<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 2000
REGISTRATION NO. 333-44937
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
------------------------------
AMENDMENT NO. 4 TO
FORM S-1/A
REGISTRATION STATEMENT
UNDER
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>
2431 IMPALA DRIVE
CARLSBAD, CALIFORNIA 92008
(760) 602-3300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JEFFREY F. O'DONNELL
CHIEF EXECUTIVE OFFICER
LASER PHOTONICS, INC.
2431 IMPALA DRIVE
CARLSBAD, CALIFORNIA 92008
(760) 602-3300
(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............. 336,101 $ 1.25(3) $ 420,126 $ 123.94
Common Stock, par value $0.01............. 877,250 $ 4.00(3) $ 3,509,000 $ 1,035.16
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............. 150,000 $ 1.50(3) $ 225,000 $ 66.38
Common Stock, par value $0.01............. 1,409,092 $11.00(3) $15,500,012 $ 4,572.50
Common Stock, par value $0.01............. 2,068,972 $12.00(4) $24,827,664 $ 7,324.16
Common Stock, par value $0.01............. 1,257,069 $12.00(4) $15,084,828 $ 4,450.02
Common Stock, par value $0.01............. 100,000 $ 1.50(5) $ 150,000 $ 44.25
Common Stock, par value $0.01............. 1,366,251 $ 1.50(5) $ 2,049,377 $ 604.57
Common Stock, par value $0.01............. 528,750 $ 2.00(5) $ 1,057,500 $ 311.96
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 $ 0.75(5) $ 75,000 $ 22.13
Common Stock, par value $0.01............. 100,000 $ 1.50(5) $ 150,000 $ 44.25
Common Stock, par value $0.01............. 75,000 $ 1.50(5) $ 112,500 $ 33.19
--------- ----------- ----------
Total..................................... 9,893,032 $67,500,921 $19,912.77
========= =========== ==========
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Of this amount, $6,976.29 has already been paid with the filing of a
registration statement of which this prospectus forms a part.
(3) This amount is based on the per share purchase price of the shares of the
Common Stock.
(4) This amount is based on the market price of the Common Stock on April 11,
2000.
(5) This amount is based on the per share exercise price of the shares of Common
Stock underlying the related Warrants.
------------------------------
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 APRIL , 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.
9,893,032 SHARES
COMMON STOCK
OFFERED BY SELLING STOCKHOLDERS
------------------
This Prospectus relates to 9,893,032 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
9,893,032 shares consist of 7,455,927 shares of Common Stock currently issued in
the name of the Selling Stockholders, 2,237,105 shares of Common Stock
underlying certain 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 a registration statement of which this Prospectus
forms a part can be found in the sections entitled "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 $4,454,405 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 April 11, 2000, the closing
market price for the Common Stock in the Over-The-Counter Market was
approximately $12.00 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 April , 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
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 is engaged in the development, manufacture 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 and for non-medical applications. However, no assurances to
this effect can be given.
The Company's former business strategy consisted of the development of a
wide range of laser products using different solid-state lasers. 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. The Company also considered
pursuing a strategy of using its excimer laser technology for a photolithography
product, which was abandoned. The Company's former strategies proved to be
unsuccessful, in the opinion of then current management of the Company. Although
the Company generated revenues from the sale of its products, former management
believed that the Company would never be able to operate profitably in the
markets in which the Company was then doing business. The Company's current
management believes that its excimer laser technology provides the basis for
reliable cost-effective systems that will increasingly be used in connection
with a variety of applications. Accordingly, the Company has discontinued its
business operations related to the Company's former business strategy and is
focused solely on excimer laser products for various medical applications.
To facilitate the Company's focus on excimer laser technology, the Company
has been attempting to sell certain of its non-excimer laser assets, which are
related to its business operations at its Orlando, Florida and Wilmington,
Massachusetts facilities. The Company did not complete the sale of certain of
its assets related to these operations pursuant to an agreement with one party.
The Company intends to discontinue its Florida business operations on or before
the end of April, 2000, and is in negotiations to sell certain assets related to
these business operations. There can be no assurances that the Company will be
able to complete such a proposed transaction. The Company paid $950,000 in cash
to the landlord for the Florida lease in connection with the satisfaction of a
judgment and settlement of certain claims against the Company in the aggregate
amount of $1,114,000. Further, as of April 6, 2000, the Company closed the
transactions with respect to the sale of certain assets and the grant of an
exclusive license for certain patents related to non-excimer lasers related to
the Company's Massachusetts business operations to Laser Components GmbH ("Laser
Components"), for a purchase price of $213,000. Laser Components is unaffiliated
with the Company. In addition, Laser Components assumed the Company's
prospective obligations under the Company's Massachusetts office lease. The
Company has discontinued its Massachusetts operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business-Discontinuance of the Company's Non-Excimer Laser Business
Operations."
2
<PAGE>
Management's decision to suspend its business operations not related to the
Company's excimer laser technology has resulted in the discontinuance of its
business operations, which generated approximately 76% of the Company's revenues
for 1998 and 1999. As of April 7, 2000, all but approximately $465,000 of the
debts related to these operations have been paid from the proceeds of the
August 9, 1999 Financing and the March 16, 2000 Financing and the sale of
certain assets related to the Company's non-excimer laser operations. As of the
date of this Prospectus, the Company intends to focus solely on those portions
of its business that deal with its excimer laser technology, although these
activities have not generated sufficient revenues to sustain operations without
outside financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business."
The Company historically has incurred significant net losses from
operations. As of December 31, 1999, the Company had an accumulated deficit of
$25,617,537. The Company expects to continue to incur operating losses for a
period of between nine (9) and twelve (12) 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 sustain losses only for a period of
nine (9) to twelve (12) months or that it 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
EXCIMER LASER TECHNOLOGY
The basis of the Company's business is its excimer laser technology. The
word "excimer" is an acronym 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 as a 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. Other types of
lasers generate infrared energy that produces heat upon tissue interaction.
An excimer laser uses a medium in which the dimers exist only in the excited
state. The Company's excimer laser, 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 are measured in nanometers ("nm") and 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.
Between March, 1998 and November, 1999, the Company entered into five
clinical trial agreements (collectively the "Clinical Trial Agreements") with
Massachusetts General Hospital ("MGH") to compare the effects of excimer light,
using its excimer laser technology, to the Ultraviolet "B" ("UVB") treatment
currently in use to treat psoriasis and other skin disorders. Under these
agreements, the Company provided prototype laser equipment to MGH for
preclinical dose response studies under Institutional Review Boards ("IRBs")
approval and agreed to support the clinical trials with research grants totaling
$660,000. The final data from the first of these clinical trial agreements was
collected in December, 1998, and formed the basis for a 510(k) submission
(defined below) to the United States Food and Drug Administration (the "FDA") on
August 4, 1999. The four remaining studies are ongoing and have not been
completed as of the date of this Prospectus. On January 27, 2000, the FDA issued
a 510(k) to the Company, establishing that the Company's excimer laser psoriasis
treatment system has been determined
3
<PAGE>
to be substantially equivalent to currently marketed devices for the treatment
of psoriasis. The wavelength of UVB used by other products, that are deemed to
be substantially equivalent, is approximately 310nm, whereas the Company's
psoriasis treatment system uses a wavelength of 308nm. The Company introduced
its psoriasis treatment products for the purposes of commercial application
testing in March, 2000, and intends to begin distribution of its psoriasis
treatment products to the market 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, including UVB. In UVB treatments, 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 that a
high dose of UVB applied directly to the affected area may significantly reduce
the number of treatments and the time needed to control psoriasis.
Cardiovascular and vascular applications of the Company's excimer laser
relate to 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 Agreement.
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, relationships with leading clinicians and
regulatory expertise, Baxter is absorbing many of the significant expenses of
bringing the Company's TMR System to market. 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, whereas 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 December 31, 1999, pursuant to the
terms of the Baxter Agreement, the Company has delivered the first two TMR
Systems to Baxter. Baxter has paid the Company an aggregate of $1,968,000, of
which $1,550,000 was received for the two (2) TMR Systems and $418,000 was
received for certain advances for additional excimer laser systems and to obtain
CE Mark compliance (defined below) in Europe.
The Company's TMR System requires pre-market approval ("PMA") prior to being
marketed in the United States. In January, 1995 management of Acculase met with
representatives of the FDA to discuss preclinical data submission requirements
necessary before initiating human trials of the TMR System. Subsequently, animal
testing of the TMR System was performed in collaboration with several heart
research institutions in the United States, culminating in a trial 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 Company transferred the IDE to
Baxter in connection with the Baxter Agreement. Based on the results of the
Phase I trial, Baxter has petitioned for a Phase II trial (defined below).
However, no assurance can be given as to when or if such petition will be
granted. The Company believes that Baxter intends to expand the Phase II studies
to a multi-site trial (more than 10 institutions) and expand the procedure to
include patients who are
4
<PAGE>
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 2431 Impala Drive,
Carlsbad, California 92008, (760) 602-3300.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Outstanding:
Before the Offering..................... 14,913,260 shares(1)
After the Offering...................... 17,350,365 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 3,609,379 shares of Common Stock reserved for issuance
pursuant to certain stock options or 2,237,105 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 2,237,105 shares, which may be issued upon the exercise of the
Warrants and 200,000 shares, which may be issued upon exercise of the
Options, all of which are being registered in a registration statement of
which this Prospectus forms a part. 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 ENDED DECEMBER 31,
1/1-5/22 5/23-12/31 ------------------------------
95(1) 95(1) 1996 1997 1998 1999
-------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues................................................ $ 1,242 $ 1,408 $ 2,901 $ 3,815 $ 2,349 $ 1,209
Net Income (loss)....................................... 4,839(2) (2,124) (5,358) (2,307) (5,908) (9,920)
Basic and diluted income (loss) per share............... 0.75 (0.42) (0.95) (0.35) (0.64) (0.89)
Weighted average shares outstanding(3).................. 6,312 5,000 5,620 6,531 9,288 11,208
BALANCE SHEET DATA
Working capital (deficit)............................... $ (99) $ (610) $(1,728) $ 15 $(1,843) 1,529
Total assets............................................ 1,715 5,796 3,195 7,808 4,870 9,726
Long-term debt (net of current portion)................. -- 867 283 283 70 44
Liabilities subject to compromise....................... 7,564 -- -- -- -- --
Total stockholders' equity (deficit).................... (7,404) 686 (2,090) 4,929 1,841 5,274
</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 the Bankruptcy 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 December 31, 1995, 1996, 1997, 1998 and
1999, and the statement of operations data set forth above for the period
from May 23, 1995 to December 31, 1995, and the years ended December 31,
1996, 1997, 1998 and 1999, reflect that of the Company on and after May 22,
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 May 22, 1995, and the statement of operations data, set forth above,
for the period from January 1, 1995 to May 22, 1995, reflect the Company's
financial condition prior to May 23, 1995. See "Business--History of the
Company" and "Business--Legal Proceedings."
(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 $9,920,067, for the period
from May 23, 1995 to December 31, 1995, and for the years ended December 31,
1996, 1997, 1998 and 1999, respectively. As of December 31, 1999, the Company
had an accumulated deficit of $25,617,537. The Company expects to continue to
incur operating losses for a period of between nine (9) and twelve (12) 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 sustain losses for a period of nine (9) to twelve
(12) months or that the Company will manufacture or market any products
successfully or operate profitably in the future. See "Risk Factors--Uncertainty
Related to Third Party Reimbursement," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and "Financial
Statements."
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
private health insurance plans, federal Medicare and state Medicaid, to
reimburse all or a part of the costs and fees associated with the procedures
using such devices. The success of the Company's business, in particular the
generation of profits from its psoriasis treatment products, may ultimately
depend on the ability of healthcare providers to obtain sufficient reimbursement
from third-party payors for such costs and fees. 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. Since the Company's psoriasis treatment products
will initially constitute a new form of treatment, no assurance can be given as
to when or if patients will be able to obtain partial or complete reimbursement
from their insurance programs (or from Medicare or Medicaid) for such treatment.
The Company intends to take all reasonable steps to have its psoriasis
treatment products sufficiently accepted in the dermatological treatment
community to enable healthcare providers to receive partial or complete
reimbursement for the fees and costs associated therewith. In addition, the
Company expects to apply to the Health Care Financing Administration ("HCFA")
for designation of a specific Medicare
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reimbursement code for the Company's psoriasis products. Management believes
that the issuance by HCFA of a specific reimbursement code for such products
could have a positive effect on the willingness of third-party insurers to
reimburse patients or healthcare providers for part or all of the costs of
treatment by the Company's products, although no assurance can be given to that
effect. The HCFA application process will take from 18 to 24 months, and no
assurance can be given that a favorable response will be received from HCFA.
Even if HCFA designates a code which is specific to the Company's type of
psoriasis treatment products, no assurance can be given that it would result in
the generation of revenue to the Company. Failure to obtain a HCFA reimbursement
code could have a material adverse effect on the business and financial
condition of the Company. See "Business--Markets and Marketing."
POTENTIAL NEED FOR ADDITIONAL FINANCING. 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 December 31,
1999, the Company had total debts of $4,431,336 and had $4,535,557 of cash on
hand. On March 16, 2000, the Company completed a private offering of 1,409,092
shares of its Common Stock and received net proceeds of $14,570,000 (the
"March 16, 2000 Financing"), and on that date had $18,400,00 of cash on hand.
The Company believes that it has adequate capital to support its operations, to
finance its requirements to accomplish the rollout of the Company's psoriasis
treatment products, and to pay all of its debts on a current basis. The Company
estimates that it has funds on hand for each of these purposes and for working
capital for at least 13 months. However, no assurance to this effect can be
given. In the event that the Company does not generate sufficient revenues from
prospective operations, the Company may be required to obtain additional
financing. No assurance can be given that additional financing will become
available to the Company, or that the Company will achieve profitable
operations. Further, any additional financing may be senior to the Company's
Common Stock, may be priced below market or may result in significant dilution
to the holders of the Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
DILUTION FROM ISSUANCES OF COMMON STOCK TO PAY OBLIGATIONS OF THE COMPANY
AND EFFECT OF OUTSTANDING WARRANTS AND OPTIONS. On March 16, 2000, the Company
completed a private offering of 1,409,092 shares of its Common Stock at $11.00
per share and received net proceeds of $14,570,000. The price of the Company's
Common Stock, on the date when the terms of this private placement were
negotiated was $13.50 per share, and the price on the closing date (March 16,
2000) was $15.88. The issuance of shares of Common Stock at below market prices
may be deemed to be dilutive to existing stockholders. The exercise of Warrants
to purchase up to 2,237,105 shares of Common Stock, at exercise prices ranging
from $1.50 to $4.69 per share, could result in significant additional dilution
to existing stockholders. The average exercise of the Warrants is $3.09 per
share. In addition, the Company has issued 3,609,379 options to acquire shares
of Common Stock to various employees, directors and consultants of the Company
at prices ranging from $0.50 to $17.75 per share (some of which exercise prices
were significantly below market price on their grant dates), of which the shares
underlying the 200,000 Options are being registered in connection with a
registration statement of which this Prospectus forms a part. The Company does
not intend to grant options or warrants at exercise prices significantly below
market, although no assurance can be given to this effect. 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. 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 and
the holders of the Warrants and Options may exercise the Warrants and Options at
a 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
"Management's Discussion and Analysis of Financial Condition and Results of
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Operations--Liquidity and Capital Resources," "Certain Relationships and Related
Transactions" and "Description of Securities."
FINANCIAL RISK FROM PENDING LITIGATION AGAINST THE COMPANY. The Company has
legal claims, both pending and threatened, as follows: (i) 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 against the Company; (ii) 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; and
(iii) a claim has been asserted by the Laser Analytics, Inc., a Texas
corporation, for $232,000 for monies purportedly lent to the Company. The
damages alleged in those claims are for significant amounts and the outcome of
these disputes are 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 and its financial condition. 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 licenses and patent
expenses are amortized over the life of the patents. 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 1999, the total of such
amortization was $1,028,034 and $998,590 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 these items have been
completely amortized. However, even if the Company's revenues increase to an
amount to offset existing levels of amortization, no assurance can be given
that, in future 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 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."
OWNING LESS THAN 100% OF THE SHARES OF ACCULASE HAS RESULTED IN THE GRANT OF
INCENTIVES TO EMPLOYEES AND RESULTED IN SUBSTANTIAL DILUTION TO THE STOCKHOLDERS
OF LASER PHOTONICS. Laser Photonics owns 76.1% of the issued and outstanding
common stock of Acculase. Acculase has been unable to raise money throughout its
history, largely because it is and has been a privately owned company. A
significant portion of the money raised by the Company in recent financings has
been used to loan money to Acculase to pay its costs of
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operations and the cost of the development of its excimer lasers. 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.
In connection with obtaining required financing for Acculase, Laser
Photonics has had to engage in significant equity financing activities,
aggregating approximately $20,000,000, from 1997 to 1999, and an additional
$14,570,000 through March 31, 2000. As of December 31, 1999, Laser Photonics had
made cash and non-cash advances as loans for the benefit of Acculase, which
total approximately $17,000,000. These obligations include, but are not limited
to direct payment of obligations (including the acquisition of the Lasersight
License for $4,000,000 so that Acculase would be in compliance with the Baxter
Agreement), allocations of salaries and expenses, financing costs, cash
transfers and corporate overhead (including professional market and consulting
services) of approximately $9,200,000, and incurrence of non-cash costs by Laser
Photonics associated with the issuance of Common Stock and Warrants in certain
financings, the issuance of derivative securities to employees and consultants
of Acculase at exercise prices below market, the assumption of certain interest
charges, and the accrual of interest at the rate of 8% per annum on the
principal amount of such cash and non-cash advances, which total approximately
$7,800,000. All such amounts advanced to Acculase were loaned without any date
certain as to when such loans would be repaid. Laser Photonics has issued
1,090,500 options as incentives to employees and consultants to work for
Acculase. 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, which have potential liquidity, rather then stock
options of Acculase, which are unlikely to have liquidity at any foreseeable
time. These financings and the grant of such incentives to employees have
resulted in substantial dilution to the stockholders of Laser Photonics, without
any dilution to the stockholders of Acculase. 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", "Business--Intellectual Property" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
THE RISK OF NOT ACQUIRING THE UNOWNED ACCULASE SHARES MAY RESULT IN
CONTINUED DILUTION OF THE OWNERSHIP OF LASER PHOTONICS COMMON STOCK TO PAY THE
OPERATING COSTS OF ACCULASE FOR AN INDEFINITE PERIOD OF TIME. 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 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 based on a valuation to be prepared by 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
shares 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
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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 excimer laser products
and related accessories 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. The Company 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 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
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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 could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Government Regulation--International Product Regulation."
DISCONTINUANCE OF CERTAIN REVENUE GENERATING ASPECTS OF BUSINESS
OPERATIONS. Management's decision to suspend its business operations not
related to the Company's excimer laser technology has resulted in the intended
discontinuance of its business operations, which generated approximately 76% of
the Company's revenues for 1998 and 1999. All but approximately $465,000 of the
debts related to these operations have been paid from the proceeds of the
August 9, 1999 Financing and the March 16, 2000 Financing and the sale of
certain assets related to the Company's non-excimer laser operations. As of the
date of this Prospectus, the Company intends to focus solely on those portions
of its business that deal with its excimer laser technology, although these
activities have not generated sufficient revenues to sustain operations without
outside financing. There can be no assurances that the Company will be able to
generate profitable operations from its excimer laser business operations in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Business."
BAXTER'S SECURITY INTEREST IN ACCULASE'S PATENTS AND RISK OF LOSS 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.
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Baxter maintains, pursuant to the Baxter Agreements, a security interest in
certain significant patents owned by Acculase 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. Even
though the Lasersight License is granted to Acculase, 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 lack the
essential elements of the excimer laser technology. Such a situation would
materially and adversely affect the Company's business and its financial
condition. 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 or 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 Company or
could result in the Company's being enjoined 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
necessary human clinical trials and market the Company's resulting 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
purpose of
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financing the conduct 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, the Company is not currently required to fund the marketing of the
Company's TMR System, 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, as they
relate to the TMR System. 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 excimer 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 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 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 FDA issued a 510(k) for the Company's
psoriasis treatment system on January 27, 2000. The Company is finalizing its
marketing plan and introduced its psoriasis treatment products for the purpose
of commercial application testing at the end of March, 2000 and further intends
to begin to distribute its psoriasis treatment products to the market in 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 and to convince
psoriasis patients to undergo laser treatment, which may not be covered by
medical insurance and may be more costly than other traditional forms of
treatment for psoriasis. The cost of the Company's TMR products may be
14
<PAGE>
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 CABG 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: (i) topical therapy (creams and lotions),
(ii) phototherapy (psoralen ultraviolet light-PUVA and UVB), and (iii) 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
basis 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 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 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
15
<PAGE>
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 or its treatment modality
for psoriasis using its psoriasis treatment 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 key personnel or to attract additional qualified
personnel. The Company does not have key-person life insurance on any of its
employees. See "Management."
EFFECT OF POTENTIAL REFORMS IN THE REGULATION OF THE HEALTHCARE
INDUSTRY. Regulatory bodies in the United States and the EU are continuously
revising their rules. 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 excimer laser 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,
9,893,032 shares of Common Stock, consisting of 7,455,927 shares of Common Stock
currently issued in the name of the Selling Stockholders, 2,237,105 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
14,913,260 shares issued and outstanding. There can be no assurance that the
registration of the shares being registered pursuant to the registration
statement of which this Prospectus forms a part 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
"Price Range of Common Stock," "Selling Shareholders and Plan of Distribution,"
"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, as of the date of this Prospectus, 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 5,690,027 restricted shares and 9,223,233 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. All of the restricted shares,
including 263,701 shares held by affiliates of the Company, are being registered
in a registration statement of which this Prospectus forms a part. Further, the
Company has granted options to purchase up to an additional 3,609,379 shares of
Common Stock, 2,426,047 of which are currently exercisable. The shares of Common
Stock underlying the Warrants to purchase up to 2,237,105 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."
17
<PAGE>
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 Commission, in which 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 $4,454,405 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 14,913,260 shares of
Common Stock issued and outstanding. Further, the Company has issued and
outstanding Warrants to purchase 2,237,105 shares of Common Stock and options to
purchase 3,609,379 shares of Common Stock, of which 2,426,047 are vested as of
the date of this Prospectus. 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
YEAR ENDING DECEMBER 31, 2000
1st Quarter...................................... 18 3/16 11 5/8 18 7/16 11 7/8
</TABLE>
On April 11, 2000, the closing market price for the Company's Common Stock
in the Over-The-Counter Market was approximately $12.00 per share. As of
March 29, 2000, the Company had 1,047 stockholders of record.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 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>
DECEMBER 31, 1999
-----------------
<S> <C>
NOTES PAYABLE:
Current portion............................................. $ 353,710
Long term................................................... 43,620
------------
397,330
------------
STOCKHOLDERS' EQUITY:
Common Stock, par value $0.01; 25,000,000 shares
authorized;(1)
issued and outstanding 13,267,918 shares(2)............... 132,679
Additional paid-in-capital.................................. 30,759,186
Accumulated deficit......................................... (25,617,537)
------------
Total stockholders' equity.................................. 5,274,328
------------
Total capitalization........................................ $ 5,671,658
============
</TABLE>
- ------------------------
(1) Does not include 2,237,105 shares of Common Stock that are reserved for
issuance pursuant to the Warrants and 3,609,379 shares of Common Stock that
are reserved for issuance pursuant to certain stock options, including 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 2,237,105 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,
1995 through 1999 set forth below are derived from the Consolidated Financial
Statements of the Company and Notes thereto. The Consolidated Balance Sheets as
of December 31, 1999 and 1998 and the related Consolidated Statements of
Operations, Stockholders' Equity, and Cash Flows for each of the years in the
3-year period ended December 31, 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>
THE PERIOD
JANUARY 1, TO MAY 23, TO YEAR ENDED DECEMBER 31,
MAY 22, DECEMBER 31, ------------------------------
1995(1) 1995(1) 1996 1997 1998 1999
------------- ------------ -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 1,242 $ 1,408 $ 2,901 $ 3,815 $ 2,349 $ 1,209
Costs and expenses...................... 2,082 3,351 7,704 5,746 7,746 9,265
------- ------- ------- ------- ------- -------
Loss from operations.................... (840) (1,942) (4,802) (1,931) (5,397) (8,057)
------- ------- ------- ------- ------- -------
Other income (expenses)................. (89) (181) (556) (372) (508) (1,859)
Income tax expense...................... -- -- (4) (3) (4)
Extraordinary item-gain from
reorganization........................ 5,768 -- -- -- -- --
Net income (loss)....................... $ 4,839(2) $(2,124) $(5,358) $(2,307) $(5,908) $(9,920)
======= ======= ======= ======= ======= =======
Basic and diluted income (loss) per
share................................. 0.75 (0.42) (0.95) (0.35) (0.64) (0.89)
Weighted average shares(3).............. 6,312 5,000 5,620 6,531 9,288 11,208
BALANCE SHEET DATA
(AT PERIOD END):
Working capital (deficit)............... (99) (610) (1,728) 15 (1,843) 1,529
Total Assets............................ 1,715 5,796 3,195 7,808 4,870 9,706
Long-term debt (net of current
portion).............................. -- 867 283 283 70 44
Liabilities subject to compromise....... 7,564 -- -- -- --
Total stockholders' equity (deficit).... (7,404) 686 (2,090) 4,929 1,841 5,274
</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 the Bankruptcy 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, and the years ended December 31, 1996, 1997, 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 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.
The Company's former business strategy consisted of the development of a
wide range of laser products using different solid-state lasers. Between 1986
and the date of this Prospectus, the Company sold over 1,000 lasers, usually on
a private label basis, to other manufacturers. The Company also considered
pursuing a strategy of using its excimer laser technology for a photolithography
product, which was abandoned. The Company's former strategies proved to be
unsuccessful, in the opinion of then current management of the Company. Although
the Company generated revenues from the sale of its products, former management
believed that the Company would never be able to operate profitably in the
markets where the Company was then doing business. The Company currently
believes that its excimer laser technology provides the basis for reliable
cost-effective systems that will increasingly be used in connection with a
variety of applications. Accordingly, the Company has discontinued its business
operations related to the Company's former business strategy and is focused
solely on excimer laser products for various medical applications.
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, Inc., a former principal
stockholder of the Company, 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 loaned 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.
22
<PAGE>
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, Ltd. ("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.
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 material 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.
In connection with the Company's current business plan, the Company's
initial medical applications for its excimer laser technology are intended to be
used in the treatment of psoriasis and cardiovascular disease.
Between March, 1998 and November, 1999, the Company entered into the
Clinical Trial Agreement with MGH to compare the effect of excimer laser light
using its excimer laser technology to the current UVB treatment being used to
treat psoriasis and other skin disorders. The Company provided prototype laser
equipment for pre-clinical dose response studies. The Company has agreed to
support the clinical trials with research grants of approximately $660,000, of
which $448,000 has been paid, as of the date of this Prospectus. The final data
from the first of these clinical trial agreements was collected in December,
1998, and formed the basis for a 510(k) submission to the FDA on August 4, 1999.
The four remaining studies are ongoing and have not been completed as of the
date of this Prospectus. On January 27, 2000, FDA issued a 510(k) to the
Company, 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. The Company introduced its psoriasis products for the
purposes of commercial application testing in March, 2000, and intends to
distribute the psoriasis treatment system for commercial use in July, 2000. As
of the date of this Prospectus, the Company has generated no revenues from the
psoriasis treatment system.
In connection with the cardiovascular and vascular uses of the Company's
excimer laser technology, on August 19, 1997, Acculase and Baxter executed the
Baxter Agreement, which provides for an alliance with Baxter, in which 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.
The Company recognized revenue of $1,718,000 from Baxter, which was equal to
23% of gross revenues for the three-year period ended December 31, 1999. No
single customer, other than Baxter, accounted for sales in excess of 10% in
1997, 1998 or 1999.
23
<PAGE>
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, the Company
has been attempting to sell certain of its non-excimer laser assets, which are
related to its business operations at its Orlando, Florida and Wilmington,
Massachusetts facilities. The Company did not complete the sale of certain of
its assets related to these operations pursuant to an agreement with one party.
The Company intends to discontinue its Florida business operations on or before
the end of April, 2000, and is in negotiations to sell certain assets related to
these business operations. There can be no assurances that the Company will be
able to complete such a proposed transaction. As of April 7, 2000, all but
approximately $465,000 of the debts related to these operations have been paid
from the proceeds of the August 9, 1999 Financing and the March 16, 2000
Financing and the sale of certain assets related to the Company's non-excimer
laser operations. The Company paid $950,000 in cash to the landlord for the
Florida lease in connection with the satisfaction of a judgment and settlement
of certain claims against the Company in the aggregate amount of $1,114,000.
Further, as of April 6, 2000, the Company closed the transactions with respect
to the sale of certain assets and the grant of an exclusive license for certain
patents related to non-excimer lasers related to the Company's Massachusetts
business operations to Laser Components GmbH ("Laser Components"), for a
purchase price of $213,000. Laser Components is unaffiliated with the Company.
In addition, Laser Components assumed the Company's prospective obligations
under the Company's Massachusetts office lease. The Company has discontinued its
Massachusetts operations. See "Business--Discontinuance of the Company's
Non-Excimer Laser Business Operations."
Management's decision to suspend these business operations is consistent
with the Company's new business strategy and has resulted in the intended
discontinuance of business operations which generated approximately 76% of the
Company's revenues for 1998 and 1999. The Company has retained accounts
receivable of an aggregate of $176,179 (net of an allowance of $83,000), at
December 31, 1999, from these business operations and certain of its patents
related to its non-excimer laser systems.
At December 31, 1999 and December 31, 1998, total assets related to the
Company's former non-excimer laser business operations based in Florida and
Massachusetts were $764,179 and $806,335, respectively, and total liabilities
were $2,970,030 and $2,430,414, respectively, at each such date. Revenues from
such operations for the years ended December 31, 1999 and 1998 were
approximately $1,110,000 and $1,580,000, respectively. Losses from operations
during the corresponding annual periods were approximately $1,235,000 and
$996,000, respectively.
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.
24
<PAGE>
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, 1998,
and 1999, and the consolidated statements of operations for the years ended
December 31, 1997, 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, 1997, 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.
RESULTS OF OPERATIONS
The following table presents selected consolidated financial information
stated as a percentage of revenues for the years ended December 31, 1997, 1998,
and 1999:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues............................................ 100% 100% 100%
Costs of sales...................................... 55 77 104
---- ---- ----
Gross profit........................................ 45 23 (4)
---- ---- ----
Selling, general and administrative expenses........ 57 154 408
Research and development............................ 18 53 171
Bad debt expense related to related party
receivable........................................ 1 -- --
Depreciation and amortization....................... 19 46 84
---- ---- ----
Loss from operations................................ (50) (230) (667)
Other expense....................................... (10) (21) (154)
---- ---- ----
Net loss............................................ (60)% (251)% (821)%
==== ==== ====
</TABLE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998. Total
revenues for the year ended December 31, 1999 decreased approximately 48.5% to
$1,208,835 from $2,349,448 for the year ended December 31, 1998. Total revenues
for the years ended December 31, 1999 and 1998 primarily consisted of:
(i) sales of $1,114,929 and $1,580,422, 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 $93,906 and $769,026,
in the respective years, relating to the sale of the Company's excimer lasers to
Baxter
25
<PAGE>
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 years ended December 31, 1999
from the corresponding peirod ended December 31, 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, 1999 increased
approximately 19.6% to $9,265,402 from $7,746,686 during the year ended
December 31, 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 year ended December 31, 1999 decreased
approximately 30.3% to $1,257,438 from $1,806,557 during the year ended
December 31, 1998. This decrease primarily resulted from reduced sales.
As a result, cost of sales as a percentage of sales increased to
approximately 104.0% in the year ended December 31, 1999 from 76.9% in the year
ended December 31, 1998.
Selling general and administrative expenses during the year ended
December 31, 1999 increased approximately 36.6% to $4,930,095 from $3,608,108
during the year ended December 31, 1998. This increase primarily resulted from
increases in consulting and professional fees of an aggregate of $645,783
related to marketing expenses with respect to the Company's excimer laser
systems and legal and accounting expenses, and increases in salaries and related
items of an aggregate of $482,271 related to salaries for newly retained
executive officers and increased personnel and overhead expenses with respect to
the Company's excimer laser operations.
Research and development during the year ended December 31, 1999 increased
to $2,061,041 from $1,243,372 during the year ended December 31, 1998. This
increase primarily related to the increased amount of funds available for
research expenses during 1999. Research and development expenses in the year
ended December 31, 1999 primarily related to the development of the Company's
excimer laser systems for its psoriasis and TMR products. Research and
development expenses in the year ended December 31, 1998 primarily related to
the development of the Company's psoriasis laser systems and also included
expenses related to additional testing to meet CE Mark and Underwriter's
Laboratory ("UL") standards for the Company's excimer lasers.
Depreciation and amortization during the year ended December 31, 1999
decreased to $1,016,628 from $1,088,649 during the year ended December 31, 1998.
These amounts primarily related to the amortization of the prepaid license fee
from Baxter, the depreciation of newly acquired equipment in 1998 and
amortization of goodwill from the acquisition of Acculase.
Other expenses increased during the year ended December 31, 1999 to
$1,859,118 from $508,049 during the year ended December 31, 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 $420,625 of other
interest expense during the year ended December 31, 1999, as compared to
$510,948 of interest expense during the year ended December 31, 1998.
As a result of the foregoing, the Company experienced a net loss of
$9,920,067 during the year ended December 31, 1999, as compared to a net loss of
$5,908,587 during the year ended December 31, 1998. The Company also experienced
a net loss from operations of $8,056,567 during the year ended December 31,
1999, as compared to a net loss from operations of $5,397,238 during the year
ended December 31, 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
26
<PAGE>
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 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, depreciation of newly acquired equipment in 1998 and amortization of
goodwill from the acquisition of Acculase.
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."
LIQUIDITY AND CAPITAL RESOURCES. At December 31, 1999, the ratio of current
assets to current liabilities was 1.34 to 1.00 compared to 0.24 to 1.00 at
December 31, 1998.
27
<PAGE>
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 year ended December 31, 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 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 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.
From September, 1997 through March, 2000, 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 a
registration statement of which this Prospectus forms a part.
Cash and cash equivalents were $4,535,557, as of December 31, 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
$5,890,572 of net cash used in operations during the year ended December 31,
1999.
As of December 31, 1999, the Company had total debts of $4,431,336 and an
accumulated deficit of $25,617,537.
As of December 31, 1999, the Company had long-term borrowings in the
aggregate amount of $43,620, 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 principal amount of $165,298,
with accrued pursuant to the Plan, to the former unsecured creditors of the
Company. These promissory notes have been paid in full.; (c) secured promissory
notes payable in the total amount of $127,860 pursuant to the Plan, to Novartis
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. The Company
has paid this promissory note in full; (d) a promissory note payable to the U.S.
Treasury for delinquent taxes in the amount of $14,873. This note bears interest
at the rate of 9% per annum, payable in monthly principal and interest
installments of $5,757 through July, 2000. This promissory note has been paid in
full; (e) unsecured promissory notes payable to various creditors in the
aggregate amount of $17,608. These notes are payable with interest at 9% per
annum, in various monthly principal and interest installments through July,
2000. These promissory notes haven been paid in full; (f) a secured promissory
note in the amount of $16,670, 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
28
<PAGE>
current, as of the date of this Prospectus; and (g) an unsecured promissory note
in the amount of $55,021, 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. This promissory note has been paid in full.
Subsequent to March 16, 2000, the Company paid $950,000 to the landlord for
its Florida facility, and $700,000 to CSC Healthcare Inc., to settle certain
disputes between the Company and such other parties. The Company paid these
amounts from the proceeds of the March 16, 2000 Financing.
Net cash used in operating activities was $5,890,572, $2,083,230 and
$993,851 for the years ended December 31, 1999, 1998, and 1997, respectively.
Net cash used in operating activities during the years ended December 31, 1999,
1998 and 1997 primarily consisted of net losses, increases in net current
liabilities (1999 and 1997 only) and decreases in net current assets (1999 and
1997 only), offset by depreciation and amortization, increases in interest
related to the conversion features of the Convertible Notes (1999 and 1998
only), amortization of debt issuance costs (1999 only), the payment in the
Company's securities (including Common Stock, options and warrants) of interest,
compensation and fees for services, bad debt expenses with respect to a related
party receivable (1997 only), compensation recognized in lieu of repayment of a
note (1999 only), decreases in net current liabilities (1998 only) and increases
in net current assets (1998 only).
Net cash used in investing activities was $40,442, $145,758 and $4,093,293
for the years ended December 31, 1999, 1998 and 1997, respectively. In the year
ended December 31, 1999, the Company utilized $40,442 to acquire equipment for
the Company's excimer laser business operations. In the year ended December 31,
1998, the Company utilized $116,158 to purchase equipment and for the
construction of a laser to be used as a demonstration model, and to make advance
payments of $29,600 to a former officer and director. 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 advance payments of $25,000 to a former officer and director and
$48,000 to Helionetics, which was offset by the receipt of $19,174 from the sale
of certain equipment.
Net cash provided by financing activities was $10,292,103, $1,177,524 and
$6,313,076 during the years ended December 31, 1999, 1998 and 1997,
respectively.
In the year ended December 31, 1999, the Company received $2,380,000 in
proceeds from the offering of the Convertible Notes, $8,540,544 from the net
proceeds of the issuance of Common Stock in August, 1999, $11,340 from the
proceeds of payments of certain related party notes payable, $112,500 from the
exercise of warrants into 75,000 shares of Common Stock, and $86,485 from the
proceeds of other notes payable, which was offset by the utilization of $524,824
for payment of certain debts, $147,342 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 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 $4,535,557, at December 31, 1999.
