM. Except as expressly provided
otherwise in this Agreement, this Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, and both parties consent
to the jurisdiction of the courts of the State of Delaware with respect thereto.
8.3. ENTIRE AGREEMENT; MODIFICATION AND WAIVER. This Agreement
supersedes any and all other agreements, whether oral or in writing, between the
parties hereto with respect to the employment of Employee by Employer and
contains all covenants and agreements between the parties relating to such
employment in any manner whatsoever. Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, oral or written,
have been made by any party, or anyone acting on behalf of any party, which are
not embodied herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding. Any modification of this
Agreement shall be effective only if it is in writing signed by the party to be
charged. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute,
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a waiver of any other provision, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding unless executed in
writing by the party making the waiver.
8.4. ASSIGNMENT. Because of the personal nature of the
services to be rendered hereunder, this Agreement may not be assigned in whole
or in part by Employee without the prior written consent of Employer. However,
subject to the foregoing limitation, this Agreement shall be binding on, and
shall inure to the benefit of, the parties hereto and their respective heirs,
legatees, executors, administrators, legal representatives, successors and
assigns.
8.5. SEVERABILITY. If for any reason whatsoever, any one or
more of the provisions of this Agreement shall be held or deemed to be
inoperative, unenforceable, or invalid as applied to any particular case or in
all cases, such circumstances shall not have the effect of rendering any such
provision inoperative, unenforceable, or invalid in any other case or of
rendering any of the other provisions of this Agreement inoperative,
unenforceable or invalid.
8.6 CORPORATE AUTHORITY. Employer represents and warrants as
of the date hereof that Employer's execution and delivery of this Agreement to
Employee and the carrying out of the provisions hereof have been duly authorized
by Employer's Board of Directors and authorized by Employer's shareholders and
further represents and warrants that neither the execution and delivery of this
Agreement, nor the compliance with the terms and provisions thereof by Employer
will result in the breach of any state regulation, administrative or court
order, nor will such compliance conflict with, or result in the breach of, any
of the terms or conditions of Employer's Certificate of Incorporation or Bylaws,
as amended, or any agreement or other instrument to which Employer is a party,
or by which Employer is or may be bound, or constitute an event of default
thereunder, or with the lapse of time or the giving of notice or both constitute
an event of default thereunder.
8.7. ATTORNEYS' FEES. In any action at law or in equity to
enforce or construe any provisions or rights under this Agreement, the
unsuccessful party or parties to such litigation, as determined by the courts
pursuant to a final judgment or decree, shall pay the successful party or
parties all costs, expenses, and reasonable attorneys' fees incurred by such
successful party or parties (including, without limitation, such costs,
expenses, and fees on any appeals), and if such successful party or parties
shall recover judgment in any such action or proceedings, such costs, expenses,
and attorneys' fees shall be included as part of such judgment.
8.8. COUNTERPARTS. This Agreement may be executed
simultaneously in one or more counterparts, each of, which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
8.9. HEADINGS AND CAPTIONS. Headings and captions are included
for purposes of convenience only and are not a part hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first written above at Carlsbad, California.
"Employer"
LASER PHOTONICS, INC.
By: /s/ Chaim Markheim
---------------------------
Chaim Markheim, Chief
Financial Officer
"Employee"
/s/ Jeffrey F. O'Donnell
---------------------------
Jeffrey F. O'Donnell
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into and made
effective as of November 24, 1999, by and between Laser Photonics, Inc.
("Employer") and Dennis M. McGrath ("Employee").
RECITALS
WHEREAS, Employer is desirous of hiring Employee as one of its key
employees;
WHEREAS, Employee is willing to accept employment as an employee of
Employer;
WHEREAS, the parties hereto desire to set forth herein the
responsibilities of Employee and the expectations of Employer;
WHEREAS, Employee is granting Employee certain non-qualified Stock
Options, the terms of which are incorporated herein by this reference;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and obligations herein contained, the parties hereto
agree as follows:
AGREEMENT
1. EMPLOYMENT. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer, upon the terms and conditions set
forth in this Agreement.
2. TERM OF EMPLOYMENT. The employment of Employee pursuant to
the terms of this Agreement shall commence as of November 24, 1999, and shall
continue until November 23, 2002, unless sooner terminated pursuant to the
provisions hereof (the "Term").
3. DUTIES.
3.1. BASIC DUTIES. Subject to the direction and control of the
Board of Directors of Employer, Employee shall serve as the Chief Financial
Officer and Vice-President of Finance and Administration of Employer and shall
fulfill all duties and obligations of such office.
3.2. OTHER DUTIES OF EMPLOYEE. In addition to the foregoing,
Employee shall perform such other or different duties related to those set forth
in Paragraph 3.1 as may be assigned to him from time to time by Employer;
PROVIDED, HOWEVER, that any such additional assignment shall be at a level of
responsibility commensurate with that set forth in Paragraph 3.1.
3.3. TIME DEVOTED TO EMPLOYMENT. Employee shall devote his
full time to the
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business of Employer during the term of this Agreement to fulfill his
obligations hereunder.
3.4. PLACE OF PERFORMANCE OF DUTIES. The services of
Employee shall be performed at Philadelphia, Pennsylvania.
4. COMPENSATION AND METHOD OF PAYMENT.
4.1 TOTAL COMPENSATION. As compensation under this
Agreement, Employer shall pay and Employee shall accept the following:
(a) For each year of this Agreement, measured from the
effective date hereof, base compensation ("Base Salary")
of Two Hundred Thousand Dollars ($200,000), with such
upward adjustments as may be approved from
time to time by the Board of Directors of Employer.
Such adjustments may be based on the performance of
Employee, the value of Employee to Employer or any
other factors considered relevant by Employer.
(b) Employer shall reimburse Employee for all reasonable
travel, entertainment and other expenses incurred or
paid by Employee in connection with, or related to,
the performance of Employee's duties,
responsibilities or services under this Agreement,
upon presentation by the Employee of documentation,
expense statements, vouchers and/or such other
supporting information as Employer may request.
(c) Participation in Employer's employee fringe benefit,
health insurance, life insurance, key man insurance
and other programs in effect from time to time for
employees of Employer and its affiliates at
comparable levels of responsibility. Participation
will be in accordance with any applicable policies
adopted by Employer. Employee shall be entitled to
vacations, absences for illness, and to similar
benefits of employment, and shall be subject to such
policies and procedures as may be adopted by
Employer.
(d) Nonqualified options to acquire up to 350,000 shares
of Employer's Common Stock at an exercise price of
$5.50 per share, subject to the terms of such options
as set forth in the Stock Option Agreement attached
hereto as Exhibit "A."
(e) Employee shall be entitled to an automobile allowance of
$1,000 per month.
4.2 PAYMENT OF COMPENSATION. Employer shall pay the
compensation provided for in Section 4 hereof as follows:
(a) Employer shall pay the base compensation in cash,
semi-monthly in twenty-four equal installments or in
accordance with Employer's payroll practices for all
its employees, but in no event less frequently than
monthly.
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(b) Employer shall pay in cash the reimbursement of such
discretionary expenses provided in Section 4 hereof.
5. TERMINATION OF AGREEMENT.
5.1. BY NOTICE. This Agreement and the employment of Employee
hereunder, may be terminated by Employee or Employer upon ninety (90) days'
written notice of termination. Notwithstanding anything to the contrary herein,
in the event that Employee shall be terminated for an occurrence described in
Section 5.2(b) which shall be the subject of an effective Disability Policy,
Employee shall not be entitled to receive any further payment from Employer
other than Employer's obligation to pay regular premiums to maintain the
effectiveness of such Disability Policy following the date from which Employee
shall be entitled to receive payment under such Disability Policy.
5.2 OTHER TERMINATION BY EMPLOYER. Employer may terminate
Employee immediately for any of the reasons set forth below:
(a) For "Cause," immediately upon written notice from
Employer to the Employee. For the purpose of this Section 5.2, "Cause"
for termination shall be deemed to include only (i) the direct or indirect
competition by Employee with Employer (as hereinafter defined in Section 6; (ii)
the conviction of Employee of a felony or an act involving moral turpitude;
(iii) the drug or alcohol abuse by Employee, but only if Employee fails to seek
appropriate counseling or fails to complete a prescribed counseling program; and
(iv) the failure of Employee to comply with any material term of this Agreement
or the failure by Employee to perform his duties at a level of competency which
is normal and customary for employees in similar positions in similar types of
business after written notice of such noncompliance or nonperformance is
received by Employee and failure by Employee to comply or perform within (10)
days of the receipt of such written notice, counting as the first day of the ten
(10) day period the first business day after receipt of such notice.
(b) Upon the Disability of the Employee. As used in this
Agreement, the term "Disability" shall mean the inability of the Employee, due
to a physical or mental disability, for a period of thirty (30) days, whether or
not consecutive, during any sixty (60) day period to perform the normal and
customary services required of Employee pursuant to this Agreement. A
determination of disability shall be made by a physician satisfactory to both
Employee and the Employer, PROVIDED THAT, if Employee and the Employer do not
agree on a physician, Employee and Employer shall each select a physician and
such two physicians together shall select a third physician, whose determination
as to disability shall be binding on the parties.
(c) Death of Employee.
5.3 OTHER TERMINATION OF EMPLOYEE. Employee may terminate this
Agreement for "Good Reason." "Good Reason" shall mean the following unless such
circumstances are fully corrected within ten (10) days after the Employee
notifies Employer in writing that he intends to terminate his employment for
Good Reason:
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(i) the assignment, without the Employee's prior written
consent to another person, of Employee's primary duties that the Employee was
responsible for during the term of this Agreement, or a significant adverse
alteration in the nature or status of the Employee's employment from those in
effect during the term of this Agreement; or
(ii) any reduction by Employer in Employee's aggregate
compensation (other than as agreed to by Employee) in effect on the date
hereof or as the same may be increased after such date;
5.4 EFFECT OF TERMINATION.
(a) TERMINATION DUE TO EXPIRATION OF EMPLOYMENT
PERIOD. If Employee's employment is terminated due to the expiration of the
Term, Employer shall pay Employee the compensation (including accrued
bonuses, if any) and benefits due to Employee under Section 4 through the
last day of Employee's actual employment hereunder.
(b) TERMINATION FOR CAUSE. In the event that
Employee's employment is terminated for "Cause" pursuant to Section 5(a),
Employer shall pay Employee the compensation (not including accrued bonuses,
if any) and benefits due to Employee under Section 4 through the last day of
Employee's actual employment hereunder.
(c) OTHER TERMINATION. In the event that Employee's
employment is terminated by Employer other then under Section 5.2, Employer
shall pay Employee the compensation (including prorated bonuses, if any) and
benefits under Section 4 which would have been payable to Employee for a
period equal to the lesser of remainder of the Term or three hundred and
sixty-five (365) days. However, in the event that Employee's employment is
terminated by Employer other then under Section 5.2 or Employee terminates
for Good Reason under Section 5.4(e), within the first twelve months from the
commencement of the Term, Employer shall pay Employee the compensation
(including prorated bonuses, if any) and benefits under Section 4 which would
have been payable to Employee for period equal to two years from the
commencement date of the Term, less all amounts actually paid to Employee by
Employer from the commencement date of the Term to the date of termination.
(d) TERMINATION FOR DEATH OF DISABILITY. If
Employee's employment is terminated by reason of death or disability
pursuant to Section 5.2(b) or (c), Employer shall pay the estate of Employee
or Employee, as the case may be, the compensation and benefits under Section
4 which would otherwise be payable to Employee up to the end of the month in
which the termination of this Agreement for such death or disability occurred.
(e) TERMINATION FOR GOOD REASON. In the event
the Employee's employment is terminated by him for "Good Reason" pursuant
to Section 5.3 Employer shall pay the Employee the compensation (including
accrued bonuses, if any) and benefits under Section 4 which would have
otherwise been payable to Employee for a period equal to the lesser of the
remainder of the Term or three hundred sixty-five (365) days.
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(f) TERMINATION BY EMPLOYEE NOT FOR GOOD REASON. In
the event Employee's employment is terminated by him not for "Good Reason",
as defined in Section 5.3, Employer shall pay Employee the compensation (not
including accrued bonus, if any) and benefits due Employee under Section 4
through the last day of Employee's actual employment.
6. PROPERTY RIGHTS AND OBLIGATIONS OF EMPLOYEE.
6.1. TRADE SECRETS. For purposes of this Agreement, "trade
secrets" shall include without limitation any and all financial, cost and
pricing information and any and all information contained in any drawings,
designs, plans, proposals, customer lists, records of any kind, data, formulas,
specifications, concepts or ideas, where such information is reasonably related
to the business of Employer, has been divulged to or learned by Employee during
the term of his employment by Employer, and has not previously been publicly
released by duly authorized representatives of Employer or otherwise lawfully
entered the public domain.
6.2. PRESERVATION OF TRADE SECRETS. Employee will preserve as
confidential all trade secrets pertaining to Employer's business that have been
obtained or learned by him by reason of his employment. Employee will not,
without the prior written consent of Employer, either use for his own benefit or
purposes or disclose or permit disclosure to any third parties, either during
the term of his employment hereunder or thereafter (except as required in
fulfilling the duties of his employment), any trade secret connected with the
business of Employer.
