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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from __________ to ___________
Commission file number 0-15324
EYE TECHNOLOGY, INC.
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Name of Small Business Issuer in its Charter)
Delaware 52-1402131
- -------------------------------- ---------------------
(State or Other Jurisdiction (IRS Employer ID No.)
of incorporation or organization)
1997 Sloan Place, St. Paul, Minnesota* 55117*
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code (612) 774-9060*
--------------------
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 per value
----------------------------
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X].
Issuer's revenues for its most recent fiscal year. $2,293,311
Aggregate market value of the voting stock held by non-affiliates
of the registrant as of April 6, 1998: $29,075,771
Number of shares of Common Stock, $.01 par value, outstanding as
of April 6, 1998: 53,310,591
DOCUMENTS INCORPORATED BY REFERENCE: Current Report on
Form 8-K filed on February 19, 1998, as amended on April 20, 1998
* As of February 6, 1998, the principal executive offices of the Issuer
were relocated to 16 South Market Street, Petersburg, Virginia 23803.
Telephone number, including area code, at that location is (804)
861-0681.
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This Annual Report on Form 10-KSB ("Form 10-KSB") contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
a number of known and unknown risks and uncertainties set forth throughout this
Form 10-KSB.
PART I
Item 1. Business.
General
Eye Technology, Inc. (the "Company"), founded in 1985, develops, manufactures,
sells and distributes intraocular lenses and other ophthalmic products.
Intraocular lenses ("IOLs") are medical devices implanted in the human eye by
ophthalmic surgeons to correct vision loss resulting from the removal of the
natural crystalline lens during cataract surgery. Beginning in 1992, the Company
sought to broaden its product line in the ophthalmic field. Consequently, the
Company began to market and distribute titanium diamond knives, hand-held
instruments, pachymeters and diamond knife calibration units; however, marketing
efforts were largely unsuccessfully and sales of such products in 1996 were
immaterial. As part of its efforts to diversify its product line, in 1994 the
Company acquired proprietary rights to a microlamellar keratomileusis ("MKM")
system and developed a modified version of its MKM system for a surgical
procedure known as laser assisted in-situ keratomileusis ("LASIK").
Throughout 1996, the Company had severe financial difficulties characterized by
declining revenue and a lack of working capital. As a result, operations were
contracted, an operating loss occurred, and research and development efforts to
bring on new products or to improve existing products were curtailed.
The IOL industry specifically, as well as the medical device industry in
general, is subject to significant governmental regulations, particularly by the
United States Food and Drug Administration ("FDA"). The IOL industry's pricing
policies are directly impacted by the maximum allowable charges of an IOL
implant procedure as established by the United States Health Care Financing
Administration ("HCFA").
The Company's business is not seasonal in nature.
Products
IOLs. The Company manufactures and markets eleven different series of lens
styles. These series of lenses, which incorporate over 63 lens configurations,
include both single-piece and multi-piece lens designs, blue
polymethylmethacrylate ("PMMA") loops, optics in 5.0mm, 5.5mm, 6.0mm, 6.5mm, and
7.0mm sizes, and optics of biconvex and convex-plano designs. The Company also
offers its UltraThin series, notch, double eyelet and left-handed IOLs to
address certain segments of the small incision and capsulorhexis market. Sales
of IOLs accounted for approximately 88% of net sales in 1996.
Microlamellar Keratomileusis (MKM). The 1990s has seen an increasing use in the
United States, and throughout the world, in a number of surgical procedures and
devices to correct human vision
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impairment, including myopia (nearsightedness), hyperopia (farsightedness) and
astigmatism. Such procedures including radial keratotomy ("RK"), in which
incisions are made in the cornea to flatten the anterior surface and
photorefractive keratotomy ("PRK") in which excimer or solid-state lasers are
employed to alter the surface and shape of the cornea. MKM procedure employs a
microkeratome device to remove the patient's corneal cap after which a second
resection is made in the stroma. The cap is then replaced, adhering to the eye
without the aid of sutures. LASIK is a combined procedure, utilizing a
microkeratome to make a "flap" on the cornea, folding the flap back and
employing a laser to alter the stroma, and then replacing the corneal flap to
its original position. Sales of MKM and LASIK equipment by the Company during
1996, almost all of which were export sales, accounted for approximately 12%
of all net sales of the Company.