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 certain notes, including $1,000,000 of proceeds from a convertible bridge
loan in July and August, 1998, which was converted into 500,000 shares of Common
Stock in December, 1998, $150,000 of proceeds from other convertible notes,
which were converted into 100,000 shares of Common Stock in December, 1998, and
$126,900 from the proceeds of certain other notes (all of which are current, as
of the date of this Prospectus). See "Certain Relationships and Related
Transactions."
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
29
<PAGE>
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.
As of March 16, 2000, the Company completed a private placement to ten
(10) institutional investors of an aggregate of 1,409,092 shares of Common Stock
at a purchase price of $11.00 per share, resulting in aggregate gross proceeds
to the Company of approximately $15,500,000. The market price of the Common
Stock on the date that the transaction was negotiated was $13.50 and on the
closing date of the transaction was approximately $15.88. The Company paid ING
Barings LLC a commission of 6% of the gross proceeds, or approximately $930,000.
The Company intends use the proceeds of this financing to pay for the marketing
of its products (including its psoriasis treatment products) and research and
development expenses, and to use as working capital. As of March 16, 2000, the
Company had approximately $18,400,000 of cash on hand.
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.
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
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<PAGE>
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 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.
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 and for non-medical applications. However, no assurance to this
effect can be given.
The Company's former business strategy consisted of the development of a
wide range of laser products using different solid-state lasers. Between 1986
and the date of this Prospectus, the Company sold over 1,000 lasers, usually on
a private label basis, to other manufacturers. The Company also considered
pursuing a strategy of using its excimer laser technology for a photolithography
product, which was abandoned. The Company's former strategies proved to be
unsuccessful, in the opinion of then current management of the Company. Although
the Company generated revenues from the sale of its products, former management
believed that the Company would never be able to operate profitably in the
markets where the Company was then doing business. The Company currently
believes that its excimer laser technology provides the basis for reliable
cost-effective systems that will increasingly be used in connection with a
variety of applications. Accordingly, the Company has discontinued its business
operations related to the Company's former business strategy and is focused
solely on excimer laser products for various 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 1998, the Company provided prototype laser equipment to MGH for the
treatment of psoriasis at MGH for pre-clinical dose response studies under IRB
approval. The final data from this study was collected in December, 1998. This
data formed the basis for a 510(k) submission to the FDA on August 4, 1999. On
January 27, 2000, the FDA issued a 510(k) for the Company's psoriasis treatment
products, establishing that the Company's psoriasis treatment system has been
determined to be substantially equivalent to currently marketed devices for the
treatment of psoriasis. The Company introduced its psoriasis treatment products
for the purposes of commercial application testing at the end of March, 2000,
and intends to make the psoriasis treatment products available in July, 2000.
However, no assurance to this effect can be given.
The cardiovascular and vascular applications of the Company's excimer lasers
relate to 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. The Company is in the process of negotiating modifications to the
Baxter Agreement. No assurance can be given that the Company will successfully
complete such negotiations. 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."
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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% ownership interest of 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, Acculase, PMG and Baxter agreed, in connection with
fulfilling the obligations of the parties under the Baxter Agreement, that
Acculase 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, Acculase
received from Baxter the Lasersight License. Acculase then paid $4,000,000 to
Baxter for the transfer of the Lasersight License, from funds raised in a
private placement of Acculase, securities. In the event that Baxter terminates
the Baxter Agreement, Baxter will grant to Acculase an exclusive sublicense of
all of Baxter's rights under the Lasersight License. In such event, Acculase
will acknowledge and agree that, upon the grant of such exclusive sublicense,
Acculase 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 assistance has resulted in significant dilution to the
ownership interest of the stockholders of Laser Photonics, without dilution to
the ownership interest of the stockholders of Acculase. As of December 31, 1999,
Laser Photonics had made cash and non-cash advances as loans for the benefit of
Acculase, which total approximately $17,000,000. From 1995 through December 31,
1999, Laser Photonics made cash advances for the benefit of Acculase of
approximately $9,200,000, including allocations of payments for obligations of
Acculase, salaries and expenses, financing costs, cash transfers and corporate
overhead, and has made non-cash advances for the benefit of Acculase in the form
of the issuance of Common Stock and Warrants in certain financings, the issuance
of derivative securities of Laser Photonics at prices below market to employees
and consultants of Acculase, the assumption of interest charges relating to
conversion features of certain derivative securities, together with interest
accruing on the principal amount of all cash
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and non-cash advances at 8% PER ANNUM, which total approximately $7,800,000. All
such amounts advanced to Acculase were loaned without any date certain as to
when such loans would be repaid. In addition, Laser Photonics has issued
1,090,500 options as incentives to employees to work for Acculase. 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", "Business--Intellectual Property" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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 to finance the operations of
Acculase. The Boards of Directors of the Company and Acculase have voted to
enter into a reorganization pursuant to which Acculase will become a wholly-
owned subsidiary of Laser Photonics, and the stockholders of Acculase (other
than Laser Photonics) will exchange their Acculase shares for shares of Common
Stock. The exact ratio of the anticipated exchange of Acculase common stock for
Common Stock of Laser Photonics will be based on a valuation to be prepared by
one of the Company's advisors and a separate fairness opinion from an investment
banker to be hired by the Board of Directors of Acculase. As of the date of this
Prospectus, both boards of directors are awaiting advice on the exchange ratio
of Acculase shares for shares of Common Stock of the Company. Once the Board of
Laser Photonics has determined the exchange ratio for its offer, Laser Photonics
will cause its offer to be submitted to the Acculase stockholders.
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. Generally, under California law,
when a dissenting stockholder opposes a reorganization, which requires
stockholder approval, such as 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 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 terminate the reorganization, until such time as the
Company has adequate cash to cash out those Acculase stockholders who exercise
their appraisal rights.
EXCIMER LASER TECHNOLOGY
The basis of the Company's business is its excimer laser technology. The
word "excimer" is an acronym 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. Other types of
lasers generate infrared energy that produces heat upon tissue interaction. In
general, such laser beams are in the infrared end of the light wave spectrum and
create a great deal of heat.
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An excimer laser uses a medium in which the dimers exist only in the excited
state. The Company's excimer laser, 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 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
balance 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. Both infrared and UV laser
radiation are difficult to transmit through fiberoptic channels because of the
high absorption of the fiber or high photon energy of the light, Infrared lasers
do not employ fiberoptics, since the energy output would be absorbed by the
medium. Thus, infrared lasers use mirrors to transmit the radiation to the
desired target. UV radiation has very high photon energies capable of breaking
down molecular bonds, and the only suitable solid material capable of
transmitting UV radiation is quartz (fused silica). Although quartz has low
absorption properties, it is still difficult to transmit the energy through such
fibers because the profile of the beam from the laser creats hot spots that
damage the internal structure of the fiberoptics. The Company has a patented
method of reducing these hot spots and the consequent damage. 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 that may travel to the brain; and (ii) the excimer laser allows
for the more rapid creation of TMR channels (discussed below) leading to less
operating room time. See "Business--Strategic Alliance with Baxter Healthcare
Corporation."
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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. There are many different treatments,
both topical and systemic, that can clear psoriasis for periods of time. Plaque
psoriasis (PSORIASIS VULGORIS), 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 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 7,000,000 Americans
and that between 150,000 and 260,000 new cases occur each year. An estimated 10%
to 20% of afflicted persons 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 56,000,000 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. Management of
the Company believes that one-half or more of all psoriasis sufferers respond to
currently available UV light treatments, who could receive the benefits of the
Company's 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.
Between March, 1998 and November, 1999, the Company entered into the
Clinical Trial Agreements to compare the effect of excimer laser light using its
excimer laser technology to the current UVB treatment being used to treat
psoriasis and other skin disorders. The Company provided prototype laser
equipment for pre-clinical dose response studies. The Company has agreed to
support the clinical trials with research grants of approximately $660,000, of
which $448,000 has been paid, as of the date of this Prospectus. The final data
from the first of these clinical trial agreements was collected in December,
1998, and formed the basis for a 510(k) submission to the FDA on August 4, 1999.
The four remaining studies are ongoing and have not been completed as of the
date of this Prospectus. On January 27, 2000, FDA issued a 510(k) to the
Company, 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. The Company introduced its psoriasis products for the
purposes of commercial application testing in March, 2000, and intends to
distribute the psoriasis treatment system for commercial use in July, 2000. As
of the date of this Prospectus, the Company has generated no revenues from the
psoriasis treatment system.
There are three (3) bases for the Company's belief 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. First, the
treatment is directly only on the unhealthy portions of skin. Second, fewer
treatments should be required. Third, the reduced exposure to UVB lamps should
reduce the risk of skin cancer. 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
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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 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.
TREATMENT OF PSORIASIS USING EXCIMER LASERS. The Company expects that the
number of treatments that will be needed to control psoriasis should decrease
from over 30, using alternative treatment methods to less than 10 using the
Company's excimer laser treatment system. 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
treatment methods (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 more intense doses of UV light
will result in faster response 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., entered into a
consulting agreement (the "Anderson Agreement"), in which Dr. Anderson agreed to
provide consulting services to the Company in to develop data connection with an
IDE for the Company's psoriasis treatment products. Dr. 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.
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The Company's TMR System for the treatment of coronary heart disease creates
new channels for blood to flow to ischemic myocardium. Rather than opening
narrowed coronary arteries, the TMR System is intended to treat ischemic
myocardium directly, 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 1,000,000, 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 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 CAD 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.
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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 (6) 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 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 (5) 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
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 (5) 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 (2) TMR Systems to Baxter. Baxter has paid the Company an aggregate of
$1,968,000, of which $1,550,000 was received for the two (2) TMR Systems and
$418,000 was received for certain advances for additional excimer laser systems
and to obtain CE Mark compliance, 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 fixed price per laser for the
first eight (8) laser to be manufactured by the Company and, thereafter, to pay
a per unit price on a reducing scale from
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$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 (3)
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, Acculase
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."
The Company is in the process of negotiating modifications to the Baxter
Agreement. No assurance can be given that the Company will successfully complete
such negotiations.
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."
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, whereas other procedures usually are
only performed on
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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."
DISCONTINUANCE OF THE COMPANY'S NON-EXCIMER LASER BUSINESS OPERATIONS
The Company's former business strategy consisted of the development of a
wide range of laser products using different solid-state lasers. Between 1986
and the date of this Prospectus, the Company sold over 1,000 lasers, usually on
a private label basis, to other manufacturers. The Company also considered
pursuing a strategy of using its excimer laser technology for a photolithography
product, which was abandoned. The Company's former strategies proved to be
unsuccessful, in the opinion of then current management of the Company. Although
the Company generated revenues from the sale of its products, former management
believed that the Company would never be able to operate profitably in the
markets that the Company was then doing business. The Company currently believes
that its excimer laser technology provides the basis for reliable cost-effective
systems that will increasingly be used in connection with a variety of
applications. Accordingly, the Company has decided to discontinue its business
operations related to the Company's former business strategy and is focused
solely on excimer laser products for various medical applications.
To facilitate the Company's focus on excimer laser technology, the Company
has been attempting to sell certain of its non-excimer laser assets, which are
related to its business operations at its Orlando, Florida and Wilmington,
Massachusetts facilities. The Company did not complete the sale of certain of
its assets related to these operations pursuant to an agreement with one party.
The Company intends to discontinue its Florida business operations on or before
the end of April, 2000, and is in negotiations to sell certain assets related to
these business operations. There can be no assurances that the Company will be
able to complete such a proposed transaction. As of April 7, 2000, all but
approximately $465,000 of the debts related to these operations have been paid
from the proceeds of the August 9, 1999 Financing and the March 16, 2000
Financing and the sale of certain assets related to the Company's non-excimer
laser operations. The Company paid $950,000 in cash to the landlord for the
Florida lease in connection with the satisfaction of a judgment and settlement
of certain claims against the Company in the aggregate amount of $1,114,000.
Further, as of April 6, 2000, the Company closed the transactions with respect
to the sale of certain assets and the grant of an exclusive license for certain
patents related to non-excimer lasers related to the Company's Massachusetts
business operations to Laser Components GmbH ("Laser Components"), for a
purchase price of $213,000. Laser Components is unaffiliated with the Company.
In addition, Laser Components assumed the Company's prospective obligations
under the Company's Massachusetts office lease. The Company has discontinued its
Massachusetts operations.
Management's decision to suspend these business operations is consistent
with the Company's new business strategy and has resulted in the discontinuance
of business operations which generated approximately 76% of the Company's
revenues for 1998 and 1999. The Company has retained accounts receivable of an
aggregate of $176,179 (net of an allowance of $83,000), at December 31, 1999,
from these business operations and certain of its patents related to its
non-excimer laser systems.
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THE COMPANY'S FORMER LASER PRODUCTS. The Company has historically produced
other laser applications and products. These lasers were sold in two
(2) 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.
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, 1997, 1998 and 1999, were $180,000, $65,000 and none,
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., and an unaffiliated third
party. From the date of the acquisition until the sale of the assets of Laser
Analytics, 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 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 unit. In addition, the Company has designed a system using the
tunable diode laser technology for pollution monitoring applications. The
Company has granted an exclusive license to Laser Components to certain patents
which relate to the manufacture and marketing of tunable lead salt diode lasers.
GOVERNMENT REGULATION
The Company's proposed products, products awaiting approval 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
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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 (3) different classes, Class I, II and III, on the basis
of controls deemed reasonably necessary to 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 Food and Drug
Modernization Act of 1997 (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, and 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. The
Company believes that it has received adequate funds from the March 16, 2000
Financing to begin marketing its psoriasis product.
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 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
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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 BAXTER'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 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 Company
transferred the IDE to Baxter 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
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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.
In January, 1995, management of Acculase met with representatives of the FDA
to discuss preclinical data submission requirements necessary before initiating
human trials of the TMR System. Subsequently, animal testing of the TMR System
was performed in collaboration with several heart research institutions in the
United States, culminating in a trial 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 trial includes only patients that are suffering from
ischemia and angina, and who are not candidates for CABG or for balloon
angioplasty. Based on the results of the Phase I trial, Baxter has petitioned
for a Phase II trial. However, no assurance can be given as to when or if such
petition will be granted. The Company is advised that Baxter intends to expand
the Phase II studies to a multi-site trial (more than 10 institutions) and
expand the procedure to include patients who are candidates for incomplete CABG
revascularization. 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. 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.
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 FDA Act 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.
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 FDA, under GMP guidelines, requires the Company to carry
certain inventories of its medical lasers for emergency medical service.
Typically, major service problems must be responded to within 24 hours. The
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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. As of the date of this Prospectus, 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 success of the Company's marketing plan for its psoriasis treatment
products will depend on, 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. However, in the first
three years after the commercial introduction of the Company's psoriasis
treatment products in July, 2000, Company does not believe that HCFA
reimbursement is required for the Company to be financial successful. However,
no assurance to that effect can be given. See "Business-- Markets and
Marketing."
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 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
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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.
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 of products 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 obtain ISO certification to facilitate
the highest quality products and 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 could 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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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, the applicant 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.
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
in foreign countries. Reimbursement and healthcare payment systems in
international markets vary significantly by country, and include both government
sponsored healthcare and private insurance. Although the Company is advised that
Baxter intends to seek international reimbursement approvals for the TMR System,
there can be no assurance 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 seeking such approvals has not been determined. 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.
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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.
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.
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. The
Company has expended its own funds for research and development with respect to
its TMR and psoriasis treatment products. 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
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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.
For the years ended December 31, 1999, 1998 and 1997, the Company expended
$2,061,241, $1,243,372 and $685,109, respectively, on all research and
development. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
ENVIRONMENTAL CONCERNS
The Company's medical lasers are not believed to cause any material
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 has discontinued the operations of its
business relating to the commercialization of these types of lasers. The Company
has not received notice of violation of any environmental laws from a
governmental agency related to these former business operations.
The Company's TMR System and its laser intended to be used to treat
psoriasis, utilize 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.
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 (90) 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, on May 11, 1999, the Company 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. The Healthworld Warrants have
a term of ten years and vest to the extent of 14,500 shares of Common Stock on
the eleventh
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day of each month, beginning June 11, 1999, during the term of the agreement.
The shares underlying the Healthworld Warrants are being registered in
connection with a registration statement of which this Prospectus forms a part.
Under a separate agreement, Healthworld provides: (i) two (2) fulltime
managed-care specialists to make calls on potential customers for a period of
seven (7) months, at a cost of $30,000 per month; (ii) twenty (20) fulltime
sales representatives to market among dermatologists for a period of four (4)
months at a cost of $125,000 per month; and (iii) certain general management
services for a period of seven (7) 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 finalizing its marketing
strategy for the rollout of the psoriasis treatment system. See "Certain
Relationships and Related Transactions."
In the United States, healthcare providers that purchase devices with
medical applications for treatment of their patients generally rely on
third-party payors, principally private health insurance plans, federal Medicare
and state Medicaid, to reimburse all or a part of the costs and fees associated
with the procedures using such devices. The success of the Company's business,
in particular the generation of profits from its psoriasis treatment products,
may ultimately depend on the ability of healthcare providers to obtain
sufficient reimbursement from third-party payors for such costs and fees.
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. Since the Company's
psoriasis treatment products will initially constitute a new form of treatment,
no assurance can be given as to when or if patients will be able to obtain
partial or complete reimbursement from their insurance programs (or from
Medicare or Medicaid) for such treatment.
The Company's marketing plan attempts to take account of this factor by
focusing, during the first three years after the commercial introduction of the
psoriasis treatment system, on (i) that segment of the dermatological treatment
community which controls more than 50% of the prescriptions (topicals, systemics
and phototherapy) for the treatment of psoriasis, and (ii) geographic areas
where the average dual household income of patients is $75,000 or more.
Management believes that these patients generally have healthcare plans that pay
for psoriasis treatment. UVB regimens generally involve 18 to 30 treatments
every six months, and may require co-payments ranging from $5.00-$30.00 per
treatment. Other forms of therapy, such as frequent application of topicals and
creams, may cost between $250 to $500 per year. Management believes that the
Company's excimer laser regimen will require fewer patient treatments during a
given period than these alternative forms of treatment, but may be more
expensive and may not be covered by medical insurance. The Company believes that
persons suffering from psoriasis may have to accept paying higher out-of pocket
costs for the Company's psoriasis treatment than these traditional methods in
order for the Company to market its psoriasis laser treatment successfully. The
failure to achieve these goals could have a material adverse effect on the
Company's business operations and financial condition.
At the same time, the Company intends to take all reasonable steps to have
its psoriasis treatment products sufficiently accepted in the dermatological
treatment community to enable healthcare providers to receive partial or
complete reimbursement for the fees and costs associated therewith. In addition,
the Company expects to apply to HCFA for designation of a specific Medicare
reimbursement code for the Company's psoriasis products. Management believes
that the issuance by HCFA of a specific reimbursement code for such products
could have a positive effect on the wilingness of third-party insurers to
reimburse patients or healthcare providers for part or all of the costs of
treatment by the company's products, although no assurance can be given to that
effect. The HCFA application process will take from 18 to 24 months, and no
assurance can be given that a favorable response will be received from HCFA.
Even if HCFA designates a code which is specific to the Company's type of
psoriasis treatment products, no assurance can be given that it would result in
the generation of revenue to the Company. Failure to
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obtain a HCFA reimbursement code could have a material adverse effect on the
business and financial condition of the Company.
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. 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 foreign healthcare
payment systems. Reimbursement and healthcare payment systems in international
markets vary significantly by country, and include both government-sponsored
healthcare and private insurance. 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. See
"Business--Government Regulation."
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 and Eclipse) have received the right from 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, on behalf of the Company, reimbursement approval from HCFA.
Moreover, 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. 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. The failure to obtain such rights of reimbursement with respect to
the Company's TMR excimer laser systems could have a material adverse effect on
the business and financial condition of the Company. See "Business--Government
Regulation."
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
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could have a material adverse effect on the Company's business, financial
condition and results of operations.
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 could have a material adverse effect on the Company's
business, financial condition and results of operations.
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
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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.
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 thirty-six (36) patents, worldwide, of
which Laser Photonics owns twenty-one (21) patents and Acculase owns an
additional sixteen (16) patents. Of the patents owned by Laser Photonics,
seventeen (17) are issued in the United States and one each is issued in Canada,
Switzerland, France and Great Britain. Of the patents owned by Acculase, four
(4) patents are filed in the United States, two (2) patents are issued in each
of Australia, Canada, Germany and Israel, and one is issued in each of the EU,
France, Switzerland/Liechtenstein and Great Britain.
In connection with the Company's excimer laser technology, the Company has
been issued four (4) United States 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. One of the patent applications pending
relating to a proprietary laser catheter design, 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."
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The Company also received patents for its base excimer laser design in
certain European countries in December, 1994, Australia in November, 1991,
Canada in December, 1992, and Israel in February, 1993. The European,
Australian, Canadian, and Israeli patents provide protection until August, 2000,
August, 2004, December, 2009, and August, 2008, respectively. The Company
received patents for a fiber optic laser catheter design in Australia in
September, 1998, and in Israel in February, 1996, which expire in September,
2009 and February, 2111, respectively. Patent applications are pending in Japan
and Canada for a fiber optic laser catheter design.
All of the Company's patents and patent applications related to the
Company's excimer laser technology are licensed to Baxter under the Baxter
Agreement. The Company has pledged the four (4) United States patents and a
German patent to Baxter as security for the obligations of the Company under the
Baxter Agreement. See "Business Strategic Alliance with Baxter Healthcare
Corporation."
In connection with the sale of certain assets related to the Company's
non-excimer laser business carried out in its Massachusetts facility, the
Company has granted an exclusive license to Laser Components for use in the
commercialization of tunable lead salt diode lasers with respect to eight (8)
patents, which are not related to the Company's excimer lasers. Certain of the
Company's patents unrelated to its excimer laser technologies either may have
expired or may be delinquent in fees owing to various governmental authorities,
and there can be no assurances as to whether such patents are currently in
effect. See "Business--Sale of the Company's Non-Excimer Laser Assets and
Business."
LICENSED TECHNOLOGY. The Company licenses two (2) United States patents
used in connection with its excimer lasers from Patlex Corporation, and licenses
a United States patent used in connection with its excimer lasers from Baxter.
The Company is in negotiations with Baxter to obtain a foreign patent used in
connection with its excimer lasers, which has certain comparable aspects to the
United States patent licensed from Baxter. On 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 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
phototherapy technology of MGH, related to the diagnosis and treatment of
certain dermatological conditions and diseases. 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 has 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 relating to the
pending patent application (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, with respect to a product relating to the pending
patent application (which has not occurred as of the date of this Prospectus).
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, so long as the products manufactured,
used or sold are covered by a valid claim licensed on a non-exclusive basis to
the Company; and (iii) 1% of the net sales price, so long as the products
manufactured, used or sold, have no royalty payable under items (i) and (ii)
above, during the ten (10) year period
55
<PAGE>
following the first commercial sale 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.
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.
EMPLOYEES
As of April 4, 2000, the Company and its subsidiaries had 35 full-time
employees. These employees include the four (4) executive officers of Laser
Photonics in its Carlsbad, California and Radnor, Pennsylvania facilities, five
(5) administrative, two (2) clerical personnel, eighteen (18) engaged in
manufacturing of laser products, three (3) persons engaged in research and
development, three (3) engineers. In addition, the Company employs one part-time
person for administration and one for manufacturing. 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."
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 headquarters, 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 occupies approximately 1,850 square feet of office space in
Radnor, Pennsylvania, which serves as a satellite office to accommodate those
executive officers of the Company who live near Philadelphia, Pennsylvania. The
Company's corporate headquarters remain at its facilities in Carlsbad
California. The lease for this property has a 5-year term, commencing April 1,
2000, and provides for a monthly rent ranging from approximately $4,940 per
month to $5,555 per month over the term of the lease.
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 "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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<PAGE>
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.
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. On August 6, 1999, Baxter
filed suit against The Spectranetics Corporation in the United States District
Court for the District of Delaware, entitled BAXTER HEALTHCARE CORPORATION,
LASERSIGHT PATENT, INC. AND ACCULASE, INC. V. THE SPECTRANETICS CORPORATION,
Civil Action No. 99-512 RRM. On November 12, 1999, Acculase moved to become a
co-plaintiff with Baxter. The Second Amended Complaint ("Complaint"), dated
December 17, 1999, 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 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.
On January 5, 2000, Spectranetics filed an Answer and Counterclaims in the
United States District Court for the District of Delaware, admitting 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.
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<PAGE>
DISPUTE WITH LASER ANALYTICS, INC., A TEXAS CORPORATION. The Company has
received a claim for approximately $232,000, plus interest, from Laser
Analytics, Inc., a Texas corporation ("LAI-Texas"). As of January 4, 1999, the
Company and Laser Analytics, Inc., a Massachusetts corporation, a wholly-owned
subsidiary of the Company, entered into an agreement with LAI-Texas, pursuant to
which LAI-Texas agreed to purchase certain of the assets of the Company
associated with the Company's business operations in Orlando, Florida and
Wilmington, Massachusetts. The principal of LAI-Texas managed these business
operations pending the closing. LAI-Texas failed to close the transaction and
the Company resumed management of these business operations. LAI-Texas claims
that during this period, the Company's operations required cash and that
LAI-Texas loaned over $232,000 to the Company to support these business
operations. The Company is in the process of investigating LAI-Texas' claim and
the Company's rights with respect to the manner in which the operations were
managed by the principal of LAI-Texas, and LAI-Texas' failure to close pursuant
to the agreement. Since the Company does not know all relevant factors, which
may affect the outcome, at this time, the Company is unable to evaluate the
likelihood of a favorable outcome, and the Company is currently unable to
estimate the amount or range of possible gain or loss.
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
and Administration 43
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
is the Managing Director of True North Partners LLC, a venture capital firm with
a specialty in the health care field. 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 Healthcare, Inc. "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. From 1995 to March, 1999, he filled several senior positions at
Radiance Medical Systems, Inc., including serving as Vice-President-Sales and
Marketing from November, 1995 until October, 1997, and 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.
Mr. McGrath was the Chief Financial Officer and Executive
Vice-President--Operations of triSpan Internet Commerce Solutions, Inc., a
technology consulting company, from September, 1996 until February, 1999, at
which time AnswerThink acquired triSpan. Following the acquisition and until
January, 2000, Mr. McGrath served as the Chief Operating Officer of
AnswerThink's internet practice. Mr. McGrath is a certified public
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<PAGE>
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.
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. 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 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 December 1999.
Mr. Navarro is an acknowledged authority on the medical device and health care
business. Since 1999, he has served as the Global Head of Health Care Corporate
Finance at ING Barings LLC. Mr. Navarro joined ING Barings LLC in 1993 and has
served as Associate Director of Americas Equity Research and Global Head of
Medical Technology Equity Research. 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
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<PAGE>
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.
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, PH.D., was appointed to the Advisory Board in January,
2000. He 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 Ph.D. 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., was appointed to the Advisory Board in January, 2000.
He is a Co-Director, Cosmetic Surgery 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, PH.D., was appointed to the Advisory Board in January,
2000. He 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 Ph.D. in Biophysics from the University of Western Ontario.
WARRICK L. MORRISON, M.D., was appointed to the Advisory Board in January,
2000. He 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. He has
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.
JOHN Y. M. KOO, M.D., was appointed to the Advisory Board in January, 2000.
He is the Vice Chairman and Associate Clinical professor in the Department of
Dermatology at the University of California, San Francisco Medical Center.
Dr. Koo has published more than 100 articles and book chapters in the psoriasis
field. Dr. Koo holds a B.S. degree from University of California, Berkeley and
an M.D. from Harvard Medical School.
61
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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 $100,000, for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS PAYOUTS
--------------------------------------------- ------------------------------------ ---------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP
SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- --------------------------- -------- -------- -------- ------------ ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jeffrey O'Donnell(1)........... 1999 35,632 0 2,000 0 650,000 0 0
Raymond A. Hartman (CEO)(2).... 1999 248,546 0 12,000 0 0 0 0
1998 125,008 0 0 0 0 0 0
1997 125,000 0 0 0 250,000 0 270
Chaim Markheim (CFO)(3)........ 1999 227,962 0 137,100 0 180,000 0 0
1998 125,008 0 12,000 0 250,000 0 0
1997 0 0 0 0 0 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. Includes paid and accrued salary for each such
fiscal year.
(3) Mr. Markheim served as the Company's Chief Financial Officer and Chief
Operating Officer until January 15, 2000. Includes $77,000 paid in 1999 as
past-due salary from prior years and $137,100 as additional compensation in
1999 (which includes, among others: (i) a car allowance of $12,000, and
(ii) $54,600 which had been advanced to Mr. Markheim at December 31, 1998
and which was recognized as additional compensation in lieu of repayment for
1999).
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 100% 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 100% of all unvested options
will vest immediately.
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<PAGE>
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 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 $13.50. Of these options, 50,000 are currently vested, 50,000
will vest on January 28, 2001, and 50,000 will vest on January 28, 2002, so long
as Mr. Allen remains employed by the Company.
OPTION/SAR GRANTS TABLE
The following table sets forth certain information concerning grants of
stock options to certain of the Company's executive officers, including the
Named Executives for the year ended December 31, 1999:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATE
OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUALS GRANTS TERM(1)
--------------------------- ---------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE)(1) DATE 5% ($) 10% ($)
- ---- ------------ ------------ ------------ ---------- ------------ ------------
(A) (B) (C) (D) (E) (F) (G)
<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
</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 an
exercise price of $1.50 per share to certain directors, employees and
consultants.
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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 items. The Company's Certificate
of Incorporation and Bylaws also contain extensive indemnification provisions,
which will 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.
The Company has adopted a form of indemnification agreement (the
"Indemnification Agreement"), which provides the Indemnitee with the maximum
indemnification allowed under applicable law. Since the Delaware statutes are
non-exclusive, it is possible that certain claims beyond the scope of the
statute may be indemnifiable. The Indemnification Agreement provides a scheme of
indemnification, which may be broader than that specifically provided by
Delaware law. It has not yet been determined, however, to what extent the
indemnification expressly permitted by Delaware law may be expanded, and
therefore the scope of indemnification provided by the Indemnification Agreement
may be subject to future judicial interpretation.
The Indemnification Agreement provides that the Company shall indemnify an
Indemnitee who is or was a party or becomes a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding whether
civil, criminal, administrative or investigative by reason of the fact that the
Indemnitee is or was a director, officer, key employee or agent of the Company
or any subsidiary of the Company. The Company shall advance all expenses,
judgments, fines, penalties and amounts paid in settlement (including taxes
imposed on Indemnitee on account of receipt of such payouts) incurred by the
Indemnitee in connection with the investigation, defense, settlement or appeal
of any civil or criminal action or proceeding as described above. The Indemnitee
shall repay such amounts advanced only if it shall be ultimately determined that
he or she is not entitled to be indemnified by the Company. The advances paid to
the Indemnitee by the Company shall be delivered within 20 days following a
written request by the Indemnitee. Any award of indemnification to an
Indemnitee, if not covered by insurance, would come directly from the assets of
the Company, thereby affecting a stockholder's investment.
At present, there is no pending litigation or proceeding involving an
Indemnitee where indemnification would be required or permitted under the
Indemnification Agreements.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
Except for the compensation plans covering Jeffrey O'Donnell and Dennis
McGrath, 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. See "Compensation of Executive Officers and Directors--Employment
Agreement with Jeffrey O'Donnell" and "Compensation of Executive Officers and
Directors--Employment Agreement with Dennis McGrath."
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 a standing committee on
nominations consisting of Messrs. O'Donnell, Charlton and McAtee.
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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
$5,000,000 limit of liability. The policy period expires on February 25, 2001
and has an annual premium of $110,000. 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 to 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"),
convertible into shares of Common Stock at a fixed price of $2.00 per share; 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. In
March, 1999, the price of the Company's Common Stock in the Over The Counter
market ranged from $2.625 to $4.50 per share. On March 29, 1999, the price of
the Common Stock was $3.875. 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 a registration statement of
which this Prospectus forms a part, 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.
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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 NASD Bulletin
Board, and for services in completing the Company's Bankruptcy 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
Donald 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, 1999, the Board of Directors further resolved that these options 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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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
$1.1875.
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, for services rendered as a director of the Company, the
Board of Directors granted options to acquire 100,000 shares of Common Stock to
K.B. Equities, Inc. ("KB Equities"), an affiliate of Mr. Katz and Ms. Barnes, at
an exercise price of $0.75 per share, with a term of seven (7) years. Mr. Katz,
who was a director but not an employee of the Company, 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 $2.50.
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, who was the
Chief Financial Officer, Chief Operating Officer and a director of the Company,
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 $2.875.
On April 10, 1998, the Company issued options to purchase up to 100,000
shares of Common Stock, at an exercise price of $2.875 per share, with a
five-year term, to an officer of the Company, and 20,000 shares of Common Stock,
to certain consultants for legal services rendered, computed 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 outside members 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 up to 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 $2.875. Of these options all are vested, as of the date of this
Prospectus.
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On March 8, 1999, the Company granted to Mr. Charlton, outside of the Option
Plan for Outside Directors, 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 Prospectus.
Upon Steve Girgenti's and Harry Mittelman's joining the Company's Board of
Directors, on April 20, 1999, each was granted options to purchase up to 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.
On April 20, 1999, the Company granted to Mr. Girgenti and Dr. Mittelman
options, outside of the Option Plan for Outside Directors, 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 October 31, 1999,
the Company granted to its current legal counsel, Matthias & Berg LLP ("M&B"),
options to acquire an aggregate of 32,230 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. See "Legal Matters."
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 to 96 investors 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, warrants 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 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 vest over two (2) years, so 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.
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On November 19, 1999, Jeffrey F. 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, 216,667 vest on November 19, 2000, and 216,666
vest on November 19, 2002, so long as Mr. O'Donnell remains employed by the
Company. 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), 100% 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, the Company's Chief Financial
Officer, 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, 116,667 vest on November 24, 2000, and 116,666 vest on
November 24, 2002, so 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), 100% 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 vest on
December 7, 2000, and 33,333 vest on December 7, 2002, so 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.
On December 7, 1999, the Company granted to Mr. Navarro options, all of
which are vested, to acquire up to 5,000 shares of Common Stock, at $2.8125 per
share. On the date of grant of these stock options, the price of the Company's
Common Stock was $5.9375. All of such options are vested, as of the date of this
Prospectus.
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, 50,000 vest on January 28, 2001, and
50,000 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.
As of January 1, 2000, in connection with the Option Plan for Outside
Directors, the Company granted to Messrs. Charlton, McAtee, Novak, Girgenti,
Mittelman and Navarro options to acquire 20,000 shares of Common Stock at $10.50
per share, for services to be rendered during 2000. On the date of grant of
these stock options, the price of the Company's Common Stock was $10.50. As of
the date of this Prospectus, 5,000 of these options are vested for each
beneficiary of the Option Plan for Outside Directors.
As of February 10, 2000, the Company issued to two employees options to
acquire up to 30,000 shares of Common Stock at a price of $17.75 per share.
These options will vest to the extent of 25% after one year, then ratably each
month thereafter.
As of February 10, 2000, the Company granted each member of the Scientific
Advisory Board options to acquire up to 3,000 shares of the Company's Common
Stock at an exercise price of $17.75 per share. All such options are fully
vested.
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
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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 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 to $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 agreed to issue PMG an additional 75,000 warrants (the
"Contingent Warrants") at a purchase price of $0.001 per share. The Contingent
Warrants become vested in PMG in a ratio equal to one Contingent Warrant for
each warrant exercised by warrantholders in the $6,000,000 private placement. As
of the date of this Prospectus, 187,000 of the Warrants have been exercised. The
Contingent Warrants will be exercisable until November 25, 2002, at an exercise
price equal to the average of the closing price of the Company's Common Stock
for the ten-day period ending on the day before the exercise. 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. The shares
underlying the Contingent Warrants are being registered pursuant to a
registration statement of which this Prospectus forms a part.
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 any time until July 15, 2003. The price of the Company's Common
Stock on July 15, 1998 was $2.125.
On December 31, 1998, Mr. and Mrs. Richard A. Hansen converted an
outstanding obligation of $150,000 into an aggregate of 100,000 shares of the
Company's restricted Common Stock, at $1.50 per share. The price of the Common
Stock at December 31, 1998, was $2.812 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.
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 March 16, 2000, the Company had
$18,400,000 of cash on hand.
71
<PAGE>
The Company entered into an agreement, dated as of February 2, 2000, with
ING Barings LLC for the provision of financial advisory and investment banking
services, on an exclusive basis. The term of the agreement is through
September 30, 2000. Pursuant to this agreement, ING acted as placement agent in
connection with a private offering to 10 institutional investors an aggregate of
1,409,092 shares of the Company's Common Stock at a price of $11.00 per share,
for which we paid ING customary fees. Sam Navarro, a director of the Company is
also the Global Head of Health Care Corporate Finance at ING. At the close of
the placement on March 16, 2000, the Company received net proceeds of
$14,570,000. In addition, with the exception of Jeffrey F. O'Donnell and Dennis
McGrath, all of the executive officers and directors of the Company signed
lock-up agreements for a period of 90 days from March 16, 2000, as to all
securities of the Company they may own. Messrs. O'Donnell and McGrath reserved
the right to sell 65,000 and 35,000 shares, respectively, during such 90-day
period. The Company will use the proceeds of this financing to pay certain
debts, including monies owed to the Company's Orlando, Florida landlord, and for
marketing expenses and working capital.
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 has agreed to 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 $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). 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."
The Company had agreed to pay Raymond A. Hartman, the former President and
Director of the Company, for commissions earned in connection with the Baxter
Agreement. In 1998, the company recognized $72,000 of commission expenses
related to this agreement. At December 31, 1998, the Company owed $136,002 to
Mr. Hartman. All amounts due to Mr. Hartman were paid during the year ended
December 31, 1999. At December 31, 1998, the Company had made advances of
approximately $54,600 to Chaim Markheim, former Chief Operating Officer and
director of the Company. During, 1999, these advance payments were recognized as
compensation to Mr. Markheim in lieu of repayment. In the year ended
December 31, 1997, the Company made advance payments in the amount of $48,000 to
Helionetics, which were subsequently written off on the Company's financial
statements.