6.3. TRADE SECRETS OF OTHERS. Employee agrees that he will not
disclose to Employer or induce Employer to use any trade secrets belonging to
any third party.
6.4. PROPERTY OF EMPLOYER. Employee agrees that all documents,
reports, files, analyses, drawings, designs, tools, equipment, plans (including,
without limitation, marketing and sales plans), proposals, customer lists,
computer software or hardware, and similar materials that are made by him or
come into his possession by reason of and during the term of his employment with
Employer are the property of Employer and shall not be used by him in any way
adverse to Employer's interests. Employee will not allow any such documents or
things, or any copies, reproductions or summaries thereof to be delivered to or
used by any third party without the specific consent of Employer. Employee
agrees to deliver to the Board of Directors of Employer or its designee, upon
demand, and in any event upon the termination of Employee's employment, all of
such documents and things which are in Employee's possession or under his
control.
6.5 NON-COMPETITION BY EMPLOYEE.
6.5.1 GENERAL. Employee agrees during the two years following
the termination of his Employment, not to recruit, engage in passive hiring
efforts, solicit or induce any person or entity who, during such two-year
period, or within one (1) year prior to the termination of Employee's employment
with Employer, was an employee, agent, representative or sales person of
Employer or any of its affiliates ("Employer Group") to leave or cease his
employment or other relationship with Employer Group for any reason whatsoever
or hire or engage the services of such person for
5
<PAGE>
Employee in any business substantially similar to or competitive with that in
which Employer Group was engaged during the Employee's employment.
6.5.2 NON-SOLICITATION OF CUSTOMERS. Employee acknowledges
that in the course of his employment, he will learn about Employer Group's
business, services, materials, programs and products and the manner in which
they are developed, marketed, served and provided. Employee knows and
acknowledges that Employer Group has invested considerable time and money in
developing its programs, agreements, offices, representatives, services,
products and marketing techniques and that they are unique and original.
Employee further acknowledges that Employer Group must keep secret all pertinent
information divulged to Employee about Employer Group business concepts, ideas,
programs, plans and processes, so as not to aid Employer Group's competitors.
Accordingly, Employer Group is entitled to the following protection, which
Employee agrees is reasonable:
Employee agrees that for a period of two (2) years following the
termination of his employment, he will not, on his own behalf or on behalf of
any person, firm, partnership, association, corporation, or other business
organization, entity or enterprise, knowingly solicit, call upon, or initiate
communication or contact with any person or entity or any representative of any
person or entity, with whom Employee had contact during his employment, with a
view to the sale or the providing of any product, equipment or service sold or
provided or under development by Employer Group during the period of two (2)
years immediately preceding the date of Employee's termination. The restrictions
set forth in this section shall apply only to persons or entities with whom
Employee had actual contact during the two (2) years prior to termination of his
employment with a view toward the sale or providing of any product, equipment or
service sold or provided or under development by Employer Group.
6.5.3 NON-COMPETITION. Employee acknowledges that he will be a
"high impact" person in Employer Group's business who is in possession of
selective and specialized skills, learning abilities, customer contacts, and
customer information as a result of his relationship with Employer Group and
prior experience, and agrees that Employer Group has a substantial business
interest in the covenant described below. Employee, therefore, agrees for a
period of two (2) years from the termination of his employment, not to, either
directly, whether as an employee, sole proprietor, partner shareholder, joint
venture or the like, in the same or similar capacity in which he worked for
Employer Group, compete with Employer Group in the manufacture, marketing or
sales of excimer laser technology in connection with interventional cardiology,
psoriasis or any other field in which Employer enters or considers entering
into, provided Employee has actual knowledge of such field. The territory in
which this non-competition covenant shall apply will be limited to the area
commensurate with the territory in which Employee marketed, sold or provided
products or services for Employer Group during the two years preceding
termination of Employment.
6.6 SURVIVAL PROVISIONS AND CERTAIN REMEDIES. Unless otherwise
agreed to in writing between the parties hereto, the provisions of this Section
6 shall survive the termination of this Agreement. The covenants in this Section
6 shall be construed as separate covenants and to the extent any covenant shall
be judicially unenforceable, it shall not affect the enforcement of any other
covenant. In the event Employee breaches any of the provisions of this Section
6, Employee agrees
6
<PAGE>
that Employer shall be entitled to injunctive relief in addition to any other
remedy to which Employer may be entitled.
7. CHANGE OF CONTROL.
(a) For the purpose of this Agreement, a "Change of Control"
shall mean:
(i) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) or the Securities
Exchange Act of 1934, and as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 45% or more of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"), which acquisition is effected
without the consent of at least a majority in interest of the Board of
Directors of Employer as of the date hereof. Specifically excluded from this
definition is the sale of shares by Employer in any offering of its
securities effectuated through any resolution of a majority of the Board of
Directors as constituted from time to time.
(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least
a majority of the Board;
(iii) Approval by the shareholders of the Company of
(i) a complete liquidation or dissolution of the Company or (ii) the sale of
other disposition of all or substantially all of the assets of the Company.
(b) Employer and Employee hereby agree that, if Employee is in
the employ of Employer of the date on which a Change on Control occurs (the
"Change of Control Date"), Employer will continue to employ Employee and
Employee will remain in the employ of Employer for the period commencing on the
Change of Control Date and ending on the expiration of the Term, to exercise
such authority and perform such duties as are commensurate with the authority
being exercised and duties being performed by Employee immediately prior to the
Change of Control Date. If after a Change of Control, Employee is requested and,
in his role and absolute discretion consents to change his principal business
location, Employer will reimburse Employee for his relocation expenses,
including without limitation, moving expenses, temporary living and travel
expenses, temporary living and travel expenses for a time while arranging to
move his residence to the changed location, closing costs, if any, associated
with the sale of his existing residence and the purchase of a replacement
residence at the changed location, plus an additional amount representing a
gross-up of any state or federal taxes payable by Employee as a result of any
such reimbursements. If Employee shall not consent to change his business
location, Employee may continue to provide services required of him hereunder in
Philadelphia, Pennsylvania and Employer shall continue to maintain an office for
Employee at that location with the Company's office prior to the Change of
Control Date.
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<PAGE>
(c) During the remaining Term after the Change of Control
Date, Employer will continue to honor the terms of this Agreement, including
payment of the compensation set forth in Section 4 herein.
(d) If during the remaining Term on or after the Change of
Control Date (i) Employee's employment is terminated by the Company other than
for "Cause" (as defined in Section 5.2(a) hereof), or (ii) there shall have
occurred a material reduction in Employee's compensation or employment related
benefits, or a material change in Employee's status, working conditions or
management responsibilities, or a material change in the business objectives or
policies of Employer and Employee voluntarily terminates employment within sixty
(60) days of any such occurrence, or the last in a series of occurrences, the
Employee shall be entitled to receive as a severance payment, subject to the
provisions of subparagraphs (e) and (f) below, a lump-sum payment equal to 200%
of Employee's current Base Salary (the "Lump-sum Payment") in addition to any
other compensation that may be due and owing to Employee under Section 4 hereof.
(e) The amounts payable to Employee under any other
compensation arrangement maintained by the Company which became payable, after
payment of the lump-sum provided for in paragraph (d), upon or as a result of
the exercise by Employee of rights which are contingent on a Change of Control
(and would be considered a "parachute payment" under Internal Revenue Code 280G
of the Internal Revenue Code of 1986, as amended (the "Code"), shall be reduced
to the extent necessary so that such amounts, when added to such lump-sum, do
not exceed 100% of the Employee's "base amount" as defined in Code Section
280G(b)(3)(A). Any such excess amount shall be deferred and paid in the next tax
year.
(f) In the event of a proposed Change in Control, Employer
will allow Employee to participate in all meetings and negotiations related
thereto.
8. GENERAL PROVISIONS.
8.1. NOTICES. Any notices or other communications required or
permitted to be given hereunder shall be given sufficiently only if in writing
and served personally or sent by certified mail, postage prepaid and return
receipt requested, addressed as follows:
If to Employer: Laser Photonics, Inc.
2431 Impala Drive
Carlsbad, California 92008
Fax: (760) 602-3320
If to Employee: Dennis M. McGrath
2 Colonial Court
Medford, NJ 08055
Fax: (609-953-9304
However, either party may change his/its address for purposes of this Agreement
by giving written notice of such change to the other party in accordance with
this Paragraph 7.1. Notices delivered
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<PAGE>
personally shall be deemed effective as of the day delivered and notices
delivered by mail shall be deemed effective as of three days after mailing
(excluding weekends and federal holidays).
8.2. CHOICE OF LAW AND FORUM. Except as expressly provided
otherwise in this Agreement, this Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, and both parties consent
to the jurisdiction of the courts of the State of Delaware with respect thereto.
8.3. ENTIRE AGREEMENT; MODIFICATION AND WAIVER. This Agreement
supersedes any and all other agreements, whether oral or in writing, between the
parties hereto with respect to the employment of Employee by Employer and
contains all covenants and agreements between the parties relating to such
employment in any manner whatsoever. Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, oral or written,
have been made by any party, or anyone acting on behalf of any party, which are
not embodied herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding. Any modification of this
Agreement shall be effective only if it is in writing signed by the party to be
charged. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
8.4. ASSIGNMENT. Because of the personal nature of the
services to be rendered hereunder, this Agreement may not be assigned in whole
or in part by Employee without the prior written consent of Employer. However,
subject to the foregoing limitation, this Agreement shall be binding on, and
shall inure to the benefit of, the parties hereto and their respective heirs,
legatees, executors, administrators, legal representatives, successors and
assigns.
8.5. SEVERABILITY. If for any reason whatsoever, any one or
more of the provisions of this Agreement shall be held or deemed to be
inoperative, unenforceable, or invalid as applied to any particular case or in
all cases, such circumstances shall not have the effect of rendering any such
provision inoperative, unenforceable, or invalid in any other case or of
rendering any of the other provisions of this Agreement inoperative,
unenforceable or invalid.
8.6 CORPORATE AUTHORITY. Employer represents and warrants as
of the date hereof that Employer's execution and delivery of this Agreement to
Employee and the carrying out of the provisions hereof have been duly authorized
by Employer's Board of Directors and authorized by Employer's shareholders and
further represents and warrants that neither the execution and delivery of this
Agreement, nor the compliance with the terms and provisions thereof by Employer
will result in the breach of any state regulation, administrative or court
order, nor will such compliance conflict with, or result in the breach of, any
of the terms or conditions of Employer's Certificate of Incorporation or Bylaws,
as amended, or any agreement or other instrument to which Employer is a party,
or by which Employer is or may be bound, or constitute an event of default
thereunder, or with the lapse of time or the giving of notice or both constitute
an event of default thereunder.
8.7. ATTORNEYS' FEES. In any action at law or in equity to
enforce or construe any provisions or rights under this Agreement, the
unsuccessful party or parties to such litigation, as
9
<PAGE>
determined by the courts pursuant to a final judgment or decree, shall pay
the successful party or parties all costs, expenses, and reasonable
attorneys' fees incurred by such successful party or parties (including,
without limitation, such costs, expenses, and fees on any appeals), and if
such successful party or parties shall recover judgment in any such action or
proceedings, such costs, expenses, and attorneys' fees shall be included as
part of such judgment.
8.8. COUNTERPARTS. This Agreement may be executed
simultaneously in one or more counterparts, each of, which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
8.9. HEADINGS AND CAPTIONS. Headings and captions are
included for purposes of convenience only and are not a part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first written above at Carlsbad, California.
"Employer"
LASER PHOTONICS, INC.
By: /s/ Chaim Markheim
----------------------------
Chaim Markheim, Chief Financial Officer
"Employee"
/s/ Dennis M. McGrath
----------------------------
Dennis M. McGrath
10
<PAGE>
EMPLOYMENT MEMORANDUM
TO: Michael Allen
FROM: Jeffrey O'Donnell, President of Laser Photonics, Inc.
RE: Terms of Employment
DATED: January 28, 2000
- -------------------------------------------------------------------------------
The purpose of the memorandum (the "Memorandum") is to set forth and
memorializes the terms of your employment with Laser Photonics, Inc. a Delaware
corporation (the "Company").
<TABLE>
<S> <C>
POSITION
AND DUTIES: Vice President - Sales and Marketing. In addition to the foregoing,
Employee shall perform such other or different duties as may be
assigned to him from time to time by Employer. Employee shall devote
his full time to the business of Employer during the term of this
Agreement. The services of Employee shall be performed at
Philadelphia, Pennsylvania.
TERM: Employment at Will. Terminable at any time by either party without
prior notice.
COMPENSATION: $140,000 per year, payable in accordance with normal Company
practices. Employer shall reimburse Employee for all reasonable
travel, entertainment and other expenses incurred or paid by Employee
in connection with, or related to, the performance of Employee's
duties, responsibilities or services, upon presentation by the
Employee of documentation, expense statements, vouchers and/or such
other supporting information as Employer may request. The form and
amount of compensation is adjustable by mutual agreement between
Employee and the Company into incentive based compensation after the
Company receives regulatory approval from the United State Food and
Drug Administration for the introduction of the Company's psoriasis
product.