Sales and Marketing
The Company marketed its products in the United States in 1996 through field
sales representatives to ophthalmologists, hospitals, health-care buyer groups,
outpatient clinics, health maintenance organizations and surgicenters. At
December 31, 1996, the Company had eight field sales representatives, several of
which are corporate entities employing more than one representative, compared to
thirteen representatives at December 31, 1995. All such representatives are
independent contractors of the Company and are not employees.
The Company's domestic customers generally obtain lenses on a consignment basis
with actual title passing and invoicing occurring when the lens is implanted. As
of December 31, 1996, the Company had approximately 5,000 lenses on consignment.
No single customer accounted for ten percent or more of the Company's net sales
for any of the last three fiscal years.
For international sales, the Company generally grants nonexclusive distribution
rights for specified countries or territories to independent distributors.
Exclusive distribution rights, which are rarely granted, are awarded based upon
superior performance and distribution capabilities. The Company presently
distributes its products through 15 international distributors whose agreements
are subject to renewal based on performance. Export sales in 1996 and 1995 were
$578,812 and $951,643, respectively.
Competition
The markets for the Company's products are characterized by rapidly evolving
technology and intense competition. The Company competes with major
pharmaceutical and medical device companies. Most of these companies have
substantially greater financial and other resources, larger research and
development staffs, and more extensive marketing and manufacturing organizations
than the Company.
IOLs. In 1996, the Company's competitors with respect to IOLs included Iolab,
Chiron Ophthalmics, Storz, Staar, Alcon, Allergan, and Mentor Ophthalmics, all
of which sold IOLs domestically and internationally. The Company also competed
in the United States with several small manufacturers, as well as in the
international market with several United States manufacturers who sell
exclusively in that market.
Throughout the 1990s, the use of "soft" or "foldable" IOLs has grown in
popularity among surgeons. The Company does not offer foldable lenses, which the
Company estimates comprised more than 50% of the United States IOL market in
1996.
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In the "hard" lens segment of the United States market, the Company relies upon
a varied product selection, aggressive pricing and individualized customer
service. The Company estimates that its sales of IOLs accounted for less than
one percent of the United States IOL market in 1996.
In the international market, the primary competitive factors are price and
product offerings. The fact that the Company's products are approved by the FDA
for sale in the United States is an important factor in the Company's ability to
make export sales. In 1996, international sales accounted for 24% of the total
Company's IOL sales volume on a revenue basis and 35% on a units-sold basis.
MKM and LASIK Equipment. Domestic sales of the Company's MKM and LASIK equipment
in 1996 were insignificant as lack of working capital to market and promote the
Company's products and to make desired product improvements hampered the
Company's sales efforts for this product line.
The United States domestic market was dominated in 1996 by Chiron Ophthalmics,
which has far greater financial, technical and market resources than the
Company.
Export sales of MKM and LASIK equipment in 1996 were $212,520, but the Company
does not maintain an established sales, distribution and service network in the
international market for its MKM and LASIK equipment.
FDA Regulation
The manufacture and sale of IOLs requires prior approval by the FDA of an
application for an Investigational Device Exemption ("IDE") on a parent lens.
The "Parent Lens" is the original lens involved in a patient study undertaken to
show the safety and effectiveness of the materials used in forming the lens and
the lens design. This application contains, among other things, a description of
the lens design, the materials to be used, and the proposed manufacturing
process. Upon FDA acceptance of an IDE, a company may commence sales to a group
of ophthalmologists who serve as clinical investigators for the lens (the "Core
Group"). The Core Group performs a defined number of implant procedures for each
intraocular lens style. The results of the implant procedures are then submitted
to the FDA. If the results are favorable, the FDA will permit the company on
whose behalf the IDE is filed to sell the lens on a less restricted basis. The
final stage of review involves filing an application for pre-market approval
("PMA") with the FDA. PMA is granted based on results of clinical investigations
and, if approved, allows the lens to be sold for general domestic implant
purposes. Each new lens design must comply with these procedures. (See
"Products").
FDA regulations require the Company to comply with "Good Manufacturing
Practices" ("GMPs") regarding the manufacture of IOLs and to maintain complete
traceability of each lens implanted, including pertinent information about each
patient. Any adverse reactions to an implant must be reported to the FDA.
In June 1990, the Company received pre-market approval ("PMA") on its Parent
Lens and three supplements, which included several three-piece lens designs with
PMMA loops. In September 1990, the Company received approvals for supplements on
both single-piece and biconvex lens designs introduced by the Company to address
the fastest growing segment of the IOL market, small incision products. In
September 1991, the Company's 5.0mm lens received PMA status from the FDA. As a
result of the above approvals, 90% of the Company's IOL product line has
received FDA approval.