FORMER AGREEMENT WITH CSC HEALTHCARE, INC.. On October 29, 1998, the
Company and CSC entered into an agreement ("the CSC Agreement"), under which CSC
is to develop a commercial strategy and to define and obtain the required
resources for the commercial exploitation of the Company's excimer laser
technology. Under the CSC Agreement, CSC was to provide consulting services to
various businesses,
72
<PAGE>
including the Company, regarding the introduction of medical technology for
commercialization. Subsequently, CSC filed a complaint against the Company,
alleging the failure to pay for professional services performed by CSC, plus
expenses. The dispute was resolved by a settlement in which the Company paid CSC
the sum of $700,000. Warwick Alex Charlton, a former Vice President of CSC, is
also the Non-Executive Chairman of the Board of Directors of the Company. See
"Management."
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.
73
<PAGE>
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
The following table reflects, as of April 11, 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>
PERCENTAGE##
NUMBER OF --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES# BEFORE OFFERING AFTER OFFERING
- ------------------------------------ --------- --------------- --------------
<S> <C> <C> <C>
Warwick Alex Charlton(1)................................ 175,000 1.16 1.00
Jeffrey F. O'Donnell(2)................................. 226,667 1.50 1.29
Dennis McGrath(3)....................................... 116,667 * *
Michael Allen(4)........................................ 50,000 * *
Alan R. Novak(5)........................................ 145,000 * *
John J. McAtee, Jr.(6).................................. 224,000 1.49 1.28
Steven Girgenti(7)...................................... 244,000 1.61 1.40
Harry Mittelman(8)...................................... 384,014 2.55 2.20
Samuel E. Navarro(9).................................... 43,334 * *
Joseph E. Gallo, Trustee(10)............................ 987,943 6.60 5.69
Pennsylvania Merchant Group, Ltd.(11)................... 1,234,104 7.88 7.11
Calvin Hori, Hori Capital Management, Inc. and Platinum
Partners, LP(12)...................................... 933,100 6.26 5.38
All directors and officers as a group
(9 persons)(13)....................................... 1,608,682 9.96 8.77
</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.
## Assumes that the 2,429,604 shares of Common Stock underlying the Warrants
and Options are not issued and outstanding "Before Offering," but are issued
and outstanding "After Offering."
* Less than 1%.
(1) Includes options to purchase 175,000 shares of Common Stock. Does not
include options to acquire up to 15,000 shares of Common Stock, which may
vest during 2000. Mr. Charlton's address is 65 Broadway, 7th Floor, New
York, NY 10006. 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 partner, 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 Five Radnor Corporate Center, Suite 470, Radnor, Pennsylvania 19087. 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 Five Radnor
Corporate Center, Suite 470, Radnor, Pennsylvania 19087. See "Certain
Relationships and Related Transactions."
(FOOTNOTES CONTINUE ON THE FOLLOWING PAGE)
74
<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 Five Radnor Corporate
Center, Suite 470, Radnor, Pennsylvania 19087. 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 116,399 shares of Common Stock. Does not include options to
purchase up to 15,000 shares of Common Stock, which may vest during 2000.
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. Does not include options to purchase up
to 15,000 shares of Common Stock, which may vest during 2000. Mr. McAtee's
address is Two Greenwich Plaza, Greenwich, Connecticut 06830. See "Certain
Relationships and Related Transactions."
(7) Includes options to purchase 70,000 shares of Common Stock, issued to Mr.
Girgenti and Warrants to purchase 174,000 shares of Common Stock issued to
Healthworld, of which Mr. Girgenti is Chairman and Chief Executive Officer.
Does not include options to purchase up to 15,000 shares of Common Stock,
which may vest during 2000. 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 251,014 shares of Common Stock, Warrants to purchase 63,000 shares
and options to purchase 70,000 shares of Common Stock beneficially owned by
Dr. Mittelman, including shares and Warrants registered in the name of
certain trusts of which he serves as trustee, his IRA and pension profit
sharing plan, his wife, jointly with his wife and in his own name. Does not
include options to purchase up to 15,000 shares of Common Stock, which may
vest during 2000. 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 43,334 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) Pennsylvania Merchant Group, Ltd. is the registered owner of Warrants to
purchase up to 668,104 shares of Common Stock. Richard A. Hansen is the
President and a director of PMG. Mr. Hansen is the registered owner of
75,000 shares of Common Stock and options to purchase 75,000 shares of
Common Stock, and his wife, Penelope S. Hansen is the registered owner of
25,000 shares of Common Stock. Frank A. Abruzzese, Frank J. Campbell and
Peter S. Rawlings are directors of PMG. Mr. Abruzzese is the beneficial
owner of 11,000 shares. Mr. Campbell is the beneficial owner of 155,000
shares and warrants to purchase 25,000 shares. Mr. Rawlings is the
registered owner of 160,000 shares of Common Stock, and his wife Sarah
P. Rawlings is the registered owner of 40,000 shares of Common Stock. All
of these shares are being registered in a registration
(FOOTNOTES CONTINUE ON THE FOLLOWING PAGE)
75
<PAGE>
(FOOTNOTES FROM THE PRIOR PAGE)
statement of which this Prospectus forms a part. The address of PMG and
each of such persons is Four Falls Corporate Center, West Conshohocken,
Pennsylvania 19428. See "Certain Relationships and Related
Transactions--Convertible Debt and Conversion of Convertible Debt.
(12) 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.
(13) Includes 388,615 shares of Common Stock and options and warrants to
purchase up to 1,220,067 shares of Common Stock.
76
<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 14,913,260 shares of Common Stock. There were
also issued and outstanding Warrants to purchase up to 2,327,105 shares of
Common Stock and options to purchase up to 3,609,379 shares of Common Stock.
In September 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 2,237,105 shares
of Common Stock to various investors in the Company at exercise prices ranging
from $1.50 up to $4.69 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 3,609,379 shares
of Common Stock to various employees, officers, directors and consultants of the
Company, at exercise prices ranging from $0.50 to $17.75 per share, 2,426,047 of
which are currently exercisable. The Company has registered 200,000 shares of
Common Stock underlying the Options in a Registration Statement of which this
Prospectus forms a part. See "Compensation of Executive Officers and
Directors--1995 Non-Qualified Stock Option Plan--Compensation of Directors,"
"Certain Relationships and Related Transactions" and "Selling Stockholders and
Plan of Distribution."
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
77
<PAGE>
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.
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 persons become interested
stockholders. 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's 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 meetingof
stockholders, 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.
78
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
There are, as of the date of this Prospectus, 7,455,927 shares of Common
Stock currently issued in the name of the Selling Stockholders, 2,237,105 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 Jeffrey F. O'Donnell, the
Chief Executive Officer and a Director of the Company, and Steven Girgenti (as
President of Healthworld Corporation), John J. McAtee, Jr., Alan R. Novak and
Harry Mittelman, who are directors of the Company, and Joseph E. Gallo, as
trustee, 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.(4)................................. 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
Anvers, L.P............................................ 18,182 18,182
Anvers II, L.P......................................... 27,273 27,273
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
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
SHARES UNDERLYING
WARRANTS AND
SELLING STOCKHOLDERS SHARES(1) OPTIONS(2) TOTAL SHARES
- -------------------- --------- ----------------- ------------
<S> <C> <C> <C>
Bowler, Mary E......................................... 17,218 5,000 22,218
Brooks Provisions...................................... 25,000 25,000
Brown, William P....................................... 10,000 10,000
Burkhardt, Robert...................................... 5,000 5,000
Campbell, Frank J., III(4)............................. 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........................................ 150,000 150,000
Constantine, Harry & Phoebe............................ 10,000 10,000
Corby, Dan............................................. 7,606 7,606
Cornell, John E., Trustee.............................. 2,000 2,000
Cullen, Alice.......................................... 10,000 10,000
DCF Partners, L.P...................................... 300,545 300,545
DCF Life Sciences Fund Limited......................... 154,000 154,000
Dandridge, Victor, III................................. 20,000 20,000
DeCarlo, Anthony & Ellen............................... 5,107 2,500 7,607
Decosimo, Joseph....................................... 20,000 20,000
DeMento, B. Robert & Linda............................. 6,000 6,000
DeMento, Biagio & Cosima............................... 25,000 25,000
DeMoss Foundation...................................... 150,000 50,000 200,000
Ecker, Amir............................................ 107,500 22,500 130,000
Ecker, Amir and Maria.................................. 3,750 3,750
Ecker, Family Partnership.............................. 52,500 13,750 66,250
Ecker, Amir: IRA 52,500 52,500
EDJ Limited............................................ 65,000 17,500 82,500
Edwards, Joanne........................................ 15,500 6,250 21,750
Emerson, J. Steven, Roth IRA, Bear Stearns Securities
Corp., Custodian..................................... 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..... 347,222 62,500 409,722
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............................. 56,250 18,750 75,000
Gruber McBaine International........................... 75,000 25,000 100,000
Haimovitch, Larry...................................... 22,500 6,250 28,750
Hansen Penelope S. & Richard A.(4)..................... 100,000 75,000 175,000
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
SHARES UNDERLYING
WARRANTS AND
SELLING STOCKHOLDERS SHARES(1) OPTIONS(2) TOTAL SHARES
- -------------------- --------- ----------------- ------------
<S> <C> <C> <C>
Hare & Co.............................................. 240,000 20,000 260,000
Healthworld Corporation(6)............................. 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(7)................................... 50,000 325,000 375,000
Keszeli, Alexander..................................... 2,000 2,000
Kim, James J........................................... 20,000 20,000
Koffman, Phillip and Marie............................. 10,000 5,000 15,000
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 25,313 100,938
Mazer, Irving--Special Account......................... 7,500 2,500 10,000
McAtee, John J., Jr.(8)................................ 100,000 100,000
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, Brenda(9)................................... 6,000 3,000 9,000
Mittelman, Harry(9).................................... 15,100 15,100
Mittelman, Harry & Brenda(9)........................... 15,000 7,500 22,500
Mittelman, Harry, Pension Profit Sharing Plan(9)....... 15,000 7,500 22,500
Mittelman, Harry Revocable Trust(9).................... 35,000 17,500 52,500
Mittelman, Harry, Rollover IRA(9)...................... 45,000 22,500 67,500
Mittelman, Harry; (Trustee, Drew Kaplow)(9)............ 3,500 1,750 5,250
Mittelman, Harry, (Trustee, Spencer Mittelman)(9)...... 6,500 3,250 9,750
Murphy, Kathleen E..................................... 10,000 10,000
Narragansett I, L.P.................................... 62,727 62,727
Narragansett Offshore, Ltd............................. 28,182 28,182
Novak, Alan R.(10)..................................... 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
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
SHARES UNDERLYING
WARRANTS AND
SELLING STOCKHOLDERS SHARES(1) OPTIONS(2) TOTAL SHARES
- -------------------- --------- ----------------- ------------
<S> <C> <C> <C>
Papa, Vincent.......................................... 10,000 10,000
Parke, David........................................... 7,000 7,000
Parlby, George......................................... 7,500 24,000 31,500
Pennsylvania Merchant Group, Ltd.(4)................... 668,104 668,104
Pequot Scout Fund L.P.................................. 545,455 545,455
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
ProFutures Special Equities Fund LLP................... 187,500 187,500
Rawlings, Peter S.(4).................................. 200,000 200,000
Rice, William Phipps................................... 10,000 10,000
Robins, Barry.......................................... 30,282 15,000 45,282
Robins, Charles M...................................... 52,500 6,250 58,750
Roytman, Leonid........................................ 15,000 15,000
Roytman, Leonid; IRA................................... 58,750 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.(11)............................. 52,500 6,250 58,750
Sonz Partners. LP...................................... 50,000 25,000 75,000
Special Solutions Cayman Fund L.P...................... 45,455 45,455
Special Solutions Fund III, L.P........................ 136,364 136,364
Special Solutions Private Equity Fund III L.P.......... 90,909 90,909
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.......................................... 43,750 43,750
Tecce, Frederick IRA................................... 10,000 10,000
Torrone, Robert F. Associates.......................... 10,000 10,000
Troster, Ruth Lois..................................... 2,000 2,000
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
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
SHARES UNDERLYING
WARRANTS AND
SELLING STOCKHOLDERS SHARES(1) OPTIONS(2) TOTAL SHARES
- -------------------- --------- ----------------- ------------
<S> <C> <C> <C>
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................................................. 7,455,927 2,237,105 9,893,032
========= ========= =========
</TABLE>
- ------------------------
(1) Consists of shares issued in various private placements of the Company's
securities.
(2) Consists of Warrants and Options, which have been granted, and some of
which have vested and some of which may vest from time to time. See
"Certain Relationships and Related Transactions."
(3) Jeffrey O'Donnell, Chief Executive Officer and a Director of the Company,
is a partner of 531 E. Lancaster Avenue LLC.
(4) Pennsylvania Merchant Group, Ltd. is the registered owner of Warrants to
purchase up to 668,104 shares of Common Stock. Richard A. Hansen is the
President and a director of PMG. Mr. Hansen is the registered owner of
75,000 shares of Common Stock and options to purchase 75,000 shares of
Common Stock, and his wife, Penelope S. Hansen is the registered owner of
25,000 shares of Common Stock. Frank A. Abruzzese, Frank J. Campbell and
Peter S. Rawlings are directors of PMG. Mr. Rawlings is the registered
owner of 160,000 shares of Common Stock, and his wife Sarah P. Rawlings is
the registered owner of 40,000 shares of Common Stock.
(5) Includes the number of shares of Common Stock and shares underlying
Warrants registered in the names of the following persons: (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).
(6) Steven Girgenti, a director of the Company, is President of Healthworld.
(7) Includes the number of shares registered in the names of the following
persons: (a) Clifford Kalista (47,000 Shares), and (b) Phyllis Kalista
(3,000 Shares); 75,000 options and 250,000 Warrants registered in the names
of Clifford Kalista and Phyllis Kalista.
(8) Includes 84,100 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.
(9) Includes an aggregate of 141,100 shares of Common Stock and the shares
underlying Warrants to purchase 63,000 shares registered in the name of
certain trusts of which Dr. Mittelman serves as trustee, his IRA and
pension profit sharing plan, his wife, and jointly with his wife and in his
name. Dr. Mittelman is a member of the Board of Directors of the Company.
(10) Mr. Novak is a member of the Board of Directors of the Company.
(11) Includes the number of shares and shares underlying Warrants registered in
the names of the following persons: (a) Perry D. Snavely, Jr. (40,000
shares), and (b) Perry D. Snavely IRA (12,500 shares and 6,250 Warrants.)
83
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, the Company had issued and outstanding
14,913,260 shares of Common Stock. There are currently 5,690,027 shares of
Common Stock, which are restricted shares, and 9,223,233, which are freely
tradable or eligible to have the restrictive legend removed pursuant to
Rule 144(k) promulgated under the Securities Act. All of the restricted shares,
including 263,701 shares held by affiliates of the Company, are being registered
in a registration statement of which this Prospectus forms a part. Further, the
Company has issued and outstanding options to purchase up to 3,609,379 shares of
Common Stock, 2,426,047 of which are currently exercisable, and warrants to
purchase up to 2,237,105 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 149,944
shares immediately before this Offering and 173,504, assuming the exercise of
all Options and Warrants and the issuance of the shares of Common Stock
underlying such securities), 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
Matthias & Berg LLP, Los Angeles, will pass upon certain matters with
respect to the validity of the Shares offered by the Selling Stockholders for
the Company. As of the date of this Prospectus, Matthias & Berg LLP holds
options for 32,230 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, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1999, 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.
84
<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 a registration statement of which this Prospectus forms
a part 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. 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.
85
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INDEPENDENT AUDITOR'S REPORT................................ F-2
CONSOLIDATED BALANCE SHEETS--December 31, 1999 and 1998..... F-3
CONSOLIDATED STATEMENTS OF OPERATIONS--For the Years Ended
December 31, 1999, 1998 and 1997.......................... F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--For the
Years Ended December 31, 1999, 1998 and 1997.............. F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS--For the Years Ended
December 31, 1999, 1998 and 1997.......................... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-7
</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, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three year period ended
December 31, 1999. 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, 1999 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, 1999, in conformity with generally accepted
accounting principles.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
February 23, 2000, except for the last paragraph of
Note 9 which is dated as of
March 16, 2000
F-2
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,535,557 $ 174,468
Accounts receivable, net of allowance for doubtful
accounts of $83,000 and $68,000 in 1999 and 1998,
respectively............................................ 176,179 174,676
Receivable from related party............................. -- 54,600
Inventories............................................... 1,170,472 458,343
Prepaid expenses and other assets......................... 34,685 38,120
------------ ------------
Total current assets.................................... 5,916,893 900,207
PROPERTY AND EQUIPMENT, net................................. 152,965 127,190
PATENT COSTS, net of accumulated amortization of $40,671 and
$32,318 in 1999 and 1998, respectively.................... 44,127 52,480
PREPAID LICENSE FEE, net of accumulated amortization of
$1,041,667 and $541,667 in 1999 and 1998, respectively.... 2,958,333 3,458,333
EXCESS OF COST OVER NET ASSETS OF ACQUIRED COMPANY, net of
accumulated amortization of $2,338,569 and $1,862,296 in
1999 and 1998, respectively............................... -- 476,273
OTHER ASSETS................................................ 45,346 48,246
ASSETS HELD FOR SALE........................................ 588,000 613,901
------------ ------------
TOTAL ASSETS................................................ $ 9,705,664 $ 5,676,630
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable and long-term debt....... $ 353,710 $ 748,441
Payable to related party.................................. -- 136,002
Accounts payable.......................................... 2,034,371 1,214,938
Accrued payroll and related expenses...................... 376,967 437,115
Other accrued liabilities................................. 1,372,668 884,944
Deferred revenues......................................... 250,000 343,906
------------ ------------
Total current liabilities............................... 4,387,716 3,765,346
NOTES PAYABLE AND LONG-TERM DEBT, less current portion...... 43,620 69,893
------------ ------------
Total liabilities....................................... 4,431,336 3,835,239
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 8 and 12)........... -- --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 25,000,000 shares
authorized, 13,267,918 and 9,895,684 shares issued and
outstanding in 1999 and 1998, respectively.............. 132,679 98,957
Additional paid-in capital................................ 30,759,186 17,439,904
Accumulated deficit....................................... (25,617,537) (15,697,470)
------------ ------------
Total stockholders' equity.............................. 5,274,328 1,841,391
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $ 9,705,664 $ 5,676,630
============ ============
</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>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Sales..................................................... $ 1,114,929 $ 1,580,422 $ 2,960,330
Other..................................................... 93,906 769,026 855,000
----------- ----------- -----------
1,208,835 2,349,448 3,815,330
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales............................................. 1,257,438 1,806,557 2,090,276
Selling, general and administrative....................... 4,930,095 3,608,108 2,181,304
Research and development.................................. 2,061,241 1,243,372 685,109
Bad debt expense related to related party receivable...... -- -- 48,000
Depreciation and amortization............................. 1,016,628 1,088,649 741,481
----------- ----------- -----------
9,265,402 7,746,686 5,746,170
----------- ----------- -----------
LOSS FROM OPERATIONS........................................ (8,056,567) (5,397,238) (1,930,840)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (1,999,921) (510,948) (386,069)
Interest income........................................... 127,221 8,907 52,280
Other..................................................... 13,582 (6,008) (38,572)
----------- ----------- -----------
LOSS BEFORE INCOME TAX...................................... (9,915,685) (5,905,287) (2,303,201)
INCOME TAX EXPENSE.......................................... (4,382) (3,300) (3,900)
----------- ----------- -----------
NET LOSS.................................................... $(9,920,067) $(5,908,587) $(2,307,101)
=========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE............................ $ (0.89) $ (0.64) $ (0.35)
=========== =========== ===========
WEIGHTED AVERAGE SHARES..................................... 11,207,727 9,287,507 6,531,190
=========== =========== ===========
</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
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1997................. 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,
Inc................................... -- -- 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............................... -- -- 1,115,625 -- 1,115,625
Proceeds from issuance of warrants...... -- -- 368,900 -- 368,900
Compensation recognized upon issuance of
stock options......................... -- -- 78,125 -- 78,125
Stock options issued for services....... -- -- 679,947 -- 679,947
Stock issued to pay interest............ 38,262 382 148,810 -- 149,192
Conversion of convertible debentures,
net of unamortized debt issuance
costs................................. 1,190,000 11,900 2,296,271 -- 2,308,171
Sale of stock, net of expenses.......... 2,068,972 20,690 8,519,854 -- 8,540,544
Proceeds from exercise of warrants...... 75,000 750 111,750 -- 112,500
Net loss................................ -- -- -- (9,920,067) (9,920,067)
---------- -------- ----------- ------------ -----------
BALANCES, December 31, 1999............... 13,267,918 $132,679 $30,759,186 $(25,617,537) $ 5,274,328
========== ======== =========== ============ ===========
</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>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(9,920,067) $(5,908,587) $(2,307,101)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 1,016,628 1,088,649 741,481
Interest expense related to beneficial conversion
feature and amortization of discount on convertible
notes................................................. 1,512,292 296,875 --
Amortization of debt issuance costs..................... 67,004 -- --
Bad debt expense related to related party receivable.... -- -- 48,000
Allowance for doubtful accounts......................... 14,415 -- (25,000)
Stock issued to pay interest............................ 149,192 -- 168,268
Warrants and options issued for services................ 679,947 1,318,200 --
Stock issued for services............................... -- 20,000 95,625
Compensation recognized upon issuance of stock
options............................................... 78,125 -- 671,323
Compensation recognized in lieu of repayment of note.... 54,600 -- --
Changes in operating assets and liabilities:
Accounts receivable................................... (15,918) 168,790 64,970
Inventories........................................... (687,783) 40,105 (60,198)
Prepaid expenses and other assets..................... 7,890 (1,576) (63,350)
Accounts payable...................................... 819,433 355,379 161,373
Accrued payroll and related expenses.................. (16,372) 36,893 (270,259)
Other accrued liabilities............................. 443,948 253,136 (313,983)
Deferred revenues..................................... (93,906) 248,906 95,000
----------- ----------- -----------
Net cash used in operating activities................... (5,890,572) (2,083,230) (993,851)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment.................... (40,442) (116,158) (37,541)
Proceeds from disposal of property and equipment.......... -- -- 19,174
Acquisition of patents and licenses....................... -- -- (4,001,926)
Advances to related parties............................... -- (29,600) (73,000)
----------- ----------- -----------
Net cash used in investing activities................... (40,442) (145,758) (4,093,293)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock and warrants.................. 8,540,544 35,751 6,259,077
Proceeds from convertible notes payable................... 2,380,000 1,276,960 71,094
Payments for debt and warrant issuance costs.............. (166,600) -- --
Proceeds from notes payable............................... 86,485 -- --
Payments on notes payable................................. (524,824) (135,187) (157,543)
Payments on related party notes payable................... (147,342) -- --
Advances from related parties............................. 11,340 -- --
Capital contributions from Helionetics, Inc............... -- -- 140,448
Proceeds from exercise of warrants........................ 112,500 -- --
----------- ----------- -----------
Net cash provided by financing activities............... 10,292,103 1,177,524 6,313,076
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 4,361,089 (1,051,464) 1,225,932
CASH AND CASH EQUIVALENTS, beginning of period.............. 174,468 1,225,932 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 4,535,557 $ 174,468 $ 1,225,932
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................ $ 82,719 $ 137,572 $ 158,939
=========== =========== ===========
Income taxes............................................ $ 5,732 $ -- $ --
=========== =========== ===========
Non-cash transactions:
Conversion of convertible debentures to common stock.... $ 2,308,171 $ 1,150,000 $ --
=========== =========== ===========
Note payable issued to acquire leasehold improvements... $ -- $ 70,000 $ --
=========== =========== ===========
Note payable issued to acquire property and equipment... $ 17,335 $ -- $ --
=========== =========== ===========
Stock issued to purchase debt and accrued interest...... $ -- $ -- $ 2,159,708
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
NATURE OF OPERATIONS--Laser Photonics, Inc. and subsidiaries (the "Company")
operates in one industry 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 76.1% 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 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-7
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION--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 its purchase of AccuLase that has been "pushed down"
to the Company. The balance is being amortized using the straight-line basis
over 5 years.
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 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.
F-8
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The Company operates 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.
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. Common Stock equivalents as of December 31, 1999, 1998 and 1997 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.
3. BASIS OF PRESENTATION:
As shown in the accompanying financial statements, the Company has reported
significant net losses for the years ended December 31, 1999, 1998 and 1997
resulting in an accumulated deficit of $25,617,537 as of December 31, 1999.
F-9
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BASIS OF PRESENTATION: (CONTINUED)
During 1997, 1998 and 1999, 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 $1,968,000 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 certain assets of Laser Photonics, Inc's Florida operations
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 additional cash of
$350,000 to the Company. The Company also raised net proceeds of 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 13). 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,
---------------------
1999 1998
---------- --------
<S> <C> <C>
Raw materials............................................... $ 633,032 $229,199
Work-in-progress............................................ 557,440 249,144
Finished goods.............................................. -- --
---------- --------
1,190,472 478,343
Allowance for obsolescence.................................. (20,000) (20,000)
---------- --------
$1,170,472 $458,343
========== ========
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Machinery and equipment..................................... $ 23,981 $ 18,434
Furniture and fixtures...................................... 100,190 49,988
Leasehold improvements...................................... 78,716 76,688
-------- --------
202,887 145,110
Accumulated depreciation and amortization................... (49,922) (17,920)
-------- --------
$152,965 $127,190
======== ========
</TABLE>
Depreciation expense amounted to $18,038, $60,615 and $171,777 in 1999, 1998
and 1997, respectively.
F-10
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- --------
<S> <C> <C>
Accrued consulting fees..................................... $ 739,000 $291,000
Accrued interest............................................ 141,110 163,983
Accrued property taxes...................................... 88,360 153,880
Accrued royalty............................................. 64,282 62,020
Accrued warranty............................................ 32,331 50,000
Customer deposits........................................... 49,875 957
Accrued group insurance..................................... 99,222 55,173
Other accrued liabilities................................... 158,488 107,931
---------- --------
$1,372,668 $884,944
========== ========
</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").
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 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. Since the notes were voluntarily converted on
August 2, 1999, the Contingent warrants are fully vested and exercisable into an
additional 297,500 shares of Common Stock. The exercise 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 was 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-11
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- ---------
<S> <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
Notes payable--unsecured creditors, interest at prime rate,
quarterly interest only payments beginning October 1,
1995, principal due October 1, 1999, unsecured. Payment
past due.................................................. 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
Note payable--U.S. Treasury, interest at 9%, payable in
monthly principal and interest installments through
July 2000, unsecured...................................... 14,873 58,554
Notes payable--various creditors, interest at 9%, payable in
various monthly principal and interest installments
through July 2000, unsecured. Payments past due........... 10,101 85,250
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................................................... 16,670 28,813
Note payable--lessor, interest at 10%, payable in monthly
principal and interest installments of $1,775 through
December 31, 2002, unsecured.............................. 55,021 70,000
Note payable--creditor, interest at 13.5% payable in monthly
principal and interest installments of $1,552 through
May 2000.................................................. 7,507 --
--------- ---------
397,330 818,334
Less current maturities..................................... (353,710) (748,441)
--------- ---------
$ 43,620 $ 69,893
========= =========
</TABLE>
The prime rate of interest as of December 31, 1999, 1998 and 1997 was 8.50%,
7.75% and 8.50%, respectively.
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, 1999 are due in future years as follows:
<TABLE>
<S> <C>
2000.............................................. $353,710
2001.............................................. 23,426
2002.............................................. 20,194
--------
$397,330
========
</TABLE>
F-12
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY:
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.
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 in the amount of
$2,159,708 including accrued interest. During October 1997, the investment
banker sold such note to the Company for 800,000 shares of the Company's common
stock.
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 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 exercise. 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
F-13
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY: (CONTINUED)
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. During 1999, 37,443 shares were issued in exchange for
accrued but unpaid interest.
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 March 1999, the Company granted options to purchase 150,000 shares of
common stock to a director of the Company. The options are exercisable at $3.00
per share, which was the market price on the date of grant. The options were
fully vested at December 31, 1999 and expire in March 2004.
In April 1999, the Company issued options to purchase 50,000 shares of
common stock to a non-executive employee of the Company. The options are
exercisable at $3.19 per share. The options vest ratably over a period of five
years. As of December 31, 1999, 12,500 options had vested. The Company has
recognized $11,875 in compensation expense related to these options for the year
ended December 31, 1999.
In April 1999, the Company issued options to purchase 100,000 shares of
common stock to two outside directors of the Company. The options are
exercisable at $4.75, which was the market price on the date of grant. The
options were fully vested at December 31, 1999 and expire in April 2004.
F-14
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY: (CONTINUED)
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.
In May 1999, the Company issued warrants to purchase 174,000 shares of
common stock to Healthworld for various marketing services. The warrants are
exercisable at $4.69 per share. The options vest ratably over a twelve month
period. At December 31, 1999 101,500 warrants were vested. Compensation expense
of $278,722 was recorded as required under FASB 123.
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 received a
warrant to purchase 10,000 shares of common stock at $4.50 per share. The
warrants issued to PMG are being treated as offering costs of the private
placement. As a result, there has been no value assigned to the warrants as the
amount would be charged against the gross proceeds of the offering and would
have no effect on equity.
In August 1999, the Company issued options to purchase 180,000 shares of
common stock to an officer of the Company. The options are exercisable at $5.25
per share, which was the market price on the date of grant. At December 31,
1999, 100,000 options are vested and the remaining 80,000 vest monthly over a
two year period. The options expire in August 2004.
In November and December 1999, the Board issued options to purchase
1,100,000 shares of common stock to two officers and one director of the
Company. The options are exercisable at prices ranging from $4.63 to $5.94. The
exercise prices represented the fair market value of the Company's common stock
on the date of grant. At December 31, 1999, 366,667 options were vested and the
remaining 733,333 vest over a two year period. The options expire in November
and December 2004.
During 1999, the Company granted options to purchase 95,000 shares of common
stock to outside directors of the Company. The options are exercisable at $2.81
per share. The options were fully vested at December 31, 1999 and expire in
2004. The Company has recognized $66,251 in compensation expense related to
these options for the year ended December 31, 1999.
During 1999, the Board issued options to purchase 32,230 shares of common
stock to legal counsel as payment for legal services rendered. The options are
exercisable at prices ranging from $1.50 to $5.10. The exercise prices represent
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 Company has recognized
compensation expense of $90,804 during 1999 as required by FASB 123.
F-15
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY: (CONTINUED)
A summary of option transactions during 1997, 1998, and 1999 under the Plan
follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at January 1, 1997.............................. 397,500 $1.66
Granted................................................. -- --
Expired/canceled........................................ (62,500) 2.50
------- -----
Outstanding at December 31, 1997............................ 335,000 1.50
Granted................................................. -- --
Expired/canceled........................................ -- --
------- -----
Outstanding at December 31, 1998............................ 335,000 1.50
Granted................................................. -- --
Expired/canceled........................................ -- --
------- -----
Outstanding at December 31, 1999............................ 335,000 $1.50
======= =====
</TABLE>
At December 31, 1999, all plan options to purchase shares were exercisable
at $1.50 per share.
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>
2006................................................ 335,000 $1.50
------- -----
335,000 $1.50
======= =====
</TABLE>
A summary of non-plan option transactions during 1997, 1998, and 1999
follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at January 1, 1997.............................. 10,000 $1.05
Granted................................................... 690,399 0.86
Expired/canceled.......................................... -- --
--------- -----
Outstanding at December 31, 1997............................ 700,399 0.87
Granted................................................... 390,000 2.88
Expired/canceled.......................................... -- --
--------- -----
Outstanding at December 31, 1998............................ 1,090,399 1.59
Granted................................................... 1,957,230 4.70
Expired/canceled.......................................... -- --
--------- -----
Outstanding at December 31, 1999............................ 3,047,629 $3.59
========= =====
</TABLE>
At December 31, 1999, all non-plan options to purchase shares were
exercisable at prices ranging from $0.50 to $5.94.
F-16
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY: (CONTINUED)
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................................................ 2,045,000 4.50
2006................................................ 10,000 1.50
2009................................................ 32,230 2.82
--------- -----
3,047,629 $3.59
========= =====
</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 the fair value at grant date for
awards in 1999, 1998 and 1997 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,
----------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Net loss...................................... $(11,989,030) $(6,784,686) $(2,965,259)
============ =========== ===========
Net loss per share............................ $ (1.07) $ (0.73) $ (0.45)
============ =========== ===========
</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 1999, 1998 and 1997 was $2.53, $1.97
and $1.75, respectively. The following assumptions were used for grants in 1999;
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
98%. 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%. 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%.
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, 1999, the remaining 14,000 options are
exercisable.
In January and February 2000, the Company issued stock options to purchase
345,000 shares of common stock at exercise prices ranging from $8.00 to $17.75.
On March 16, 2000, the Company completed a private offering of 1,409,092
shares of its common stock at $11.00 per share for gross proceeds of
approximately $15,500,000. In connection with the offering, the Company paid a
commission to ING Baring of $930,000.
F-17
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES:
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CURRENT
Federal................................................... $ -- $ -- $ --
State..................................................... 4,382 3,300 3,900
------ ------ ------
4,382 3,300 3,900
------ ------ ------
DEFERRED
Federal................................................... -- -- --
State..................................................... -- -- --
------ ------ ------
-- -- --
------ ------ ------
INCOME TAX EXPENSE.......................................... $4,382 $3,300 $3,900
====== ====== ======
</TABLE>
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,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Current deferred tax assets:
Accounts receivable, principally due to allowances for
doubtful accounts...................................... $ 32,000 $ 27,000
Compensated absences, principally due to accrual for
financial reporting purposes........................... 22,000 21,000
Warranty reserve, principally due to accrual for
financial reporting purposes........................... 13,000 19,000
Inventory obsolescence reserve........................... 457,000 409,000
Stock option compensation................................ 1,080,000 769,000
Accrued expenses......................................... 48,000 63,000
UNICAP................................................... 35,000 34,000
----------- -----------
1,687,000 1,342,000
Less valuation allowance................................. (1,687,000) (1,342,000)
----------- -----------
Net current deferred tax assets........................ $ -- $ --
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Noncurrent deferred tax assets:
Tax credit carryforwards................................ $ 413,000 $ 334,000
Net operating loss carryforwards........................ 9,727,000 6,534,000
Depreciation and amortization........................... 144,000 101,000
Capitalized research and development costs.............. 351,000 339,000
------------ -----------
10,635,000 7,308,000
Less valuation allowance................................ (10,635,000) (7,308,000)
------------ -----------
Net noncurrent deferred tax assets.................... $ -- $ --
============ ===========
</TABLE>
F-18
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES: (CONTINUED)
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $24,197,000, which expire in various years through 2019. These net
operating losses are subject to annual limitations imposed by the Internal
Revenue Code due to change in control of the Companies.
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,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Total expense (benefit) computed by applying the U.S.
statutory rate.......................................... (34.0)% (34.0)% (34.0)%
Nondeductible interest.................................... 20.5 -- --
Permanent differences..................................... 0.4 14.6 25.7
State income taxes........................................ -- -- 0.2
Effect of valuation allowance............................. 13.1 19.4 8.3
----- ----- -----
--% --% 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, 1998, the amounts due to the officer were $136,002. All amounts
due were paid during the year ended December 31, 1999.
At December 31, 1998, the Company had $54,600 due from an officer of the
Company for advances made. During 1999, in lieu of repayment, the advances were
recognized as compensation.
12. COMMITMENTS AND CONTINGENCIES:
LEASES--The Company leases its facility in the Orlando, Florida area 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 $319,897, $298,287 and $346,260 for the years ended
December 31, 1999, 1998 and 1997, respectively. The future annual minimum
payments under the non-cancelable leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C>
2000................................................ $170,000
2001................................................ 170,000
2002................................................ 97,000
2003................................................ 64,000
--------
Minimum lease payments...................................... $501,000
========
</TABLE>
F-19
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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. As of December 31, 1999, the
Company has accrued for the judgement. (Additionally, see Note 13.)
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.
LITIGATION BETWEEN BAXTER AND SPECTRANETICS--On August 6, 1999, Baxter filed
suit against The Spectranetics Corporation in the United States District Court
for the District of Delaware, entitled BAXTER HEALTHCARE CORPORATION, LASERSIGHT
PATENT, INC. AND ACCULASE, INC. V. THE SPECTRANETICS CORPORATION, Civil Action
No. 99-512 RRM. On November 12, 1999, Acculase moved to become a co-plaintiff
with Baxter. The Second Amended Complaint ("Complaint"), dated December 17,
1999, 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 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.
On January 5, 2000, Spectranetics filed an Answer and Counterclaims in the
United States District Court for the District of Delaware, admitting 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
F-20
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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.
DISPUTE WITH LASER ANALYTICS, INC., A TEXAS CORPORATION--The Company has
received a claim for approximately $232,000, plus interest, from Laser
Analytics, Inc., a Texas corporation ("LAI-Texas"). As of January 4, 1999, the
Company and Laser Analytics, Inc., a Massachusetts corporation, a wholly-owned
subsidiary of the Company, entered into an agreement with LAI-Texas, pursuant to
which LAI-Texas agreed to purchase certain of the assets of the Company
associated with the Company's business operations in Orlando, Florida and
Wilmington, Massachusetts. The principal of LAI-Texas managed these business
operations pending the closing. LAI-Texas failed to close the transaction and
the Company resumed management of these business operations. LAI-Texas claims
that during this period, the Company's operations required cash and that
LAI-Texas loaned over $232,000 to the Company to support these business
operations. The Company is in the process of investigating LAI-Texas' claim and
the Company's rights with respect to the manner in which the operations were
managed by the principal of LAI-Texas, and LAI-Texas' failure to close pursuant
to the agreement. Since the Company does not know all relevant factors, which
may affect the outcome, at this time, the Company is unable to evaluate the
likelihood of a favorable outcome, and the Company is currently unable to
estimate the amount or range of possible gain or loss.