BENEFITS: Participation in Employer's employee fringe benefit, health
insurance, life insurance, key man insurance and other programs in
effect from time to
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
time for employees of Employer and its affiliates at comparable
levels of responsibility. Participation will be in accordance with
any applicable policies adopted by Employer. Employee shall be
entitled to vacations, absences for illness, and to similar
benefits of employment, and shall be subject to such policies and
procedures as may be adopted by Employer. In connection therewith,
this Memorandum incorporates the terms and conditions of Employer's
Employee Manual.
AUTOMOBILE
ALLOWANCE: $500.00 per month
EMPLOYEE
STOCK OPTIONS: 150,000 options, issued pursuant to a stock option agreement, a copy
of which is attached hereto as Exhibit "A."
CONFIDENTIALITY AND
NON-COMPETITION: Pursuant to Agreement for Confidentiality and Non-Competition
attached hereto as Exhibit "B."
GENERAL PROVISIONS: Any notices or other communications required or permitted
to be given shall be given sufficiently only if in writing
and served personally or sent by certified mail, postage
prepaid and return receipt requested, addressed as follows:
If to Employer: Laser Photonics, Inc.
2431 Impala Drive
Carlsbad, California 92008
Fax: (760) 602-3320
If to Employee: Michael Allen
----------------------------
----------------------------
Fax: ( ) -
--- --- ---------
However, either party may change his/its address for purposes of
this Agreement by giving written notice of such change to the other
party.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
This Agreement supersedes any and all other agreements, whether
oral or in writing, between the parties hereto with respect to the
employment of Employee by Employer and contains all covenants and
agreements between the parties relating to such employment in any
manner whatsoever. Each party to this Agreement acknowledges that
no representations, inducements, promises, or agreements, oral or
written, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this Agreement
shall be valid or binding.
This Agreement may not be assigned in whole or in part by Employee
without the prior written consent of Employer.
Employer represents and warrants as of the date hereof that
Employer's execution and delivery of this Agreement to Employee and
the carrying out of the provisions hereof have been duly authorized
by Employer's Board of Directors.
</TABLE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first written above at Carlsbad, California.
"Employer"
LASER PHOTONICS, INC.
By: /s/ Jeffrey O'Donnell
-----------------------------
Jeffrey O'Donnell
Chief Executive Officer
"Employee"
/s/ Michael Allen
----------------------------------
Michael Allen
3
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===============================================================================
RADNOR CORPORATE CENTER OFFICE LEASE
BETWEEN
RADNOR CENTER ASSOCIATES
(a Pennsylvania limited partnership)
AS LANDLORD
-AND-
LASER PHOTONICS, INC.
(a Delaware corporation)
AS TENANT
==============================
DATED: _________, 2000
PREMISES:
1,852 RENTABLE SQUARE FEET
4TH FLOOR - SUITE 470
FIVE RADNOR CORPORATE CENTER
RADNOR, PENNSYLVANIA 19087
===============================================================================
<PAGE>
RADNOR CORPORATE CENTER
OFFICE LEASE
THIS OFFICE LEASE (the "Lease") is made this _____ day of
______________, 2000, by and between RADNOR CENTER ASSOCIATES, a Pennsylvania
limited partnership (hereinafter called "Landlord"), and LASER PHOTONICS, INC.,
a Delaware corporation (hereinafter called "Tenant").
1. DEMISED PREMISES; USE.
1.1. LETTING AND DEMISED PREMISES; USE. Landlord, for the term
and subject to the provisions and conditions hereof, leases to Tenant, and
Tenant rents from Landlord, the space (hereinafter referred to as the "Demised
Premises" and more particularly delineated on the floor plan attached hereto as
Exhibit "A" and made a part hereof) being, for purposes of the provisions hereof
1,852 rentable square feet, located on the 4th floor of the office building
(hereinafter referred to as the "Building") known as Building No. Five of Radnor
Corporate Center, or such other name as Landlord may from time to time
designate, with an address of 100 Matsonford Road, Radnor Township, Delaware
County, Pennsylvania 19087, located as shown on the Site Plan attached hereto as
Exhibit "B", to be used by Tenant only for general office purposes and
associated incidental uses and for no other purpose without the prior written
consent of Landlord.
1.2. CORPORATE CENTER. Radnor Corporate Center consists of
approximately 57.021 acres of ground and certain buildings and other
improvements thereon (including five separate office buildings, of which the
Building is one, and related amenities), all located at or about Matsonford Road
and King of Prussia Road, in Radnor Township, Delaware County, Pennsylvania (the
"Corporate Center"). Landlord reserves the right, in its sole discretion, at any
time and from time to time, to expand and/or reduce the amount of ground and/or
improvements of which the Corporate Center consists.
1.3. COMMON FACILITIES. Tenant and its agents, employees and
invitees, shall have the right to use, in common with all others granted such
rights by Landlord, in a proper and lawful manner, the common sidewalks, access
roads, parking areas and other outdoor areas within the Corporate Center, the
common entranceways, lobbies and elevators furnishing access to the Demised
Premises, and (if the Demised Premises includes less than a full floor) the
common lobbies, hallways and toilet rooms on the floor on which the Demised
Premises is located. Such use shall be subject to the terms of this Lease and to
such reasonable rules, regulations, limitations and requirements as Landlord may
from time to time prescribe with respect thereto, including, without limitation,
the reservation of any particular parking spaces or parking areas for the
exclusive use of other tenants of the Corporate Center.
1.4. RENTABLE SQUARE FEET. Tenant understands, acknowledges
and agrees (i) that the amount of rentable square feet set forth in Paragraph
1.1 above is calculated based on certain assumptions, and (ii) that such amount
of rentable square feet is hereby accepted by Tenant for all
<PAGE>
purposes of this Lease, including, without limitation, for purposes of
determining minimum rent, Tenant's Proportionate Share of applicable items of
Taxes and Operating Expenses, Tenant's construction allowance, if any, and
other items which are based upon the computation of square footage.
2. TERM; COMMENCEMENT.
2.1. DURATION. The term of this Lease shall commence (the
"Commencement Date") on April 1, 2000; or, if Landlord is responsible as
hereinafter provided for the completion of work in the Demised Premises and for
the completion of Tenant's fit-out work and other leasehold improvements
therein, then the Commencement Date shall be the earlier of the following: (i)
the later of (x) April 1, 2000, or (y) the date of "Substantial Completion", as
defined below, of the Demised Premises, or (ii) the date on which Tenant shall
take possession of the Demised Premises or any part thereof, or (iii) the date
on which Tenant could have taken possession of the Demised Premises had Tenant
not delayed in its obligations to furnish Landlord plans and other drawings
pursuant to Exhibit "F" attached hereto or otherwise caused a delay in the
Substantial Completion of the Demised Premises. Unless extended or sooner
terminated as herein provided, the initial term of this Lease shall continue
until, and shall expire on, the expiration of sixty (60) months following the
Commencement Date, or if the Commencement Date is a date other than the first
day of a month, then on the expiration of sixty (60) months from the first day
of the month following the month in which the Commencement Date occurs.
2.2. SUBSTANTIAL COMPLETION. The term "Substantial Completion"
shall mean that state of completion of the Demised Premises which will, except
for any improvements or work to be performed by Tenant, allow Tenant to utilize
the Demised Premises for their intended purposes (including the availability of
required utility services) without material interference to the customary
business activities of Tenant by reason of the completion of Landlord's work,
all as more fully described in Paragraph 17 below and Exhibit "F" attached
hereto. The Demised Premises shall be deemed substantially complete even though
minor or insubstantial details of construction, mechanical adjustment or
decoration remain to be performed, the noncompletion of which does not
materially interfere with Tenant's use of the Demised Premises or the conduct of
its business therein.
2.3. CONFIRMATION. When the Commencement Date of the term of
this Lease is established, Landlord and Tenant shall promptly execute and
acknowledge a Confirmation of Lease Term, in the form set forth in Exhibit "C"
hereto, containing the information set forth in Exhibit "C" and acknowledging
the Commencement Date and expiration date of the term hereof.
2.4. ACCEPTANCE OF WORK. On the Commencement Date of the term
of this Lease, it shall be presumed that all work theretofore performed by or on
behalf of Landlord was satisfactorily performed in accordance with, and meeting
the requirements of, this Lease. The foregoing presumption shall not apply,
however, (i) to required work not actually completed by Landlord and identified
and described in a written punch-list to be jointly prepared and initialed by
Landlord and Tenant at or about the date on which Tenant shall occupy the
Demised Premises; or (ii) to deficiencies or inadequacies in the work which
Tenant brings to Landlord's attention in writing, with
2
<PAGE>
specificity, on or before the Commencement Date or within ten (10) business
days thereafter (and all of the work so identified and described on the
punch-list or as timely brought to Landlord's attention as aforesaid which is
Landlord's responsibility shall be completed by Landlord with reasonable
speed and diligence).
3. MINIMUM RENT; INCREASES IN MINIMUM RENT; SECURITY DEPOSIT.
3.1. AMOUNT AND PAYMENT. Minimum rent for the Demised
Premises shall accrue during the term as follows:
<TABLE>
<CAPTION>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
LEASE PERIOD ANNUAL RENT PER RENTABLE ANNUAL MINIMUM RENT MONTHLY MINIMUM RENT
SQUARE FOOT
- ------------------------------ ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
Commencement Date - End of $32.00 $59,264.04 $4,938.67
the Twelfth Full Calendar
Month following the
Commencement Date
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Month 13-24 $33.00 $61,116.00 $5,093.00
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Month 25-36 $34.00 $62,967.96 $5,247.33
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Month 37-48 $35.00 $64,820.04 $5,401.67
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Month 49-60 $36.00 $66,672.00 $5,556.00
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
Minimum rent shall be payable during the term hereof, in advance, in the monthly
installments as set forth above, the first installment to be payable upon the
execution of this Lease and subsequent installments to be payable on the first
day of each successive month of the term hereof following the first month of
such term.
3.2. PARTIAL MONTH. If the term of this Lease begins on a day
other than the first day of a month, rent from such day until the first day of
the following month shall be prorated (at the rate of one-thirtieth (1/30) of
the fixed monthly rental for each day) and shall be payable, in arrears, on the
first day of the first full calendar month of the term hereof (and, in such
event, the installment of rent paid at execution hereof shall be applied to the
rent due for the first full calendar month of the term hereof).
3.3. ADDRESS FOR PAYMENT. All rent and other sums due to
Landlord hereunder shall be payable to Radnor Center Associates, c/o The
Rubenstein Company, L.P., 4100 One Commerce Square, 2005 Market Street,
Philadelphia, Pennsylvania 19103, or to such other party or at such other
address as Landlord may designate, from time to time, by written notice to
Tenant.
3.4. NON-WAIVER OF RIGHTS. If Landlord, at any time or times,
shall accept rent
3
<PAGE>
or any other sum due to it hereunder after the same shall become due and
payable, such acceptance shall not excuse delay upon subsequent occasions, or
constitute, or be construed as, a waiver of any of Landlord's rights
hereunder.
3.5. ADDITIONAL SUMS DUE; NO SET-OFF. All sums payable by
Tenant under this Lease, whether or not stated to be rent, minimum rent or
additional rent, shall be collectible by Landlord as rent, and upon default in
payment thereof Landlord shall have the same rights and remedies as for failure
to pay rent (without prejudice to any other right or remedy available therefor).
All minimum rent, additional rent and other sums payable by Tenant under this
Lease shall be paid, when due, without demand, offset, abatement, diminution or
reduction. Additional rent shall include all sums which may become due by reason
of Tenant's failure to comply with any of the terms, conditions and covenants of
the Lease to be kept and observed by Tenant and any and all damages, costs and
expenses (including without limitation thereto reasonable attorney fees) which
Landlord may suffer or incur by reason of any default of Tenant.
3.6. PERSONAL PROPERTY AND OTHER TAXES. As additional rent,
Tenant shall pay monthly or otherwise when due, whether collected by Landlord or
collected directly by the governmental agency assessing the same, any taxes
imposed or calculated on Tenant's rent or with respect to Tenant's use or
occupancy of the Demised Premises or Tenant's business or right to do business
in the Demised Premises, including, without limitation, a gross receipts tax or
sales tax on rents or a business privilege tax or use or occupancy tax, whether
such tax exists at the date of this Lease or is adopted hereafter during the
term of this Lease or during any renewal or extension thereof; but nothing
herein shall be taken to require Tenant to pay any income, estate, inheritance
or franchise tax imposed upon Landlord. In addition to the foregoing, Tenant
shall be responsible to pay when due all taxes imposed upon all personal
property of Tenant.
3.7. SECURITY DEPOSIT. As additional security for the full and
prompt performance by Tenant of the terms and covenants of this Lease, Tenant
has deposited with the Landlord the sum of Thirty Two Thousand One Hundred One
and 00/100 Dollars ($32,101.00), (the "Security Deposit") which shall not
constitute rent for any month (unless so applied by Landlord on account of
Tenant's default). Tenant shall, upon demand, restore any portion of the
Security Deposit which may be applied by Landlord to the cure of any default by
Tenant hereunder. To the extent that Landlord has not applied the Security
Deposit on account of a default, upon notice from Tenant, Eleven Thousand One
Hundred Twelve and 00/100 Dollars ($11,112.00) of the Security Deposit shall be
applied against minimum rent for months 59 and 60 and the remaining Security
Deposit shall be returned (without interest) to Tenant promptly after the
expiration of this Lease. Until returned to Tenant after the expiration of the
Lease and the full performance of Tenant hereunder, the Security Deposit shall
remain the property of Landlord.