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In March 1994, the Company acquired certain assets of a company manufacturing a
microkeratome unit under the name of MicroPrecision(TM). The assets included
patent rights and FDA 510K approval of the keratome system. These products are
manufactured under the name MicroPrecision(TM) and distributed through the
Company's domestic and international distribution networks.
Research and Development
In 1991, the Company entered into an agreement with Ronald P. Jensen, M.D., to
consult with the Company with respect to the development of viscoelastic
material whereby he granted to the Company a right of first refusal for the
development of any such viscoelastic material that may be developed by Dr.
Jensen for a five-year period beginning December 1993. The Company was required
to pay to Dr. Jensen $200,000 over such five-year period.
In 1996, the Company was not working with any viscoelastic material developed by
Dr. Jensen and was in default of its payments to Dr. Jensen. In February 1998,
the Company renegotiated its contract with Dr. Jensen, which now extends to the
year 2000 and requires further payments totaling $100,000. The Company still
does not work on any viscoelastic material developed by Dr. Jensen.
In 1995, the Company had research and development expenses totaling $167,000,
primarily for research in the fields of corneal topography, glaucoma and
soft/foldable lens technology. In 1996, due to a lack of working capital, the
Company ceased research and development activities on corneal topography and
glaucoma technologies and reduced work on soft/foldable lens technology to
in-house research which is not separately accounted for but which would be
immaterial if separately accounted for.
Product Liability
The testing, market, and sale of human health care products entail an inherent
risk of allegations of product liability. Although the Company has not incurred
any material product liability to date, whether insured or uninsured, there can
be no assurance that substantial product liability claims will not be asserted
against the Company.
In 1996, the Company allowed its product liability insurance to lapse so that
there is no insurance coverage in the event the Company is confronted with any
more product liability claims.
Raw Materials
The raw materials used by the Company in the manufacture of IOLs are cast PMMA
and extruded PMMA. (See "Products"). Although these raw materials are only
available through a limited number of suppliers, they are generally available.
The Company has an adequate supply of the PMMA materials on hand to meet
short-term production requirements and does not anticipate that the availability
of PMMA will restrict its ability to meet production demands.
Patents, Trademarks, and Licenses
The Company is not reliant upon patent protection for the marketing of its IOLs
and believes that its ability to effectively compete in the IOL marketplace is
dependent upon other factors. (See "Competition"). There are no patents,
trademarks, or licenses which are material to the business and
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operations of the Company, except its approvals from the FDA to market IOLs in
the United States (See "FDA Regulation").
Employees
As of December 31, 1996, the Company had 12 full-time employees in the United
States. The Company also employed 32 full-time employees in its Mexicali, Mexico
facility.
Item 2. Properties.
In 1996, the Company's executive, manufacturing, and administrative offices were
located in approximately 19,500 square feet of leased office space in St. Paul,
Minnesota. The Company also leased 7,400 square feet in a building located in
Mexicali, Mexico for use as a manufacturing plant pursuant to the Maquiladora
program administered by the United States and Mexican governments. In general,
all of the Company's premises are nearly fully utilized and considered to be in
good condition and adequate for the purposes for which they are being used.
Item 3. Legal Proceedings.
The Company was a defendant in 1996 in several lawsuits brought by creditors of
the Company to collect monies due and payable by the Company, including the
following:
Dr. Ronald P. Jensen brought suit in 1996 in the United States District
Court for the Central District of California for breach of a consulting
contract, claiming damages of $111,000 plus interest and costs. The
suit was settled in February 1998 in the amount of $25,000 plus a
renegotiated consulting arrangement providing for the payment by the
Company of $100,000 over a two-year period beginning June 1, 1998.
Dr. Richard Lindstrom brought suit in 1996 in the District Court,
Second Judicial District, County of Ramsey, Minnesota, against the
Company alleging breach of agreement of the Company arising out of
payments due to Dr. Lindstrom and a leasing company for the lease of
equipment by the Company. Plaintiff sought damages in excess of
$50,000. The matter was settled in June 1997 through the provision of
IOLs to Dr. Lindstrom in lieu of cash payments.
James A. Greiling and Laurie S. Callerstom, former employees and
officers of the Company, together brought suit against the Company in
1996 in the District Court, Second Judicial District, County of Ramsey,
Minnesota, claiming unpaid salary, interest and certain unreimbursed
expenses. The matter was settled in 1996 and all amounts due
thereunder were paid in full.