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. At December 31, 1998,
these amounts were accrued. For the year ended December 31, 1999, the Company
incurred expense with CSC of approximately $790,000. Included in this amount is
consideration of $157,600 since the Company raised more than $6,000,000 in
subsequent financing. At December 31, 1999, approximately $700,000 was accrued.
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, 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 to be substantially
overstated. (Additionally, see Note 13.)
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 or results of operations.
F-21
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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.
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>
F-22
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Revenues recognized on the Baxter Agreement for the years ended December 31,
1999, 1998 and 1997 were $93,906, $769,000, and $855,000 respectively, and
represented 8%, 33%, and 22% 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 cardiovascular 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.
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. During 1999, the study was
completed and all amounts under the agreement were paid.
On July 27, 1999, the Company entered into three clinical trial agreements
with Massachusetts General Hospital. The Company has agreed to support the
clinical trials with research grants of approximately $453,000, payable $273,000
upon execution of the agreement, $67,000 upon collection of final data from the
study, and $113,000 upon completion of the study and delivery of the final
report. As of December 31, 1999, the Company had paid $288,000.
On November 15, 1999, the Company entered a separate clinical trial
agreement with Massachusetts General Hospital. The Company has agreed to support
the clinical trial with a research grant of approximately $48,000, payable
$24,000 upon execution of the agreement, $12,000 upon collection of final
F-23
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
data from the study, and $12,000 upon completion of the study and delivery of
the final report. As of December 31, 1999, the Company has accrued $24,000 for
the initial payment.
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. The warrants have been valued at fair value as
determined using the Black-Scholes model. The Company has recognized
compensation expense of $278,722 during 1999 as required by FASB123. Under a
separate agreement, Healthworld provides: (i) two full-time 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 full-time 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). For the year ended December 31, 1999, the Company
incurred expense with Healthworld of approximately $750,000 under these
agreements. At December 31, 1999, $450,000 was accrued and payable under the
agreements.
EMPLOYMENT AGREEMENTS--In November and December 1999, the Company entered
into two three-year employment agreements with a combined base salary of
$465,000 per year, as well as severance payments upon termination.
PROPOSED SALE OF ASSETS--In December 1998, the Company entered into a letter
of intent with a third party to sell certain assets of its non-excimer laser
business operations, subject to the assumption of certain liabilities. At
December 31, 1998, the net assets attributed to this transaction were classified
in the consolidated balance sheet as assets held for sale. The closing of the
sale was delayed due to difficulties experienced by the Buyer in finding
financing to complete the purchase. In January 2000, this transaction was
abandoned and the Company began pursuing other alternatives. The Company is
currently negotiating two separate agreements to sell certain assets of its
non-excimer laser business operations for a purchase price of $588,000 and the
assumption of certain liabilities. At December 31, 1999 and 1998, the assets and
liabilities attributable to the new transactions have been classified in the
consolidated balance sheet as assets held for sale. The amounts are stated at
their carrying amounts, which are less than their fair value
F-24
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
as estimated, based on the expected proceeds from the proposed sale. The amounts
included in the financial statements at December 31, 1999 and 1998 consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS:
Inventories............................................... $428,415 $452,761
Prepaid expenses and other assets......................... 19,800 21,355
Property and equipment, net............................... 139,785 139,785
-------- --------
ASSETS HELD FOR SALE.................................... $588,000 $613,901
======== ========
</TABLE>
Revenues of the related operations were $1,110,000, $1,580,000 and
$2,960,000 for 1999, 1998 and 1997, respectively. Loss from the related
operations was $1,235,000, $996,000 and $647,000 in 1999, 1998 and 1997,
respectively.
ING BARINGS LLC--On February 2, 2000, the company entered into a financial
advisory and investment banking services agreement with ING Barings LLC ("ING
Barings") whereby ING Barings will use its best efforts to complete a financing
or series of financings in an amount of up to $20,000,000. As compensation for
such services, ING Barings will receive a cash placement fee equal to 6% of the
gross proceeds raised from the sale of securities and out-of-pocket expenses.
13. SUBSEQUENT EVENTS (UNAUDITED):
Subsequent to March 16, 2000, the Company paid $950,000 to the landlord for
its Florida facility and $700,000 to CSC Healthcare, Inc., to settle certain
disputes between the Company and such other parties. At December 31, 1999, such
amounts had been accrued in the accompanying consolidated financial statements.
In March 2000, the Company settled certain notes payable recorded at
approximately $410,000 for approximately $133,000, resulting in a gain from
extinguishment of approximately $277,000.
F-25
<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.............................. 32
Management............................ 59
Compensation of Executive Officers and
Directors........................... 62
Certain Relationships and Related
Transactions........................ 66
Voting Securities and Principal
Stockholders........................ 74
Description of Securities............. 77
Selling Stockholders and Plan of
Distribution........................ 79
Shares Eligible for Future Sale....... 84
Legal Matters......................... 84
Experts............................... 84
Additional Information................ 85
Financial Statements.................. F-1
</TABLE>
LASER PHOTONICS, INC.
9,893,032 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 a registration statement of which this Prospectus forms a part,
other than the underwriting discount, will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $21,555.21
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
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<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 below, the Company believes all of the
following 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 to 500,000 shares of the Company's Common
Stock, at a conversion price of $2.00 per share, on
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<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 37,443 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"),
convertible into shares of Common Stock at a fixed price of $2.00 per share; 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. In
March, 1999, the price of the Company's Common Stock in the Over The Counter
market ranged from $2.625 to $4.50 per share. On March 29, 1999, the price of
the Common Stock was $3.875. 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 a registration statement of
which this Prospectus forms a part, 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.
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
II-3
<PAGE>
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 NASD Bulletin Board, and for services in completing the
Company's Bankruptcy 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
Donald 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, 1999, the Board of Directors further resolved that these options 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
$1.1875.
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, for services rendered as a director of the Company, the
Board of Directors granted options to acquire 100,000 shares of Common Stock to
K.B. Equities, Inc. ("KB Equities"), an affiliate of Mr. Katz and Ms. Barnes, at
an exercise price of $0.75 per share, with a term of seven (7) years. Mr. Katz,
who was a director but not an employee of the Company, 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 $2.50.
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
II-4
<PAGE>
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, who was the
Chief Financial Officer, Chief Operating Officer and a director of the Company,
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 $2.875.
On April 10, 1998, the Company issued options to purchase up to 100,000
shares of Common Stock, at an exercise price of $2.875 per share, with a
five-year term, to an officer of the Company, and 20,000 shares of Common Stock,
to certain consultants for legal services rendered, computed 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 outside members 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 up to 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 $2.875. Of these options all are vested, as of the date of this
Prospectus.
On March 8, 1999, the Company granted to Mr. Charlton, outside of the Option
Plan for Outside Directors, 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 Prospectus.
Upon Steve Girgenti's and Harry Mittelman's joining the Company's Board of
Directors, on April 20, 1999, each was granted options to purchase up to 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.
On April 20, 1999, the Company granted to Mr. Girgenti and Dr. Mittelman
options, outside of the Option Plan for Outside Directors, 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 October 31, 1999,
the Company granted to its current legal counsel, Matthias & Berg LLP ("M&B"),
options to acquire an aggregate of 32,230 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
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<PAGE>
collection of such fees in cash, and use the uncollected fees against exercise
price of the options. See "Legal Matters."
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 to 96 investors 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, warrants 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 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 vest over two (2) years, so 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 F. 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, 216,667 vest on November 19, 2000, and 216,666
vest on November 19, 2002, so long as Mr. O'Donnell remains employed by the
Company. 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), 100% 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, the Company's Chief Financial
Officer, 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, 116,667 vest on November 24, 2000, and 116,666 vest on
November 24, 2002, so 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), 100% 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 vest on
December 7, 2000, and 33,333 vest on December 7, 2002, so 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.
On December 7, 1999, the Company granted to Mr. Navarro options, all of
which are vested, to acquire up to 5,000 shares of Common Stock, at $2.8125 per
share. On the date of grant of these stock
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<PAGE>
options, the price of the Company's Common Stock was $5.9375. All of such
options are vested, as of the date of this Prospectus.
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, 50,000 vest on January 28, 2001, and
50,000 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.
As of January 1, 2000, in connection with the Option Plan for Outside
Directors, the Company granted to Messrs. Charlton, McAtce, Novak, Girgenti,
Mittelman and Navarro options to acquire 20,000 shares of Common Stock at $10.50
per share, for services to be rendered during 2000. On the date of grant of
these stock options, the price of the Company's Common Stock was $10.50. As of
the date of this Prospectus, 5,000 of these options are vested for each
beneficiary of the Option Plan for Outside Directors.
As of February 10, 2000, the Company issued to two employees options to
acquire up to 30,000 shares of Common Stock at a price of $17.75 per share.
These options will vest to the extent of 25% after one year, then ratably each
month thereafter.
As of February 10, 2000, the Company granted each member of the Scientific
Advisory Board options to acquire up to 3,000 shares of the Company's Common
Stock at an exercise price of $17.75 per share. All such options are fully
vested.
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 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 to $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 are Results of Operations."
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The Company agreed to issue PMG an additional 75,000 warrants (the
"Contingent Warrants") at a purchase price of $0.001 per share. The Contingent
Warrants become vested in PMG in a ratio equal to one Contingent Warrant for
each warrant exercised by warrantholders in the $6,000,000 private placement. As
of the date of this Prospectus, 187,000 of the Warrants have been exercised. The
Contingent Warrants will be exercisable until November 25, 2002, at an exercise
price equal to the average of the closing price of the Company's Common Stock
for the ten-day period ending on the day before the exercise. 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. The shares
underlying the Contingent Warrants are being registered pursuant to a
registration statement of which this Prospectus forms a part.
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 any time until July 15, 2003. The price of the Company's Common
Stock on July 15, 1998 was $2.125.
On December 31, 1998, Mr. and Mrs. Richard A. Hansen converted an
outstanding obligation of $150,000 into an aggregate of 100,000 shares of the
Company's restricted Common Stock, at $1.50 per share. The price of the Common
Stock at December 31, 1998, was $2.812 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.
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 March 16, 2000, the Company has
$18,400,000 of cash on hand.
The Company entered into an agreement dated, as of February 2, 2000, with
ING Barings LLC for the provision of financial advisory and investment banking
services, on an exclusive basis. The term of the agreement is through
September 30, 2000. Pursuant to this agreement, ING acted as placement agent in
connection with a private offering to 10 institutional investors an aggregate of
1,409,092 shares of the Company's Common Stock at a price of $11.00 per share,
for which we paid ING customary fees. Sam Navarro, a director of the Company is
also the Global Head of Health Care Corporate Finance at ING. At the close of
the placement on March 16, 2000, the Company received net proceeds of
$14,570,000. In addition, with the exception of Jeffrey F. O'Donnell and Dennis
McGrath, all of the executive officers and directors of the Company signed
lock-up agreements for a period of 90 days from March 16, 2000, as to all
securities of the Company they may own. Messrs. O'Donnell and McGrath reserved
the right to sell 65,000 and 35,000 shares, respectively, during such 90-day
period. The Company will use the proceeds of this financing to pay certain
debts, including monies owed to the Company's Orlando, Florida landlord, and for
marketing expenses and working capital.
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
II-8
<PAGE>
be regulated as a Class II device for the treatment of psoriasis. See
"Business--Excimer Laser System for the Treatment of Psoriasis" and
"Management."
ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 16(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- ---------------------
<C> <S>
3.1(a) Certificate of Incorporation (1)
3.1(b) Amendment to Certificate of Incorporation dated as of
June 10, 1999 (1)
3.1(c) Amendment to Certificate of Incorporation dated as of
June 23, 1999 (1)
3.2 Bylaws(1)
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Matthias & Berg LLP*
10.1 Lease Agreement (Andover, Massachusetts) (2)
10.2 Lease Agreement (Orlando, Florida)
10.3 Lease Agreement (San Diego, California) (3)
10.4(a) Lease Agreement (Carlsbad, California) dated August 4, 1998
(1)
10.4(b) Guarantee of Lease by PMG (1)
10.5 Patent License Agreement between the Company and Patlex
Corporation (4)
10.6 Master Technology Agreement between the Company and Baxter
Healthcare Corporation, dated July 28, 1997 (5)
10.7 License Agreement between the Company and Baxter Healthcare
Corporation, dated August 19, 1997 (5)
10.8 Manufacturing Agreement between the Company and Baxter
Healthcare Corporation, dated August 19, 1997 (6)
10.9 Clinical Trial Agreement between Massachusetts General
Hospital, R. Rox Anderson and Laser Photonics dated
March 17, 1998 (1)
10.10 Consulting Agreement dated as of January 21, 1998 between
Laser Photonics and Rox Anderson, M.D. (1)
10.11(a) Asset Purchase Agreement dated January 4, 1999 between the
Company and Laser Analytics, Inc. (2)
10.11(b) Amendment No. 1 to Asset Purchase Agreement. (2)
10.12 Employment Agreement with Jeffrey F. O'Donnell, dated
November 19, 1999 (1)
10.13 Employment Agreement with Dennis M. McGrath, dated
November 24, 1999 (1)
10.14 Employment Agreement with Michael Allen, dated January 28,
2000 (1)
10.15 Lease between the Company and Radnor Center Associates,
dated April 1, 2000. (1)
10.16 Healthworld Agreement, dated May 11, 1999
10.17 Clinical Trial Agreement, dated July 27, 1999 (Scalp
Psoriasis)
10.18 Clinical Trial Agreement, dated July 27, 1999, and Amendment
dated March 1, 2000 (Plaque Psoriasis)
10.19 Clinical Trial Agreement, dated July 27, 1999 (High Fluence)
10.20 Clinical Trial Agreement, dated November 15, 1999 (Vitiligo)
10.21 MGH License Agreement, dated November 26, 1997
10.22 Asset Purchase Agreement with Laser Components GmbH, dated
February 29, 2000
22.1 List of subsidiaries of the Company (2)
</TABLE>
II-9
<PAGE>
<TABLE>
<C> <S>
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
99.1 Registrant's Third Amended Plan of Reorganization(3)
99.2 Order Confirming Registrant's Third Amended Plan of
Reorganization, as modified(3)
99.3 Letter of March 22, 1995 from Coopers & Lybrand, directed to
Laser Photonics, Inc.(3)
</TABLE>
- ------------------------
* To be filed by amendment.
(1) Previously filed with this Registration Statement.
(2) Filed as part of the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
(3) Filed as part of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
(4) Filed as part of the Company's Annual Report on Form 10-K for the year ended
December 31, 1987.
(5) Incorporated by reference as part of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996. This document has been
granted Confidential Treatment by the Commission.
(6) The terms of this Agreement are confidential commercial information, which
the Commission has determined need not be disclosed.
ITEM 16(B) FINANCIAL STATEMENT SCHEDULES
The following schedules have been filed as part of this Registration
Statement.
SCHEDULE 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.
II-10
<PAGE>
(4) To the extent that Shares registered hereunder are not issued by the
Company, then the Company shall de-register such Shares.
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.
II-11
<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
April 13, 2000.
<TABLE>
<S> <C> <C>
LASER PHOTONICS, INC.
By: /s/ JEFFREY F. O'DONNELL
-----------------------------------------
Jeffrey F. O'Donnell
CHIEF EXECUTIVE OFFICER
</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 Directors April 13, 2000
Warwick Alex Charlton
/s/ JEFFREY F. O'DONNELL
--------------------------------- President, Chief Executive Officer April 13, 2000
Jeffrey F. O'Donnell and Director
/s/ ALAN R. NOVAK
--------------------------------- Director April 13, 2000
Alan R. Novak
/s/ JOHN J. MCATEE, JR.
--------------------------------- Director April 13, 2000
John J. McAtee, Jr.
/s/ STEVEN GIRGENTI
--------------------------------- Director April 13, 2000
Steven Girgenti
/s/ HARRY MITTELMAN
--------------------------------- Director April 13, 2000
Harry Mittelman, M.D.
/s/ SAMUEL NAVARRO
--------------------------------- Director April 13, 2000
Samuel Navarro
</TABLE>
II-12
<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, 1999:
Accumulated amortization--patent costs....... $ 32,318 $ 8,353 $ -- $ 40,671
========== ========== ======== ==========
Accumulated amortization--prepaid license
fee........................................ $ 541,667 $ 500,000 $ -- $1,041,667
========== ========== ======== ==========
Accumulated amortization--excess of cost over
net assets of acquired companies........... $1,862,296 $ 476,273 $ -- $2,338,569
========== ========== ======== ==========
Allowance for doubtful accounts.............. $ 68,000 $ 15,000 $ -- $ 83,000
========== ========== ======== ==========
Allowance for inventory obsolescence......... $1,059,300 $ 104,311 $ -- $1,163,611
========== ========== ======== ==========
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
========== ========== ======== ==========
</TABLE>
<PAGE>
AGENCY AGREEMENT
Agreement between Laser Photonics, Inc., (CLIENT) and RUBIN EHRENTHAL &
ASSOCIATES, (AGENCY), 100 Avenue of the Americas, New York, New York 10013, for
the provision of designated advertising services for Laser Photonics, Inc. in
accordance with the following terms and conditions:
I. SCOPE OF SERVICES
The services to be provided by AGENCY to CLIENT under this agreement
shall be (a) Account Services; (b) Creative Advertising Services; (c)
Media Services; and Production and Traffic Services. AGENCY shall
render the above referenced services for Laser Photonics, Inc. A
description of the services to be provided to CLIENT under this
agreement is provided hereunder. (Separate agreements for Sales,
Medical Education and Public Relations services are contained in
Addenda I, II, III, respectively.
A. ACCOUNT SERVICES
AGENCY shall make itself available to CLIENT during the term of
this Agreement, as requested by CLIENT and as reasonably
appropriate to provide CLIENT with assistance in developing the
overall marketing plans, strategies, and advertising. The
services, as below outlined in terms 1 through 12 hereunder shall
be known as "Account Services:"
The AGENCY staff assigned to the Account shall be (see addendum to
staffing assignments):
-- Principal Supervision
-- Management Supervisor
-- Account Supervisor
-- Account Executive
-- Manager of Finance
-- Media Services
-- Account Traffic Coordinator
-- Production Supervisor
-- Medical Director
-- Director of Strategic Planning and Market Research
<PAGE>
These individuals, together with the other personnel of AGENCY,
shall serve the following functions, which shall be covered as
set forth in Paragraph I. A. and B. below.
1. Serving as a resource to CLIENT in the evaluation of and/or
development of marketing research data as it applies to
CLIENT's products. Providing marketing research consultation
in connection with this Agreement to assist in analysis and
recommendations of marketing strategies.
2. Advising CLIENT on all elements of the marketing plan as
above referenced through definition of objectives,
strategies, budget, and creative concepts.
3. Developing as instructed by CLIENT, a Tactical Marketing
Plan for and providing CLIENT with budget estimates for
creative advertising services (and production and media
services, if requested by CLIENT).
4. Assisting with the resolution of problems and/or questions
concerning the Marketing Plan.
5. Aiding in the evaluation of measurement parameters used in
determining the degree to which CLIENT marketing goals are
being achieved.
6. Providing advice and creative marketing ideas for resolving
CLIENT problems and taking advantage of opportunities.
7. Providing account management through supervision and
coordination for AGENCY personnel who work with CLIENT.
8. Providing marketing input for copy and art direction for
development of basic creative concepts and promotional
themes.
9. As requested by CLIENT, providing production job estimates
and proofing.
10. As requested by CLIENT, procurement and implementation of
original and new marketing research studies or data for
third party sources and obtaining bids from these suppliers.
11. As requested by CLIENT, attendance at sales meetings and
conventions.
12. As requested by CLIENT, obtaining medical consultation and
services.
<PAGE>
B. CREATIVE ADVERTISING SERVICES
AGENCY shall implement the Tactical Marketing Plan, developed by
or with CLIENT during the term of this agreement, through the
creation and execution of the advertisements and promotional
materials that are contained therein. As the needs of the business
dictate, changes to Tactical Plan elements are inevitable. As
changes occur, AGENCY shall obtain CLIENT's written approval of
the change and provide CLIENT with a description thereof and the
revised estimated cost for approval. All services rendered (other
than Account Services as set forth in Paragraph I. A.1 - 12 above)
and products or materials created or produced by AGENCY in the
implementation of the Tactical Plan during the term of this
Agreement shall be considered Creative Advertising Services.
Creative Advertising Services include, but are not necessarily
limited to:
1. copy supervision, preparation and copywriting;
2. art supervision, design and comprehensives;
3. proofreading and editing;
4. preparation of mechanicals, computerized or traditional;
5. printing approval and color corrections.
C. MEDIA SERVICES
AGENCY shall implement the media plans developed with CLIENT
during the term of this agreement. Media Services include, but are
not necessarily limited to:
1. media planning;
2. competitive analysis;
3. maintenance of media schedules;
4. placement of insertion orders and invoicing.
These services include the use of both AGENCY personnel time and
outside services. Out-of-pocket expenses for access to readership
audits and on-line media services will be passed on directly to
CLIENT by billing at net, with no additional costs or commissions
added. Commission on gross media costs is 15%.
<PAGE>
You acknowledge that, in placing your advertising with various
media, AGENCY will contract with such media on the basis of
"sequential liability" pursuant to which AGENCY shall be solely
liable for payment to the extent that proceeds have cleared from
you as advertiser to AGENCY for advertising published or broadcast
in accordance with the contract. As advertiser, you will remain
solely liable for sums owing but not cleared to the AGENCY in
respect to such advertising.
Accordingly, you hereby authorize and agree that AGENCY may
contract with media on your behalf on the basis of sequential
liability, and that you will be solely liable to media with
respect to payments for such space or time to the extent that such
payments have not cleared to the AGENCY.
Solely, to the forgoing extent, AGENCY will act as agent for you
as disclosed principal in entering into contracts with media, and
a copy of this paragraph may be presented to media and/or other
third parties as evidence of AGENCY's authority to act in such
capacity for such purpose.
So that AGENCY, or any of its subsidiaries, can satisfy its
obligations to pay for media that is to be used on behalf of
CLIENT. CLIENT shall pay for its media in full prior to the media
commitment dates (release of the insertion order by the AGENCY) or
shall establish an irrevocable letter of credit with a lending
institution acceptable to AGENCY in an amount sufficient to cover
ongoing media commitments. In this regard, CLIENT acknowledges
that AGENCY may currently commit to a media purchase on behalf on
CLIENT with a media buying service. If necessary, CLIENT shall
have such letter of credit in place no later than the date that
AGENCY has to exercise a media commitment. AGENCY shall be under
no obligation to place media for which it has not received
complete payment and where such letter of credit is not in place,
if required. To the extent CLIENT does not timely advance funds to
AGENCY so that AGENCY may timely pay media, AGENCY shall have the
right to draw down such sums as are then due to media by
presentment to the lending institution issuing the letter of
credit.
II. AGENCY AUTHORIZATIONS FOR OUTSIDE SERVICES
A. AGENCY shall have the right to procure all reasonable or
necessary outside services and materials, including audio-visual
services, printing, telegrams, express mail, courier services,
freight, and similar services in the name of and for the benefit
of CLIENT and to require reimbursement for such outside services;
provided, however, that (1) AGENCY receives prior written
approval for the procurement of same from CLIENT, and (2) AGENCY
provides CLIENT with reasonable and satisfactory documentation of
the actual cost of the outside services and materials. Prior to
<PAGE>
purchasing such goods or services, or entering into any legal
commitments therefore, AGENCY shall (1) comply with provisions
set forth in B. and C. below and with any other previously
received specific instruction of CLIENT or with any written
policy of CLIENT concerning the procurement of bids or proposals
thereof or the receipt of purchase orders prior to proceeding to
make such commitments; and (2) determine that CLIENT has not
elected to provide or procure such goods or services itself.
B. Prior to contracting for any specific purchase of these goods or
services which exceeds $20,000, excluding typesetting costs,
laser color prints, retouching, photography, and illustrations,
and which is available from a number of competitive suppliers,
AGENCY shall obtain bids from three such CLIENT suppliers and
recommend to CLIENT the supplier from which procurement of the
goods and/or services would be most appropriate. CLIENT shall
then notify AGENCY as to which competitive supplier to use.
C. AGENCY shall maintain, and on request in a timely and reasonable
manner, provide CLIENT with complete documentation for all
procurements of goods and services.
III. PAYMENT FOR SERVICES AND REIMBURSEMENT OF EXPENSES
A. MONTHLY FEE FOR ACCOUNT SERVICES
In return for all of the Account Services rendered by the Account
Management personnel set forth in Paragraph I.A. 1 - 12 above,
other than as specifically provided in Paragraph B. below, AGENCY
shall receive the annual sum of $479,960, in equal monthly
installments of $39,996.67 per month (Exhibit A), to be invoiced
30 days in advance of each month.
The fee will be subject to review by both parties every three
months. The AGENCY and CLIENT agree that this fee, by product, is
based on an estimate of hours activity as currently anticipated.
Therefore, this fee will be reconciled every three months against
actual hours worked by AGENCY during such period.
If AGENCY has worked more than the estimated hours on behalf of
CLIENT hereunder during any three month period hereunder then the
AGENCY will invoice these unreimbursed hours, at a cost of $104
per hour.
<PAGE>
B. CREATIVE ADVERTISING SERVICES
AGENCY shall invoice CLIENT for Creative Advertising Services on
an hourly fee basis at the rate of $104 per hour. Work will not
begin on a specific project until a CLIENT project form has been
completed and a code number assigned by CLIENT. AGENCY shall
maintain detailed records of specific Creative Advertising AGENCY
Services rendered and times expended therefore and shall provide
same to CLIENT upon request in a reasonable and timely manner.
AGENCY shall not exceed the budgeted estimates for Creative
Advertising Services or for other Production Services which have
been specifically requested by CLIENT by more than ten percent
(10%) for any Tactical Plan item or project element without the
prior, written approval of CLIENT. AGENCY's invoices shall
identify specific Tactical Plan items for which Creative
Adverting and/or Production Services have been rendered.
(Exhibits B, C, D, E)
C. REIMBURSEMENT OF AGENCY EXPENSES
CLIENT shall reimburse AGENCY for all reasonable and documented
out-of-pocket expenses which have been approved by CLIENT (in
writing, if applicable) in connection with performing Account
Services and Creative Advertising Services, including travel and
living expenses, airline tickets, car rental expenses and long
distance telephone expense charges for all AGENCY personnel
authorized by CLIENT to make the trip. These expenses shall be
billed and paid for monthly.
D. PAYMENT OF REIMBURSEMENT FOR OUTSIDE SERVICES: NO COMMISSION OR
PAYMENT
1. If requested by AGENCY, all payments incurred or committed
to by AGENCY for services and materials procured outside of
AGENCY in connection with, but beyond the scope of, Creative
Advertising Services shall either be paid by CLIENT in
advance or directly to the provider of the outside service
or materials, or reimbursed by CLIENT to AGENCY following
CLIENT's receipt of reasonable and satisfactory
documentation of the cost of the outside services or
materials, if no request for direct or advanced payment is
made by AGENCY.
<PAGE>
AGENCY shall charge no commission (except for media),
handling or other charge to CLIENT for procurement of such
services or materials. Any discount, rebate or other
allowance paid to AGENCY by a supplier which is not
reflected in the original billing shall be credited to
CLIENT in the next billing to CLIENT under this Agreement.
2. CLIENT shall also reimburse AGENCY for the actual cost of
procuring marketing data or research studies from third
parties as requested by CLIENT in connection with, but
beyond the scope of the performance of AGENCY's services.
All direct payments or reimbursements shall be made monthly
upon presentation of AGENCY's invoices and reasonable
documentation of actual cost.
E. All AGENCY invoices are to be paid by CLIENT within 15 days of
receipt of AGENCY's invoices. All past due invoices will incur a
finance charge of 1 1/2% per month.
F. RECORDS
AGENCY shall, during the course of this Agreement and for one
year thereafter, keep and make available to CLIENT for inspection
at all reasonable times, time, cost and expense records in
connection with fees and expenses, including outside expenses
incurred and services and materials procured by AGENCY under this
Agreement
IV. COPYRIGHTS: TITLE TO PROPERTY
A. ACQUISITION OF COPYRIGHTS
AGENCY shall take the steps necessary to secure on behalf of
CLIENT and in CLIENT's name, copyrights to all copyrightable
materials produced under this Agreement which shall include, but
not necessarily be limited to, the giving of all requisite
statutory notice with the first and all other publications of
such materials and filing of a claim or copyright for such
materials with the United States Patent Office when, and if,
required.
<PAGE>
B. EXCLUSIVITY
CLIENT shall own all such copyrights, and they shall own and have
exclusive royalty-free right to use all non-copyrightable
material produced hereunder. AGENCY shall not use any
copyrightable or non-copyrightable material produced hereunder
for any purpose other than in this or any future project done by
CLIENT without the express written permission of CLIENT.
C. TITLE AND PROPERTY
All advertisements and promotional materials prepared, purchased
or furnished by AGENCY for CLIENT under this Agreement become
CLIENT's property with right of copyright, and shall be preserved
for delivery to CLIENT upon request only if AGENCY has been fully
paid by CLIENT for its services and costs. CLIENT shall have the
right to use all such materials wherever and whenever it chooses.
V. CONFIDENTIALITY
AGENCY shall keep in confidence and shall not disclose or use for the
benefit of others, any and all information, plans, strategies, and/or
materials produced hereunder for CLIENT or provided to it by CLIENT
except as necessary to carry out this agreement (1) as specifically
authorized by CLIENT; or (2) as otherwise authorized by CLIENT in
writing. The restriction will survive performance and/or termination
of this Agreement for a period of five years. Further, AGENCY shall
assure that no unpublished material prepared for its former CLIENTS
are disclosed to CLIENT, and shall not disclose to CLIENT any plans,
strategies or other information which is a trade secret of any former
CLIENT for AGENCY.
VI. TERM
The term of this Agreement shall commence on May 11, 1999 and shall
continue in effect until terminated by either party as below provided
in Paragraph VII hereunder. Any renewal or continuation of this
Agreement beyond May 10 of any year shall be by written Agreement and
signed by both CLIENT and AGENCY.
VII. TERMINATION
Both parties shall have the right to terminate this Agreement, in
whole or in part, with or without cause, upon 90 days written notice
to the other party. In the event that CLIENT elects to terminate this
Agreement, AGENCY shall not undertake further work, incur
<PAGE>
additional expenses or enter into further commitments with regard to
this Agreement after receipt of notice of termination from CLIENT
unless requested by CLIENT to complete works in progress. AGENCY shall
be entitled to receive payment of the monthly Account Service Fee for
the three-month period following such notification. Further, upon
submission of reasonable documentation to CLIENT, AGENCY shall be
entitled to receive payment for all Creative Advertising Services
actually performed, (based on costs of materials and established pay
rates for such services as provided in Paragraph III B above); for
out-of-pocket expenses and for noncancelable commitments actually
entered into with regard to this Agreement prior to AGENCY's receipt
of CLIENT's notice of termination. Further, in the event of
termination of this Agreement by CLIENT, the total owed to AGENCY by
CLIENT shall not exceed the annual sum of Account Services and the
budgeted amounts for Creative Advertising, Production and Outside
Services. If the amount that CLIENT has previously paid to AGENCY
exceed the amount that AGENCY is actually owed, AGENCY shall reimburse
the balance to CLIENT within 45 days of receipt of CLIENT's notice of
termination. Likewise, AGENCY shall provide CLIENT with all materials
and work in progress prepared under this Agreement at the time of
termination, once total payment is received by AGENCY.
VIII. INDEPENDENT CONTRACTOR
AGENCY shall function as an independent contractor and shall not hold
itself out as an agent of CLIENT or represent that it has the capacity
to bind CLIENT in any way; provided, however, any work performed by
AGENCY under this Agreement shall be deemed work for hire by CLIENT.
IX. ASSIGNMENT
Except as otherwise provided herein, neither party to this Agreement
shall delegate any of its duties nor assign any of its rights under
this Agreement to a third party without the express written permission
of the other, and such consent shall not be unreasonably withheld.
X. MISCELLANEOUS
AGENCY represents that it is not currently debarred, suspended or
otherwise excluded by Government Agencies from receiving Federal
Contracts.
XI. CONFLICT OF INTEREST
AGENCY warrants that it does not currently have a conflict of interest
with a CLIENT
<PAGE>
competitor pharmaceutical company or any other company for this type
of project; and that it shall not enter into a contractual agreement
for a similar therapeutic product with any CLIENT competitor or other
company during the term of this Agreement from which a conflict of
interest issue could arise without the prior, written approval of
CLIENT. Further, AGENCY agrees to indemnify and hold harmless CLIENT
from and against any and all losses, claims, damages, expenses or
liabilities, including attorney's fees, which CLIENT may incur as a
result of contractual arrangements entered into between AGENCY and
another company prior to entering into this Agreement, or during the
term of this Agreement.
XII. INDEMNIFICATION
AGENCY will indemnify and hold harmless CLIENT, servants and
employees, against all losses, claims or suits, excluding those by or
before administrative agencies, based upon AGENCY's activities
hereunder, and pertaining to libel, slander, defamation or any
infringement of copyright or of title or of slogan or piracy,
plagiarism or idea misappropriation under implied contract or any
invasion of privacy. AGENCY shall have the right to control the
defense of all such proceedings and to select and engage counsel of
its choice, consulting with CLIENT, and CLIENT shall cooperate fully
with AGENCY in such defense; provided, however, that CLIENT shall not
settle any such claims or suits without the proper written consent of
the AGENCY. The above indemnity does not apply to any matter furnished
AGENCY by CLIENT or submitted to CLIENT by third parties, or to any
other claim for which AGENCY is entitled to indemnification from
CLIENT as provided below. CLIENT shall indemnify and hold AGENCY
harmless in respect of claims (a) of third parties based on any
written matter furnished AGENCY by or through CLIENT in connection
with the services to be rendered by AGENCY hereunder; (b) based upon
the nature or use of CLIENT's products or services or (c) based upon
any materials created, produced or prepared by AGENCY and which are
approved by CLIENT or which are used in any manner other than as
intended. Upon the filing of any suit or claim CLIENT's attorneys
(which attorneys shall be reasonably satisfactory the AGENCY) shall
defend AGENCY and AGENCY shall permit such attorneys, at CLIENT's
discretion and cost, to handle and control the defense of any such
claims or suits and provided further, that no party shall settle any
such claims or suits without the proper written consent of CLIENT.
XIII. CHANGES IN AGREEMENT
No changes may be made in this Agreement except by written agreement
by the parties hereto.
XIV. COMPLETE UNDERSTANDING
This agreement is the entire and complete understanding between CLIENT
and AGENCY in regard to the subject matter covered herein. It
replaces, supersedes and renders void any and all predecessor
<PAGE>
Agreements, if any, made between the parties, whether written or oral,
and pertain to the covered subject matters.
XV. GOVERNING LAW
This Agreement shall be construed, interpreted and enforced under the
laws of the State of New York.
If the terms of the foregoing meet with your approval, please indicate your
acceptance by signing both copies of this Agreement and returning one.
Accepted and agreed to:
By: /s/ Chaim Markheim
------------------------------------
Chaim Markheim 5/11/99
Chief Operating Officer
Chief Financial Officer
Laser Photonics, Inc.