4. INCREASES IN TAXES AND OPERATING EXPENSES.
4.1. DEFINITIONS. As used in this Paragraph 4, the
following terms shall be defined as hereinafter set forth:
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(i) "TAXES" shall mean all real estate taxes and
assessments of whatever kind, general or special, ordinary or extraordinary,
foreseen or unforeseen, imposed upon the Building or with respect to the
ownership of the Building and the Corporate Center and the parcel of land on
which the Building and the Corporate Center are located, and any existing or
future improvements to the Building or the Corporate Center or to the parcel of
land on which the Building or the Corporate Center is located, all of the
foregoing as allocable and attributable to each given calendar year which occurs
during the term of this Lease (and any renewals and extensions thereof). If, due
to a future change in the method of taxation, any franchise, income, profit or
other tax, however designated, shall be levied or imposed in addition to or in
substitution, in whole or in part, for any tax which would otherwise be included
within the definition of Taxes, such other tax shall be deemed to be included
within Taxes as defined herein. Taxes also shall include amounts paid to anyone
engaged by Landlord to contest the amount or rate of taxes, provided that the
amounts so paid do not exceed the savings procured. Tenant acknowledges that the
exclusive right to protest, contest or appeal Taxes shall be in Landlord's sole
and absolute discretion and Tenant hereby waives any or all rights now or
hereafter conferred upon it by law to independently contest or appeal any Taxes.
(ii) (1) "OPERATING EXPENSES" shall mean Landlord's
actual out-of-pocket expenses, adjusted asset forth herein and as allocable and
attributable to each given calendar year which occurs during the term of this
Lease (and any renewals and extensions thereof), in respect of the operation,
maintenance, repair, replacement and management of the Building and the
Corporate Center (after deducting any reimbursement, discount, credit, reduction
or other allowance received by Landlord) and shall include, without limitation:
(A) wages and salaries (and taxes and insurance imposed upon employers with
respect to such wages and salaries) and fringe benefits paid to persons employed
by Landlord to render services in the normal operation, maintenance, cleaning,
repair and replacement of the Building and the Corporate Center and any security
personnel for the Building and the Corporate Center, excluding any overtime
wages or salaries paid for providing extra services exclusively for any specific
tenants; (B) costs of independent contractors hired for, and other costs in
connection with, the operation, security, maintenance, cleaning, repair and
replacement of the Building and related facilities and amenities in the
Corporate Center; (C) costs of materials, supplies and equipment (including
trucks) used in connection with the operation, security, maintenance, cleaning,
repair and replacement of the Building and related facilities and amenities in
the Corporate Center; (D) costs of electricity, steam, water, sewer, fuel and
other utilities used at the Building or the Corporate Center, together with the
cost of providing the services specified in Paragraph 5 hereof, to the extent
such utilities and/or services are not separately chargeable to an occupant of
the Building or an occupant elsewhere in the Corporate Center; (E) cost of
insurance for public and general liability insurance and insurance relating to
the Building and the Corporate Center, including fire and extended coverage or
"All-Risk" coverage, if available, and coverage for elevator, boiler, sprinkler
leakage, water damage, and property damage, plate glass, personal property owned
by Landlord, fixtures, and rent protection (all with such coverages and in such
amounts as Landlord may elect or be required to carry), but excluding any charge
for increased premiums due to acts or omissions of other occupants of the
Building or elsewhere in the Corporate Center because of extra risk which are
reimbursed to Landlord by such other occupants; (F) costs of
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tools, supplies and services; (G) costs of "Essential Capital Improvements",
as defined in and to the extent permitted pursuant to subparagraph 4.1(ii)(3)
below; (H) costs of alterations and improvements to the Building or the
Corporate Center made pursuant to any Governmental Requirements (as defined
in subparagraph 4.1(iii) below) which are not capital in nature (except to
the extent permitted by subparagraph 4.1(ii)(3) below), and which are not the
obligation of Tenant or any other occupant of the Building or elsewhere in
the Corporate Center; (I) legal and accounting fees and disbursements
necessarily incurred in connection with the ownership, maintenance and
operation of the Building and the Corporate Center, and the preparation,
determination and certification of bills for Taxes and Operating Expenses
pursuant to this and other leases at the Building and the Corporate Center;
(J) sales, use or excise taxes on supplies and services and on any of the
other items included in Operating Expenses; (K) costs of redecorating,
repainting, maintaining, repairing and replacing the common areas of the
Building and the Corporate Center (including seasonal decorations); (L)
management fees payable to the managing agent for the Building and the
Corporate Center (PROVIDED, HOWEVER, that if management fees are paid to any
affiliate of Landlord, then the amount thereof to be included in Operating
Expenses shall not exceed such amount as is customarily being charged for
similar services rendered to comparable buildings in the geographical
submarket within which the Corporate Center is located); (M) the cost of
telephone service, postage, office supplies, maintenance and repair of office
equipment and similar costs related to operation of the Building's and the
Corporate Center's management and superintendent's offices; (N) the cost of
licenses, permits and similar fees and charges related to operation,
maintenance, repair and replacement of the Building and the Corporate Center,
other than any of the foregoing relating to tenant improvements; and (O)
without limiting any of the foregoing, any other expenses or charges which,
in accordance with sound accounting and management principles generally
accepted with respect to a first-class suburban office building, would be
construed as an operating expense. Operating Expenses (including such as are
stated above which relate or are applicable to the Corporate Center) shall
include, without limitation, any and all sums for landscaping, ground and
sidewalk maintenance, sanitation control, extermination, cleaning, lighting,
snow removal, parking area and driveway striping and resurfacing, fire
protection, fire safety, policing, security systems, public liability and
property damage insurance, and expenses for the upkeep, maintenance, repair,
replacement and operation of the Corporate Center, all as payable in respect
of or allocable to the Building by virtue of the ownership thereof and/or
under and pursuant to the Declaration (as hereinafter defined). The term
"Operating Expenses" shall not include: (a) the cost of redecorating or
special cleaning or similar services to individual tenant spaces, not
provided on a regular basis to other tenants of the Building; (b) wages or
salaries paid to executive personnel of Landlord not providing full-time
service at the Corporate Center; (c) the cost of any new item (not
replacement or upgrading of an existing item) which, by standard accounting
principles, should be capitalized (except as provided above or in Paragraph
4.1(ii)(3) below); (d) any charge for depreciation or interest paid or
incurred by Landlord; (e) leasing commissions, finders fees and all other
leasing expenses incurred in procuring tenants in the Building; (f) Taxes;
(g) any costs incurred in the ownership of the Building, as opposed to the
operation and maintenance of the Building, including Landlord's income taxes,
excess profit taxes, franchise taxes or similar taxes on Landlord's business;
preparation of income tax returns; corporation, partnership or other business
form organizational expenses; franchise taxes; filing fees; or other such
expenses; or any costs incurred in cleaning up any environment hazard or
condition in violation of any environmental law (except to the extent caused
by Tenant); (h) legal
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fees for the negotiation or enforcement of leases; (i) expenses in connection
with services or other benefits of a type which are not Building standard but
which are provided to another tenant or occupant; (j) any items to the extent
such items are required to be reimbursed to Landlord by Tenant (other than
through Tenant's additional rent), or by other tenants or occupants of the
Building or by third parties; (k) depreciation, except in the form of a
"sinking fund" for periodic replacement of carpeting and for periodic
repainting (both in common areas only); or interest paid on any mortgage, or
ground rents paid under land leases, except for payment of any triple-net
expenses required by such leases; (l) the cost of constructing tenant
improvements or installations for any tenant in the Building, including any
relocation costs; (m) brokerage commissions, origination fees, points,
mortgage recording taxes, title charges and other costs or fees incurred in
connection with any financing or refinancing of the Building; (n) attorneys'
fees and disbursements, incurred in connection with the leasing of space in
the Building (including without limitation the enforcement of any lease or
the surrender, termination or modification of any lease of space in the
Building); (o) advertising and promotional expenses, brochures with respect
to the Building; (p) cost of repairs or replacements occasioned by fire,
windstorm or other casualty, the costs of which are covered by insurance or
reimbursed by governmental authorities in eminent domain; (q) overhead and
profit increment paid to subsidiaries or affiliates of Landlord for services
on or to the Property, to the extent that the costs of such services exceed
market-based costs for such services rendered by unaffiliated persons or
entities of similar skill, competence and experience; (r) penalties, fines,
legal expenses, or late payment interest incurred by Landlord due to
violation by Landlord, or Landlord's agents, contractors or employees, of
either the payment terms and conditions of any lease or service contract
covering space in the Building or Landlord's obligations as owner of the
Building (such as late payment penalties and interest on real estate taxes,
late payment of utility bills); (s) any compensation paid to clerks,
attendants or other persons in any commercial concession operated by Landlord
in the Building from which Landlord receives any form of income whatsoever,
whether or not Landlord actually makes a profit from such concession; or (t)
costs incurred in connection with correcting latent defects in the Building,
or in repairing or replacing Building equipment, where such repair or
replacement results from original defects in design, manufacture or
installation rather than from ordinary wear and tear or use. If Landlord is
not furnishing any particular work or service (the cost of which, if
performed by Landlord, would constitute an Operating Expense) to a tenant who
has undertaken to perform such work or service in lieu of performance by
Landlord, Operating Expenses shall nevertheless be deemed to include the
amount Landlord would reasonably have incurred if Landlord had in fact
performed the work or service at its expense. The costs of electric
consumption and water, sewer and other utility services to the Demised
Premises (including, without limitation, for HVAC usage) are not included as
Operating Expenses of the Building and shall be paid for by Tenant separately
in accordance with Paragraph 5 of this Lease. Notwithstanding the foregoing,
in the event the Landlord now, or in the future, employs oil or gas to
partially fuel the HVAC at the Building, the cost of such oil or gas shall be
included in Operating Expenses.
(2) In determining Operating Expenses
for any year, if less than 95% of the rentable square feet of the Building shall
have been occupied by tenants at any time during such year, Operating Expenses
shall be deemed for such year to be an amount equal to the like expenses which
Landlord reasonably determines would normally be incurred had such occupancy
been 95% throughout such year. In no event shall the total of Taxes and
Operating Expenses for any
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year be deemed to be less than the Base Amount for Taxes and Operating
Expenses.
(3) In the event Landlord shall make a
capital expenditure for an "Essential Capital Improvement", as hereinafter
defined in this subsection (3), during any year, the annual amortization of such
expenditure (determined by dividing the amount of the expenditure by the useful
life of the improvement, but in no event longer than five years), plus any
reasonable interest or financing charges thereon (or, if such improvements are
funded from reserves, a reasonable sum imputed in lieu of such financing
charges), shall be deemed an Operating Expense for each year of such period. As
used herein, an "Essential Capital Improvement" means any of the following: (A)
a labor saving device, energy saving device or other installation, improvement,
upgrading or replacement which reduces or is intended to reduce Operating
Expenses as referred to above, whether or not voluntary or a Governmental
Requirement; or (B) an installation, improvement, alteration or removal of any
improvements including architectural or communication barriers which are made to
the Building by reason of any Governmental Requirement whether or not such
improvements are structural in nature and whether or not such Governmental
Requirement either existed or was required of the Landlord on the date of
execution of this Lease, if such Governmental Requirement is or will be
applicable generally to similar suburban office buildings in the vicinity of
Radnor Township; or (C) an installation or improvement which directly enhances
the safety of occupants or tenants in the Building generally, whether or not
voluntary or a Governmental Requirement (as, for example, but without
limitation, for general safety, fire safety or security).
(iii) "GOVERNMENTAL REQUIREMENTS" shall mean all
requirements under any federal, state or local statutes, rules, regulations,
ordinances, or other requirements of any duly constituted public authority
having jurisdiction over the Building (including, without limitation, the
Demised Premises) including, but not limited to, requirements under applicable
Radnor Township building, zoning and fire codes and federal, state and local
requirements and regulations governing accessibility by persons with physical
disabilities.
(iv) "BASE AMOUNT FOR TAXES AND OPERATING EXPENSES"
shall mean the total of Taxes and Operating Expenses allocable and attributable
to calendar year 2000 for the Building. The Base Amount for Operating Expenses
shall be calculated on the basis of the Building being 95% occupied in
accordance with Paragraph 4.1(ii)(2) hereof. The Base Amount for Taxes and
Operating Expenses shall be adjusted for the calendar year above stated to
adjust for average and reasonable allowances for on-going repairs and
maintenance and to exclude from the Base Amount extraordinary items of Taxes
and/or Operating Expenses incurred in such calendar year.
(v) "TENANT'S PROPORTIONATE SHARE" shall be one and
1,253\10,000 percent (1.1253%). This is equal to the ratio of the rentable
square feet of the Demised Premises, as set forth above, to the total rentable
square feet of space in the Building, which is 164,577 rentable square feet.