By: /s/ Steve Girgenti
------------------------------------
Steve Girgenti 5/11/99
Chairman and CEO
Healthworld Corporation
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
EXHIBIT A
MANAGEMENT FEE
- -------------------------------------------------------------------------------
EMPLOYEE POSITION ANNUAL HOURS
- -------------------------------------------------------------------------------
<S> <C> <C>
Herb Ehrenthal President 240
- -------------------------------------------------------------------------------
Ernestine McCarren General Manager 360
- -------------------------------------------------------------------------------
Frank Hone Management Director 360
- -------------------------------------------------------------------------------
Vincent Stahl Management Supervisor 800
- -------------------------------------------------------------------------------
Marianne Jasmine Account Supervisor 360
- -------------------------------------------------------------------------------
Renee Hyler Account Executive, Consumer 420
- -------------------------------------------------------------------------------
TBD Account Executive, Medical 800
- -------------------------------------------------------------------------------
TBD Administrative Assistant 795
- -------------------------------------------------------------------------------
Leo Brandstatter Strategic Planner 300
- -------------------------------------------------------------------------------
Peggy Schwende Market Research 180
- -------------------------------------------------------------------------------
TOTAL 4,615
- -------------------------------------------------------------------------------
HOURLY FEE $ 104
- -------------------------------------------------------------------------------
TOTAL FEE $ 479,960
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
EXHIBIT B
MEDICAL PROMOTION FEE SCHEDULE
PROJECTS INCLUDED IN THIS AGREEMENT
- -------------------------------------------------------------------------------
FEE OOP TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Strategic Planning 40,000 0 40,000
- -------------------------------------------------------------------------------
Direct Mail 30,400 12,000 42,400
- -------------------------------------------------------------------------------
Teleconference 18,400 12,000 30,400
- -------------------------------------------------------------------------------
Franchise Kit 25,600 8,000 33,600
- -------------------------------------------------------------------------------
Monograph 12,000 75,000 87,000
- -------------------------------------------------------------------------------
Visual Aid 36,000 10,000 46,000
- -------------------------------------------------------------------------------
Journal Ad 36,000 15,000 51,000
- -------------------------------------------------------------------------------
Ad Space 0 15,000 15,000
- -------------------------------------------------------------------------------
Direct Mail 16,800 24,000 40,800
- -------------------------------------------------------------------------------
Exhibit Booth 48,000 40,000 88,000
- -------------------------------------------------------------------------------
Clinical Reprints 1,600 8,000 9,600
- -------------------------------------------------------------------------------
Website/Management 32,000 360,000 392,000
- -------------------------------------------------------------------------------
TOTAL $296,800 $579,000 $875,800
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
EXHIBIT C
DIRECT-TO-CONSUMER
PROJECTS INCLUDED IN THIS AGREEMENT
- -------------------------------------------------------------------------------
PROJECT FEE OOP TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising / Marketing 144,000 4,360,000 4,504,000
- -------------------------------------------------------------------------------
Psoriasis Advertorial 56,000 470,000 526,000
- -------------------------------------------------------------------------------
Internet 104,000 300,000 404,000
- -------------------------------------------------------------------------------
Office Material 32,000 110,000 142,000
- -------------------------------------------------------------------------------
Total $336,000 $5,240,000 $5,576,000
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
EXHIBIT D
MARKET RESEARCH
PROJECTS INCLUDED IN THIS AGREEMENT
- -------------------------------------------------------------------------------
PROJECT FEE OOP TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Secondary Research 4,800 28,000 32,800
- -------------------------------------------------------------------------------
Field Trip 0 2,500 2,500
- -------------------------------------------------------------------------------
MD Exploratory 2,880 24,000 26,880
- -------------------------------------------------------------------------------
Consumer Exploratory 9,600 40,000 49,600
- -------------------------------------------------------------------------------
Consumer Concept Testing 14,400 80,000 94,400
- -------------------------------------------------------------------------------
Consumer Communication Test 7,200 60,000 67,200
- -------------------------------------------------------------------------------
MD Disaster Check 3,840 20,000 23,840
- -------------------------------------------------------------------------------
Consumer A & U 14,400 80,000 94,400
- -------------------------------------------------------------------------------
TOTAL $57,120 $334,500 $391,620
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
EXHIBIT E
MANAGED CARE
PROJECTS INCLUDED IN THIS AGREEMENT
- -------------------------------------------------------------------------------
PROJECT FEE OOP TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Project Management 84,000 84,000
- -------------------------------------------------------------------------------
Market Research 34,000 34,000
- -------------------------------------------------------------------------------
Pharmacoeconomic model 35,000 35,000
- -------------------------------------------------------------------------------
Monograph 60,000 60,000
- -------------------------------------------------------------------------------
Clinical Reprints 5,000 5,000
- -------------------------------------------------------------------------------
Formulary Binder 4,000 4,000
- -------------------------------------------------------------------------------
Presentation Binder 30,000 30,000
- -------------------------------------------------------------------------------
Announcement Mailing 15,000 15,000
- -------------------------------------------------------------------------------
NHMCC (to be decided) 75,000 75,000
- -------------------------------------------------------------------------------
TOTAL $84,000 $258,000 $342,000
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
ADDENDUM I
HEADCOUNT/LASER PHOTONICS INCORPORATED
LETTER OF AGREEMENT
This is to serve as our Letter of Agreement, made and entered into as of the
11th day of May, 1999, whereby Headcount agrees to complete calls for Laser
Photonics Incorporated for Laser Photonics Excimer Laser to targeted physicians,
managed care personnel and other targeted individuals during a seven-month
period beginning October 1, 1999 through April 30, 2000.
The total program would be divided into two parts:
MANAGED CARE PROGRAM
Two dedicated, full-time managed care specialty representatives will start
October 1, 1999. Their responsibility would be to call on managed care and
insurance company headquarters to educate them on Laser Photonics Excimer Laser
and to establish reimbursement procedures from them for the Laser Photonics
Incorporated laser treatment. The cost for these two representatives will be
$30,000/month. Headcount will provide management for these representatives.
The cost for the seven-month program is $210,000.
DERMATOLOGY SALES FORCE
Headcount will deploy and manage a selling team comprised of 20 dedicated
flextime sales representatives. Each will deliver an average of 100 hours per
month making calls against the identified Laser Photonics Incorporated targets
(Dermatologists and FP/GPs). The approved targets will be located within a
45-mile radius of each territory center. Headcount defines a completed call as
an active face-to-face exchange with a healthcare professional, at which time
the product is discussed and product information is offered. This sales force
will produce 8,000 hours of detailing activity in the period January 3, 2000
through April 30, 2000. The cost would be $400,000 based on an hourly coverage
rate of $50/hour. In addition to the selling cost there is a one-time $100,000
recruiting fee for this portion of the program.
Total cost for the four-month program is $500,000.
In addition to the costs listed above, Headcount assumes that there would need
to be an initial training meeting for the Dermatology Sales Representatives. We
assume the representatives would need 5 days for training (1 day for pre-reading
plus a 4-day initial training meeting that would allow for travel both to and
from the
<PAGE>
meeting). Costs for this meeting are estimated at $40,000 and are enclosed in
attachment A. These cost would be billed separately.
MANAGEMENT
Headcount will provide field management for both program as well as headquarter
management support for the entire program. The fee for this management support
is $10,000/month for a total cost of $70,000 for the program period.
The total cost for both the Managed Care and Dermatology Sales Program with
management (not including initial training) is $780,000.
Included in Headcount's basic selling costs are the following items:
1. Total recruiting expenses throughout the contract period. This includes
recruiting expenses for any turn that may occur.
2. All field-related expenses for the professional sales representatives and
field management. These include auto expenses, parking, tolls, and
miscellaneous supplies.
3. All Headcount headquarters management expenses in the field connected with
assessment of field performance and including normal performance
reviews/planning sessions.
4. The standardized Headcount call reporting and sample accountability service
and monthly reporting.
5. All salaries, taxes and benefits for field representatives and management
as well as the Headcount payroll and administrative services systems for
all representatives and management hired.
6. Headcount Filed & Customer Services support to co-ordinate all field
shipments, field communications and meeting logistics.
7. Quarterly Performance Improvement testing of all representatives on
products and policies thoughout the term of the program.
Lasers Photonics Incorporated will pay actual costs, subject to its written
pre-approval, for the following additional items for representatives and
appropriate Headcount Management:
1. All out-of-pocket and time related expenses for the Introductory Training
Meeting. This will include representative time at a rate of $100/day per
representative, or an agreed upon flat rate plus hotel, airfare, meals and
miscellaneous incidentals. (see attachment A)
<PAGE>
2. All out-of-pocket and time related expenses for attendance at the follow-up
Sales Meetings.
3. Regular Laser Photonics Incorporated sales bags/folders and business cards
for the field representatives in order to project a "total Company
identity" to the physicians that will be called on.
4. All out-of-pocket expenses related to client requested territory close outs
including incremental travel, shipment of all returned samples, promotional
materials and detail bags.
5. All detailing selling aids/miscellaneous materials plus coupons/samples
distributed to the targeted physicians through Headcount field
representatives (plus any outside handling/fulfillment service expenses).
In this respect, we would work closely with you and your agency to add
strategic thinking and a practical field point-of-view on all materials.
6. All expenses related to Laser Photonics Incorporated management visits to
the field/Headcount headquarters and sales meetings.
PAYMENT
Headcount payments for detailing services will be due quarterly. The first
payment will be due upon signing of this agreement and will be $220,000.
Included in this payment would be the October-December 1999 Managed Care Program
costs of $90,000, the October-December 1999 Management Fee of $30,000 plus the
one time recruiting fee of $100,000. On December 15, 1999 the January-March 2000
payment will be due in the amount of $420,000. This would include the Managed
Care Program costs of $90,000, the Dermatology Sales Program costs of $300,000
and the Management Fee cost of $30,000. On March 15, 2,000 the final payment
will be due for April 2000 activity. This will amount to $140,000 and include
cost for the Managed Care Program of $30,000, the Dermatology Sales Program
costs of $100,00 and the Management Fee of $10,000. Time related representative
costs for initial training/follow-up sales meetings will be due 15 days prior to
the meeting date with all incidental meeting charges due 30 days following the
meeting.
A late fee of 1.5% per month will be charged to Laser Photonics Incorporated for
all late payments.
Headcount requests funds be wired to:
The Chase Manhattan Bank N/A
52 Broadway, 6th Floor
New York, NY 10004
212-701-5396
Bank Code 021 00 0021
<PAGE>
For the benefit of:
Headcount LLC
100 Avenue of the Americas, 8th Floor
New York, NY 10013-1687
1-888-432-3268
A/C #777008262
GENERAL PROVISIONS
Headcount will provide monthly status reports of its coverage to Laser Photonics
Incorporated and will work closely with Laser Photonics Incorporated to provide
ideas/advice on increasing professional support levels. Automated call reporting
and sampling data computerized call reports, summarized monthly, will be
available for Laser Photonics Incorporated to review following the close of the
months activity.
Laser Photonics Incorporated may cancel the Agreement before its scheduled
termination upon ninety (90) days written notices to Headcount. Laser Photonics
Incorporated shall be liable for payment of all completed hours made through the
date of cancellation, all pre-approved expenses incurred through such date which
are not recoverable and all costs associated with closing out the
representatives including shipment of materials. Additionally, Laser Photonics
Incorporated shall be liable for a cancellation charge of $25 per hour for each
hour originally planned and not executed for the Dermatology Program following
cancellation. Laser Photonics Incorporated has the option to extend this
Agreement but Headcount would need a firm decision from Laser Photonics
Incorporated on this matter by January 30, 2000 so Headcount does not assign
this field force to another manufacturer.
Laser Photonics Incorporated additionally agrees that it will not employ any
Headcount representative or manager assigned to this program during this
Agreement. At the completion of field activity representative and field
management will be available for rollover to the employ of Laser Photonics
Incorporated for a transfer fee of $7,500 per person.
All information, data and know-how concerning the operation, structure,
personnel, research, products and plans of the Laser Photonics Incorporated
businesses disclosed to Headcount shall be held in strictest confidence.
Laser Photonics Incorporated agrees that all claims, statements and
representations which Laser Photonics Incorporated directs to be made in
connection with the promotion of Laser Photonics Incorporated products
represented by Headcount will be subjected to, and authorized under, Laser
Photonics Incorporated regular scientific and legal/regulatory review process.
Headcount agrees that its representatives will make no claim, statement or
representations Laser Photonics Incorporated products other than claims,
statements and representations that have been so authorized and approved by
Laser Photonics Incorporated.
Laser Photonics Incorporated agrees to indemnify and hold Headcount harmless
from all costs, including reasonable attorney fees, resulting from any charges
or claims alleged to have arisen out of the sale, distribution or use of Laser
Photonics Incorporated products or the publication/distribution of any materials
authorized by
<PAGE>
Laser Photonics Incorporated provided that Headcount shall promptly notify Laser
Photonics Incorporated of such charges or claims. Headcount agrees that it will
permit Laser Photonics Incorporated to control the defense, select counsel and
institute settlement of any charges or claims as part of this agreement and will
cooperate fully with Laser Photonics Incorporated in the defense of such claims.
Headcount agrees to indemnify and hold Laser Photonics Incorporated harmless
from all costs, including reasonable attorney fees, resulting from any charges
or claims alleged to have arisen out of any breach of Headcount of this
Agreement or from the negligent, intentionally wrongful or unauthorized
activities of Headcount and/or Headcount representatives and from any employment
related claims filed against Laser Photonics Incorporated by Headcount
representatives.
Headcount recognizes and agrees that is it acting under this Agreement as an
independent contractor. Neither Headcount nor its employees, agents or
representatives shall be considered employees of Laser Photonics Incorporated
and neither party shall be held liable or accountable for any obligations
incurred by the other party, except as specified herein, it being specifically
understood that the respective businesses of the parties are operated separately
and apart form each other.
IN WITNESS WHEREOF, the parties have executed this Letter of Agreement the day
and year written below:
HEADCOUNT LASER PHOTONICS INCORPORATED
By: By:
------------------------------ ---------------------------------
Title: Title:
--------------------------- -----------------------------
Date: Date:
---------------------------- -------------------------------
<PAGE>
ATTACHMENT A
ESTIMATED INTRODUCTORY TRAINING EXPENSES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
# Persons Est. $
- -------------------------------------------------------------------------------
<S> <C> <C>
AIR
@ $600/flight 22 13,200
HOTEL
@ $150/night x 3 nights 12 5,400
MEALS
@ $75/day x 4 days 22 6,600
INCIDENTALS
@ $50/pp 22 1,100
MEETING EQUIPMENT 3,700
REPRESENTATIVE MEETING TIME 20 10,000
@ $100/day x 4 days
- -------------------------------------------------------------------------------
TOTAL $40,000
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
ADDENDUM II
MEDICAL EDUCATION
LETTER OF AGREEMENT
The purpose herein is to set forth the services to be provided to the client by
Medical Education Technologies, Inc.("MET"), the compensation in fees and
reimbursements of out-of-pockets (OOPs) to be paid to MET in recognition of
services,
TERM OF SERVICES
MET shall begin providing the services stipulated in this agreement and
attachments hereto immediately upon signature of this agreement by stipulated
parties MET shall provide said services for one year, the life of this
agreement.
MET'S RESPONSIBILITIES IN PROVIDING SERVICES
MET shall be responsible for the development of programs and content,
organization and management, and implementation for the education tactics in the
schedule of medical education launch budgets attached to and a part of this
document.
These responsibilities will include all editorial development; identification
and recruitment of participating physicians; negotiations with medical societies
and medical journals; CME accreditation for CME tactics; logistical planning and
arrangements for necessary travel, hotel accommodations, catering, and meeting
facilities; ground transportation; audiovisual equipment and technicians;
design/layout and production of print and other enduring materials; and
follow-up, including payment of physician honoraria and other related OOPs in a
timely fashion.
MET shall inform the client regarding steps of development and implementation
through consultations and status reports on a need-to-know and regular basis as
mutually determined.
COMPENSATION FOR MET'S SERVICES
MET WILL BE COMPENSATED IN VARYING AMOUNTS ON A MONTHLY BASIS ACCORDING TO THE
ATTACHED PAYMENT SCHEDULE FROM THE DOCUMENT, PROPOSED LAUNCH BUDGETS, US
MARKETS.
CLIENT-APPROVED BUDGETS FOR OUT OF POCKETS (OOPS)
MET shall provide the client with line-item estimates of OOPs for approval when,
through consultations,
<PAGE>
specifications for education tactics are finalized. MET will proceed with
implementation of tactics when OOP estimates are approved.
All estimates will be +/- 15% of total OOP estimate.
After client approvals, any increases that will cause OOP budgets to exceed 15%
of the total estimate must be client-approved in writing.
REIMBURSEMENT OF OOPS
MET will provide 2 to 3 invoices for the OOPs on each tactic, depending on total
estimate. Estimates under $50,000 shall be invoiced in halves; over $50,000, in
thirds. MET will provide a reconciliation when each tactic is completed and,
upon request, documentation of OOPs.
CME AGREEMENTS
For tactics that are CME accredited, MET will assure that three-party CME
agreements between the Office of Continuing Medical Education (the
sponsor/provider), MET (the facilitator, organizer, and possibly co-sponsor),
and the client (the supporter) are drawn and executed as prescribed by the
American Council of Continuing Medical Education (ACCME).
MET shall abide by ACCME and AMA regulations and guidelines in developing,
managing, and implementing CME programs and will provide guidance to the client
in order that the client also abides by ACCME and AMA regulations and guidelines
in providing permissible input, such as clinical results.
STANDARD AGENCY/CLIENT CONTRACTUAL CLAUSES
MET, as independent contractor, is a party to and shall be held liable under
clauses in the executed agreement between the client and GHBM Healthworld
regarding confidentiality, ownership of work-for-hire and produced materials,
copyrights, indemnities, liabilities, workman's compensation insurance, FDA
debarment, and termination/expiration of this agreement.
<PAGE>
TACTICS INCLUDED UNDER THIS AGREEMENT
Under this Agreement, MET shall develop and implement the following tactics for
advocate building and physician education:
<TABLE>
<CAPTION>
Tactic Fee OOP TOTAL
<S> <C> <C> <C>
Advocate Building 22,800 -- 22,800
Editorial Development 48,000 -- 48,000
One (1) Review Article 18,000 7,500 25,500
3 Clinical Articles 33,000 15,000 48,000
3 Posters / Abstracts 12,000 6,000 18,000
2 Advisory Board Meetings 56,000 60,000 116,000
3 Regional Advisory Boards 72,000 150,000 222,000
CME Symposium 52,000 85,000 137,000
Video 8,000 50,000 58,000
Slide Kit 4,000 20,000 24,000
TOTAL $325,800 $393,500 $719,300
</TABLE>
WARRANTY
MET warrants that MET is legally able to enter into an education services
agreement with Laser Photonics and that such agreement does not conflict with
any agreement, understanding written or oral to which MET is a party or by which
is bound.
<PAGE>
ADDENDUM III
PUBLIC RELATIONS AGREEMENT
May 11, 1999
Chaim Markheim
LASER PHOTONICS, INC.
2431 Impala Drive
Carlsbad, CA 92008-7227
Dear Chaim:
This Letter of Agreement, when signed by you in the space provided, will confirm
that GHB&M Public Relations has been retained by Laser Photonics, Inc. to
implement a public and professional relations program to support the launch of
the company's Excimer Laser for the treatment of psoriasis. The agreement covers
the period from May 1999 through April 2000.
In return for providing public and professional relations services and summaries
of activities and results, Laser Photonics agrees to pay GHB&M Public Relations
a monthly fee of $16,000. Out-of-pocket expenses, estimated at $236,000, will be
billed at cost. The GHB&M Public Relations fee is based on an hourly composite
rate of $130 and an estimate of the hours that will be required to successfully
implement the program as outlined in the original proposal. It covers the
services of an Account Executive, Senior Vice President Linda Rosenbaum and the
consulting hours, as required, of Steve Girgenti. Any involvement of GHB&M
public relations in additional programs or projects will be subject to
negotiation.
The monthly fee will be billed at the beginning of each month in which account
management services will be performed. Out-of-pocket expenses will be billed at
direct cost in the billing cycle following the month they are incurred.
Estimates will be provided for jobs billing over $10,000 in out-of-pocket
expenses and 50% of the estimate will be advance billed prior to the start of
the job, with the remainder due upon completion of the job.
We looking forward to working with Laser Photonics on this exciting new product
launch. Please return a signed copy of this letter to my attention at your
earliest convenience.
Sincerely, Agreed to__________________________
Chaim Markheim
Date _________________
Linda Rosenbaum
Senior Vice President
cc: Steve Girgenti
Stuart Diamond
<PAGE>
PUBLIC/PROFESSIONALS RELATIONS LAUNCH BUDGET
ASSOCIATION RELATIONS/START-UP AND NEGOTIATION
Fee: $12,000
OOP: $30,000
PSORIASIS SECTION/AAD WEBSITE
Fee: $28,000
OOP: $65,000
LAUNCH PRODUCT PUBLICITY (6 MARKETS)
Fee: $56,000
OOP: $50,000
COMMUNITY MEETINGS/NPF (6 MARKETS)
Fee: $38,400
OOP: $60,000
MED ED SPIN-OFFS
Fee: $20,000
OOP: $31,000
TOTAL FEE: $154,400
TOTAL OOP: $236,000
GRAND TOTAL: $390,400
<PAGE>
CLINICAL TRIAL AGREEMENT
Agreement made this 27th day of July, 1999 ("Effective Date") between The
General Hospital Corporation, a not-for-profit corporation doing business as
Massachusetts General Hospital, having a principal place of business at Fruit
Street, Boston, Massachusetts 02114 ("General"), Charles Taylor, MD, Department
of Dematology, Massachusetts General Hospital, Boston, Massachusetts 02114
("Principal Investigator") and Laser Photonics, Inc. a corporation having an
office at 2431 Impala Drive, Carlsbad, CA 92008 ("Company").
All of the parties to this Agreement share a common mission of improving
the public health by engaging in research for the purpose of discovering and
making available to the public new and improved medical drugs and devices. In
connection with this mission, Company desires to have further clinical research
conducted on its device described below. General and Principal Investigator,
having particular expertise and opportunity, desire to provide this research.
Accordingly, the parties agree as follows.
SECTION 1: STUDY PERFORMANCE
1.1 PROTOCOL Subject to approval of the Study pursuant to Section 1.2
below, Principal Investigator agrees to conduct to the extent funds are made
available hereunder a clinical study of a 308nm Excimer Laser manufactured by
Acculase, Inc., a subsidiary of Laser Photonics, Inc. (hereinafter referred to
as the "Study Device") in accordance with the study protocol entitled "Pilot
Study to Determine the Safety and Efficacy of the 308 Excimer Laser for
Treatment of Scalp Psoriasis", a copy of which is attached hereto as Exhibit A
(hereinafter referred to as the "Study"). In the event of any conflict between
Exhibit A and the provisions of this Agreement, the provisions of this Agreement
shall govern.
1.2 STUDY REVIEW Principal Investigator shall conduct the Study at General
with the prior approval and ongoing review of all appropriate and necessary
review authorities and in accordance with all applicable federal, state and
local laws and regulations. Principal Investigator shall provide Company with
written evidence of review and approval of this Study by General's Institutional
Review Board ("IRB") prior to the initiation of the Study and shall inform
Company of the IRB's continuing review promptly after such review takes place,
which shall be at least once per year. All volunteers shall meet the legal age
requirements of the Commonwealth of Massachusetts, the state in which the Study
is to be conducted.
1.3 STUDY DEVICE Company shall provide General, at no charge, with
quantities of the Study Device required for the Study. The General and Principal
Investigator shall safeguard such Study Device with the degree of care used for
its own property. Upon completion or termination of the Study and upon Company's
request, General shall return or otherwise dispose of any remaining Study Device
in accordance with Company's instructions. General and Principal Investigator
shall not use any Study Device for any purpose other than the Study, unless
otherwise agreed.
1
<PAGE>
SECTION 2: RESULTS OF THE STUDY
2.1 OWNERSHIP OF RECORDS, DATA AND INTELLECTUAL PROPERTY Company shall own
its case report forms and the data resulting from the Study. General shall own
its medical records, research notebooks and related documentation and any
intellectual property resulting from the Study subject to the option granted to
Company to license Inventions in Section 2.3 below. General shall have the right
to use the data for research, educational and patient care purposes as well as
to comply with any federal, state or local government laws or regulations.
Notwithstanding the above, Company shall not use any patient names, identifying
information, photographs, or other likenesses without first obtaining the
specific written informed consent of such patient for such use.
2.2 PUBLICATION The Principal Investigator shall be free to publish the
results of the Study subject only to the provisions of Section 3 regarding
Company's Proprietary Information. The Principal Investigator shall furnish
Company with a copy of any proposed publication for review and comment prior to
submission for publication, at least thirty (30) days prior to submission for
manuscripts and at least seven (7) days prior to submission for abstracts. At
the expiration of such thirty (30) day or seven (7) day period, Principal
Investigator may proceed with submission for publication provided, however, that
upon notice by Company that Company reasonably believes a patent application
claiming an Invention (as defined in Section 2.3) should be filed prior to such
publication, such publication shall be delayed for an additional thirty (30)
days or until any patent application or applications have been filed, whichever
shall first occur. In no event shall the submission of such publication of
results be delayed for more than sixty (60) days for manuscripts and for more
than thirty-seven (37) days for abstracts from the date such proposed
publication was received by Company; at the end of said sixty (60) or
thirty-seven (37) days, the Principal Investigator shall be free to publish such
results as proposed.
2.3 INVENTIONS
(a) Subject to the terms of Paragraphs 2.3 (b)-(g) below, the
Principal Investigator and any other General personnel performing the Study
under his or her direction who makes an invention which constitutes a new use of
or modification to the Study Device in the performance of the Study
("Invention") shall promptly report and assign such Invention to General.
General shall promptly disclose in writing any Inventions to Company. Within
thirty (30) days of such disclosure, Company shall notify General in writing if
it wishes General to file a patent application claiming the Invention.
(b) in the event of joint inventorship under the Study of a new use
of or modification of the Study Device between Investigators and/or personnel
from General and personnel from Company ("Joint Invention"), such Investigators
and/or personnel shall assign all of their rights, title and interest in the
Joint Invention to General and such personnel from Company shall assign all of
their rights, title and interest in the Joint Invention to Company, and the
Joint Invention shall be deemed jointly owned. Promptly
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after disclosure of the invention, the parties shall then mutually agree as to
whether an application for the Joint Invention shall be filed
(c) As to any patent applications prepared and/or filed under either
paragraphs (a) or (b) above, Company shall have and is hereby given by General
an exclusive option, for a period of ninety (90) days following the disclosure
of such invention, to seek either (1) a worldwide, exclusive or non-exclusive
license for inventions in which General personnel are the, sole named inventors;
or (2) a worldwide, exclusive license for General's rights in any Joint
Inventions. Exercise of Company's option shall be provided in writing to
General.
(d) In the event Company exercises its option under Paragraph 2.3(c)
above, the Parties shall have ninety (90) days from the date of Company's notice
to negotiate in good faith a license agreement containing license terms standard
for agreements between universities and industry, which may include payment of
reasonable royalties and other compensation to General, objective, time-limited
due diligence provisions for the development, commercialization and marketing of
a product embodying the invention and product liability indemnification and
insurance requirements which are acceptable to General's liability insurance
carrier. In the event the parties are unable to reach agreement on the terms of
a license under this paragraph, General shall then have the right to license its
rights to any third party, provided however, that no license to a third party
shall be agreed to by General on terms more favorable than those terms last
offered to Company.
(e) Notwithstanding the above paragraphs of this Section 2, in the
event there is an invention under the Study, either solely by General personnel
or jointly by General and Company personnel, that is: (1) directed to an optimal
dosage, protocol and/or device configuration for treating psoriasis using
ultraviolet radiation in the manner such radiation is generated by Company's
Study Device and (2) that would not come within the definition of "Patent Right"
as set forth in the License Agreement dated November 26, 1997 between the
parties, it is agreed that Company shall be given a paid up worldwide exclusive
license to such invention and that payment by Company for the Study and for all
patent preparation and filing costs for such invention shall constitute, the
consideration for the paid up license.
(f) It is agreed that for any patent application under which Company
is the licensee, Company shall pay all reasonable fees and costs associated with
the, preparation and prosecution of such application, provided however, that the
parties shall mutually select the attorneys for such application and that
General shall keep Company promptly apprised of all proceedings in connection
with the application and Company shall have the right to review and approve all
submissions made during said filing and prosecution.
(g) In the event the Parties do not come to an agreement as to the
terms of a license under Paragraphs 2-3 (a)-(d), Company shall no longer have
responsibility
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to fund any further fees and costs associated with the filing and prosecution of
the application, and, in the event General enters into an agreement with third
party for such application, Company shall be reimbursed for the fees and costs
Company previously paid.
2.4 USE OF NAME Except for disclosure by General of Company's support for
the Study in publications, no party to this Agreement shall use the name of any
other party or of any staff member, employee or student of any other party or
any adaptation, acronym or name by which any party is commonly known, in any
advertising, promotional or sales literature or in any publicity without the
prior written approval of the party or individual whose name is to be used. For
General, such approval shall be obtained from the Director of Public Affairs and
for Company, from Mr. Chaim Markheim.
2.5 STUDY RECORDS General shall make Study records available to Company
representatives upon request for comparison with case report forms. General
shall also make such records available upon reasonable request for review by
representatives of the U.S. Food and Drug Administration. General shall retain
records of the Study including either the original or a copy of all volunteer
consent forms in conformance with applicable federal regulations. Company shall
notify Principal Investigator of the date a premarket approval application (PMA)
is approved for the Study Device; or if the application is not approved, Company
shall notify Principal Investigator when all clinical investigations have been
discontinued and the FDA notified.
SECTION 3: COMPANY PROPRIETARY INFORMATION
3.1 It is anticipated that in the performance of the Study, Company shall
provide to General, Principal Investigator and other General personnel who are
designated in writing by the Principal Investigator as being authorized to
receive Proprietary Information and who agree in writing to the following
confidentiality obligations (each such institution or person individually
referred to in this Section 3.1 as "a Recipient" and collectively as
"Recipients"), or shall give Recipients access to, certain information which
Company considers proprietary. The rights and obligations of the parties with
respect to such information are as follows:
(a) For the purposes of this Agreement, "Proprietary Information" refers
to information of any kind which is disclosed by Company to a Recipient and
which, by appropriate marking, is identified as confidential and proprietary at
the time of disclosure. In the event that proprietary information must be
provided visually or orally, obligations of confidence shall attach only to that
information which is confirmed by Company in writing within ten (10) working
days as being confidential.
(b) For a period of five (5) years after the Effective Date of this
Agreement, each Recipient agrees to use reasonable efforts, no less than the
protection given their
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own confidential information, to use Proprietary Information received from
Company and accepted by that Recipient only in accordance with this
Section 3.1(b).
(i) Each Recipient shall use Company's Proprietary Information solely for
the purposes of conducting the Study, obtaining any required review of the
Study or its conduct, or ensuring proper medical treatment of any patient
or subject. Each Recipient agrees to make Proprietary Information available
only to those employees and students of General who require access to it in
the performance of this Study and to inform them of the confidential nature
of such information.
(ii) Except as provided in subsection 3.1(b)(i), each Recipient shall keep
all Proprietary Information confidential unless Company gives specific
written consent for release.
(iii) If any Recipient becomes aware of any disclosure not authorized
hereunder, that Recipient shall notify Company and take reasonable steps to
prevent any further disclosure or unauthorized use.
(c) No Recipient shall be required to treat any information as Proprietary
Information under this Agreement in the event: (i) it is publicly available
prior to the date of the Agreement or becomes publicly available thereafter
through no wrongful act of any Recipient; (ii) it was known to any Recipient
prior to the date of disclosure or becomes known to any Recipient thereafter
from a third party having an apparent bona fide right to disclose the
information; (iii) it is disclosed by any Recipient in accordance with the terms
of Company's prior written approval; (iv) it is disclosed by Company without
restriction on further disclosure; (v) it is independently developed by any
Recipient; or, (vi) any Recipient is obligated to produce it pursuant to an
order of a court of competent jurisdiction or a facially valid administrative,
Congressional or other subpoena, provided that the Recipient subject to the
order or subpoena (A) promptly notifies Company and (B) cooperates reasonably
with Company's efforts to contest or limit the scope of such order.
SECTION 4: BUDGET
4.1 Company agrees to support this Study with a research grant of One
hundred seventy-five thousand, two hundred fifty dollars ($175,250) which
includes indirect costs in the amount of Thirty-five thousand fifty dollars
($35,050) computed at a rate of 25% of total direct costs, payable to General as
follows:
Eighty-seven thousand, six hundred twenty-five dollars ($87,625) upon
execution of this Agreement;
Forty-three thousand, eight hundred twelve dollars ($43,812) upon
enrollment of ten (10) subjects; and,
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Forty-three thousand, eight hundred twelve dollars ($43,812)
Forty-three thousand eight hundred twelve dollars ($43,812) upon completion of a
total of twenty (20) subjects and submission of all completed case report forms.
4.2 Checks should be made payable to "The General Hospital Corporation"
and sent, along with a letter indicating the name of the Principal Investigator
and the specific clinical trial agreement for which the funds are intended, to:
Financial Control Coordinator
Research Finance
Massachusetts General Hospital
Thirteenth Street, Building 149, Suite 1115
Charlestown, MA 02129
SECTION 5: TERM AND TERMINATION
5.1 The term of this Agreement shall be until the completion of the Study,
which is anticipated to be one (1) year from the Effective Date, unless
terminated in accordance with Section 5.2.
5.2. Any party hereto shall have the right to terminate the Study and this
Agreement at any time upon thirty (30) days prior written notice thereof to the
other parties, except that any party may terminate this Agreement immediately
upon written notice to the other parties if necessary to protect the health,
welfare or safety of any Study subject.
5.3 In the event of termination, the amount of the research grant by
Company to support the Study shall be appropriately prorated to allow General to
recover reasonable costs and noncancellable commitments incurred, including
without limitation, termination salary costs of any of General's employees
released as a result of such termination.
5.4 The obligations of the parties under Sections 2, 3 and 6 shall survive
the termination or expiration of this Agreement.
SECTION 6: INDEMNIFICATION AND INSURANCE
6.1 INDEMNIFICATION (a) Company shall indemnify, defend and hold harmless
General and its trustees, officers, medical and professional staff, employees,
and agents and their respective successors, heirs and assigns (the
"Indemnitees"), against any liability, damage, loss or expense (including
reasonable attorney's fees and expenses of litigation) incurred by or imposed
upon the Indemnitees or any one of them in connection with any claims, suits,
actions, demands or judgments arising out of any side effect, adverse reaction,
illness, or injury occurring to any person as a result of his or her involvement
in the Study.
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(b) Company's indemnification under (a) above shall not apply to any
liability, damage, loss or expense to the extent that it is directly
attributable to: (i) the negligent activities, reckless misconduct or
intentional misconduct of the Indemnitees; or (ii) failure of the Indemnitees to
adhere to the terms of the protocol for the Study.
(c) Company agrees, at its own expense, to provide attorneys reasonably
acceptable to General to defend against any actions brought or filed against any
party indemnified hereunder with respect to the subject of the indemnity
contained herein, whether or not such actions are rightfully brought.
(d) Company also agrees to reimburse General for the costs of the care and
treatment of any illness or injury to a subject resulting from his or her
participation in the Study to the extent that such costs are not covered by the
subject's medical or hospital insurance or governmental programs providing such
coverage.
6.2 INSURANCE (a) Company shall, at its sole cost and expense, procure and
maintain commercial general liability insurance or equivalent self-insurance in
amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate.
Such commercial general liability insurance or equivalent self-insurance shall
provide contractual liability coverage for Company's indemnification under
Section 6.1 of this Agreement.
(b) Company shall provide General with written evidence of such insurance
prior to the commencement of the Study. Company shall provide General with
written notice at least fifteen (15) days prior to the cancellation, non-renewal
or material change, in such insurance; if Company does not obtain replacement
insurance providing comparable coverage within such fifteen (15) day period,
General shall have the right to terminate this Agreement effective at the end of
such fifteen (15) day period without notice of any additional waiting periods.
SECTION 7: MISCELLANEOUS
7.1 The terms of this Agreement can be modified only by a writing which is
signed by General, Principal Investigator and Company.
7.2 The provisions of this Agreement shall be interpreted under the laws
of the Commonwealth of Massachusetts, regardless of the choice of law rules of
any jurisdiction.
7.3 No party to this Agreement may assign its obligations hereunder
without the prior written consent of the other parties.
7.4 This Agreement constitutes the entire understanding between the
parties, and supersedes and replaces all prior agreements, understandings,
writings and discussions between the parties, with respect to the subject matter
of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
LASER PHOTONICS, INC. THE GENERAL HOSPITAL CORPORATION
(Federal Tax ID No.: 042 697 983)
BY: /s/ Chaim Markheim By: /s/ Nikki J. Zapol
----------------------------- ----------------------------
TITLE: COO/CFO TITLE: Director, Office of Corporate
Sponsored Research and Licensing
DATE: 8/4/99 DATE: 8/9/99
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CLINICAL TRIAL AGREEMENT
Agreement made this 27th day of July, 1999 ("Effective Date") between The
General Hospital Corporation, a not-for-profit corporation doing business as
Massachusetts General Hospital, having a principal place of business at Fruit
Street, Boston, Massachusetts 02114 ("General"), Charles Taylor, MD, Department
of Dematology, Massachusetts General Hospital, Boston, Massachusetts 02114
("Principal Investigator") and Laser Photonics, Inc. a corporation having an
office at 2431 Impala Drive, Carlsbad, CA 92008 ("Company").
All of the parties to this Agreement share a common mission of improving
the public health by engaging in research for the purpose of discovering and
making available to the public new and improved medical drugs and devices. In
connection with this mission, Company desires to have further clinical research
conducted on its device described below. General and Principal Investigator,
having particular expertise and opportunity, desire to provide this research.
Accordingly, the parties agree as follows.
SECTION 1: STUDY PERFORMANCE
1.1 PROTOCOL Subject to approval of the Study pursuant to Section 1.2
below, Principal Investigator agrees to conduct to the extent funds are made
available hereunder a clinical study of a 308nm Excimer Laser manufactured by
Acculase, Inc., a subsidiary of Laser Photonics, Inc. (hereinafter referred to
as the "Study Device") in accordance with the study protocol entitled "308 nm
Excimir Laser for the Treatment of Plaque Psoriasis (4MED/6MED)", a copy of
which is attached hereto as Exhibit A (hereinafter referred to as the "Study").
In the event of any conflict between Exhibit A and the provisions of this
Agreement, the provisions of this Agreement shall govern.
1.2 STUDY REVIEW Principal Investigator shall conduct the Study at General
with the prior approval and ongoing review of all appropriate and necessary
review authorities and in accordance with all applicable federal, state and
local laws and regulations. Principal Investigator shall provide Company with
written evidence of review and approval of this Study by General's Institutional
Review Board ("IRB") prior to the initiation of the Study and shall inform
Company of the IRB's continuing review promptly after such review takes place,
which shall be at least once per year. All volunteers shall meet the legal age
requirements of the Commonwealth of Massachusetts, the state in which the Study
is to be conducted.
1.3 STUDY DEVICE Company shall provide General, at no charge, with
quantities of the Study Device required for the Study. The General and Principal
Investigator shall safeguard such Study Device with the degree of care used for
its own property. Upon completion or termination of the Study and upon Company's
request, General shall return or otherwise dispose of any remaining Study Device
in accordance with Company's instructions. General and Principal Investigator
shall not use any Study Device for any purpose other than the Study, unless
otherwise agreed.
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SECTION 2: RESULTS OF THE STUDY
2.1 OWNERSHIP OF RECORDS, DATA AND INTELLECTUAL PROPERTY Company shall own
its case report forms and the data resulting from the Study. General shall own
its medical records, research notebooks and related documentation and any
intellectual property resulting from the Study subject to the option granted to
Company to license Inventions in Section 2.3 below. General shall have the right
to use the data for research, educational and patient care purposes as well as
to comply with any federal, state or local government laws or regulations.
Notwithstanding the above, Company shall not use any patient names, identifying
information, photographs, or other likenesses without first obtaining the
specific written informed consent of such patient for such use.
2.2 PUBLICATION The Principal Investigator shall be free to publish the
results of the Study subject only to the provisions of Section 3 regarding
Company's Proprietary Information. The Principal Investigator shall furnish
Company with a copy of any proposed publication for review and comment prior to
submission for publication, at least thirty (30) days prior to submission for
manuscripts and at least seven (7) days prior to submission for abstracts. At
the expiration of such thirty (30) day or seven (7) day period, Principal
Investigator may proceed with submission for publication provided, however, that
upon notice by Company that Company reasonably believes a patent application
claiming an Invention (as defined in Section 2.3) should be filed prior to such
publication, such publication shall be delayed for an additional thirty (30)
days or until any patent application or applications have been filed, whichever
shall first occur. In no event shall the submission of such publication of
results be delayed for more than sixty (60) days for manuscripts and for more
than thirty-seven (37) days for abstracts from the date such proposed
publication was received by Company; at the end of said sixty (60) or
thirty-seven (37) days, the Principal Investigator shall be free to publish such
results as proposed.
2.3 INVENTIONS
(a) Subject to the terms of Paragraphs 2.3 (b)-(g) below, the Principal
Investigator and any other General personnel performing the Study under his or
her direction who makes an invention which constitutes a new use of or
modification to the Study Device in the performance of the Study ("Invention")
shall promptly report and assign such Invention to General. General shall
promptly disclose in writing any Inventions to Company. Within thirty (30) days
of such disclosure, Company shall notify General in writing if it wishes General
to file a patent application claiming the Invention.
(b) In the event of joint inventorship under the Study of a new use of
or modification of the Study Device between Investigators and/or personnel from
General and personnel from Company ("Joint Invention"), such Investigators
and/or personnel shall assign all of their rights, title and interest in the
Joint Invention to General and such personnel from Company shall assign all of
their rights, title and interest in the Joint Invention to Company, and the
Joint Invention shall be deemed jointly owned. Promptly
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after disclosure of the invention, the parties shall then mutually agree as to
whether an application for the Joint Invention shall be filed.
(c) As to any patent applications prepared and/or filed under either
paragraphs (a) or (b) above, Company shall have and is hereby given by General
an exclusive option, for a period of ninety (90) days following the disclosure
of such invention, to seek either (1) a worldwide., exclusive or non-exclusive
license for inventions in which General personnel are the, sole named inventors;
or (2) a worldwide, exclusive license for General's rights in any Joint
Inventions. Exercise of Company's option shall be provided in writing to
General.
(d) In the event Company exercises its option under Paragraph 2.3(c)
above, the Parties shall have ninety (90) days from the date of Company's notice
to negotiate in good faith a license agreement containing license terms standard
for agreements between universities and industry, which may include payment of
reasonable royalties and other compensation to General, objective, time-limited
due diligence provisions for the development, commercialization and marketing of
a product embodying the invention and product liability indemnification and
insurance requirements which are acceptable to General's liability insurance
carrier. In the event the parties are unable to reach agreement on the terms of
a license under this paragraph, General shall then have the right to license its
rights to any third party, provided however, that no license to a third party
shall be agreed to by General on terms more favorable than those terms last
offered to Company.
(e) Notwithstanding the above paragraphs of this Section 2, in the
event there is an invention under the Study, either solely by General personnel
or jointly by General and Company personnel, that is: (1) directed to an optimal
dosage, protocol and/or device configuration for treating psoriasis using
ultraviolet radiation in the manner such radiation is generated by Company's
Study Device and (2) that would not come within the definition of "Patent Right"
as set forth in the License Agreement dated November 26, 1997 between the
parties, it is agreed that Company shall be given a paid up worldwide exclusive
license to such invention and that payment by Company for the Study and for all
patent preparation and filing costs for such invention shall constitute, the
consideration for the paid up license.
(f) It is agreed that for any patent application under which Company is
the licensee, Company shall pay all reasonable fees and costs associated with
the, preparation and prosecution of such application, provided however, that the
parties shall mutually select the attorneys for such application and that
General shall keep Company promptly apprised of all proceedings in connection
with the application and Company shall have the right to review and approve all
submissions made during said filing and prosecution.
(g) In the event the Parties do not come to an agreement as to the
terms of a license under Paragraphs 2-3 (a) - (d), Company shall no longer have
responsibility
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to fund any further fees and costs associated with the filing and prosecution of
the application, and, in the event General enters into an agreement with third
party for such application, Company shall be reimbursed for the fees and costs
Company previously paid.
2.4 USE OF NAME Except for disclosure by General of Company's support for
the Study in publications, no party to this Agreement shall use the name of any
other party or of any staff member, employee or student of any other party or
any adaptation, acronym or name by which any party is commonly known, in any
advertising, promotional or sales literature or in any publicity without the
prior written approval of the party or individual whose name is to be used. For
General, such approval shall be obtained from the Director of Public Affairs and
for Company, from Mr. Chaim Markheim.
2.5 STUDY RECORDS General shall make Study records available to Company
representatives upon request for comparison with case report forms. General
shall also make such records available upon reasonable request for review by
representatives of the U.S. Food and Drug Administration. General shall retain
records of the Study including either the original or a copy of all volunteer
consent forms in conformance with applicable federal regulations. Company shall
notify Principal Investigator of the date a premarket approval application (PMA)
is approved for the Study Device; or if the application is not approved, Company
shall notify Principal Investigator when all clinical investigations have been
discontinued and the FDA notified.
SECTION 3: COMPANY PROPRIETARY INFORMATION
3.1 It is anticipated that in the performance of the Study, Company shall
provide to General, Principal Investigator and other General personnel who are
designated in writing by the Principal Investigator as being authorized to
receive Proprietary Information and who agree in writing to the following
confidentiality obligations (each such institution or person individually
referred to in this Section 3.1 as "a Recipient" and collectively as
"Recipients"), or shall give Recipients access to, certain information which
Company considers proprietary. The rights and obligations of the parties with
respect to such information are as follows:
(a) For the purposes of this Agreement, "Proprietary Information"
refers to information of any kind which is disclosed by Company to a Recipient
and which, by appropriate marking, is identified as confidential and proprietary
at the time of disclosure. In the event that proprietary information must be
provided visually or orally, obligations of confidence shall attach only to that
information which is confirmed by Company in writing within ten (10) working
days as being confidential.
(b) For a period of five (5) years after the Effective Date of this
Agreement, each Recipient agrees to use reasonable efforts, no less than the
protection given their
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own confidential information, to use Proprietary Information received from
Company and accepted by that Recipient only in accordance with this Section
3.1(b).
(i) Each Recipient shall use Company's Proprietary Information solely
for the purposes of conducting the Study, obtaining any required review
of the Study or its conduct, or ensuring proper medical treatment of
any patient or subject. Each Recipient agrees to make Proprietary
Information available only to those employees and students of General
who require access to it in the performance of this Study and to inform
them of the confidential nature of such information.
(ii) Except as provided in subsection 3.1(b)(i), each Recipient shall
keep all Proprietary Information confidential unless Company gives
specific written consent for release.
(iii) If any Recipient becomes aware of any disclosure not authorized
hereunder, that Recipient shall notify Company and take reasonable
steps to prevent any further disclosure or unauthorized use.
(c) No Recipient shall be required to treat any information as
Proprietary Information under this Agreement in the event: (i) it is publicly
available prior to the date of the Agreement or becomes publicly available
thereafter through no wrongful act of any Recipient; (ii) it was known to any
Recipient prior to the date of disclosure or becomes known to any Recipient
thereafter from a third party having an apparent bona fide right to disclose the
information; (iii) it is disclosed by any Recipient in accordance with the terms
of Company's prior written approval; (iv) it is disclosed by Company without
restriction on further disclosure; (v) it is independently developed by any
Recipient; or, (vi) any Recipient is obligated to produce it pursuant to an
order of a court of competent jurisdiction or a facially valid administrative,
Congressional or other subpoena, provided that the Recipient subject to the
order or subpoena (A) promptly notifies Company and (B) cooperates reasonably
with Company's efforts to contest or limit the scope of such order.
SECTION 4: BUDGET
4.1 Company agrees to support this Study with a research grant of Three
hundred thirty-eight thousand, four hundred thirty-eight dollars ($338,438)
which includes indirect costs in the amount of Sixty-seven thousand, six hundred
eighty-eight dollars ($67,688) computed at a rate of 25% of total direct costs,
payable to General as follows:
One hundred sixty-nine thousand, two hundred nineteen dollars ($169,219)
upon execution of this Agreement;
Eighty-four thousand, six hundred nine dollars and fifty cents ($84,609.50)
upon enrollment of twelve (12) subjects; and,
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Eighty-four thousand, six hundred nine dollars and fifty cents
($84,609.50) upon completion of a total of twenty (20) subjects and submission
of all completed case report forms.
4.2 Checks should be made payable to "The General Hospital Corporation" and
sent, along with a letter indicating the name of the Principal Investigator and
the specific clinical trial agreement for which the funds are intended, to:
Financial Control Coordinator
Research Finance
Massachusetts General Hospital
Thirteenth Street, Building 149, Suite 1115
Charlestown, MA 02129
SECTION 5: TERM AND TERMINATION
5.1 The term of this Agreement shall be until the completion of the Study,
which is anticipated to be one (1) year from the Effective Date, unless
terminated in accordance with Section 5.2.
5.2. Any party hereto shall have the right to terminate the Study and
this Agreement at any time upon thirty (30) days prior written notice thereof to
the other parties, except that any party may terminate this Agreement
immediately upon written notice to the other parties if necessary to protect the
health, welfare or safety of any Study subject.
5.3 In the event of termination, the amount of the research grant by
Company to support the Study shall be appropriately prorated to allow General to
recover reasonable costs and noncancellable commitments incurred, including
without limitation, termination salary costs of any of General's employees
released as a result of such termination.
5.4 The obligations of the parties under Sections 2, 3 and 6 shall survive
the termination or expiration of this Agreement.
SECTION 6: INDEMNIFICATION AND INSURANCE
6.1 INDEMNIFICATION (a) Company shall indemnify, defend and hold harmless
General and its trustees, officers, medical and professional staff, employees,
and agents and their respective successors, heirs and assigns (the
"Indemnitees"), against any liability, damage, loss or expense (including
reasonable attorney's fees and expenses of litigation) incurred by or imposed
upon the Indemnitees or any one of them in connection with any claims, suits,
actions, demands or judgments arising out of any side effect, adverse reaction,
illness, or injury occurring to any person as a result of his or her involvement
in the Study.
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(b) Company's indemnification under (a) above shall not apply to any
liability, damage, loss or expense to the extent that it is directly
attributable to: (i) the negligent activities, reckless misconduct or
intentional misconduct of the Indemnitees; or (ii) failure of the Indemnitees to
adhere to the terms of the protocol for the Study.
(c) Company agrees, at its own expense, to provide attorneys reasonably
acceptable to General to defend against any actions brought or filed against any
party indemnified hereunder with respect to the subject of the indemnity
contained herein, whether or not such actions are rightfully brought.
(d) Company also agrees to reimburse General for the costs of the care
and treatment of any illness or injury to a subject resulting from his or her
participation in the Study to the extent that such costs are not covered by the
subject's medical or hospital insurance or governmental programs providing such
coverage.
6.2 INSURANCE (a) Company shall, at its sole cost and expense, procure and
maintain commercial general liability insurance or equivalent self-insurance in
amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate.
Such commercial general liability insurance or equivalent self-insurance shall
provide contractual liability coverage for Company's indemnification under
Section 6.1 of this Agreement.
(b) Company shall provide General with written evidence of such
insurance prior to the commencement of the Study. Company shall provide General
with written notice at least fifteen (15) days prior to the cancellation,
non-renewal or material change, in such insurance; if Company does not obtain
replacement insurance providing comparable coverage within such fifteen (15) day
period, General shall have the right to terminate this Agreement effective at
the end of such fifteen (15) day period without notice of any additional waiting
periods.
SECTION 7: MISCELLANEOUS
7.1 The terms of this Agreement can be modified only by a writing which is
signed by General, Principal Investigator and Company.
7.2 The provisions of this Agreement shall be interpreted under the laws of
the Commonwealth of Massachusetts, regardless of the choice of law rules of any
jurisdiction.
7.3 No party to this Agreement may assign its obligations hereunder without
the prior written consent of the other parties.
7.4 This Agreement constitutes the entire understanding between the
parties, and supersedes and replaces all prior agreements, understandings,
writings and discussions between the parties, with respect to the subject matter
of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
LASER PHOTONICS, INC. THE GENERAL HOSPITAL CORPORATION
(Federal Tax ID No.: 042 697 983)
BY: /s/ Chaim Markheim By: /s/ Nikki J. Zapol
-------------------------- ---------------
Chain Markheim Nikki J. Zapol
TITLE: COO/CFO TITLE: Director, Office of Corporate Sponsored
Research and Licensing
DATE: 8/4/99 DATE: 8/9/99
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AMENDMENT TO THE AGREEMENT EFFECTIVE
JULY 27, 1999 BETWEEN LASER PHOTONICS,
THE GENERAL HOSPITAL CORPORATION,
AND DR. CHARLES TAYLOR
Effective March 1, 2000, The General Hospital Corporation, a not-for-profit
corporation doing business as Massachusetts General Hospital, Fruit Street,
Boston, Massachusetts ("Hospital") Charles Taylor, MD, Department of Dematology,
Massachusetts General Hospital, Boston, Massachusetts 02114 ("Principal
Investigator") and Laser Photonics, Inc. a corporation having an office at 2431
Impala Drive, Carlsbad, CA 92008 ("Company") hereby amend the Clinical Trial
Agreement effective July 27, 1999 between Company, Hospital and Principal
Investigator pertaining to the study entitled "308 nm Excimir Laser for the
Treatment of Plaque Psoriasis (4MED/6MED)" ("Agreement") as follows:
1) Paragraph 4.1 of the Agreement shall be replaced with the following:
Company agrees to support this Study with a research grant of Two hundred
fourteen thousand, three hundred seventy-five dollars ($214,375), which includes
indirect costs in the amount of Forty-two thousand, eight hundred seventy-five
dollars ($42,875) computed at a rate of 25% of total direct costs, payable to
General as follows
One hundred sixty-nine thousand, two hundred nineteen dollars ($169,219)
upon execution of the original Agreement (paid as of 8/99); Fifteen thousand,
eight hundred forty-three dollars and seventy-five cents ($15,843.75) of which
shall be transferred to cover costs incurred in the Laser Photonics "High
Fluence Study" upon execution of this Amendment;
Seven thousand, four hundred six dollars ($7,406.00) upon enrollment of
twelve (12) subjects; and,
Fifty-three thousand, five hundred ninety-three dollars and seventy-five
cents ($53,593.75) upon completion of a total of twenty (20) subjects and
submission of all completed case report forms.
2. The Agreement in all other respects shall remain in full force and
effect.
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ACCEPTED AND AGREED TO:
LASER PHOTONICS, INC. THE GENERAL HOSPITAL CORPORATION
BY: /s/ Jeffrey F. O'Donnell BY: /s/ Elizabeth L.S. Dana
-------------------------------- --------------------------------
TITLE: CEO
TITLE: Clinical Trial Agreement Associate
Office of Corporate Sponsored Research
and Licensing
DATE: DATE: 3/17/00
------------------------------ ----------
PRINCIPAL INVESTIGATOR
BY: /s/ Charles Taylor
----------------------------------
Dr. Charles Taylor
DATE: 3/13/00
------------
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CLINICAL TRIAL AGREEMENT
Agreement made this 27th day of July, 1999 ("Effective Date") between The
General Hospital Corporation, a not-for-profit corporation doing business as
Massachusetts General Hospital, having a principal place of business at Fruit
Street, Boston, Massachusetts 02114 ("General"), Charles Taylor, MD, Department
of Dematology, Massachusetts General Hospital, Boston, Massachusetts 02114
("Principal Investigator") and Laser Photonics, Inc. a corporation having an
office at 2431 Impala Drive, Carlsbad, CA 92008 ("Company").
All of the parties to this Agreement share a common mission of improving
the public health by engaging in research for the purpose of discovering and
making available to the public new and improved medical drugs and devices. In
connection with this mission, Company desires to have further clinical research
conducted on its device described below. General and Principal Investigator,
having particular expertise and opportunity, desire to provide this research.
Accordingly, the parties agree as follows.
SECTION 1: STUDY PERFORMANCE
1.1 PROTOCOL Subject to approval of the Study pursuant to Section 1.2
below, Principal Investigator agrees to conduct to the extent funds are made
available hereunder a clinical study of a 308nm Excimer Laser manufactured by
Acculase, Inc., a subsidiary of Laser Photonics, Inc. (hereinafter referred to
as the "Study Device") in accordance with the study protocol entitled "308 nm
Excimer Laser for the Treatment of Plaque Psoriasis (High Fluence Study)", a
copy of which is attached hereto as Exhibit A (hereinafter referred to as the
"Study"). In the event of any conflict between Exhibit A and the provisions of
this Agreement, the provisions of this Agreement shall govern.
1.2 STUDY REVIEW Principal Investigator shall conduct the Study at
General with the prior approval and ongoing review of all appropriate and
necessary review authorities and in accordance with all applicable federal,
state and local laws and regulations. Principal Investigator shall provide
Company with written evidence of review and approval of this Study by General's
Institutional Review Board ("IRB") prior to the initiation of the Study and
shall inform Company of the IRB's continuing review promptly after such review
takes place, which shall be at least once per year. All volunteers shall meet
the legal age requirements of the Commonwealth of Massachusetts, the state in
which the Study is to be conducted.
1.3 STUDY DEVICE Company shall provide General, at no charge, with
quantities of the Study Device required for the Study. The General and Principal
Investigator shall safeguard such Study Device with the degree of care used for
its own property. Upon completion or termination of the Study and upon Company's
request, General shall return or otherwise dispose of any remaining Study Device
in accordance
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with Company's instructions. General and Principal Investigator shall not use
any Study Device for any purpose other than the Study, unless otherwise agreed.
SECTION 2: RESULTS OF THE STUDY
2.1 OWNERSHIP OF RECORDS, DATA AND INTELLECTUAL PROPERTY Company shall own
its case report forms and the data resulting from the Study. General shall own
its medical records, research notebooks and related documentation and any
intellectual property resulting from the Study subject to the option granted to
Company to license Inventions in Section 2.3 below. General shall have the right
to use the data for research, educational and patient care purposes as well as
to comply with any federal, state or local government laws or regulations.
Notwithstanding the above, Company shall not use any patient names, identifying
information, photographs, or other likenesses without first obtaining the
specific written informed consent of such patient for such use.
2.2 PUBLICATION The Principal Investigator shall be free to publish the
results of the Study subject only to the provisions of Section 3 regarding
Company's Proprietary Information. The Principal Investigator shall furnish
Company with a copy of any proposed publication for review and comment prior to
submission for publication, at least thirty (30) days prior to submission for
manuscripts and at least seven (7) days prior to submission for abstracts. At
the expiration of such thirty (30) day or seven (7) day period, Principal
Investigator may proceed with submission for publication provided, however, that
upon notice by Company that Company reasonably believes a patent application
claiming an Invention (as defined in Section 2.3) should be filed prior to such
publication, such publication shall be delayed for an additional thirty (30)
days or until any patent application or applications have been filed, whichever
shall first occur. In no event shall the submission of such publication of
results be delayed for more than sixty (60) days for manuscripts and for more
than thirty-seven (37) days for abstracts from the date such proposed
publication was received by Company; at the end of said sixty (60) or
thirty-seven (37) days, the Principal Investigator shall be free to publish such
results as proposed.
2.3 INVENTIONS
(a) Subject to the terms of Paragraphs 2.3 (b)-(g) below, the
Principal Investigator and any other General personnel performing the Study
under his or her direction who makes an invention which constitutes a new use of
or modification to the Study Device in the performance of the Study
("Invention") shall promptly report and assign such Invention to General.
General shall promptly disclose in writing any Inventions to Company. Within
thirty (30) days of such disclosure, Company shall notify General in writing if
it wishes General to file a patent application claiming the Invention.
(b) in the event of joint inventorship under the Study of a new use of
or modification of the Study Device between Investigators and/or personnel from
General and personnel from Company ("Joint Invention"), such Investigators
and/or personnel shall assign all of their rights, title and interest in the
Joint Invention to General and such
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personnel from Company shall assign all of their rights, title and interest in
the Joint Invention to Company, and the Joint Invention shall be deemed jointly
owned. Promptly after disclosure of the invention, the parties shall then
mutually agree as to whether an application for the Joint Invention shall be
filed.
(c) As to any patent applications prepared and/or filed under either
paragraphs (a) or (b) above, Company shall have and is hereby given by General
an exclusive option, for a period of ninety (90) days following the disclosure
of such invention, to seek either (1) a worldwide., exclusive or non-exclusive
license for inventions in which General personnel are the, sole named inventors;
or (2) a worldwide, exclusive license for General's rights in any Joint
Inventions. Exercise of Company's option shall be provided in writing to
General.
(d) In the event Company exercises its option under Paragraph 2.3(c)
above, the Parties shall have ninety (90) days from the date of Company's notice
to negotiate in good faith a license agreement containing license terms standard
for agreements between universities and industry, which may include payment of
reasonable royalties and other compensation to General, objective, time-limited
due diligence provisions for the development, commercialization and marketing of
a product embodying the invention and product liability indemnification and
insurance requirements which are acceptable to General's liability insurance
carrier. In the event the parties are unable to reach agreement on the terms of
a license under this paragraph, General shall then have the right to license its
rights to any third party, provided however, that no license to a third party
shall be agreed to by General on terms more favorable than those terms last
offered to Company.
(e) Notwithstanding the above paragraphs of this Section 2, in the
event there is an invention under the Study, either solely by General personnel
or jointly by General and Company personnel, that is: (1) directed to an optimal
dosage, protocol and/or device configuration for treating psoriasis using
ultraviolet radiation in the manner such radiation is generated by Company's
Study Device and (2) that would not come within the definition of "Patent Right"
as set forth in the License Agreement dated November 26, 1997 between the
parties, it is agreed that Company shall be given a paid up worldwide exclusive
license to such invention and that payment by Company for the Study and for all
patent preparation and filing costs for such invention shall constitute, the
consideration for the paid up license.
(f) It is agreed that for any patent application under which Company
is the licensee, Company shall pay all reasonable fees and costs associated with
the, preparation and prosecution of such application, provided however, that the
parties shall mutually select the attorneys for such application and that
General shall keep Company promptly apprised of all proceedings in connection
with the application and Company shall have the right to review and approve all
submissions made during said filing and prosecution
(g) In the event the Parties do not come to an agreement as to the
terms of a license under Paragraphs 2-3 (a) - (d), Company shall no longer have
responsibility to fund any further fees and costs associated with the filing and
prosecution of the application, and, in the event General enters into an
agreement with third party for such application, Company shall be reimbursed for
the fees and costs Company previously paid.
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<PAGE>
2.4 USE OF NAME Except for disclosure by General of Company's support for
the Study in publications, no party to this Agreement shall use the name of any
other party or of any staff member, employee or student of any other party or
any adaptation, acronym or name by which any party is commonly known, in any
advertising, promotional or sales literature or in any publicity without the
prior written approval of the party or individual whose name is to be used. For
General, such approval shall be obtained from the Director of Public Affairs and
for Company, from Mr. Chaim Markheim.
2.5 STUDY RECORDS General shall make Study records available to Company
representatives upon request for comparison with case report forms. General
shall also make such records available upon reasonable request for review by
representatives of the U.S. Food and Drug Administration. General shall retain
records of the Study including either the original or a copy of all volunteer
consent forms in conformance with applicable federal regulations. Company shall
notify Principal Investigator of the date a premarket approval application (PMA)
is approved for the Study Device; or if the application is not approved, Company
shall notify Principal Investigator when all clinical investigations have been
discontinued and the FDA notified.
SECTION 3: COMPANY PROPRIETARY INFORMATION
3.1 It is anticipated that in the performance of the Study, Company shall
provide to General, Principal Investigator and other General personnel who are
designated in writing by the Principal Investigator as being authorized to
receive Proprietary Information and who agree in writing to the following
confidentiality obligations (each such institution or person individually
referred to in this Section 3.1 as "a Recipient" and collectively as
"Recipients"), or shall give Recipients access to, certain information which
Company considers proprietary. The rights and obligations of the parties with
respect to such information are as follows:
(a) For the purposes of this Agreement, "Proprietary Information"
refers to information of any kind which is disclosed by Company to a Recipient
and which, by appropriate marking, is identified as confidential and proprietary
at the time of disclosure. In the event that proprietary information must be
provided visually or orally, obligations of confidence shall attach only to that
information which is confirmed by Company in writing within ten (10) working
days as being confidential.
(b) For a period of five (5) years after the Effective Date of this
Agreement, each Recipient agrees to use reasonable efforts, no less than the
protection given their own confidential information, to use Proprietary
Information received from Company and accepted by that Recipient only in
accordance with this Section 3.1(b).
(i) Each Recipient shall use Company's Proprietary Information
solely for the purposes of conducting the Study, obtaining any
required review of the Study or its conduct, or ensuring proper
medical treatment of any patient or subject. Each
4
<PAGE>
Recipient agrees to make Proprietary Information available only to
those employees and students of General who require access to it in
the performance of this Study and to inform them of the
confidential nature of such information.
(ii) Except as provided in subsection 3.1(b)(i), each Recipient
shall keep all Proprietary Information confidential unless Company
gives specific written consent for release.
(iii) If any Recipient becomes aware of any disclosure not
authorized hereunder, that Recipient shall notify Company and take
reasonable steps to prevent any further disclosure or unauthorized
use.
(c) No Recipient shall be required to treat any information as
Proprietary Information under this Agreement in the event: (i) it is publicly
available prior to the date of the Agreement or becomes publicly available
thereafter through no wrongful act of any Recipient; (ii) it was known to any
Recipient prior to the date of disclosure or becomes known to any Recipient
thereafter from a third party having an apparent bona fide right to disclose the
information; (iii) it is disclosed by any Recipient in accordance with the terms
of Company's prior written approval; (iv) it is disclosed by Company without
restriction on further disclosure; (v) it is independently developed by any
Recipient; or, (vi) any Recipient is obligated to produce it pursuant to an
order of a court of competent jurisdiction or a facially valid administrative,
Congressional or other subpoena, provided that the Recipient subject to the
order or subpoena (A) promptly notifies Company and (B) cooperates reasonably
with Company's efforts to contest or limit the scope of such order.
SECTION 4: BUDGET
4.1 Company agrees to support this Study with a research grant of
Sixty-three thousand, three hundred seventy-five dollars ($63,375) which
includes indirect costs in the amount of Twelve thousand, six hundred
seventy-five dollars ($12,675) computed at a rate of 25% of total direct costs,
payable to General as follows:
Thirty-one thousand, six hundred eighty-seven dollars and 50 cents
($31,687.50) upon execution of this Agreement;
Fifteen thousand, eight hundred forty-three dollars and seventy-five cents
($15,843.75) upon enrollment/ completion of ten (10) subjects; and,
Fifteen thousand, eight hundred forty-three dollars and seventy-five cents
($15,843.75) upon completion of a total of twenty (20) subjects and submission
of all completed case report forms.
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4.2 Checks should be made payable to "The General Hospital Corporation" and
sent, along with a letter indicating the name of the Principal Investigator and
the specific clinical trial agreement for which the funds are intended, to:
6
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Financial Control Coordinator
Research Finance
Massachusetts General Hospital
Thirteenth Street, Building 149, Suite 1115
Charlestown, MA 02129
SECTION 5: TERM AND TERMINATION
5.1 The term of this Agreement shall be until the completion of the Study,
which is anticipated to be one (1) year from the Effective Date, unless
terminated in accordance with Section 5.2.
5.2. Any party hereto shall have the right to terminate the Study and this
Agreement at any time upon thirty (30) days prior written notice thereof to the
other parties, except that any party may terminate this Agreement immediately
upon written notice to the other parties if necessary to protect the health,
welfare or safety of any Study subject.
5.3 In the event of termination, the amount of the research grant by
Company to support the Study shall be appropriately prorated to allow General to
recover reasonable costs and noncancellable commitments incurred, including
without limitation, termination salary costs of any of General's employees
released as a result of such termination.
5.4 The obligations of the parties under Sections 2, 3 and 6 shall survive
the termination or expiration of this Agreement.
SECTION 6: INDEMNIFICATION AND INSURANCE
6.1 Indemnification (a) Company shall indemnify, defend and hold harmless
General and its trustees, officers, medical and professional staff, employees,
and agents and their respective successors, heirs and assigns (the
"Indemnitees"), against any liability, damage, loss or expense (including
reasonable attorney's fees and expenses of litigation) incurred by or imposed
upon the Indemnitees or any one of them in connection with any claims, suits,
actions, demands or judgments arising out of any side effect, adverse reaction,
illness, or injury occurring to any person as a result of his or her involvement
in the Study.
(b) Company's indemnification under (a) above shall not apply to any
liability, damage, loss or expense to the extent that it is directly
attributable to: (i) the negligent activities, reckless misconduct or
intentional misconduct of the Indemnitees; or (ii) failure of the Indemnitees to
adhere to the terms of the protocol for the Study.
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(c) Company agrees, at its own expense, to provide attorneys
reasonably acceptable to General to defend against any actions brought or filed
against any party indemnified hereunder with respect to the subject of the
indemnity contained herein, whether or not such actions are rightfully brought.
(d) Company also agrees to reimburse General for the costs of the care
and treatment of any illness or injury to a subject resulting from his or her
participation in the Study to the extent that such costs are not covered by the
subject's medical or hospital insurance or governmental programs providing such
coverage.
6.2 INSURANCE (a) Company shall, at its sole cost and expense, procure and
maintain commercial general liability insurance or equivalent self-insurance in
amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate.
Such commercial general liability insurance or equivalent self-insurance shall
provide contractual liability coverage for Company's indemnification under
Section 6.1 of this Agreement.
(b) Company shall provide General with written evidence of such
insurance prior to the commencement of the Study. Company shall provide General
with written notice at least fifteen (15) days prior to the cancellation,
non-renewal or material change, in such insurance; if Company does not obtain
replacement insurance providing comparable coverage within such fifteen (15) day
period, General shall have the right to terminate this Agreement effective at
the end of such fifteen (15) day period without notice of any additional waiting
periods.
SECTION 7: MISCELLANEOUS
7.1 The terms of this Agreement can be modified only by a writing which is
signed by General, Principal Investigator and Company.
7.2 The provisions of this Agreement shall be interpreted under the laws
of the Commonwealth of Massachusetts, regardless of the choice of law rules of
any jurisdiction.
7.3 No party to this Agreement may assign its obligations hereunder
without the prior written consent of the other parties.
7.4 This Agreement constitutes the entire understanding between the
parties, and supersedes and replaces all prior agreements, understandings,
writings and discussions between the parties, with respect to the subject matter
of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
LASER PHOTONICS, INC. THE GENERAL HOSPITAL CORPORATION
(Federal Tax ID No.: 042 697 983)
BY: /s/ Chaim Markheim By: /s/ Nikki J. Zapol
------------------------ ---------------
Chaim Markheim Nikki J. Zapol
TITLE: COO/CFO TITLE: Director, Office of Corporate Sponsored
Research and Licensing
DATE: 8/4/99 DATE: 8/9/99
9
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CLINICAL TRIAL AGREEMENT
Agreement made this 15th day of November, 1999 ("Effective Date")
between The General Hospital Corporation, a not-for-profit corporation doing
business as Massachusetts General Hospital, having a principal place of business
at Fruit Street, Boston, Massachusetts 02114 ("General"), Charles Taylor, MD,
Department of Dematology, Massachusetts General Hospital, Boston, Massachusetts
02114 ("Principal Investigator") and Laser Photonics, Inc. a corporation having
an office at 2431 Impala Drive, Carlsbad, CA 92008 ("Company").
All of the parties to this Agreement share a common mission of
improving the public health by engaging in research for the purpose of
discovering and making available to the public new and improved medical drugs
and devices. In connection with this mission, Company desires to have further
clinical research conducted on its device described below. General and Principal
Investigator, having particular expertise and opportunity, desire to provide
this research. Accordingly, the parties agree as follows.
SECTION 1: STUDY PERFORMANCE
1.1 PROTOCOL Subject to approval of the Study pursuant to Section 1.2
below, Principal Investigator agrees to conduct to the extent funds are made
available hereunder a clinical study of a 308nm Excimer Laser manufactured by
Acculase, Inc., a subsidiary of Laser Photonics, Inc. (hereinafter referred to
as the "Study Device") in accordance with the study protocol entitled "308 nm
Excimer Laser for the Treatment of Vitiligo: A Pilot Study", a copy of which is
attached hereto as Exhibit A (hereinafter referred to as the "Study"). In the
event of any conflict between Exhibit A and the provisions of this Agreement,
the provisions of this Agreement shall govern.
1.2 STUDY REVIEW Principal Investigator shall conduct the Study at
General with the prior approval and ongoing review of all appropriate and
necessary review authorities and in accordance with all applicable federal,
state and local laws and regulations. Principal Investigator shall provide
Company with written evidence of review and approval of this Study by General's
Institutional Review Board ("IRB") prior to the initiation of the Study and
shall inform Company of the IRB's continuing review promptly after such review
takes place, which shall be at least once per year. All volunteers shall meet
the legal age requirements of the Commonwealth of Massachusetts, the state in
which the Study is to be conducted.
1.3 STUDY DEVICE Company shall provide General, at no charge, with
quantities of the Study Device required for the Study. The General and Principal
Investigator shall safeguard such Study Device with the degree of care used for
its own property. Upon completion or termination of the Study and upon Company's
request, General shall return or otherwise dispose of any remaining Study Device
in accordance with Company's instructions. General and Principal Investigator
shall not use any Study Device for any purpose other than the Study, unless
otherwise agreed.
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SECTION 2: RESULTS OF THE STUDY
2.1 OWNERSHIP OF RECORDS, DATA AND INTELLECTUAL PROPERTY Company shall
own its case report forms and the data resulting from the Study. General shall
own its medical records, research notebooks and related documentation and any
intellectual property resulting from the Study subject to the option granted to
Company to license Inventions in Section 2.3 below. General shall have the right
to use the data for research, educational and patient care purposes as well as
to comply with any federal, state or local government laws or regulations.
Notwithstanding the above, Company shall not use any patient names, identifying
information, photographs, or other likenesses without first obtaining the
specific written informed consent of such patient for such use.
2.2 PUBLICATION The Principal Investigator shall be free to publish the
results of the Study subject only to the provisions of Section 3 regarding
Company's Proprietary Information. The Principal Investigator shall furnish
Company with a copy of any proposed publication for review and comment prior to
submission for publication, at least thirty (30) days prior to submission for
manuscripts and at least seven (7) days prior to submission for abstracts. At
the expiration of such thirty (30) day or seven (7) day period, Principal
Investigator may proceed with submission for publication provided, however, that
upon notice by Company that Company reasonably believes a patent application
claiming an Invention (as defined in Section 2.3) should be filed prior to such
publication, such publication shall be delayed for an additional thirty (30)
days or until any patent application or applications have been filed, whichever
shall first occur. In no event shall the submission of such publication of
results be delayed for more than sixty (60) days for manuscripts and for more
than thirty-seven (37) days for abstracts from the date such proposed
publication was received by Company; at the end of said sixty (60) or
thirty-seven (37) days, the Principal Investigator shall be free to publish such
results as proposed.
2.3 INVENTIONS
(a) Subject to the terms of Paragraphs 2.3 (b)-(g) below, the
Principal Investigator and any other General personnel performing the Study
under his or her direction who makes an invention which constitutes a new use of
or modification to the Study Device in the performance of the Study
("Invention") shall promptly report and assign such Invention to General.
General shall promptly disclose in writing any Inventions to Company. Within
thirty (30) days of such disclosure, Company shall notify General in writing if
it wishes General to file a patent application claiming the Invention.
(b) in the event of joint inventorship under the Study of a
new use of or modification of the Study Device between Investigators and/or
personnel from General and personnel from Company ("Joint Invention"), such
Investigators and/or personnel shall assign all of their rights, title and
interest in the Joint Invention to General and such personnel from Company shall
assign all of their rights, title and interest in the Joint Invention to
Company, and the Joint Invention shall be deemed jointly owned. Promptly
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after disclosure of the invention, the parties shall then mutually agree as to
whether an application for the Joint Invention shall be filed.
(c) As to any patent applications prepared and/or filed under
either paragraphs (a) or (b) above, Company shall have and is hereby given by
General an exclusive option, for a period of ninety (90) days following the
disclosure of such Invention, to seek either (1) a worldwide., exclusive or
non-exclusive license for Inventions in which General personnel are the, sole
named inventors; or (2) a worldwide, exclusive license for General's rights in
any Joint Inventions. Exercise of Company's option shall be provided in writing
to General.
(d) In the event Company exercises its option under Paragraph
2.3(c) above, the Parties shall have ninety (90) days from the date of Company's
notice to negotiate in good faith a license agreement containing license terms
standard for agreements between universities and industry, which may include
payment of reasonable royalties and other compensation to General, objective,
time-limited due diligence provisions for the development, commercialization and
marketing of a product embodying the Invention and product liability
indemnification and insurance requirements which are acceptable to General's
liability insurance carrier. In the event the parties are unable to reach
agreement on the terms of a license under this paragraph, General shall then
have the right to license its rights to any third party, provided however, that
no license to a third party shall be agreed to by General on terms more
favorable than those terms last offered to Company.
(e) Notwithstanding the above paragraphs of this Section 2, in
the event there is an Invention under the Study, either solely by General
personnel or jointly by General and Company personnel, that is: (1) directed to
an optimal dosage, protocol and/or device configuration for treating psoriasis
using ultraviolet radiation in the manner such radiation is generated by
Company's Study Device and (2) that would not come within the definition of
"Patent Right" as set forth in the License Agreement dated November 26, 1997
between the parties, it is agreed that Company shall be given a paid up
worldwide exclusive license to such Invention and that payment by Company for
the Study and for all patent preparation and filing costs for such Invention
shall constitute, the consideration for the paid up license.
(f) It is agreed that for any patent application under which
Company is the licensee, Company shall pay all reasonable fees and costs
associated with the, preparation and prosecution of such application, provided
however, that the parties shall mutually select the attorneys for such
application and that General shall keep Company promptly apprised of all
proceedings in connection with the application and Company shall have the right
to review and approve all submissions made during said filing and prosecution.