(vi) "TENANT'S SHARE OF TAXES AND OPERATING EXPENSES"
shall mean, with respect to any calendar year, the product of (A) Tenant's
Proportionate Share, multiplied by, (B) the amount, if any, by which the total
of Taxes and Operating Expenses for such calendar year exceeds
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the Base Amount for Taxes and Operating Expenses.
(vii) "TENANT'S ESTIMATED SHARE" shall mean, with
respect to any calendar year, the product of (A) Tenant's Proportionate Share,
multiplied by (B) the amount, if any, by which Landlord's good faith estimate of
the total of Taxes and Operating Expenses for such calendar year exceeds the
Base Amount for Taxes and Operating Expenses.
(viii) "DECLARATION" shall mean the Declaration of
Radnor Corporate Center Covenants, Restrictions and Easements, together with all
existing or future amendments, addenda and supplements thereto, executed by
Landlord (or Landlord's predecessor in title to the Corporate Center) and placed
of record, submitting the Corporate Center or portion thereof to a system of
reciprocal easements, restrictions, benefits and burdens for the use and
maintenance thereof by owners and tenants, and to which all such owners and
tenants shall be subject.
4.2. GENERAL ALLOCATION PROCEDURES. Landlord and Tenant
acknowledge the following:
(i) To the extent practicable and known
exactly, all Taxes and Operating Expenses will be accounted for and attributed
separately for the Building and for the four other office buildings which
presently comprise the Corporate Center (the "Other Corporate Center
Buildings"). To the extent allocations of an item of Taxes or Operating Expenses
in accordance with the foregoing sentence is not practicable and known exactly,
allocations will be made between and among the Building and the Other Corporate
Center Buildings proportionately among all thereof (based upon the respective
square footage of each), or equally among all thereof, or in such other
proportions as may reasonably be determined by Landlord in the exercise of
prudent management practices.
(ii) Notwithstanding the foregoing, and to the extent
deemed reasonable by Landlord, all common area and other charges under and as
permitted by the Declaration will be charged and allocated among the Building,
the Other Corporate Center Buildings, and any other building, facility or
property subject to the Declaration, all in accordance with the terms and
provisions of the Declaration.
4.3. TENANT'S SHARE OF TAXES AND OPERATING EXPENSES.
(i) For and with respect to each calendar year which
occurs during the term of this Lease (and any
renewals or extensions thereof) there shall accrue, as additional rent, Tenant's
Share of Taxes and Operating Expenses, appropriately prorated for any partial
calendar year occurring within the term.
(ii) Landlord shall furnish to Tenant, on or
before December 31 of each calendar year during the term hereof, a statement for
the next succeeding calendar year setting forth Tenant's Estimated Share and the
information on which such estimate is based. On the first day of the new
calendar year, Tenant shall pay to Landlord, on account of Tenant's Estimated
Share, an amount equal to one-twelfth (1/12) of Tenant's Estimated Share, and on
the first day of each succeeding
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month up to and including the time that Tenant shall receive a new statement
of Tenant's Estimated Share, Tenant shall pay to Landlord, on account of
Tenant's Estimated Share, an amount equal to one-twelfth (1/12) of the then
applicable Tenant's Estimated Share.
(iii) Landlord shall furnish to Tenant, on or
before April 30 of each calendar year during the term hereof, a statement (the
"Expense Statement") prepared by Landlord or its agent or accountants setting
forth for the previous calendar year: (A) the actual amount of Taxes and
Operating Expenses for the previous calendar year; (B) the Base Amount for Taxes
and Operating Expenses; (C) the Tenant's Proportionate Share; (D) the Tenant's
Share of Taxes and Operating Expenses; (E) the Tenant's Estimated Share; and (F)
a statement of the amount due to Landlord, or to be credited to Tenant, as a
final adjustment in respect of Tenant's Share of Taxes and Operating Expenses
for the previous calendar year (the "Final Adjustment Amount"). The Final
Adjustment Amount shall be calculated by subtracting the Tenant's Estimated
Share from the Tenant's Share of Taxes and Operating Expenses. On the first day
of the first calendar month (but in no event sooner than ten [10] days)
following delivery of the Expense Statement to Tenant, Tenant shall pay to
Landlord the Final Adjustment Amount calculated as set forth in the Expense
Statement. If the Final Adjustment Amount is a negative quantity, then Landlord
shall credit Tenant with the amount thereof against the next payment of minimum
rent due by Tenant hereunder, except that with respect to the last year of the
Lease, if an Event of Default has not occurred, Landlord shall refund Tenant the
amount of such payment in respect of the Final Expense Adjustment within thirty
(30) days after Landlord provides the Expense Statement for such final year of
the Lease. In no event, however, shall Tenant be entitled to receive a credit
greater than the payments made by Tenant as payments of Tenant's Estimated Share
for the calendar year to which the Final Adjustment Amount relates.
4.4 DISPUTES. The information set forth on all statements
furnished to Tenant pursuant to this Paragraph 4, including each Expense
Statement, and all documents relating to Tenant's Estimated Share, Tenant's
Share of Taxes and Operating Expenses, the Final Adjustment Amount, and all
supportive documentation and calculations, shall be deemed approved by Tenant
unless, within thirty (30) days after submission to Tenant, Tenant shall notify
Landlord in writing that it disputes the correctness thereof, specifying in
detail the basis for such assertion. Pending the resolution of any dispute,
however, Tenant shall continue to make payments in accordance with the statement
or information as furnished.
4.5. SURVIVAL. Notwithstanding anything herein contained to
the contrary, Tenant understands and agrees that additional rent for increases
of Taxes and Operating Expenses described in this Paragraph 4 are attributable
to and owing for a specific twelve (12) month period, and are generally
determined in arrears. Accordingly, Tenant agrees that, at any time following
the expiration of the term of this Lease, or after default by Tenant with
respect to this Lease, Landlord may bill Tenant for (i) the entire amount of
accrued and uncollected additional rent attributable to increases in Taxes and
Operating Expenses under this Paragraph 4, and (ii) any unpaid charges for
usage, services or other amounts with respect to any period during the term of
this Lease; and the amount of such bill shall be due and payable to Landlord
within ten (10) business days after rendering thereof.
5. SERVICES. Landlord agrees that during the term of the Lease,
Landlord shall provide
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services as set forth in this Paragraph 5.
5.1. HVAC AND ELECTRICITY . Landlord shall furnish (a) heat,
ventilation and air conditioning (including the labor, maintenance and equipment
necessary to provide the same), (b) electricity and other utilities needed to
operate such systems and (c) electricity for lighting and general power for
office use, each of the foregoing to be paid for by Tenant as follows:
(i) STANDARD USAGE; BUSINESS HOURS. Tenant
shall pay its pro rata share (based upon Tenant's Proportionate Share, but
subject to the last sentence of this subparagraph) of the cost to the Building
(including applicable sales or use taxes) for the foregoing services during
"Business Hours" (as hereinafter defined) and for "Building Standard
Consumption" (as hereinafter defined). Such payment shall be made by Tenant
within ten (10) days after submission by Landlord of a statement to Tenant
setting forth the amount due. "Business Hours" shall mean Monday through Friday
from 8:00 a.m. to 6:00 p.m. and on Saturday from 8:00 a.m. to 1:00 p.m.,
Holidays (defined below) excepted. New Year's Day, Memorial Day, Independence
Day, Labor Day, Thanksgiving, Christmas, or any day set aside to celebrate such
holidays are "Holidays" under this Lease. "Building Standard Consumption" shall
mean the consumption necessary, in Landlord's reasonable judgement, for use and
comfortable occupancy of the Demised Premises when occupied by the density of
people for which the building standard system was designed with occupants using
Standard Office Equipment. "Standard Office Equipment" shall mean all office
equipment normally found in an office facility but shall not include "main
frame" computer and communication systems, telephone switches and conference or
training rooms (or items similar thereto) which require Additional Electric
Equipment, as hereinafter defined in Paragraph 5.1(v) below, or additional air
conditioning service or systems. In determining Tenant's pro rata share for the
foregoing services for any period, the cost for the foregoing services shall be
deemed for such period to be an amount equal to the like expenses which Landlord
reasonably determines would normally be incurred had the Building been fully
occupied throughout such period.
(ii) NON-STANDARD USAGE; AFTER-HOURS. Tenant shall
pay the cost of supplying the Demised Premises with the foregoing services at
times outside of Business Hours or in amounts in excess of Building Standard
Consumption, at such rates as Landlord shall specify from time to time to cover
all of the estimated costs and expenses incurred by Landlord in connection with
supplying the Demised Premises with such service, including without limitation
the costs of labor and utilities associated with such service and including
applicable sales or use taxes thereon, such amounts to be paid by Tenant within
ten (10) days after submission by Landlord of a statement to Tenant setting
forth the amount due. With respect to heat, ventilation and air conditioning
required by Tenant outside of Business Hours, Tenant shall notify Landlord by
12:00 noon on the day such after-hours use is desired, except if such use is
desired for a weekend, in which event Tenant shall notify Landlord no later than
12:00 noon on the Friday immediately preceding such weekend.
(iii) SEPARATE METERING; SURVEY. Landlord
reserves the right, at Tenant's sole cost, to determine Tenant's charge for
electrical usage by separate meter or electrical engineering survey. At any time
after the installation of separate metering for the Demised Premises (or any
part thereof), or the completion of such survey, Landlord shall furnish to
Tenant a statement setting forth the amount due for Tenant's electric usage (or
the part thereof that is so metered or subject to such
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survey), and the total amount set forth in such statement shall be due and
payable by Tenant within ten (10) days after submission to Tenant by Landlord
of such statement. In such case, Tenant shall pay for such consumption based
upon the average KWH rate paid by Landlord.
(iv) SYSTEM FAILURE. Landlord shall not be
responsible for any failure or inadequacy of the air conditioning system if such
failure or inadequacy results from the occupancy of the Demised Premises by
persons in excess of the density anticipated or for which the system was
designed, or if Tenant uses the Demised Premises in a manner for which it was
not designed, or if Tenant installs or operates machines, appliances or
equipment which exceed the maximum wattage per square foot contemplated by, or
generate more heat than anticipated in, the design of the Demised Premises (as
such design standards may be set forth in Exhibit "F" attached hereto or
otherwise established by Landlord if not so set forth).
(v) ADDITIONAL ELECTRICAL EQUIPMENT. Tenant
will not install or use electrically-operated equipment in excess of the design
capacity of the Demised Premises (as such design standards may be set forth in
Exhibit "F" attached hereto or otherwise established by Landlord if not so set
forth) and Tenant will not install or operate in the Demised Premises any
electrically-operated equipment or machinery other than that commonly used in a
normal office operation without first obtaining the prior written consent of the
Landlord. Landlord may condition any consent required under this Paragraph
5.1(v) upon the installation of separate meters (and transformers or electrical
panels) for such equipment or machinery at Tenant's expense and the payment by
Tenant of additional rent as compensation for the additional consumption of
electricity occasioned by the operation of such additional equipment or
machinery, at the rates and in the manner set forth in Paragraph 5.1(ii) or
(iii) above. Landlord shall replace, when and as requested by Tenant (the cost
of which replacement light bulbs and tubes, and ballasts, plus the labor cost
for such replacement, to be chargeable to Tenant) light bulbs and tubes, and
ballasts, within the Demised Premises which are Building standard (but at
Landlord's option such undertaking of Landlord shall not include bulbs or tubes
for any non-Building standard lighting, high hats, or other specialty lighting
of Tenant, which shall be and remain the responsibility of Tenant).
(vi) REGULATORY COMPLIANCE. The furnishing of the
foregoing heating, ventilation, air conditioning and electricity services shall
be subject to any statute, ordinance, rule, regulation, resolution or
recommendation for energy conservation which may be promulgated by any
governmental agency or organization which Landlord shall be required to comply
with or which Landlord determines in good faith to comply with.
5.2. WATER AND SEWER. Furnish the Building with water (i) for
drinking, lavatory, toilet and sanitary sewer purposes drawn through fixtures
installed by Landlord, (ii) necessary for the operation of the Building's fire
safety devices, and (iii) if required by the Building's HVAC system, necessary
for the operation of such system. The cost of usage of such services
attributable to the Demised Premises shall be paid for by Tenant pursuant to a
statement furnished by Landlord to Tenant setting forth the amount due as a
result of such usage attributable to the Demised Premises, and the total amount
set forth in such statement shall be due and payable by Tenant within ten (10)
days after submission thereto by Landlord of such statement.
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5.3. ELEVATOR; ACCESS. Provide passenger elevator service to
the Demised Premises during all working days (Saturday, Sunday and Holidays
excepted) from 8:00 a.m. to 6:00 p.m., with one elevator subject to call at all
other times. Tenant and its employees and agents shall have access to the
Demised Premises at all times, subject to compliance with such security measures
as shall be in effect for the Building. Elevator services for freight shall be
supplied in common with service to other tenants and for other Building
requirements at reasonable times during Business Hours for routine deliveries in
the ordinary course of Tenant's business. Unusual or unusually large deliveries
requiring use of the freight elevators shall be scheduled in advance with
Landlord so as not to interfere with the operations of the Building or other
tenants. Freight elevator service outside of Business Hours shall be provided to
Tenant upon reasonable written advance notice, at charges equal to Landlord's
estimated cost for providing such service from time to time, which shall be
payable by Tenant to Landlord not later than ten (10) days after Landlord's bill
therefor.
5.4. JANITORIAL. Provide janitorial service to the Demised
Premises as specified on Exhibit "D" annexed hereto. Any and all additional or
specialized janitorial or trash removal service desired by Tenant (i) shall be
contracted for by Tenant directly with Landlord's janitorial agent and the cost
and payment thereof shall be and remain the sole responsibility of Tenant, or
(ii) at the option of Landlord, shall be contracted for by Landlord and paid for
by Tenant to Landlord within ten (10) days after the submission by Landlord of a
statement to Tenant setting forth the amount due. If Landlord shall from time to
time reasonably determine that the use of any cleaning service in the Demised
Premises, including without limitation, removal of refuse and rubbish from the
Demised Premises, is in an amount greater than usually attendant upon the use of
such Demised Premises as offices, the reasonable cost of such additional
cleaning services shall be paid by Tenant to Landlord as additional rent, on
demand.
5.5. SECURITY. Landlord provides a security card or code type
access system at the main entrance to the Building for Tenant's convenience.
Tenant and Tenant's employees, as well as other tenants of the Building, will
have access to the Building using such access system. Landlord makes no
representation that the access system or any future system employed at the
Building to monitor access to the Building outside of standard business hours
will prevent unauthorized access to the Building or the Demised Premises, and
Tenant acknowledges that no security guards are provided by Landlord.
Accordingly, Tenant agrees that Tenant shall be responsible for security of the
Demised Premises and the security and safety of Tenant's employees, invitees,
officers, directors, contractors, subcontractors and agents. In furtherance of
the foregoing, Landlord assumes no liability or responsibility for Tenant's
personal property whether such are located in the Demised Premises or elsewhere
in the Building or the Corporate Center. Tenant further acknowledges that
Landlord may (but shall have no obligation to) alter current security measures
in the Building, and Tenant agrees that it shall cooperate fully, and shall
cause its employees and invitees to cooperate fully, with any requests of
Landlord in connection with the implementation of any new security procedures or
other arrangements.
5.6. REPAIRS. Make (i) all structural repairs to the Building,
(ii) all repairs to the exterior windows and glass and all repairs to the common
areas of the Building and (iii) all repairs which may be needed to the
mechanical, electrical and plumbing systems in the Demised Premises,
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excluding repairs to (or replacement of) any non-building standard fixtures
or other improvements in the Demised Premises installed by Tenant or made by
or at the request of Tenant and requiring unusual or special maintenance. In
the event that any repair is required by reason of the negligence or abuse of
Tenant or its agents, employees, invitees or of any other person using the
Demised Premises with Tenant's consent, express or implied, Landlord may make
such repair and add the cost thereof to the first installment of rent which
will thereafter become due, unless Landlord shall have actually recovered
such cost through insurance proceeds.
5.7. SYSTEM CHANGES. Tenant shall not install any equipment of
any kind or nature whatsoever which would or might necessitate any changes,
replacement or additions to the water, plumbing, heating, air conditioning or
the electrical systems servicing the Demised Premises or any other portion of
the Building; nor install any plumbing fixtures in the Demised Premises; nor use
in excess of normal office use any of the utilities, the common areas of the
Building, the janitorial or trash removal services, or any other services or
portions of the Building without the prior written consent of the Landlord, and
in the event such consent is granted, the cost of any such installation,
replacements, changes, additions or excessive use shall be paid for by Tenant,
in advance in the case of any installations replacements and additions, and
promptly upon being billed therefor in the case of charges in excessive use.
5.8. DIRECTORY. Landlord shall maintain a directory of office
tenants in the lobby area of the Building, on which shall be listed the name of
Tenant. In the event Landlord permits Tenant to add more names to the directory
(which Landlord may grant or deny in its sole discretion), Tenant shall pay the
actual cost of lobby directory signage over an allowance of one (1) directory
space per Tenant.
5.9. OVERHEAD FEE. Notwithstanding anything to the contrary
contained in this Paragraph 5, Landlord reserves the right to impose a
reasonable administrative overhead charge whenever Landlord provides or arranges
for additional or above standard services.
5.10. LIMITATION REGARDING SERVICES. It is understood that
Landlord does not warrant that any of the services referred to in this Paragraph
5 will be free from interruption from causes beyond the control of Landlord.
Landlord reserves the right, without any liability to Tenant, and without being
in breach of any covenant of this Lease, to interrupt or suspend service of any
of the heating, ventilating, air-conditioning, electric, sanitary, elevator or
other Building systems serving the Demised Premises, or the providing of any of
the other services required of Landlord under this Lease, whenever and for so
long as may be necessary by reason of accidents, emergencies, strikes or the
making of repairs or changes which Landlord is required by this Lease or by law
to make or in good faith deems advisable, or by reason of difficulty in securing
proper supplies of fuel, steam, water, electricity, labor or supplies, or by
reason of any other cause beyond Landlord's reasonable control, including
without limitation, mechanical failure and governmental restrictions on the use
of materials or the use of any of the Building systems. In each instance,
however, Landlord shall exercise commercially reasonable diligence to eliminate
the cause of interruption and to effect restoration of service, and shall give
Tenant reasonable notice, when practicable, of the commencement and anticipated
duration of such interruption. Tenant shall not be entitled to any diminution or
abatement of rent or other compensation nor shall this Lease or any of the
obligations
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of the Tenant be affected or reduced by reason of the interruption, stoppage
or suspension of any of the Building systems or services arising out of the
causes set forth in this Paragraph.
6. CARE OF DEMISED PREMISES. Tenant agrees, on behalf of itself, its
employees and agents, that during the term of this Lease, Tenant shall comply
with the covenants and conditions set forth in this Paragraph 6.
6.1. INSURANCE AND GOVERNMENTAL REQUIREMENTS. At all times
during the term of this Lease and any extension or renewal hereof, Tenant, at
its cost, shall comply with, and shall promptly correct any violations of, (i)
all requirements of any insurance underwriters, or (ii) any Governmental
Requirements relating to Tenant's use and occupancy of the Demised Premises.
Tenant shall indemnify, defend and hold Landlord harmless from and against any
and all loss, damages, claims of third parties, cost of correction, expenses
(including attorney's fees and cost of suit or administrative proceedings) or
fines arising out of or in connection with Tenant's failure to comply with
Governmental Requirements. The provisions of this Paragraph 6.1 shall survive
the expiration or termination of this Lease.
6.2. ACCESS. Tenant shall give Landlord, its agents and
employees, access to the Demised Premises at all reasonable times, and at any
time in the case of an emergency, without charge or diminution of rent, to
enable Landlord (i) to examine the same and to make such repairs, additions and
alterations as Landlord may be permitted to make hereunder or as Landlord may
deem advisable for the preservation of the integrity, safety and good order of
the Building or any part thereof; and (ii) upon reasonable notice, to show the
Demised Premises to prospective mortgagees and purchasers and to prospective
tenants. If representatives of Tenant shall not be present on the Demised
Premises to permit entry upon the Demised Premises by Landlord or its agents or
employees, at any time when such entry by Landlord is necessary or permitted
hereunder, Landlord may enter the Demised Premises by means of a master key (or,
in the event of any emergency, forcibly) without any liability whatsoever to
Tenant and without such entry constituting an eviction of Tenant or a
termination of this Lease. Landlord shall not be liable by reason of any injury
to or interference with Tenant or Tenant's business arising from the making of
any repairs, alterations, additions or improvements in or to the Demised
Premises or the Building or to any appurtenance or any equipment therein.
6.3. CONDITION. Tenant shall keep the Demised Premises and all
improvements, installations and systems therein in good order and condition and
repair all damage to the Demised Premises and replace all interior glass broken
by Tenant, its agents, employees or invitees, with glass of the same quality as
that broken, except for glass broken by fire and extended coverage type risks,
and Tenant shall commit no waste in the Demised Premises. If the Tenant refuses
or neglects to make such repairs, or fails to diligently prosecute the same to
completion, after written notice from Landlord of the need therefor, Landlord
may make such repairs at the expense of Tenant and such expense shall be
collectible as additional rent. Any such repairs and any labor performed or
materials furnished in, on or about the Demised Premises shall be performed and
furnished by Tenant in strict compliance with all applicable laws, regulations,
ordinances and requirements of all duly constituted authorities or governmental
bodies having jurisdiction over the Building, and any reasonable regulations
imposed by Landlord pertaining thereto. Without limitation of the foregoing,
Landlord
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shall have the right to designate any and all contractors and suppliers to
furnish materials and labor for such repairs.
6.4. SURRENDER. Upon the termination of this Lease in any
manner whatsoever, Tenant shall remove Tenant's goods and effects and those of
any other person claiming under Tenant, and quit and deliver up the Demised
Premises to Landlord peaceably and quietly in as good order and condition as at
the inception of the term of this Lease or as the same hereafter may be improved
by Landlord or Tenant, reasonable use and wear thereof, damage from fire and
other insured casualty and repairs which are Landlord's obligation excepted.
Goods and effects not removed by Tenant at the termination of this Lease,
however terminated, shall be considered abandoned and Landlord may dispose of
and/or store the same as it deems expedient, the cost thereof to be charged to
Tenant.
6.5. SIGNS. Tenant shall not place signs on or about any part
of the Building, or on the outside of the Demised Premises or on the exterior
doors, windows or walls of the Demised Premises, except on doors and then only
of a type and with lettering and text approved by Landlord.
6.6. CARE; INSURANCE. Tenant shall not overload, damage or
deface the Demised Premises or do any act which might make void or voidable any
insurance on the Demised Premises or the Building or which may render an
increased or extra premium payable for insurance (and without prejudice to any
right or remedy of Landlord regarding this subparagraph, Landlord shall have the
right to collect from Tenant, upon demand, any such increase or extra premium).
6.7. ALTERATIONS; ADDITIONS. Tenant shall not make any
alteration of or addition to the Demised Premises without the prior written
approval of Landlord (except for work of a decorative nature). Such approval
shall not be unreasonably withheld for nonstructural interior alteration,
provided that (i) no Building systems, structure, or areas outside of the
Demised Premises are affected by such proposed alteration, and (ii) reasonably
detailed plans and specifications for construction of the work, including but
not limited to any and all alterations having any impact on or affecting any
electrical systems, plumbing, HVAC, sprinkler system and interior walls and
partitions, are furnished to Landlord in advance of commencement of any work.
All such alterations and additions, as well as all fixtures, equipment,
improvements and appurtenances installed in and affixed to the Demised Premises
at the inception of this Lease term (but excluding Tenant's trade fixtures and
modular furniture systems) shall, upon installation, become and remain the
property of Landlord. All such alterations and additions shall be maintained by
Tenant in the same manner and order as Tenant is required to maintain the
Demised Premises generally and, upon termination of the term hereof (and as long
as Landlord has so notified Tenant at the time the approval for such alterations
is given by Landlord), shall be removed at Tenant's cost without damage to the
Demised Premises upon surrender. All alterations and additions by Tenant shall
be performed in accordance with the plans and specifications therefor submitted
to and approved by Landlord, in a good and workerlike manner and in conformity
with all Governmental Requirements. In addition, all such alterations and
additions shall be performed in strict compliance with the requirements
governing work by Tenant's contractors as set forth in Exhibit "F" hereto.
6.8. MECHANICS' LIENS. Tenant, within ten (10) days after
notice from Landlord,
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(i) shall discharge (by bonding or otherwise) any mechanics' lien for
material or labor claimed to have been furnished to the Demised Premises on
Tenant's behalf (except for work contracted for by Landlord), (ii) shall
deliver to Landlord satisfactory evidence thereof, and (iii) shall indemnify
and hold harmless Landlord from any loss incurred in connection therewith.
6.9. VENDING MACHINES. Tenant shall not install or authorize
the installation of any coin-operated vending machines within the Demised
Premises, except machines for the purpose of dispensing coffee, snack foods and
similar items to the employees and business visitors of Tenant for consumption
upon the Demised Premises, the installation and continued maintenance and repair
of which shall be at the sole cost and expense of Tenant.
6.10. RULES AND REGULATIONS. Tenant shall observe the rules
and regulations annexed hereto as Exhibit "E", as the same may from time to time
be amended by Landlord for the general safety, comfort and convenience of
Landlord, occupants and tenants of the Building.