(g) In the event the Parties do not come to an agreement as to
the terms of a license under Paragraphs 2-3 (a) - (d), Company shall no longer
have responsibility to fund any further fees and costs associated with the
filing and prosecution of the application, and, in the event General enters into
an agreement with third party for such application, Company shall be reimbursed
for the fees and costs Company previously paid.
2.4 USE OF NAME Except for disclosure by General of Company's support
for the Study in publications, no party to this Agreement shall use the name of
any other
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party or of any staff member, employee or student of any other party or any
adaptation, acronym or name by which any party is commonly known, in any
advertising, promotional or sales literature or in any publicity without the
prior written approval of the party or individual whose name is to be used. For
General, such approval shall be obtained from the Director of Public Affairs and
for Company, from Mr. Chaim Markheim.
2.5 STUDY RECORDS General shall make Study records available to Company
representatives upon request for comparison with case report forms. General
shall also make such records available upon reasonable request for review by
representatives of the U.S. Food and Drug Administration. General shall retain
records of the Study including either the original or a copy of all volunteer
consent forms in conformance with applicable federal regulations. Company shall
notify Principal Investigator of the date a premarket approval application (PMA)
is approved for the Study Device; or if the application is not approved, Company
shall notify Principal Investigator when all clinical investigations have been
discontinued and the FDA notified.
SECTION 3: COMPANY PROPRIETARY INFORMATION
3.1 It is anticipated that in the performance of the Study, Company
shall provide to General, Principal Investigator and other General personnel who
are designated in writing by the Principal Investigator as being authorized to
receive Proprietary Information and who agree in writing to the following
confidentiality obligations (each such institution or person individually
referred to in this Section 3.1 as "a Recipient" and collectively as
"Recipients"), or shall give Recipients access to, certain information which
Company considers proprietary. The rights and obligations of the parties with
respect to such information are as follows:
(a) For the purposes of this Agreement, "Proprietary Information"
refers to information of any kind which is disclosed by Company to a Recipient
and which, by appropriate marking, is identified as confidential and proprietary
at the time of disclosure. In the event that proprietary information must be
provided visually or orally, obligations of confidence shall attach only to that
information which is confirmed by Company in writing within ten (10) working
days as being confidential.
(b) For a period of five (5) years after the Effective Date of this
Agreement, each Recipient agrees to use reasonable efforts, no less than the
protection given their own confidential information, to use Proprietary
Information received from Company and accepted by that Recipient only in
accordance with this Section 3.1(b).
(i) Each Recipient shall use Company's Proprietary Information solely
for the purposes of conducting the Study, obtaining any required review
of the Study or its conduct, or ensuring proper medical treatment of
any patient or subject. Each Recipient agrees to make Proprietary
Information available only to those
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employees and students of General who require access to it in the
performance of this Study and to inform them of the confidential nature
of such information.
(ii) Except as provided in subsection 3.1(b)(i), each Recipient shall
keep all Proprietary Information confidential unless Company gives
specific written consent for release.
(iii) If any Recipient becomes aware of any disclosure not authorized
hereunder, that Recipient shall notify Company and take reasonable
steps to prevent any further disclosure or unauthorized use.
(c) No Recipient shall be required to treat any information as
Proprietary Information under this Agreement in the event: (i) it is publicly
available prior to the date of the Agreement or becomes publicly available
thereafter through no wrongful act of any Recipient; (ii) it was known to any
Recipient prior to the date of disclosure or becomes known to any Recipient
thereafter from a third party having an apparent bona fide right to disclose the
information; (iii) it is disclosed by any Recipient in accordance with the terms
of Company's prior written approval; (iv) it is disclosed by Company without
restriction on further disclosure; (v) it is independently developed by any
Recipient; or, (vi) any Recipient is obligated to produce it pursuant to an
order of a court of competent jurisdiction or a facially valid administrative,
Congressional or other subpoena, provided that the Recipient subject to the
order or subpoena (A) promptly notifies Company and (B) cooperates reasonably
with Company's efforts to contest or limit the scope of such order.
SECTION 4: BUDGET
4.1 Company agrees to support this Study with a research grant of
Forty-seven thousand, eight hundred seventy-five dollars ($47,875) which
includes indirect costs in the amount of Nine thousand, five hundred
seventy-five dollars ($9,575) computed at a rate of 25% of total direct costs,
payable to General as follows:
Twenty-three thousand, nine hundred thirty-seven dollars and 50 cents
($23,937.50) upon execution of this Agreement;
Eleven thousand, nine hundred sixty-eight dollars and seventy-five
cents ($11,968.75) upon enrollment of nine (9) subjects; and,
Eleven thousand, nine hundred sixty-eight dollars and seventy-five
cents ($11,968.75) upon completion of a total of eighteen (18) subjects and
submission of all completed case report forms.
4.2 Checks should be made payable to "The General Hospital Corporation"
and sent, along with a letter indicating the name of the Principal Investigator
and the specific clinical trial agreement for which the funds are intended, to:
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Financial Control Coordinator
Research Finance
Massachusetts General Hospital
Thirteenth Street, Building 149, Suite 1115
Charlestown, MA 02129
SECTION 5: TERM AND TERMINATION
5.1 The term of this Agreement shall be until the completion of the
Study, which is anticipated to be one (1) year from the Effective Date, unless
terminated in accordance with Section 5.2.
5.2. Any party hereto shall have the right to terminate the Study and
this Agreement at any time upon thirty (30) days prior written notice thereof to
the other parties, except that any party may terminate this Agreement
immediately upon written notice to the other parties if necessary to protect the
health, welfare or safety of any Study subject.
5.3 In the event of termination, the amount of the research grant by
Company to support the Study shall be appropriately prorated to allow General to
recover reasonable costs and noncancellable commitments incurred, including
without limitation, termination salary costs of any of General's employees
released as a result of such termination.
5.4 The obligations of the parties under Sections 2, 3 and 6 shall
survive the termination or expiration of this Agreement.
SECTION 6: INDEMNIFICATION AND INSURANCE
6.1 INDEMNIFICATION (a) Company shall indemnify, defend and hold
harmless General and its trustees, officers, medical and professional staff,
employees, and agents and their respective successors, heirs and assigns (the
"Indemnitees"), against any liability, damage, loss or expense (including
reasonable attorney's fees and expenses of litigation) incurred by or imposed
upon the Indemnitees or any one of them in connection with any claims, suits,
actions, demands or judgments arising out of any side effect, adverse reaction,
illness, or injury occurring to any person as a result of his or her involvement
in the Study.
(b) Company's indemnification under (a) above shall not apply to any
liability, damage, loss or expense to the extent that it is directly
attributable to: (i) the negligent activities, reckless misconduct or
intentional misconduct of the Indemnitees; or (ii) failure of the Indemnitees to
adhere to the terms of the protocol for the Study.
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(c) Company agrees, at its own expense, to provide attorneys reasonably
acceptable to General to defend against any actions brought or filed against any
party indemnified hereunder with respect to the subject of the indemnity
contained herein, whether or not such actions are rightfully brought.
(d) Company also agrees to reimburse General for the costs of the care
and treatment of any illness or injury to a subject resulting from his or her
participation in the Study to the extent that such costs are not covered by the
subject's medical or hospital insurance or governmental programs providing such
coverage.
6.2 INSURANCE (a) Company shall, at its sole cost and expense, procure
and maintain commercial general liability insurance or equivalent self-insurance
in amounts not less than $2,000,000 per incident and $2,000,000 annual
aggregate. Such commercial general liability insurance or equivalent
self-insurance shall provide contractual liability coverage for Company's
indemnification under Section 6.1 of this Agreement.
(b) Company shall provide General with written evidence of such
insurance prior to the commencement of the Study. Company shall provide General
with written notice at least fifteen (15) days prior to the cancellation,
non-renewal or material change, in such insurance; if Company does not obtain
replacement insurance providing comparable coverage within such fifteen (15) day
period, General shall have the right to terminate this Agreement effective at
the end of such fifteen (15) day period without notice of any additional waiting
periods.
SECTION 7: MISCELLANEOUS
7.1 The terms of this Agreement can be modified only by a writing which
is signed by General, Principal Investigator and Company.
7.2 The provisions of this Agreement shall be interpreted under the
laws of the Commonwealth of Massachusetts, regardless of the choice of law rules
of any jurisdiction.
7.3 No party to this Agreement may assign its obligations hereunder
without the prior written consent of the other parties.
7.4 This Agreement constitutes the entire understanding between the
parties, and supersedes and replaces all prior agreements, understandings,
writings and discussions between the parties, with respect to the subject matter
of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
LASER PHOTONICS THE GENERAL HOSPITAL CORPORATION
(Federal Tax ID No.: 042 697 983)
BY: /s/ Chaim Markheim BY: /s/ Elizabeth L.S. Dana J.D.
------------------------------- -------------------------------
Chaim Markheim Elizabeth L.S. Dana,
COO/CFO Clinical Trial Agreement Associate
Office of Corporate Sponsored
Research and Licensing
DATE: 11/19/99 DATE: 11/17/99
-------------- ---------------
PRINCIPAL INVESTIGATOR
/s/ Charles R. Taylor, M.D.
- ---------------------------------
Charles R. Taylor, M.D.
DATE: 11/17/99
--------------
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LICENSE AGREEMENT
THIS AGREEMENT, effective as of November 26, 1997 ("EFFECTIVE DATE")
between THE GENERAL HOSPITAL CORPORATION, a not-for-profit corporation doing
business as Massachusetts General Hospital, having a place of business at Fruit
Street, Boston, Massachusetts 02114 ("GENERAL") and Laser Photonics, a
corporation having offices at 6865 Flanders Dr., Ste.G, San Diego CA
92121("COMPANY").
WHEREAS, under research programs funded by the GENERAL and the U.S.
Government, the GENERAL through research conducted by Rox Anderson, M.D. has
developed an invention pertaining to Phototherapy Methods and Systems;
WHEREAS, GENERAL has filed a Provisional Patent Application covering said
invention and all Dr. Anderson's rights, title and interest in said application
have been assigned to GENERAL;
WHEREAS, GENERAL represents to the best of its knowledge and belief that it
is the owner of all rights, title and interest in said patent application and
has the right and ability to grant the license hereinafter described;
WHEREAS, as a center for research and education, GENERAL is interested in
licensing PATENT RIGHTS and thus benefiting the public and the GENERAL by
facilitating the dissemination of the results of its research in the form of
useful products, but is without capacity to commercially develop, manufacture,
and distribute any such product; and
WHEREAS, COMPANY having such capacity, desires to commercially develop,
manufacture, use and distribute such products throughout the world;
NOW THEREFORE, in consideration of the premises and of the faithful
performance of the covenants herein contained, the parties hereto agree as
follows:
1. DEFINITIONS
1.1 The term "ACCOUNTING PERIOD" shall mean each six month period ending
June 30 and December 31.
1.2 The term "AFFILIATE" shall mean any corporation or other legal entity
other than COMPANY in whatever country organized, controlling, controlled by or
under common control with COMPANY. The term "control" means possession, direct
or indirect, of the powers to direct or cause the direction of the management
and policies of an entity, whether through the ownership of voting securities,
by contract or otherwise. The term "AFFILIATE" with respect to GENERAL shall
mean any company controlling, controlled by, or under common control, directly
or indirectly, with GENERAL.
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1.3 The term "FIRST COMMERCIAL SALE" shall mean in each country the first
sale of any PRODUCT by COMPANY, its AFFILIATES or SUBLICENSEES.
1.4 The term "LICENSE FIELD" shall mean Dermatological Devices and Methods
for Diagnosis and Therapy of Proliferative Skin Diseases
1.5 The term "NET SALES PRICE" shall mean the GROSS SALES PRICE as defined
in (b) below received by COMPANY or any of its AFFILIATES or SUBLICENSEES
("SELLERS") for the sale or distribution of any PRODUCT, less (to the extent
appropriately documented) the following amounts actually paid out by COMPANY,
its AFFILIATE or SUBLICENSEE or credited against the amounts received by them
from the sale or distribution of PRODUCT:
(a) (i) credits and allowances for price adjustment, rejection, or
return of PRODUCTS previously sold;
(ii) rebates and cash discounts to purchasers allowed and taken;
(iii) amounts for transportation, insurance, handling or shipping charges
to purchasers;
(iv) taxes, duties and other governmental charges levied on or measured by
the sale of PRODUCTS, whether absorbed by COMPANY or paid by the purchaser so
long as COMPANY's price is reduced thereby, but not franchise or income taxes of
any kind whatsoever;
(v) for any sale in which the United States government on the basis of
its royalty-free license pursuant to 35 USC Sec. 202(c) to any PATENT RIGHT
requires that the GROSS SALES PRICE of any PRODUCT subject to such PATENT RIGHT,
be reduced by the amount of such royalty owed GENERAL pursuant to paragraph 3.1,
the amount of such royalty.
(b) For any bone fide sale to a bona fide customer by COMPANY or any of its
AFFILIATES or SUBLICENSEES, the GROSS SALES PRICE shall be the gross billing
price of the PRODUCT.
(c) If COMPANY or any of its AFFILIATES or SUBLICENSEES sell any PRODUCT in
a bona fide sale as a component of a combination of active functional elements,
the GROSS SALES PRICE of the PRODUCT shall be determined by multiplying the
GROSS SALES PRICE of the combination by the fraction A over A + B, in which "A"
is the GROSS SALES PRICE of the PRODUCT portion of the combination when sold
separately during the ACCOUNTING PERIOD in the country in which the sale was
made, and "B" is the GROSS SALES PRICE of the other active elements of the
combination sold separately during said ACCOUNTING PERIOD in said country. In
the event that no separate sale of either such PRODUCT or active elements of the
combination is made during said ACCOUNTING PERIOD in said country, the GROSS
SALES PRICE of the PRODUCT shall be determined by multiplying the GROSS SALES
PRICE of such combination by the fraction C over C + D, in
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which "C" is the standard fully-absorbed cost of the PRODUCT portion of such
combination, and "D" is the sum of the standard fully-absorbed costs of the
other active elements component(s), such costs being arrived at using the
standard accounting procedures of COMPANY which will be in accord with generally
accepted accounting practices.
(d) If a SELLER commercially uses or disposes of any PRODUCT by itself (as
opposed to a use or disposition of the PRODUCT as a component of a combination
of active functional elements) other than in a bona fide sale to a bona fide
customer, the GROSS SALES PRICE hereunder shall be the price which would be then
payable in an arm's length transaction. If a SELLER commercially uses or
disposes of any PRODUCT as a component of a combination of active functional
elements other than in a bona fide sale to a bona fide customer, the GROSS SALES
PRICE of the PRODUCT shall be determined in accordance with paragraph (c) above,
using as the GROSS SALES PRICE of the combination that price which would be then
payable in an arm's length transaction.
(e) Transfer of a PRODUCT within COMPANY or between COMPANY and an
AFFILIATE for sale by the transferee shall not be considered a sale, commercial
use or disposition for the purpose of the foregoing paragraphs; in the case of
such transfer the GROSS SALES PRICE shall be based on sale of the PRODUCT by the
transferee.
1.6 The term "PATENT RIGHT" shall mean the U.S. Provisional Patent
Application filed by Dr. Anderson on October 8, 1997, to be assigned to GENERAL,
entitled Phototherapy Methods and Systems and any subsequent utility application
based thereon, or the equivalent of such application, including any division,
continuation or any foreign patent application or Letters Patent or the
equivalent thereof issuing thereon or reissue, reexamination or extension
thereof. PATENT RIGHTS shall also include those claims in any
continuation-in-part of the aforementioned patent application which claim an
invention described or claimed in said patent application.
1.7 The term "PRODUCT" shall mean any article, device, composition, method
or service, the manufacture, use, or sale of which
(a) absent the licenses granted herein, would infringe a VALID CLAIM of any
PATENT RIGHT, or
(b) does not infringe a VALID CLAIM of any PATENT RIGHT licensed to COMPANY
hereunder but the discovery, development, manufacture or use of which employs
TECHNOLOGICAL INFORMATION.
1.8 The term "SUBLICENSEE" shall mean any non-AFFILIATE third party
licensed by COMPANY or by an AFFILIATE to make, have made, use or sell any
PRODUCT.
1.9 The term "TECHNOLOGICAL INFORMATION" shall mean any research data,
designs, formulas, process information, clinical data and other information
pertaining to any
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invention claimed in PATENT RIGHT which is known to Dr. Anderson on the
EFFECTIVE DATE.
1.10 The term "VALID CLAIM" shall mean any claim of any PATENT RIGHT that
has not been (i) finally rejected or (ii) declared invalid by a patent office or
court of competent jurisdiction in any unappealed and unappealable decision.
2. LICENSE
2.1 GENERAL hereby grants COMPANY, to the extent not prohibited by the
United States Government or by contractual obligations to any other sponsor of
research at GENERAL:
(a) an exclusive, worldwide, royalty-bearing license in the LICENSE FIELD
under GENERAL's rights in PATENT RIGHTS to make, have made, use and sell
PRODUCTS;
(b) to the extent an exclusive license is not available to COMPANY in a
country, a non-exclusive, royalty-bearing license in the LICENSE FIELD under
PATENT RIGHTS to make, have made, use and sell PRODUCTS;
(c) the right to sublicense PATENT RIGHTS exclusively licensed to COMPANY.
The above licenses to sell PRODUCTS include the right to grant to the
purchaser of products from COMPANY, its AFFILIATES, and SUBLICENSEES the right
to use such purchased PRODUCTS in a method coming within the scope of PATENT
RIGHT.
2.2 It is understood that the granting of any license hereunder is subject
to GENERAL's and GENERAL's AFFILIATES' right to make and to use the subject
matter described and claimed in PATENT RIGHT for research, clinical and
educational purposes but for no other purpose, and that if federal funding
supported the PATENT RIGHT, COMPANY's license will be subject to the rights,
conditions and limitations imposed by U.S. law including without limitation the
royalty-free non-exclusive license granted to the U.S. government (see 35 U.S.C.
Sections 202 ET SEQ. and regulations pertaining thereto).
2.3 Within three (3) months of EFFECTIVE DATE, upon request by COMPANY,
GENERAL shall disclose to COMPANY, TECHNOLOGICAL INFORMATION which COMPANY will
be entitled to use to the extent such use does not infringe any patent not
licensed to COMPANY hereunder.
2.4 GENERAL shall have the right to license any PATENT RIGHT to any other
party for the purpose of manufacturing, using or selling of any PRODUCT outside
of the LICENSE FIELD.
2.5 It is understood that nothing herein shall be construed to grant
COMPANY a license express or implied under any patent owned solely or jointly by
General other than the PATENT RIGHTS expressly licensed hereunder.
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3. DUE DILIGENCE OBLIGATIONS
3.1 COMPANY shall itself, or through its AFFILIATES or SUBLICENSEES, use
its best efforts to develop and make commercially available PRODUCTS for
commercial sales and distribution throughout the world in the LICENSE FIELD.
Such efforts shall consist of achieving the following objectives within the time
period designated below following the EFFECTIVE DATE:
(a) within three (3) months, provide prototype laser equipment for
pre-clinical dose-response studies.
(b) within eighteen (18) months, initiate and thereafter diligently pursue
clinical evaluations of a PRODUCT and in connection therewith take all actions
necessary under the Food, Drug and Cosmetic Act (21 USC 301-391);
(c) within thirty six (36) months, determine whether to manufacture such a
PRODUCT for commercial sale and to inform GENERAL of such determination;
(d) within four (4) years, manufacture and distribute PRODUCT for market
testing;
(e) within five (5) years, introduce PRODUCT in the United States, Europe
and Japan; and
(f) within six (6) years, announce and market for general commercial sale a
PRODUCT on a worldwide basis;
provided, however, that GENERAL shall not unreasonably withhold its consent to
any revision in such time periods whenever requested in writing by COMPANY and
supported by evidence of technical difficulties or delays in clinical studies or
regulatory processes that the parties could not have reasonably avoided. Failure
to achieve one or more of the above objectives within the above stated time
periods or within any extension granted by GENERAL shall result in GENERAL
having the right to cancel upon thirty (30) days notice any exclusive license
granted hereunder or convert any exclusive license to a non-exclusive license.
3.2 At intervals no longer than every six (6) months, COMPANY shall report
in writing to GENERAL on progress made toward the foregoing objectives.
4. FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHT
4.1 GENERAL shall be responsible for the preparation, filing, prosecution
and maintenance of all patent applications and patents included in PATENT
RIGHTS. COMPANY shall reimburse GENERAL for all reasonable costs ("Costs")
incurred by GENERAL for the preparation, filing, prosecution and maintenance of
all PATENT RIGHTS as follows:
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(a) Subject to paragraph 4.2, for all Costs incurred by GENERAL from and
after the EFFECTIVE DATE, COMPANY shall reimburse GENERAL upon receipt of
invoices from GENERAL;
(b) For all Costs incurred by GENERAL prior to the EFFECTIVE DATE, COMPANY
shall reimburse GENERAL upon execution of this Agreement. Total costs associated
with the PATENT RIGHTS as of the date of this agreement amount to approximately
$ 12,500.
4.2 With respect to any PATENT RIGHT, each document or a draft thereof
pertaining to the filing, prosecution, or maintenance of such PATENT RIGHT,
including but not limited to each patent application, office action, response to
office action, request for terminal disclaimer, and request for reissue or
reexamination of any patent issuing from such application shall be provided to
COMPANY as follows. Documents received from any patent office or counsel's
analysis thereof shall be provided promptly after receipt. For a document to be
filed in any patent office, a draft of such document shall be provided
sufficiently prior to its filing, to allow for review and comment by the other
party. If as a result of the review of any such document, COMPANY shall elect
not to pay or continue to pay the Costs for such PATENT RIGHT, COMPANY shall so
notify GENERAL within thirty (30) days of COMPANY's receipt of such document and
COMPANY shall thereafter be relieved of the obligation to pay any additional
Costs regarding such PATENT RIGHT incurred after the receipt of such notice by
GENERAL. Such U.S. or foreign patent application or patent shall thereupon cease
to be a PATENT RIGHT hereunder and GENERAL shall be free to license its rights
to that particular U.S. patent application or patent to any other party on any
terms.
5. ROYALTIES
5.1 Beginning with the FIRST COMMERCIAL SALE in any country, on all sales
of PRODUCTS anywhere in the world by COMPANY, its AFFILIATES or SUBLICENSEES,
COMPANY shall pay GENERAL royalties in accordance with the following schedule,
such undertaking and schedule having been agreed to for the purpose of
reflecting and advancing the mutual convenience of the parties. For each PRODUCT
sold by COMPANY or its AFFILIATES and SUBLICENSEES;
(a) Four percent (4.0%) of the NET SALES PRICE so long as the PRODUCT, its
manufacture, use or sale is covered by a VALID CLAIM of any PATENT RIGHT
licensed exclusively to COMPANY;
(b) Two percent (2.0%) of the NET SALES PRICE whenever the PRODUCT, its
manufacture, use or sale is covered by a VALID CLAIM of any PATENT RIGHT
licensed non-exclusively to COMPANY in the country in question; and
(c) During each of the ten (10) years next following the FIRST COMMERCIAL
SALE anywhere in the world by COMPANY, its AFFILIATES or LICENSEES, one percent
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(1 %) of the NET SALES PRICE of PRODUCT on which no royalty is payable under
paragraph 5.1(a) or 5.1(b) above.
5.2 (a) In the event that more than one royalty rate under paragraph 5.1
is applicable to a PRODUCT, the highest of the applicable royalties shall apply.
(b) Only one royalty under paragraph 5.1 shall be due and payable to
GENERAL by COMPANY for any PRODUCT regardless of the number of PATENT RIGHTS
covering such PRODUCT.
5.3 If any license granted pursuant to Article 2 shall be or become
non-exclusive and GENERAL shall license any PATENT RIGHT to another licensee for
the purpose of making, using or selling PRODUCTS in the LICENSE FIELD and accept
a royalty or royalties more favorable to such licensee than herein provided for
COMPANY, GENERAL shall give written notice thereof to COMPANY and as of the
EFFECTIVE DATE of such more favorable royalty or royalties, COMPANY's obligation
hereunder to pay royalty or royalties to GENERAL shall be revised to the more
favorable rate.
5.4 In addition to the royalties provided for above, COMPANY shall pay
GENERAL twenty-five percent (25%) of any and all non-royalty income, including
without limitation license fees and milestone payments, received from its
AFFILIATES and SUBLICENSEES in consideration for the sublicensing of any right
or license granted to COMPANY hereunder.
5.5 In addition to the payments provided for in paragraphs 5.1 and 5.4,
COMPANY shall pay GENERAL the following amounts upon the occurrence of the
following events:
25,000 upon execution of this agreement;
$ 50,000 upon issuance by the United States Patent and Trademark Office of
any PATENT RIGHT;
$ 50,000 upon approval by the FDA of the first NDA, 510(k), PMA or PMA
Supplement, or comparable application with respect to a PRODUCT.
5.6 In the event that the royalty paid to GENERAL is a significant factor
in the return realized by COMPANY so as to diminish COMPANY's capability to
respond to competitive pressures in the market, GENERAL agrees to consider a
reasonable reduction in the royalty paid to GENERAL as to each such PRODUCT for
the period during which such market condition exists. Factors determining the
size of the reduction will include profit margin on PRODUCT and on analogous
products, prices of competitive products, total prior sales by COMPANY, and
COMPANY's expenditures in PRODUCT development.
5.7 The payments due under this Agreement shall, if overdue, bear interest
until payment at a per annum rate equal to one percent (1%) above the prime rate
in effect at the Bank of Boston on the due date, not to exceed the maximum
permitted by law. The payment of such
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interest shall not preclude GENERAL from exercising any other rights it may have
as a consequence of the lateness of any payment.
6. REPORTS AND PAYMENTS
6.1 COMPANY shall keep, and shall cause each of its AFFILIATES and
SUBLICENSEES, if any, to keep full and accurate books of accounts containing all
particulars that may be necessary for the purpose of calculating all royalties
payable to GENERAL. Such books of account shall be kept at their principal place
of business and, with all necessary supporting data shall, during all reasonable
times for the three (3) years next following the end of the calendar year to
which each shall pertain be open for inspection at reasonable times by GENERAL
or its designee at GENERAL's expense for the purpose of verifying royalty
statements or compliance with this Agreement.
6.2 In each year the amount of royalty due shall be calculated
semiannually as of the end of each ACCOUNTING PERIOD and shall be paid
semiannually within the sixty (60) days next following such date, every such
payment to be supported by the accounting prescribed in paragraph 6.3 and to be
made in United States currency. Whenever conversion from any foreign currency
shall be required, such conversion shall be at the rate of exchange thereafter
published in the Wall Street Journal for the business day closest to the end of
the applicable ACCOUNTING PERIOD.
6.3 With each semiannual payment, COMPANY shall deliver to GENERAL a full
and accurate accounting to include at least the following information:
(a) Quantity of each PRODUCT sold or leased (by country) by COMPANY, and
its AFFILIATES or SUBLICENSEES;
(b) Total billings for each PRODUCT (by country);
(c) Quantities of each PRODUCT used by COMPANY and its AFFILIATES or
SUBLICENSEES;
(d) Names and addresses of all SUBLICENSEES of COMPANY; and
(e) Total royalties payable to GENERAL.
7. INFRINGEMENT
7.1 GENERAL will protect its PATENT RIGHTS from infringement and prosecute
infringers when, in its sole judgment, such action may be reasonably necessary,
proper and justified.
7.2 If COMPANY shall have supplied GENERAL with written evidence
demonstrating to GENERAL's reasonable satisfaction prima facie infringement of a
claim of a
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PATENT RIGHT by a third party, COMPANY may by notice request GENERAL
to take steps to protect the PATENT RIGHT. GENERAL shall notify COMPANY within
three (3) months of the receipt of such notice whether GENERAL intends to
prosecute the alleged infringement. If GENERAL notifies COMPANY that it intends
to so prosecute, GENERAL shall, within three (three) months of its notice to
COMPANY either (i) cause infringement to terminate or (ii) initiate legal
proceedings against the infringer. In the event GENERAL notifies COMPANY that
GENERAL does not intend to prosecute said infringement COMPANY may, upon notice
to GENERAL, initiate legal proceedings against the infringer at COMPANY's
expense and in GENERAL's name if so required by law. No settlement, consent
judgment or other voluntary final disposition of the suit which invalidates or
restricts the claims of such PATENT RIGHTS may be entered into without the
consent of GENERAL, which consent shall not be unreasonable withheld. COMPANY
shall indemnify GENERAL against any order for payment that may be made against
GENERAL in such proceedings.
7.3 In the event one party shall initiate or carry on legal proceedings to
enforce any PATENT RIGHT against any alleged infringer, the other party shall
fully cooperate with and supply all assistance reasonably requested by the party
initiating or carrying on such proceedings. The party which institutes any suit
to protect or enforce a PATENT RIGHT shall have sole control of that suit and
shall bear the reasonable expenses (excluding legal fees) incurred by said other
party in providing such assistance and cooperation as is requested pursuant to
this paragraph. The party initiating or carrying on such legal proceedings shall
keep the other party informed of the progress of such proceedings and said other
party shall be entitled to counsel in such proceedings but at its own expense.
Any award paid by third parties as the result of such proceedings (whether by
way of settlement or otherwise) shall first be applied to reimbursement of the
unreimbursed legal fees and expenses incurred by either party and then the
remainder shall be divided between the parties as follows:
(a) (i) If the amount is based on lost profits, COMPANY shall receive an
amount equal to the damages the court determines COMPANY has suffered as a
result of the infringement less the amount of any royalties that would have been
due GENERAL on sales of PRODUCT lost by COMPANY as a result of the infringement
had COMPANY made such sales; and
(ii) GENERAL shall receive an amount equal to the royalties it would
have received if such sales had been made by COMPANY; and
(b) As to awards other than those based on lost profits, sixty (60) percent
to the party initiating such proceedings and forty (40) percent to the other
party.
7.4 For the purpose of the proceedings referred to in this Article 7, the
GENERAL and COMPANY shall permit the use of their names and shall execute such
documents and carry out such other acts as may be necessary. The party
initiating or carrying on such legal proceedings shall keep the other party
informed of the progress of such proceedings and said other party shall be
entitled to counsel in such proceedings but at its own expense, said expenses to
be off-set against any damages received by the party bringing suit in accordance
with the foregoing paragraph 7.3.
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8. INDEMNIFICATION
8.1 (a) COMPANY shall indemnify, defend and hold harmless GENERAL and its
trustees, officers, medical and professional staff, employees, and agents and
their respective successors, heirs and assigns (the "Indemnitees"), against any
liability, damage, loss or expense (including reasonable attorney's fees and
expenses of litigation) incurred by or imposed upon the Indemnitees or any one
of them in connection with any claims, suits, actions, demands or judgments
arising out of any theory of product liability (including, but not limited to,
actions in the form of tort, warranty, or strict liability) concerning any
product, process or service made, used or sold pursuant to any right or license
granted under this Agreement.
(b) COMPANY's indemnification under (a) above shall not apply to any
liability, damage, loss or expense to the extent that it is directly
attributable to the negligent activities, reckless misconduct or intentional
misconduct of the Indemnitees.
(c) COMPANY agrees, at its own expense to provide attorneys reasonably
acceptable to the GENERAL to defend against any actions brought or filed against
any party indemnified hereunder with respect to the subject of indemnity
contained herein, whether or not such actions are rightfully brought.
(d) This paragraph 8.1 shall survive expiration or termination of this
Agreement.
8.2 (a) Beginning at such time as any such product, process or service is
being commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by COMPANY or by a licensee, affiliate or agent of
COMPANY, COMPANY shall, at its sole cost and expense, procure and maintain
commercial general liability insurance in amounts not less than $2,000,000 per
incident and $2,000,000 annual aggregate and naming the Indemnitees as
additional insureds. Such commercial general liability insurance shall provide
(i) product liability coverage and (ii) broad form contractual liability
coverage for COMPANY's indemnification under paragraph 8.1 of this Agreement. If
COMPANY elects to self-insure all or part of the limits described above
(including deductibles or retentions which are in excess of $250,000 annual
aggregate) such self-insurance program must be acceptable to the GENERAL and the
Risk Management Foundation. The minimum amounts of insurance coverage required
under this paragraph 8.2 shall not be construed to create a limit of COMPANY's
liability with respect to its indemnification under paragraph 8.1 of this
Agreement.
(b) COMPANY shall provide GENERAL with written evidence of such insurance
upon request of GENERAL. COMPANY shall provide GENERAL with written notice at
least fifteen (15) days prior to the cancellation, non-renewal or material
change in such insurance; if COMPANY does not obtain replacement insurance
providing comparable coverage prior to the expiration of such fifteen (15) day
period, GENERAL shall have the right to terminate this Agreement effective at
the end of such fifteen (15) day period without notice or any additional waiting
periods.
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(c) COMPANY shall maintain such commercial general liability insurance
beyond the expiration or termination of this Agreement during (i) the period
that any such product, process, or service is being commercially distributed or
sold (other than for the purpose of obtaining regulatory approvals) by COMPANY
or by a licensee, affiliate or agent of COMPANY and (ii) a reasonable period
after the period referred to in (c) (i) above which in no event shall be less
than fifteen (15) years.
(d) This paragraph 8.2 shall survive expiration or termination of this
Agreement.
8.3 OTHER THAN WARRANTIES SET FORTH HEREIN, GENERAL MAKES NO WARRANTY,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO ANY PATENT, TRADEMARK, SOFTWARE, TRADE SECRET, TANGIBLE RESEARCH
PROPERTY, INFORMATION OR DATA LICENSED OR OTHERWISE PROVIDED TO COMPANY
HEREUNDER AND HEREBY DISCLAIMS THE SAME.
9. TERMINATION
9.1 Unless otherwise terminated as provided for in this Agreement, the
license to PATENT RIGHT granted hereunder will continue on a country by country
basis:
(i) for one (1) year after the date COMPANY, its AFFILIATES, or
SUBLICENSEES shall last sell any PRODUCT in such country, it being understood
that GENERAL shall have the right to terminate such license upon written notice
in any country in the event that after the FIRST COMMERCIAL SALE of PRODUCT in
such country there is a continuous one (1) year period in which no PRODUCT is
sold in such country, provided such sale is not prevented by force majeure,
government regulation or intervention, or institution of a law suit by any third
party, or
(ii) until the last to expire of any PATENT RIGHT, the claims of which but
for this Agreement would be infringed by the manufacture, use or sale of any
PRODUCT in the applicable country,
whichever shall first occur.
9.2 If either party shall fail to faithfully perform any of its
obligations under this Agreement except the due diligence milestones specified
in Article 3 herein, the nondefaulting party may give written notice of the
default to the defaulting party. Unless such default is corrected within thirty
(30) days after such notice, the notifying party may terminate this Agreement
and the license hereunder upon thirty (30) days prior written notice, provided
that only one such thirty (30) day grace period shall be available in any twelve
(12) month period with respect to a default of any particular provision
hereunder. Thereafter notice of default of said provision shall constitute
termination.
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9.3 In the event that any license granted to COMPANY under this Agreement
is terminated, any sublicense under such license granted prior to termination of
said license shall remain in full force and effect, provided that:
(i) the SUBLICENSEE is not then in breach of its sublicense agreement;
(ii) the SUBLICENSEE agrees to be bound to GENERAL as the licensor under
the terms and conditions of this sublicense agreement, as modified by the
provisions of this paragraph 9.3;
(iii) the SUBLICENSEE, at GENERAL's written request, assumes in a signed
writing the same obligations to GENERAL as those assumed by COMPANY under
Articles 8 and 10 hereof;
(iv) GENERAL shall have the right to receive the greater of (a) any
payments payable to COMPANY under such sublicense agreement to the extent they
are reasonably and equitably attributable to such SUBLICENSEE's right under such
sublicense to use and exploit PATENT RIGHTS and/or TECHNOLOGICAL INFORMATION or
(b) the lowest royalty which is within the "Competitive" range as hereinafter
defined, at the time GENERAL's license to COMPANY is terminated. A royalty rate
shall be regarded as "Competitive" if it is within the range of royalty rates
that GENERAL would charge in an arms length transaction with a licensee which
was not and had not been a sponsor of research at GENERAL, taking into account
the value of the licensed technology at the time GENERAL's license to COMPANY is
terminated;
(v) the SUBLICENSEE agrees to be bound by the due diligence obligations of
COMPANY pursuant to paragraph 3.1 hereof (whether set by the parties or by
arbitration) in the field and territory of the sublicense;
(vi) GENERAL has the right to terminate such sublicense upon fifteen (15)
days prior written notice to COMPANY and such SUBLICENSEE in the event of any
material breach of the obligation to make the payments described in clause (iv)
of this paragraph 9.3, unless such breach is cured prior to the expiration of
such fifteen (15) day period, and shall further have the right to terminate such
sublicense in the event of SUBLICENSEE's failure to meet its due diligence
obligations pursuant to clause (v) hereof;
(vii) GENERAL shall not assume, and shall not be responsible to such
SUBLICENSEE for, any representations, warranties or obligations of COMPANY to
such SUBLICENSEE, other than to permit such SUBLICENSEE to exercise any rights
to PATENT RIGHTS and TECHNOLOGICAL INFORMATION that are granted under such
sublicense agreement consistent with the terms of this AGREEMENT.
9.4 Upon termination of any license granted hereunder COMPANY shall pay
GENERAL all royalties due or accrued on (i) the sale of PRODUCT up to and
including the date of termination and (ii) for twelve (12) months following the
date of termination, the sale of PRODUCT manufactured prior to the termination
date.
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10. MISCELLANEOUS
10.1 This Agreement constitutes the entire understanding between the
parties with respect to the subject matter hereof.