6.11. ENVIRONMENTAL COMPLIANCE. Tenant shall not transport,
use, store, maintain, generate, manufacture, handle, dispose, release or
discharge any "Waste" (as defined below) upon or about the Building, or permit
Tenant's employees, agents, contractors, and other occupants of the Demised
Premises to engage in such activities upon or about the Building or the Demised
Premises. However, the foregoing provisions shall not prohibit the
transportation to and from, and use, storage, maintenance and handling within,
the Demised Premises of substances customarily used in offices (or such other
business or activity expressly permitted to be undertaken in the Demised
Premises pursuant to the terms of this Lease), provided: (a) such substance
shall be used and maintained only in such quantities as are reasonably necessary
for such permitted use of the Demised Premises, strictly in accordance with
applicable Governmental Requirements and the manufacturers' instructions
therefor, (b) such substances shall not be disposed of, released or discharged
in the Building, and shall be transported to and from the Demised Premises in
compliance with all applicable Governmental Requirements, and as Landlord shall
reasonably require, (c) if any applicable Governmental Requirement or Landlord's
trash removal contractor requires that any such substances be disposed of
separately from ordinary trash, Tenant shall make arrangements at Tenant's
expense for such disposal directly with a qualified and licensed disposal
company at a lawful disposal site (subject to scheduling and approval by
Landlord), and shall ensure that disposal occurs frequently enough to prevent
unnecessary storage of such substances in the Demised Premises, and (d) any
remaining such substances shall be completely, properly and lawfully removed
from the Building upon expiration or earlier termination of this Lease.
(i) Tenant shall promptly notify Landlord of:
(a) any enforcement, cleanup or other regulatory action taken or threatened by
any governmental or regulatory authority with respect to the presence of any
Waste on the Demised Premises or the migration thereof from or to the Building,
(b) any demands or claims made or threatened by any party against Tenant or the
Demised Premises relating to any loss or injury resulting from any Waste, (c)
any release, discharge or nonroutine, improper or unlawful disposal or
transportation of any Waste on or from the Demised Premises, and (d) any matters
where Tenant is required by any Governmental Requirement to give a notice to any
governmental or regulatory authority respecting any Waste on the Demised
Premises.
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Landlord shall have the right (but not the obligation) to join and
participate as a party in any legal proceedings or actions affecting the
Demised Premises initiated in connection with any environmental, health or
safety Governmental Requirement. At such times as Landlord may reasonably
request, Tenant shall provide Landlord with a written list identifying any
Waste then used, stored, or maintained upon the Demised Premises and the use
and approximate quantity of each such material. Tenant shall also furnish
Landlord with a copy of any material safety data sheet ("MSDS") issued by the
manufacturer therefor as well as any written information concerning the
removal, transportation and disposal of the same, and such other information
as Landlord may reasonably require or as may be required by Governmental
Requirement. The term "Waste" for purposes hereof shall mean any hazardous or
radioactive material, polychlorinated biphenyls, friable asbestos or other
hazardous or medical waste substances as defined by the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, or by any
other federal, state or local law, statute, rule, regulation or order
(including any Governmental Requirements) concerning environmental matters,
or any matter which would trigger any employee or community "right-to-know"
requirements adopted by any such body, or for which any such body has adopted
any requirements for the preparation or distribution of a MSDS.
(ii) If any Waste is released, discharged or disposed
of by Tenant or any other occupant of the Demised Premises, or their employees,
agents or contractors, in or about the Building in violation of the foregoing
provisions, Tenant shall immediately, properly and in compliance with applicable
Governmental Requirements clean up and remove the Waste from the Building and
clean or replace any affected property at the Building (whether or not owned by
Landlord), at Tenant's expense. Such clean up and removal work shall be subject
to Landlord's prior written approval (except in emergencies), and shall include,
without limitation, any testing, investigation, and the preparation and
implementation of any remedial action plan required by any governmental body
having jurisdiction or reasonably required by Landlord. If Tenant shall fail to
comply with the provisions of this Paragraph within five (5) days after written
notice by Landlord, or such shorter time as may be required by any Governmental
Requirement or in order to minimize any hazard to any person or property,
Landlord may (but shall not be obligated to) arrange for such compliance
directly or as Tenant's agent through contractors or other parties selected by
Landlord, at Tenant's expense (without limiting Landlord's other remedies under
this Lease or applicable Governmental Requirement). If any Waste is released,
discharged or disposed of on or about the Building and such release, discharge,
or disposal is not caused by Tenant or other occupants of the Demised Premises,
or their employees, agents or contractors, such release, discharge or disposal
shall be deemed casualty damage under Paragraph 8 to the extent that the Demised
Premises or common areas serving the Demised Premises are affected thereby; in
such case, Landlord and Tenant shall have the obligations and rights respecting
such casualty damage provided under Paragraph 8.
7. SUBLETTING AND ASSIGNING.
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7.1. GENERAL RESTRICTIONS. Tenant shall not assign this Lease
or sublet all or any portion of the Demised Premises (either a sublease or an
assignment hereinafter referred to as a "Transfer") without first obtaining
Landlord's prior written consent thereto, which shall not be unreasonably
withheld, conditioned or delayed. By way of example and without limitation, the
parties agree it shall be reasonable for Landlord to withhold consent: (1) if
the financial condition of the proposed transferee is not at least equal, in
Landlord's reasonable determination, to the financial condition (as of the date
of this Lease) of the Tenant named herein; (2) if the proposed use within the
Demised Premises conflicts with the use provision set forth herein or is
incompatible, inconsistent, or unacceptable with the character, use and image of
the Building or the tenancy at the Building in Landlord's reasonable opinion, or
conflicts with exclusive use rights granted to another tenant of the Building;
(3) if the business reputation and experience of the proposed transferee is not
sufficient, in Landlord's reasonable opinion, for it to operate a business of
the type and quality permitted under this Lease; (4) if the document creating
the Transfer is not reasonably acceptable to Landlord; (5) the nature of the
fixtures and improvements to be performed or installed are not consistent with
general office use and the terms of this Lease; (6) if the proposed transferee
is an existing tenant of Landlord (except if Landlord has no other available
space) or is currently negotiating or has negotiated within the prior twelve
(12) months with Landlord for other space in the Building; (7) if the proposed
user is a governmental or quasi-governmental agency; (8) if the proposed
transferee will be using or if Landlord has reasonable cause to believe that it
is likely to use Waste at the Demised Premises other than those types of Waste
normally used in general office operations in compliance with applicable
Governmental Requirements; (9) if Landlord has reasonable cause to believe that
the proposed transferee's assets, business or inventory would be subject to
seizure or forfeiture under any laws related to criminal or illegal activity; or
(10) if a proposed sublet involves more than twenty percent (20%) of the Demised
Premises (or, if such proposed sublet would result in more than twenty percent
(20%) of the Demised Premises, in the aggregate, being subject to one or more
subleases). If Landlord consents to a Transfer, such consent, if given, will not
release Tenant from its obligations hereunder and will not be deemed a consent
to any further Transfer. Tenant shall furnish to Landlord, in connection with
any request for such consent, reasonably detailed information as to the identity
and business history of the proposed assignee or subtenant, as well as the
proposed effective date of the Transfer and, prior to the execution thereof, a
complete set of the final documentation governing such Transfer, all of which
shall be satisfactory to Landlord in form and substance. If Landlord consents to
any such Transfer, the effectiveness thereof shall nevertheless be conditioned
on the following: (i) receipt by Landlord of a fully executed copy of the full
documentation governing the Transfer, in the form and substance approved by
Landlord, (ii) any sublessee shall acknowledge that its rights arise through and
are limited by the Lease, and shall agree to comply with the Lease (with such
exceptions as may be consented to by Landlord), and (iii) any assignee shall
assume in writing all obligations of Tenant hereunder from and after the
effective date of such Transfer. Tenant shall not advertise or otherwise
disseminate any information regarding the Building or the Demised Premises
(including, without limitation, rental rates or other terms upon which Tenant
intends to Transfer) to potential assignees and/or subtenants without in each
instance obtaining Landlord's prior written approval and consent as to the
specific form and content of any such advertisement, statement, offering or
other information (including, without limitation, approval of rental rates and
terms). Landlord's acceptance of any name for listing on the Building Directory
will not be deemed, nor will it substitute for, Landlord's consent, as required
by this Lease, to any Transfer, or other occupancy
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of the Demised Premises. Tenant shall not mortgage or encumber this Lease.
7.2. DEFINITIONS. For purposes hereof, a Transfer shall
include any direct or indirect transfer, in any single or related series of
transactions, of (i) fifty percent (50%) or more of the voting stock of a
corporate Tenant; (ii) fifty percent (50%) or more of the interests in profits
of a partnership or limited liability company Tenant; or (iii) effective voting
or managerial control of Tenant; PROVIDED, HOWEVER, that the foregoing shall not
apply to a tenant a majority of whose ownership interests are publicly-traded on
a nationally-recognized exchange.
7.3. PROCEDURE FOR APPROVAL OF TRANSFER. If Tenant wishes to
request Landlord's consent to a Transfer, Tenant shall submit such request to
Landlord, in writing, together with reasonably detailed financial information
and information as to the identity and business information and business history
of the proposed transferee, as well as the proposed effective date of the
Transfer and the area or portion of the Demised Premises which Tenant wishes to
Transfer (the "Transfer Space"). If Landlord fails to respond or request
additional information from Tenant within sixty (60) days after receipt of
Tenant's proper request for approval, Tenant shall submit an additional request
to Landlord, setting forth the same information and further notifying Landlord
on such request, on a covering letter in all capital letters and bold-face type,
that Landlord's failure to respond or request additional information from Tenant
within an additional ten (10) business days shall be deemed an approval (such
notice is hereinafter referred to as an "Automatic Approval Notice"). If
Landlord fails to respond or request additional information from Tenant within
such additional ten (10) business days, such failure to so respond shall be
deemed a consent to the Transfer. If Landlord requests additional information,
Landlord shall respond within the later of (i) ten (10) business days after
receipt of all requested information, or (ii) the expiration of the sixty (60)
day period set forth above; and Landlord's failure to do so shall be deemed a
consent to the Transfer so long as such additional information shall include (on
a covering letter in all capital letters and in bold-face type) an Automatic
Approval Notice. If Landlord consents to any such Transfer, such consent shall
be given on Landlord's form of consent (which consent shall include, among other
things, an acknowledgment by the transferee that its rights arise through and
are limited by the Lease, that the transferee agrees to comply with the Lease
(with such exceptions as may be consented to by Landlord), and a written
acknowledgment by Tenant evidencing that Tenant is not released from its
obligations under this Lease), which consent document shall be executed by
Tenant and the transferee of Tenant. It shall nevertheless be a condition to the
deemed effectiveness thereof that Landlord be furnished with a fully executed
copy of the full documentation governing the Transfer, in the form and substance
approved by Landlord, and that Tenant shall pay Landlord's expenses in
connection with the proposed Transfer. It shall not be unreasonable for Landlord
to object to Transfer document provisions which, INTER ALIA, attempt to make
Landlord a party to the Transfer document or impose any obligation on Landlord
to the subtenant.
7.4. RECAPTURE. Upon receipt of Tenant's request for consent
to a proposed Transfer, Landlord may elect to recapture the Transfer Space.
Landlord's election to recapture must be in writing and delivered to Tenant
within thirty (30) days of Landlord's receipt of Tenant's request for permission
to Transfer all or a portion of the Demised Premises. Landlord's recapture shall
be effective (the "Effective Date") on a date selected by Landlord, which date
shall be (i) on or before
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the date which is thirty (30) days after the proposed effective date of the
Transfer, as specifically set forth in Tenant's written request to Landlord
for consent to a proposed Transfer, or (ii) if Tenant's written request to
Landlord for consent to a proposed Transfer does not contain a proposed
effective date, then on or before the date which is thirty (30) days after
Landlord's election to recapture the Transfer Space; and with respect to the
Transfer Space, this Lease shall be terminated and Tenant shall be released
under this Lease, subject to any continuing liabilities or obligations of
Tenant which remain delinquent or uncured with respect to the period prior to
the Effective Date.
7.5. CONDITIONS. In the event Landlord consents to a Transfer
of all or any portion of the Demised Premises, Landlord may condition its
consent, INTER ALIA, on agreement by Tenant and its assignee and/or sublessee,
as the case may be, that fifty (50%) percent of any rental payable under such
Transfer arrangement which exceeds the amount of rental payable hereunder be
payable to Landlord (after deduction by Tenant for the reasonable and necessary
costs associated with such Transfer amortized over the remaining term of the
Lease) as consideration of the granting of such consent. Nothing herein shall,
however, be deemed to be a consent by Landlord of any Transfer or a waiver of
Landlord's right not to consent to any Transfer. Any purported Transfer not in
accordance with the terms hereof shall at Landlord's option, to be exercised at
any time after Landlord becomes aware of any such purported Transfer, be void,
and may at Landlord's option be treated as an event of default hereunder.
7.6. SPECIAL CONDITIONS FOR TRANSFERS TO AFFILIATES OF TENANT.
Notwithstanding anything to the contrary set forth above, Tenant shall be
permitted without Landlord's prior written consent, and subject to the terms of
this subparagraph 7.6, to Transfer all or a portion of the Demised Premises to
an "Affiliate" of Tenant. For purposes of this subparagraph, Affiliate shall
mean; (i) a corporation which owns fifty percent (50%) of the outstanding common
stock of Tenant, or (ii) a corporation which has fifty percent (50%) of its
common stock owned by Tenant, or (iii) a partnership which owns fifty percent
(50%) of the common stock of Tenant, or (iv) a partnership which has fifty
percent (50%) or more of its interest in partnership profits owned by Tenant, or
(v) an entity which is the surviving entity in a merger pursuant to state
corporation or partnership law with the Tenant. The effectiveness of such
Transfer to an Affiliate of Tenant shall nevertheless be conditioned on the
following: (a) Landlord receiving a fully executed copy of the full
documentation governing the Transfer, in the form and substance approved by
Landlord, and (b) such sublessee shall acknowledge that its rights arise through
and are limited by the Lease, and shall agree to comply with the Lease (with
such exceptions as may be consented to by Landlord), and (c) a written
acknowledgment by Tenant evidencing that Tenant is not released from its
obligations under this Lease.