10.2 In order to facilitate implementation of this Agreement, GENERAL and
COMPANY are designating the following individuals to act on their behalf with
respect to this Agreement for the matter indicated below:
(a) with respect to all royalty payments, any correspondence pertaining to
any PATENT RIGHT, or any notice of the use of GENERAL's name, for GENERAL, the
Director, Office of Technology Affairs, and for COMPANY the Chief Executive
Officer; provided that correspondence relating to the billing of patent costs
shall be copied to, for GENERAL, the Business Manager, Office of Technology
Affairs; and for COMPANY, the Chief Executive Officer.
(b) any amendment of or waiver under this Agreement, any written notice
including progress reports or other communication pertaining to the Agreement:
for GENERAL, the Director, Office of Technology Affairs; and for COMPANY, the
Chief Executive Officer.
(c) the above designations may be superseded from time to time by
alternative designations made by: for GENERAL, the President or the Senior Vice
President for Research and Technology Affairs; and for COMPANY, the Chief
Executive Officer.
10.3 This Agreement may be amended and any of its terms or conditions may
be waived only by a written instrument executed by the parties or, in the case
of a waiver, by the party waiving compliance. The failure of either party at any
time or times to require performance of any provision hereof shall in no manner
affect its rights at a later time to enforce the same. No waiver by either party
of any condition shall be deemed as a further or continuing waiver of such
condition or term or of any other condition or term.
10.4 This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
10.5 Any delays in or failures of performance by either party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to: Acts of God; acts, regulations or laws
of any government; strikes or their concerted acts of worker; fires; floods;
explosions; riots; wars; rebellion; and sabotage. Any time for performance
hereunder shall be extended by the actual time of delay caused by such
occurrence.
10.6 Neither party shall use the name of the other party or of any staff
member, officer, employee or student of the other party or any adaptation
thereof in any advertising, promotional or sales literature, publicity or in any
document employed to obtain funds or financing without
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the prior written approval of the party or individual whose name is to be used.
For GENERAL, such approval shall be obtained from the Director of Public
Affairs.
10.7 This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
10.8 This Agreement shall not be assignable by GENERAL without COMPANY's
written consent except for the right to receive royalties or other payments
payable herein. COMPANY may at its own discretion and without approval by
GENERAL transfer its interest or any part thereof under this Agreement to a
wholly-owned subsidiary or any assignee or purchaser of the portion of its
business associated with the manufacture and sale of PRODUCT. In the event of
any such transfer, the transferee shall assume and be bound by the provisions of
this Agreement. Otherwise this Agreement shall be assignable by COMPANY only
with the consent in writing of GENERAL.
10.9 For any and all claims, disputes, or controversies arising under, out
of, or in connection with this Agreement, except issues relating to the
validity, construction or effect of any PATENT RIGHT, which the parties shall be
unable to resolve within sixty (60) days, the party raising such dispute shall
promptly advise the other party of such claim, dispute, or controversy in a
writing which describes in reasonable detail the nature of such dispute. By not
later than five (5) business days after the recipient has received such notice
of dispute, each party shall have selected for itself a representative who shall
have the authority to bind such party and shall additionally have advised the
other party in writing of the name and title of such representative. By not
later than ten (10) business days after the date of such notice of dispute, such
representatives shall agree upon a third party which is in the business of
providing Alternative Dispute Resolution (ADR) services (hereinafter, "ADR
Provider") and shall schedule a date with such ADR Provider to engage in ADR.
Thereafter, the representatives of the parties shall engage in good faith in an
ADR process under the auspices of the selected ADR Provider. If within the
aforesaid thirty (30) business days after the date of the notice of dispute the
representatives of the parties have not been able to agree upon an ADR Provider
and schedule a date to engage in ADR, or if they have not been able to resolve
the dispute within thirty (30) business days after the termination of ADR, the
parties shall have the right to pursue any other remedies legally available to
resolve such dispute in either the Courts of the Commonwealth of Massachusetts
or in the United States District Court for the District of Massachusetts, to
whose jurisdiction for such purposes GENERAL and COMPANY hereby irrevocably
consents and submits. Notwithstanding the foregoing, nothing in this Paragraph
10.9 shall be construed to waive any rights or timely performance of any
obligations existing under this Agreement.
10.10 If any provision(s) of this Agreement are or become invalid, are
ruled illegal by any court of competent jurisdiction or are deemed unenforceable
under then current applicable law from time to time in effect during the term
hereof, it is the intention of the parties that the remainder of this agreement
shall not be effected thereby. It is further the intention of the parties that
in lieu of each such provision which is invalid, illegal or unenforceable, there
be substituted or added as part of this Agreement a provision which shall be as
similar as possible in economic
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and business objectives as intended by the parties to such invalid, illegal or
enforceable provision, but shall be valid, legal and enforceable.
THE PARTIES have duly executed this Agreement as of the date first shown
above written.
COMPANY THE GENERAL HOSPITAL CORPORATION
BY: /s/ Chaim Markheim BY: /s/ David J. Glass
----------------------------- ----------------------------------
Chaim Markheim David J. Glass Phd
TITLE: CEO/CFO TITLE: Associate Director for Patents
Laser Photonics, Inc. office of Technology Affairs
-------------------------- ------------------------------
DATE: December 16, 1997 DATE: November 26, 1997
--------------------------- --------------------------------
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement"), is made and entered into as of
February 29, 2000, by and among Laser Components GmbH, a Gesellschaft mit
beschrankter Haftung organized under the laws of the Federal Republic of Germany
("Buyer"), on the one hand; and Laser Photonics, Inc., a Delaware corporation
("LSPT") and Laser Analytics, Inc., a Massachusetts corporation ("LAI") (LSPT
and LAI are collectively referred to as "Seller"), on the other hand.
RECITALS
WHEREAS, LAI owns and operates a business which is engaged in the business
of manufacturing certain lead salt diode laser equipment (the "Business") and is
located at 10 Upton Drive, Wilmington, Massachusetts 01887 (the "Wilmington
Facility"); and
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from
Seller certain assets (the "Transferred Assets"), which are used in operating
the Business, in exchange for a cash payment of $213,000 and the assumption of
certain of Seller's liabilities;
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereby agree as follows:
1. TRANSFER OF ASSETS.
1.1 TRANSFERRED ASSETS. On the basis of the representations and warranties
and subject to the terms and conditions hereinafter set forth, on the Closing
Date, (defined below) Seller shall transfer or shall cause to be transferred to
Buyer, and Buyer shall acquire, the Transferred Assets. As used in this
Agreement, the term "Transferred Assets" means the assets of Seller described in
this Section 1.1 and listed on Exhibit 1.1 hereof (other than excluded assets
(the "Excluded Assets"), as defined in Section 1.2, and except to the extent
assets described in this Section 1.1 may be disposed of in the ordinary course
of business by Seller prior to the Closing). Subject to the foregoing,
"Transferred Assets" means:
(a) All of Seller's rights, title and incidents of interest in and to its
personal and real property, and equipment, to the extent such rights and
interests are assignable by Seller, located at the Wilmington Facility and as
described in Exhibit 1.1;
(b) All original marketing communications material (including
communications, art work, art boards, photography and negatives), sales
literature, customer lists, distributor and supplier records, formulae, customer
specifications, blueprints and drawings and other records, owned by and in the
possession of Seller and relating solely and exclusively to the Business and
located at the Wilmington Facility;
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(c) All inventories of finished goods, supplies, raw materials and work in
process of the Business, located at the Wilmington Facility and as described in
Exhibit 1.1;
(d) All machinery, equipment, furniture, fixtures, vehicles, molds,
tools, and dies, and all other tangible personal property owned by Seller,
located at the Wilmington Facility and as described in Exhibit 1.1; and
(e) an exclusive license to the technology, covered by certain patents
listed in Schedule 1.1(e)(1) hereto, for the manufacture, marketing and
commercialization of tunable lead salt diode lasers, in the form set forth in
Schedule 1.1(e)(1) hereto.
1.2 EXCLUDED ASSETS. All assets of Seller not expressly listed in or
described in Exhibit 1.1 hereof, shall be referred to as the Excluded Assets,
and shall be retained by Seller and shall not be sold and transferred to Buyer
on the Closing Date (defined below). The Excluded Assets shall expressly
include, among others, all assets which relate to Seller's business operations
which are (i) conducted in Carlsbad, California, (ii) conducted in Orlando,
Florida, (iii) relate to Seller's excimer lasers or delivery systems, and (iv)
not specifically described in Exhibit 1.1.
1.3 NO COMPETITION WITH SELLER'S EXCIMER LASER BUSINESS. For a period of
two (2) years following the date of this Agreement (the "Non-Competition
Period"), Buyer and its affiliates shall not, directly or indirectly, either as
a consultant, agent, principal, partner, strategic partner, independent
contractor, principal stockholder, or in any other representative capacity: (i)
engage or participate in that part or portion of any business that is in
competition in any manner with the excimer laser and related delivery systems
business operations of Seller ("Business of Seller"); (ii) divert, take away or
attempt to divert or take away (and during the Non-Competition Period, call on
or solicit) any of Seller's clients who had a business relationship with Seller,
as of and prior to the date of this Agreement, with respect to Business of
Seller, within the United States or in any country in which Seller shall engage
in Business of Seller; (iii) undertake planning for or organization of any
business in competition with the Business of Seller within the United States or
in any country in which Seller shall engage in Business of Seller, engage in
business activity in competition with the Business of Seller within the United
States or in any country in which Seller shall engage in Business of Seller, or
combine or conspire with employees or other representatives of Seller's business
within the United States or in any country in which Seller shall engage in
Business of Seller for the purpose of organizing any such competitive activity
within the United States or in any country in which Seller shall engage in
Business of Seller; or (iv) induce or influence (or seek to induce or influence)
any person who is engaged, as an employee, agent, independent contractor or
otherwise by Seller within the United States or in any country in which Seller
shall engage in Business of Seller to terminate his employment or engagement for
purposes of engaging in competition with the Business of Seller. This Section
1.3 is not intended to limit in any way Buyer's ability to engage in any fashion
or manner in a business operation related to the commercialization of tunable
lead salt diode lasers or other business operations not related to the Business
of Seller.
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1.4 NO COMPETITION WITH BUYER'S TUNABLE LEAD SALT DIODE LASER BUSINESS For
a period of two (2) years following the date of this Agreement (the
"Non-Competition Period"), Seller and its affiliates shall not, directly or
indirectly, either as a consultant, agent, principal, partner, strategic
partner, independent contractor, principal stockholder, or in any other
representative capacity: (i) engage or participate in that part or portion of
any business that is in competition in any manner with the tunable lead salt
diode laser operations of Buyer ("Business of Buyer"); (ii) divert, take away or
attempt to divert or take away (and during the Non-Competition Period, call on
or solicit) any of Buyer's clients who had a business relationship with Buyer,
as of and prior to the date of this Agreement, with respect to Business of
Buyer, within the United States or in any country in which Buyer shall engage in
Business of Buyer; (iii) undertake planning for or organization of any business
in competition with the Business of Buyer within the United States or in any
country in which Buyer shall engage in Business of Buyer, engage in business
activity in competition with the Business of Buyer within the United States or
in any country in which Buyer shall engage in Business of Buyer, or combine or
conspire with employees or other representatives of Buyer's business within the
United States or in any country in which Buyer shall engage in Business of Buyer
for the purpose of organizing any such competitive activity within the United
States or in any country in which Buyer shall engage in Business of Buyer; or
(iv) induce or influence (or seek to induce or influence) any person who is
engaged, as an employee, agent, independent contractor or otherwise by Buyer
within the United States or in any country in which Buyer shall engage in
Business of Buyer to terminate his employment or engagement for purposes of
engaging in competition with the Business of Buyer. This Section 1.4 is not
intended to limit in any way Seller's ability to engage in any fashion or manner
in business operations other than those related to the commercialization of
tunable lead salt diode lasers.
2. ASSUMED LIABILITIES.
2.1 LEASE. At the Closing (defined below), Buyer shall assume all of
Seller's liabilities and obligations under the Wilmington Lease and shall make
its best efforts to cause Seller to be released from all obligations under the
Wilmington Lease.
2.2 WARRANTIES. At the Closing (defined below), Buyer shall assume and
agree to perform all existing and prospective obligations and liabilities, up to
a total of $30,000, of Seller under all express and implied warranties related
to or arising out of the operation of the Business and the Transferred Assets.
3. CLOSING. The closing of this transaction (the "Closing") shall take
place as of the close of business as of March 22, 2000 (the "Closing Date") at
the offices of Matthias & Berg LLP, 1990 South Bundy Drive, Suite 790, Los
Angeles, CA 90025, or at such other place and date as the parties hereto agree
to in writing.
(a) At the Closing, Seller shall transfer the Transferred Assets to Buyer,
and Buyer shall assume the liabilities and obligations of Seller described in
Sections 2.1 and 2.2 hereof.
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(b) At the Closing, Buyer shall deliver to Seller the sum of $213,000 in
the form of a bank cashier's check or a wire transfer, plus documents of
assumption of liability under the Wilmington Lease.
4. REPRESENTATIONS AND WARRANTIES OF SELLER.
4.1 ORGANIZATION AND GOOD STANDING; DUE AUTHORIZATION. LSPT and LAI are
corporations duly organized, validly existing and in good standing under the
laws of the States of Delaware and Massachusetts, respectively. Seller has full
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby.
4.2 RIGHTS TO TRANSFERRED ASSETS. At the Closing, Buyer shall receive
good and marketable title to the Transferred Assets, free and clear of any lien,
mortgage, charge, security interest, pledge or other encumbrance or other
adverse claim or interest of any nature. Seller is the sole and exclusive owner
of the Transferred Assets, as of the Closing Date. Seller has the right and
power to assign all of its rights, title and interest in and to the Transferred
Assets and has made no prior transfer, sale or assignment of all or any part of
the Transferred Assets, and to the best of Seller's knowledge, the Transferred
Assets and the exploitation of the Transferred Assets do not and will not
infringe the rights granted to any other person of any kind or nature. Seller
further represents and warrants that the Transferred Assets constitute all of
Seller's rights and interests in, and Seller has not transferred or conveyed to
any other person or entity any right or interest in the Transferred Assets.
4.3 BINDING OBLIGATION; NO DEFAULT. Seller has duly taken all action
necessary to authorize the execution, delivery and performance of this Agreement
and the other instruments and agreements contemplated hereby. Such execution,
delivery and performance does not and will not, to the best of Seller's
knowledge, constitute a default under or a violation of any agreement, order,
award, judgment, decree, statute, law, rule, regulation or any other instrument
to which Seller is a party or by which Seller or the property of Seller may be
bound or may be subject. This Agreement constitutes the legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms.
4.4 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. Neither the execution and
delivery of this Agreement by Seller nor compliance by Seller with the terms and
conditions of this Agreement will: (a) require Seller to obtain the consent of
any governmental agency; (b) constitute a material default under any indenture,
mortgage or deed of trust to which Seller is a party or by which Seller or its
properties may be subject; (c) cause the creation or imposition of any lien,
charge or encumbrance on any of its assets; or (d) breach any statute or
regulation of any governmental authority, domestic or foreign, or will on the
Closing Date conflict with or result in a breach or any of the terms or
conditions of any judgment, order, injunction, decree or ruling of any court or
governmental authority, domestic or foreign, to which Seller is subject.
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4.5 CONSENTS. No consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority is
required to be made or obtained by Seller in connection with the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby.
4.6 LITIGATION. To the best of Seller's knowledge, there is no claim,
action, suit, proceeding or investigation, pending or threatened, against or
involving Seller, or which questions the validity of this Agreement or seeks to
prohibit, enjoin or otherwise challenge the transactions contemplated hereby,
and, to the best of Seller's knowledge, there is no basis for any such claim,
action, suit, proceeding or governmental investigation, pending or threatened
against any of its assets before any court, agency or other governmental body
which might materially and adversely affect the transactions contemplated by
this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF BUYER.
5.1 ORGANIZATION AND GOOD STANDING; DUE AUTHORIZATION. Buyer is a
Gesellschaft mit beschrankter Haftung duly organized, validly existing and in
good standing under the laws of the Federal Republic of Germany. Buyer has full
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby.
5.2 BINDING OBLIGATION; NO DEFAULT. Buyer has duly taken all corporate
action necessary to authorize the execution, delivery and performance of this
Agreement and the other instruments and agreements contemplated hereby. Such
execution, delivery and performance does not and will not violate the terms of
its Memorandum of Association, as filed with the Commercial Register for the
jurisdiction in which Buyer is located, or to the best of Buyer's knowledge,
constitute a default under or a violation of any agreement, order, award,
judgment, decree, statute, law, rule, regulation or any other instrument to
which Buyer or the property of Buyer may be bound or may be subject. This
Agreement constitutes the legal, valid and binding obligation of Buyer
enforceable against Buyer in accordance with its terms.
5.3 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. Neither the execution and
delivery of this Agreement by Buyer nor compliance by Buyer with the terms and
conditions of this Agreement will: (a) require Buyer to obtain the consent of
any governmental agency; (b) result in any violation or breach of any term or
provision of the Memorandum of Association of Buyer; (c) constitute a material
default under any indenture, mortgage, deed of trust or other document of
hypothecation to which Buyer is a party or by which Buyer or its property may be
subject; (d) cause the creation or imposition of any lien, charge or encumbrance
on any of its assets; or (e) breach any statute or regulation of any
governmental authority, domestic or foreign, or will on the Closing Date
conflict with or result in a breach of any of the terms or conditions of any
judgment, order, injunction, decree or ruling of any court or governmental
authority, to which Buyer is subject.
5.4 CONSENTS. No consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority is
required to be made or obtained by
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Buyer in connection with the execution, delivery and performance of this
Agreement and the transactions contemplated hereby.
5.5 LITIGATION. To the best of Buyer's knowledge, there is no claim,
action, suit, proceeding or investigation pending or, threatened, against or
involving Buyer which questions the validity of this Agreement or seeks to
prohibit, enjoin or otherwise challenge the transactions contemplated hereby,
and to the best of Buyer's knowledge, there is no basis for any such claim,
action, suit, proceeding or governmental investigation pending or, threatened
against or involving Buyer before any court, agency or other governmental body
which might materially and adversely affect the transactions contemplated by
this Agreement.
6. CONDITIONS TO SELLER'S OBLIGATIONS.
The obligations of Seller to consummate the transactions contemplated
by this Agreement, both at the Closing and subsequently, are subject to the
fulfillment at the Closing of each of the conditions set forth in this Section
6. Seller may waive any or all of these conditions in whole or in part without
prior notice; PROVIDED, HOWEVER, that no such waiver shall constitute a waiver
of any of its other rights or remedies, at law or in equity, arising from any
breach by Buyer of any representation, warranty, covenant or other agreement
contained herein:
6.1 REPRESENTATIONS AND WARRANTIES OF BUYER. On the Closing Date, all of
the representations and warranties made herein by Buyer shall be true and
correct as of that date, and all of the agreements of Buyer contained in this
Agreement which are to be performed on or before the Closing Date shall have
been performed.
6.2 AUTHORIZATION OF ACTIONS. All action on the part of Buyer necessary and
sufficient to authorize the execution, delivery and performance of this
Agreement and the consummation the transactions provided for herein shall have
been duly and validly taken by Buyer, and Seller shall have been furnished with
a certificate of an officer, director or principal stockholder of Buyer setting
forth a copy of the resolution or other instrument authorizing the performance
of all transactions provided for in this Agreement.
6.3 BINDING OBLIGATION; NO DEFAULT. The execution, delivery and performance
of this Agreement does not and will not violate Buyer's Memorandum of
Association or constitute a default under or a violation of any agreement,
order, award, judgment, decree, statute, law, rule, regulation or any other
instrument to which Buyer is a party or by which it or its property is bound or
to which it or its property is bound or to which it or its property is subject.
This Agreement constitutes the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms.
6.4 CONSENTS. All material consents, approvals or authorizations of, or
declarations, filings or registrations with, any governmental or regulatory
authority which are required to be made or obtained by Buyer in connection with
the execution, delivery and performance of this Agreement and the transactions
contemplated hereby shall have been obtained by Buyer and delivered to Seller.
6
<PAGE>
6.5 FORM OF DOCUMENTS. The form and substance of all certificates,
instruments and other documents delivered to Seller under this Agreement shall
be satisfactory in all reasonable respects to Seller and its counsel.
6.6 DELIVERY OF CLOSING DOCUMENTS. Buyer shall have delivered to Seller on
the Closing Date the closing documents required to be delivered pursuant to
Section 10 in form and substance satisfactory to Seller and its counsel.
6.7 ABSENCE OF PROCEEDINGS. No suit, action, investigation or other
proceeding shall be pending or threatened before any court or governmental or
regulatory agency or authority, and no suit, action, investigation or other
proceeding before any governmental or regulatory agency or authority shall have
been threatened, which seeks (or, in the case of an investigation, may lead to a
suit, action or proceeding which seeks) to restrain, prohibit or obtain damages
or other relief in connection with the Agreement or the consummation of the
transactions contemplated hereby or which questions the validity or legality of
such transactions.
7. CONDITIONS TO BUYER'S OBLIGATIONS.
The obligations of Buyer to consummate the transactions contemplated this
Agreement, both at the Closing and subsequently, are subject to the fulfillment
at the Closing of each of the conditions set forth in this Section 7. Buyer may
waive any or all of these conditions in whole or in part without prior notice;
provided, however, that no such waiver shall constitute a waiver of any of its
other rights or remedies, at law or in equity, arising from any breach by Seller
of any representation, warranty, covenant or other agreement contained herein:
7.1 REPRESENTATIONS AND WARRANTIES OF SELLER. On the Closing Date, all of
the representations and warranties made herein by Seller shall be true and
correct as of that date, and all of the agreements of Seller contained in this
Agreement which are to be performed on or before the Closing Date shall have
been performed.
7.2 AUTHORIZATION OF ACTIONS. All action on the part of Seller necessary
and sufficient to authorize the execution, delivery and performance of this
Agreement and the consummation the transactions provided for herein shall have
been duly and validly taken by Seller, and Buyer shall have been furnished with
a certificate of an officer, director or principal stockholder of Seller setting
forth a copy of the resolution or other instrument authorizing the performance
of all transactions provided for in this Agreement.
7.3 BINDING OBLIGATION; NO DEFAULT. The execution, delivery and performance
of this Agreement does not and will not violate Seller's Articles of
Incorporation or constitute a default under or a violation of any agreement,
order, award, judgment, decree, statute, law, rule, regulation or any other
instrument to which Seller is a party or by which it or its property is bound or
to which it or its property is bound or to which it or its property is subject.
This Agreement constitutes the legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms.
7
<PAGE>
7.4 CONSENTS. All material consents, approvals or authorizations of, or
declarations, filings or registrations with, any governmental or regulatory
authority which are required to be made or obtained by Seller in connection with
the execution, delivery and performance of this Agreement and the transactions
contemplated hereby shall have been obtained by Seller and delivered to Buyer.
7.5 FORM OF DOCUMENTS. The form and substance of all certificates,
instruments and other documents delivered to Buyer under this Agreement shall be
satisfactory in all reasonable respects to Buyer and its counsel.
7.6 DELIVERY OF CLOSING DOCUMENTS. Seller shall have delivered to Buyer on
the Closing Date the closing documents required to be delivered pursuant to
Section 11 in form and substance reasonably satisfactory to Buyer and its
counsel.
7.7 ABSENCE OF PROCEEDINGS. No suit, action, investigation or other
proceeding shall be pending before any court or governmental or regulatory
agency or authority, and no suit, action, investigation or other proceeding
before any governmental or regulatory authority shall have been threatened,
which seeks (or, in the case of investigation, may lead to a suit, action or
proceeding which seeks) to restrain, prohibit or obtain damages or other relief
in connection with this Agreement or the consummation of the transactions
contemplated hereby or which questions the validity or legality of such
transactions.
8. OTHER AGREEMENTS.
8.1 AGREEMENT TO OBTAIN CONSENTS AND APPROVALS. Buyer and Seller shall
cooperate with one another to use their best efforts to obtain any and all
governmental or third-party consents and approvals necessary to complete the
transactions contemplated by this Agreement.
8.2 AGREEMENT CONCERNING CONDITIONS TO CLOSING. Seller and Buyer shall
agree to use their best efforts to cause the conditions set forth in Sections 6
and 7 to be met prior to the Closing Date.
8.3 ASSIGNMENT OF BUSINESS NAME. Following the Closing, Seller shall cause
LAI to change LAI's corporate name to a name other than "Laser Analytics."
9. ACCESS TO INFORMATION. After the Closing Date, Seller and Buyer shall
cooperate fully with each other to provide information reasonably requested by
the other with respect to any claims, demands, tax or other audits, suits,
actions and proceedings by or against either Seller or Buyer, as the case may
be, relating to the Transferred Assets
8
<PAGE>
10. CLOSING DOCUMENTS TO BE DELIVERED BY SELLER. At the Closing, Seller
shall deliver to Buyer:
10.1 BILL OF SALE AND ASSIGNMENT. A bill of sale and assignment covering
the Transferred Assets, a form of which is attached hereto as Exhibit 10.1.
10.2 CERTIFICATE. A certificate dated the Closing Date, signed by a duly
authorized officer of Seller, stating that all of Seller's representations and
warranties set forth in this Agreement are true and correct on and as of the
Closing Date as if made on the Closing Date.
10.3 FURTHER INSTRUMENTS. Such further instruments with respect to the
transactions contemplated by this Agreement as Seller is required to deliver or
as Buyer may reasonably request.
11. CLOSING DOCUMENTS TO BE DELIVERED BY BUYER. At the Closing, Buyer
shall deliver to Seller:
11.1 PURCHASE PRICE. A cashier's check or wire transfer in the amount of
$213,000, payable to Laser Photonics, Inc.
11.2 ASSUMPTIONS. Instruments of assumption of the Wilmington Lease and
the warranties and obligations referred to in Section 2.2 hereof.
11.3 CERTIFICATE. A certificate dated the Closing Date, signed by a duly
authorized officer of Seller, stating that all of Buyer's representations and
warranties set forth in this Agreement are true and correct on and as of the
Closing Date as if made on the Closing Date.
11.4 FURTHER INSTRUMENTS. Such further instruments with respect to the
transactions contemplated by this Agreement as Buyer is required to deliver or
as Seller may reasonably request.
12. INDEMNIFICATION; NOTICE OF BREACH.
12.1 BUYER'S INDEMNIFICATION. After the Closing, Buyer shall protect,
defend, indemnify and hold harmless Seller, its subsidiaries, and their
officers, directors, employees, successors and assigns from and against any
losses, damages (but not including consequential damages and penalties) and
expenses (including, without limitation, reasonable counsel fees, costs and
expenses incurred in investigating and defending against the assertion of such
liabilities) which may be sustained, suffered or incurred by Seller or its
subsidiaries and which are related to any breach by Buyer of its representations
and warranties in this Agreement.
12.2 SELLER'S INDEMNIFICATION. After the Closing, Seller shall protect,
defend, indemnify and hold harmless Buyer, its officers, directors, employees,
successors and assigns from and against any losses, damages (but not including
consequential damages and penalties) and expenses (including, without
limitation, reasonable counsel fees, costs and expenses incurred in
investigating and defending against the assertion of such liabilities) which may
be sustained, suffered or incurred
9
<PAGE>
by Buyer or its subsidiaries and which are related to any breach by Seller of
its representations and warranties in this Agreement.
12.3 NOTICE. If any action, suit or proceeding shall be commenced, or any
claim or demand shall be asserted, in respect or which one party (the
"Indemnitee") proposes to demand indemnification under Section 12.1 or 12.2, the
party from which indemnification is sought (the "Indemnitor") shall be notified
to that effect with reasonable promptness and shall have the right to assume the
entire control of (including the selection of counsel), subject to the right of
the Indemnitee to participate (with counsel of its choice) in, the defense,
compromise or settlement thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnitee unless (a) the employment of such
counsel by the Indemnitee has been specifically authorized by the Indemnitor, or
(b) the named parties to any such action (including any impleaded parties)
include both the Indemnitee and the Indemnitor and the Indemnitee shall have
been advised by its counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
Indemnitor. The Indemnitee shall cooperate fully in all respects with the
Indemnitor in any such defense, compromise or settlement, including, without
limitation, by making available all pertinent information under its control to
the Indemnitor. The Indemnitor shall not compromise or settle any such action,
suit, proceeding, claim or demand without the prior written consent of the
Indemnitee, PROVIDED, HOWEVER, that in the event the approval described above is
withheld, then the liabilities of the Indemnitor shall be limited to the total
sum representing the amount of the proposed compromise or settlement and the
amount of counsel fees accumulated at the time such approval is withheld.
13. MISCELLANEOUS.
13.1 BROKERAGE AND FINDER'S FEES. The parties represent to and agree with
each other that no broker or finder has been or shall be involved in any manner
in the negotiation or consummation of the transactions contemplated hereby.
Seller agrees to indemnify and save Buyer harmless from and against any and all
claims, liabilities or obligations with respect to brokerage or finder's fees or
commissions in connection with the transactions contemplated by this Agreement
asserted by any person on the basis of any statement or representation made or
alleged to have been made by Seller. Buyer agrees to indemnify and save Seller
and one or more of its subsidiaries harmless from and against any and all
claims, liabilities or obligations with respect to brokerage or finder's fees or
commissions in connection with the transactions contemplated by this Agreement
asserted by any person or persons on the basis of any statement or
representation made or alleged to have been made by Buyer.
13.2 EXPENSES. Each of the parties to this Agreement shall bear all of its
own expenses incurred by it in connection with the negotiation of this Agreement
and in the consummation of the transactions provided for herein and the
preparation therefor.
13.3 RISK OF LOSS. The risk of any loss, damage, impairment,
confiscation or condemnation of the Transferred Assets or any part thereof shall
be upon Seller at all times prior to the Closing, and upon Buyer at all times
after the Closing. Prior to the Closing, in the event of any
10
<PAGE>
such loss, damage, impairment, confiscation or condemnation, the proceeds of, or
any claim for any loss payable under, Seller's insurance policy, judgment or
award with respect thereto shall be payable to Seller, and Seller shall have no
obligation to Buyer to repair, replace or restore any such property or to pay
all or any part of such proceeds to Buyer.
13.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer and Seller in this Agreement or in any instrument or
document delivered prior to or on the Closing Date shall survive for a period of
one year following the Closing.
13.5 LAW, FORUM AND JURISDICTION. This Agreement shall be construed and
interpreted in accordance with the laws of the California. Buyer and Seller
agree that any dispute arising under this Agreement, whether during the term of
the Agreement or at any subsequent time, shall be resolved exclusively in the
courts of the State of California and Buyer and Seller hereby submit to the
jurisdiction of such courts for all purposes provided herein. Buyer hereby
appoints Kenneth P. Roberts, Esq. At the office and fax number described in
Section 13.6 hereof, as Buyer's agent for service of process for all purposes
provided herein, or in the event such person shall no longer serve as such agent
for service of process, and Buyer shall not appoint another qualified person
located in the State of California, to act as agent for service of process,
Buyer shall appoint the Secretary of State of the State of California as agent
for service of process for all purposes provided herein.
13.6 NOTICES. All necessary notices or correspondence required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been properly given when hand delivered or when mailed by first class certified
mail, return receipt requested, postage prepaid, or when telecopied with a
confirmation copy hand delivered or sent by first class mail:
If to Seller: Laser Photonics, Inc.
2431 Impala Drive
Carlsbad, CA 92008
Fax: 760-602-3320
Attn: Dennis McGrath
With a copy to: Matthias & Berg LLP
1990 South Bundy Drive
Suite 790
Los Angeles, California 90025
Fax: 310-820-8313
Attn: Jeffrey P. Berg
If to Buyer: Laser Components GmbH
Werner von Siemens Strasse, 15
D-82140 Olching
Federal Republic of Germany
Fax: 49-8142-28611
Attn: Gunther Paul
11
<PAGE>
With a copy to: Kenneth P. Roberts, Esq.
6355 Topanga Canyon Blvd
Suite 403
Woodland Hills, California 91367
Fax: 818-888-2686
13.7 ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
and agreement between the parties hereto. This Agreement supersedes any and all
previous agreements, commitments and understandings among the parties hereto,
whether such agreements, commitments or understandings were oral or written, and
neither party hereto has relied or will rely on any representation of the other
except to the extent set forth herein.
13.8 HEADINGS; CONTEXT. The headings of the sections and paragraphs
contained in this Agreement are for convenience of reference only and do not
form a part hereof and in no way modify, interpret or construe the meaning of
this Agreement.
13.9 COUNTERPARTS. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
hereto and delivered to the other, and each party hereto shall have the right to
execute a signed document called for under this Agreement, including this
Agreement, by means of facsimile transmission.
13.10 BENEFIT. This Agreement shall be binding upon and shall inure only to
the benefit of the parties hereto, and their permitted assigns hereunder. This
Agreement shall not be assigned by any party without the prior written consent
of the other party.
13.11 AMENDMENT AND WAIVER. This Agreement may be amended, or any provision
of this Agreement may be waived, provided that any such amendment or waiver
shall be binding on Buyer only if such amendment or waiver is set forth in a
writing executed by Buyer, and provided that any such amendment or waiver shall
be binding on Seller only if such amendment or waiver is set forth in a writing
executed by Seller. The waiver of any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any other
breach.
13.12 PUBLIC ANNOUNCEMENTS. Except as may be required by law, neither party
shall make any public announcement or filing with respect to the transactions
provided for herein without the prior consent of the other party hereto.
13.13 FURTHER ASSURANCES. After the Closing, Buyer and Seller shall perform
such further acts as may be necessary to transfer and convey title to an
possession of the Transferred Assets to Buyer, and otherwise comply with the
terms of this Agreement. After the Closing Date, Buyer and Seller shall give to
each other, upon reasonable notice, reasonable access to all relevant books,
contracts and records concerning the Business as may be required by Buyer in its
conduct thereof or by Seller for purposes of preparation of its audited
financial statements.
12
<PAGE>
13.14 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 a court pursuant to a final
order, judgment or decree, shall pay to 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
appeal), which costs, expenses and attorneys' fees shall be included as part of
any order, judgment or decree.
13.15 SEVERABILITY. In the event that any particular provision or
provisions of this Agreement or the other agreements contained herein shall for
any reason hereafter be determined to be unenforceable, or in violation of any
law, governmental order or regulation, such unenforceability or violation shall
not affect the remaining provisions of such agreements, which shall continue in
full force and effect and be binding upon the respective parties hereto.
13.16 FAILURE OF CONDITIONS; TERMINATION. In the event any of the
conditions specified in this Agreement shall not be fulfilled on or before the
Closing Date, either Buyer or Seller have the right either to proceed or, upon
prompt written notice to the other, to terminate and rescind this Agreement
without liability to any other party. The election to proceed shall not affect
the right of such electing party reasonably to require the other party to
continue to use its efforts to fulfill the unmet conditions.
13.17 NO STRICT CONSTRUCTION. The language of this Agreement shall be
construed as a whole, according to its fair meaning and intendment, and not
strictly for or against either party hereto, regardless of who drafted or was
principally responsible for drafting the Agreement or any specific term or
conditions hereof.
13.18 EXECUTION KNOWING AND VOLUNTARY. In executing this Agreement, Buyer
and Seller severally acknowledge and represent that each: (a) has fully and
carefully read and considered this Agreement; (b) has been or has had the
opportunity to be fully apprised of his, her or its attorneys of the legal
effect and meaning of this document and all terms and conditions hereof; (c) has
been afforded the opportunity to negotiate as to any and all terms hereof; and
(d) is executing this Agreement voluntarily, free from any influence, coercion
or duress of any kind.
13.19 LITIGATION BY THIRD PARTIES. In the event that suit is brought by a
third party to enjoin or otherwise interfere with the consummation of the
transactions contemplated herein, the parties agree that the bringing of such
litigation shall not entitle any party hereto to terminate the within Agreement,
but that the parties shall bring an action for declaratory relief before a court
of competent jurisdiction and shall terminate this Agreement if such court
adjudges termination to be required by the rights of such third party.
13.20. INCORPORATION OF RECITALS. All of the recitals hereof are
incorporated by this reference and are made a part hereof as though set forth at
length herein.
13
<PAGE>
IN WITNESS WHEREOF, Seller has caused this Agreement to be duly
executed and delivered in its name and on its behalf, and each of Buyer and
Buyer has caused this Agreement to be duly executed and delivered in its name
and on its behalf, all as of the day and year first above written at Carlsbad,
California.
("LSPT")
LASER PHOTONICS, INC.
a Delaware corporation
By: /s/ Jeffrey O'Donnell
-------------------------------
Jeffrey O'Donnell, President
("LAI")
LASER ANALYTICS, INC.
a Massachusetts corporation
By: /s/ Jeffrey O'Donnell
-------------------------------
Jeffrey O'Donnell, President
("Buyer")
LASER COMPONENTS GMBH
By: /s/ Gunther Paul
-------------------------------
Gunther Paul
14
<PAGE>
REPORT AND CONSENT OF INDEPENDENT AUDITORS'
The Board of Directors
Laser Photonics, Inc. and subsidiaries
The audits referred to in our report dated February 23, 2000, except for the
last paragraph of Note 9 which is dated as of March 16, 2000, included the
related financial statement schedule as of December 31, 1999 and for each of the
years in the three-year period ended December 31, 1999 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
April 13, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,535,557
<SECURITIES> 0
<RECEIVABLES> 176,179
<ALLOWANCES> 0
<INVENTORY> 1,170,472
<CURRENT-ASSETS> 5,916,893
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,705,664
<CURRENT-LIABILITIES> 4,387,716
<BONDS> 0
0
0
<COMMON> 132,679
<OTHER-SE> 5,141,649
<TOTAL-LIABILITY-AND-EQUITY> 9,705,664
<SALES> 1,114,929
<TOTAL-REVENUES> 1,208,835
<CGS> 1,257,438
<TOTAL-COSTS> 9,265,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,999,921
<INCOME-PRETAX> (9,915,685)
<INCOME-TAX> (4,382)
<INCOME-CONTINUING> (9,920,067)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,920,067)
<EPS-BASIC> (0.89)
<EPS-DILUTED> (0.89)
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