7.7. NO RELEASE. Notwithstanding any assignment of this Lease
or subletting of all or part of the Demised Premises, whether or not Landlord's
consent is required and/or obtained, the tenant specifically named in the
introductory paragraph of this Lease shall remain fully liable under all of the
terms and provisions of this Lease.
8. FIRE OR OTHER CASUALTY. In case of damage to the Demised Premises or
those portions of the Building providing access or essential services thereto,
by fire or other casualty,
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Landlord shall, at its expense, cause the damage to be repaired to a
condition as nearly as practicable to that existing prior to the damage, with
reasonable speed and diligence, subject to delays which may arise by reason
of adjustment of loss under insurance policies, Governmental Regulations, and
for delays beyond the control of Landlord, including a "force majeure" (as
defined below). Landlord shall not, however, be obligated to repair, restore,
or rebuild any of Tenant's property or any alterations or additions made by
Tenant. Landlord shall not be liable for any inconvenience or annoyance to
Tenant, or Tenant's visitors, or injury to Tenant's business resulting in any
way from such damage or the repair thereof except, to the extent and for the
time that the Demised Premises are thereby rendered untenantable, the rent
shall proportionately abate. In the event the damage shall involve the
Building generally and shall be so extensive that Landlord shall decide, at
its sole discretion, not to repair or rebuild the Building, or if the
casualty shall not be of a type insured against under standard fire policies
with extended type coverage, or if the holder of any mortgage, deed of trust
or similar security interest covering the Building shall not permit the
application of adequate insurance proceeds for repair or restoration, this
Lease shall, at the sole option of Landlord, exercisable by written notice to
Tenant given within sixty (60) days after Landlord is notified of the
casualty and to the extent thereof, be terminated as of a date specified in
such notice (which shall not be more than ninety [90] days thereafter), and
the rent (taking into account any abatement as aforesaid) shall be adjusted
to the termination date and Tenant shall thereupon promptly vacate the
Demised Premises.
9. REGARDING INSURANCE AND LIABILITY.
9.1. DAMAGE IN GENERAL. Tenant agrees that Landlord and its
Building manager and their respective partners, officers, employees and agents
shall not be liable to Tenant, and Tenant hereby releases such parties, for any
personal injury or damage to or loss of personal property in the Demised
Premises from any cause whatsoever unless such damage, loss or injury is the
result of the gross negligence or willful misconduct of Landlord, its Building
manager, or their partners, officers, employees or agents, and Landlord and its
Building manager and their partners, officers or employees shall not be liable
to Tenant for any such damage or loss whether or not the result of their gross
negligence or willful misconduct to the extent Tenant is compensated therefor by
Tenant's insurance or would have been compensated therefor under commonly
available commercial policies, and Landlord shall in no event be liable to
Tenant for any consequential damages.
9.2. INDEMNITY.
(a) Tenant shall defend, indemnify and save harmless Landlord
and its agents and employees against and from all liabilities, obligations,
damages, penalties, claims, costs, charges and expenses, including reasonable
attorneys' fees, which may be imposed upon or incurred by or asserted against
Landlord and/or its agents or employees by reason of any of the following which
shall occur during the term of this Lease, or during any period of time prior to
the Commencement Date hereof or after the expiration date hereof when Tenant may
have been given access to or possession of all or any part of the Demised
Premises:
(i) any work or act done in, on or about the
Demised Premises or any part thereof at the direction of Tenant, its agents,
contractors, subcontractors, servants, employees,
22
<PAGE>
licensees or invitees, except if such work or act is done or performed by
Landlord or its agents or employees;
(ii) any negligence or other wrongful act or
omission on the part of Tenant or any of its agents, contractors,
subcontractors, servants, employees, subtenants, licensees or invitees;
(iii) any accident, injury or damage to any person or
property occurring in, on or about the Demised Premises or any part thereof,
unless caused by the gross negligence or willful misconduct of Landlord, its
employees or agents; and
(iv) any failure on the part of Tenant to perform or
comply with any of the covenants, agreements, terms, provisions, conditions or
limitations contained in this Lease on its part to be performed or complied
with.
(b) Landlord shall defend, indemnify and save harmless Tenant
and its agents and employees against and from all liabilities, obligations,
damages, penalties, claims, costs, charges and expenses, including reasonable
attorneys' fees, which may be imposed upon or incurred by or asserted against
Tenant and/or its agents or employees by reason of any of the following which
shall occur during the term of this Lease:
(i) any negligence or other intentional wrongful
act on the part of Landlord or any of its agents, contractors, subcontractors,
servants, employees, subtenants, licensees or invitees; and
(ii) any accident, injury or damage to any person or
property occurring in an area in the Building under the exclusive custody and
control of Landlord, unless caused by the gross negligence or willful misconduct
of Tenant, its employees or agents;
provided, however, that Landlord shall not be liable for and shall not indemnify
and protect Tenant with respect to any losses associated with Tenant's lost
business opportunities, lost profits, business losses or any consequential
damages. The foregoing indemnity by Landlord shall only apply to liabilities,
obligations, damages, penalties, claims, costs, charges and expenses, including
reasonable attorneys' fees, to the extent the same are not covered by the
insurance Tenant is required to carry hereunder (and, if Tenant fails in any
respect to secure and maintain the insurance required hereunder, only to the
extent the same would not have been covered if Tenant had secured and maintained
the insurance required hereunder).
9.3. TENANT'S INSURANCE. At all times during the term hereof,
Tenant shall maintain in full force and effect with respect to the Demised
Premises and Tenant's use thereof, comprehensive public liability insurance,
naming Landlord and Landlord's agent (and such other parties as Landlord may
request) as additional insureds, covering injury to persons in amounts at least
equal to $2,000,000.00 per occurrence and $2,000,000.00 general aggregate. Each
such policy shall provide that it shall not be cancelable without at least
thirty (30) days prior written notice to Landlord and to any mortgagee named in
an endorsement thereto and shall be issued by an insurer and in a form
23
<PAGE>
satisfactory to Landlord. Tenant shall lodge with Landlord duplicate
originals or certificates of such insurance, in a form acceptable to
Landlord, at or prior to the commencement date of the term hereof, together
with evidence of paid-up premiums, and shall lodge with Landlord renewals
thereof at least fifteen (15) days prior to expiration. In addition to the
foregoing, Tenant shall also be responsible, at Tenant's own cost, to keep
and maintain (i) insurance in respect of and covering Tenant's own furniture,
furnishings, equipment and other personal property, all insured for the
replacement cost thereof, against all risks and hazards, including but not
limited to sprinkler and leakage damage, and theft, and (ii) workers'
compensation insurance with respect to and covering all employees of Tenant.
Tenant shall also carry, at Tenant's own cost and expense, such other
insurance, in amounts and for coverages and on such other terms as Landlord
may from time to time deem commercially reasonable and appropriate. Tenant
assumes all risk of loss of any or all of its personal property.
9.4. WAIVER OF SUBROGATION. Each party hereto hereby waives
any and every claim which arises or which may arise in its favor and against the
other party hereto during the term of this Lease or any extension or renewal
thereof for any and all loss of, or damage to, any of its property located
within or upon or constituting a part of the Building, to the extent that such
loss or damage is recovered under an insurance policy or policies and to the
extent such policy or policies contain provisions permitting such waiver of
claims. Each party shall cause its insurers to issue policies containing such
provisions.
9.5. LIMITATION ON PERSONAL LIABILITY. Anything in this Lease,
either expressed or implied, to the contrary notwithstanding, Tenant
acknowledges and agrees that each of the covenants, undertakings and agreements
herein made on the part of Landlord, while in form purporting to be covenants,
undertakings and agreements of Landlord, are, nevertheless, made and intended
not as personal covenants, undertakings and agreements of Landlord, or for the
purpose of binding Landlord personally or the assets of Landlord, except
Landlord's interest in the Building; and that no personal liability or personal
responsibility is assumed by, nor shall at any time be asserted or enforceable
against Landlord, any partner of Landlord, any parent or subsidiary of Landlord
or any parent, subsidiary or partner of any partner of Landlord, or any of their
respective heirs, personal representatives, successors and assigns, or officers
or employees on account of this Lease or on account of any covenant, undertaking
or agreement of Landlord in this Lease contained, all such personal liability
and personal responsibility, if any, being expressly waived and released by
Tenant.
9.6. SUCCESSORS IN INTEREST TO LANDLORD, MORTGAGEES. The term
"Landlord" as used in this Lease means the fee owner of the Building, or, if
different, the party holding and exercising the right, as against all others
(except space tenants of the Building) to possession of the entire Building.
Landlord as above-named represents that it is the holder of such rights as of
the date hereof. In the event of the voluntary or involuntary transfer of such
ownership or right to a successor-in-interest of Landlord, Landlord shall be
freed and relieved of all liability and obligation hereunder which shall
thereafter accrue and Tenant shall look solely to such successor-in-interest for
the performance of the covenants and obligations of the Landlord hereunder which
shall thereafter accrue. The liability of any such successor in interest to
Landlord under or with respect to this Lease shall be strictly limited to and
enforceable only out of its or their interest in the Building and Land, and
shall not be enforceable out of any other assets. No mortgagee or ground lessor
which shall
24
<PAGE>
DEPARTMENT OF HEALTH & HUMAN SERVICES Public Health Service
Food and Drug
Administration
9200 Corporate Boulevard
Rockville MD 20850
JAN 27 2000
Mr. Al Memmolo.
Director, Quality Assurance and
Regulatory Affairs
AccuLase, Inc.
2431 Impala Drive
Carlsbad, California 92008
Re: K992914
Trade Name: Excimer Laser Phototherapy System, AL7000
Regulatory Class: II
Product Code: GEX
Dated: November 24,1999
Received: November 29, 1999
Dear Mr. Memmolo:
We have reviewed your Section 510(k) notification of intent to market the device
referenced above and we have determined the device is substantially equivalent
(for the indications for use stated in the enclosure.) to devices marketed in
interstate commerce prior to May 28, 1976, the enactment date of the Medical
Device Amendments, or to devices that have been reclassified in accordance with
the provisions of the Federal Food, Drug, and Cosmetic Act (Act). You may,
therefore, market the device, subject to the general controls provisions of the
Act. The general controls provisions of the Act include requirements for annual
registration, listing of devices, good manufacturing practice, labeling, and
prohibitions against misbranding and adulteration.
If your device is classified (see above) into either class II (Special Controls)
or class III (Premarket Approval), it may be subject to such additional
controls. Existing major regulations affecting your device can be found in the
CODE OF FEDERAL REGULATIONS, Title 21, Parts 800 to 895. A substantially
equivalent determination assumes compliance with the current Good Manufacturing
Practice requirement, as set forth in the Quality System Regulation (QS) for
Medical Devices: General regulation (21 CFR Pan 820) and that, through periodic
(QS) inspections, the Food and Drug Administration (FDA) will verify such
assumptions. Failure to comply with the GMP regulation may result in regulatory
action. In addition, FDA may publish further announcements concerning your
device in the FEDERAL REGISTER. Please note: this response to your premarket
notification submission does not affect any obligation you might have under
sections 531 through 542 of the Act for devices under the Electronic Product
Radiation Control provisions, or other Federal laws or regulations.
This letter will allow you to begin marketing your device as described in your
510(k) premarket notification. The FDA finding of substantial equivalence of
your device to a legally marketedpredicate device results in a classification
for your device and thus, permits your device, to proceed to the market.
<PAGE>
If you desire specific advice for your device on our labeling regulation (21 CFR
Part 801 and additionally 809.10 for IN VITRO diagnostic devices), please
contact the Office of Compliance at (301) 594-4595. Additionally, for questions
on the promotion and advertising of your device, please contact the Office of
Compliance at (301) 594-4639. Also, please note the regulation entitled,
"Misbranding by reference to premarket notification" (21 CFR 807.97). Other
general information on your responsibilities under the Act may be obtained from
the Division of Small Manufacturers Assistance at its toll-free number (800)
638-2041 or (301) 443-6597 or at its internet address
"http://www.fda.gov/cdrh/dsmamain.htad".
Sincerely yours,
James E. Dillard III
Acting Director
Division of General and
Restorative Devices
Office of Device Evaluation
Center for Devices and
Radiological Health
Enclosure
<PAGE>
REPORT AND CONSENT OF INDEPENDENT AUDITORS'
The Board of Directors
Laser Photonics, Inc. and subsidiaries
The audits referred to in our report dated April 8, 1999 included the
related financial statement schedule as of December 31, 1998 and for each of
the years in the three-year period ended December 31, 1998 included in the
Registration Statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
We consent to the use of our reports included herein and elsewhere in
the registration statement and to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ HEIN & ASSOCIATES LLP
HEIN & ASSOCIATES LLP
Orange, California
February 11, 2000
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