The law firm of Christie, Parker & Hale brought suit in 1996 against
the Company to collect legal fees owing to it in connection with that
law firm's representation of the Company in a patent infringement suit
against the Company that was settled in 1995. The suit was entered in
the Superior Court of California, County of Los Angeles. Default
judgment in the amount of approximately $43,000 was entered against the
Company in 1996. Christie, Parker & Hale has agreed to forego action
against the Company on its judgment as long as the Company remains
current on a schedule of payments totaling $43,000, agreed upon by the
parties. As of
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April 1998, the Company was current in its payment schedule.
In September 1996, Dr. Samuel Yankelove brought suit against the Company in the
164th Judicial District Court of Harris County, Texas, claiming damages for an
alleged defective item of equipment sold by the Company to Dr. Yankelove. In
March 1998, the Company entered into an Agreed Judgment with the plaintiff
providing for the payment by the Company of $30,000 over more than a three-year
period.
There are several other lawsuits pending against the Company which individually
or in the aggregate are not material to the business or financial condition of
the Company either because the amounts are not material or the liability is
covered by applicable insurance.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this Report.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Common Stock of the Company is traded in the Over-The-Counter ("OTC") market
and is quoted on the National Service "Pink Sheets". Set forth below are the
high and low bid prices (which reflect prices between dealers and do not include
retail markup, markdown or commission and may not represent actual transactions)
for each full quarterly period during 1995 and 1996 as reported by the National
Quotation Bureau. From time to time, during the periods indicated, trading
activity in the Company's stock was infrequent. No dividends have ever been
declared by the Company. As of April 10, 1998 there were approximately 570
record holders of the Company's Common Stock.
<TABLE>
<CAPTION>
Period High Bid Low Bid
------ -------- -------
<S> <C> <C>
Quarter Ended:
03-31-95 $0.50 $0.50
06-30-95 $0.16 $0.16
09-30-95 $0.14 $0.125
12-31-95 $0.125 $0.125
03-31-96 $0.125 $0.125
06-30-96 $1.0625 $0.125
09-30-96 $0.75 $0.40625
12-31-96 $0.40625 $0.09375
</TABLE>
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Item 6. Management's Discussion and Analysis or Plan of Operation.
Liquidity and Capital Resources
The Company incurred substantial losses since the beginning of the 1994
fiscal/calendar year and throughout 1995 and 1996 had a net capital deficiency.
As a result, the Company experienced severe working capital shortages in 1996,
was compelled to curtail or reduce marketing and sales promotion and new product
development activities, and was in default of several contractual obligations
which threatened the ability of the Company to continue operations.
The Company was unable in 1996 to raise equity capital or to restructure its
debt obligations to provide relief to its liquidity shortages, a situation which
continued through 1997 and into early 1998 until it entered into a "reverse
acquisition" transaction with Star Tobacco and Pharmaceuticals, Inc. (see the
Company's Current Report on Form 8-K dated February 19, 1998, filed with the
Securities and Exchange Commission).
Results of Operations - Fiscal 1996 Compared to Fiscal 1995
Net sales for the year ended December 31, 1996 were $2,293,311, a decrease of
$1,871,676 (45%) from sales of $4,164,987 for the year ended December 31, 1995.
In 1996, 75% of the Company's sales were in the domestic market and 25% were
in the international market. This compares to a market mix of 77% domestic sales
and 23% international sales in 1995.
Sales of IOLs comprised 88% of net sales in 1996, with the balance of sales
being primarily MKM and LASIK equipment. This is the same percentage as in 1995.
In 1996, industry-wide pricing pressures were reflected in a decrease in the
average unit price per domestic sale of approximately 6% from 1995. Unit sales
in the United States also decreased from 1995 by approximately 41%, reflecting
continuing industry trend of greater sales of soft/foldable lenses, which the
Company does not offer, as well as the Company's lack of working capital to
provide marketing and sales support for its independent sales force. The
Company's unit sales in the United States were also adversely affected by a
reduction in the number of sales representatives soliciting sales of the
Company's products.
Sales of MKM and LASIK equipment declined 49% in 1996 from 1995, or from
$541,000 to $275,000. The decline is principally attributable to the inability
of the Company to conduct sales promotion activities, such as skills transfer
courses, and to provide product design improvements in both cases due to a lack
of working capital funds. More than 95% of net sales of this equipment in 1996
reflects export sales, compared to approximately 45% in 1995.
Gross profit, as a percentage of net sales, decreased to 65% in 1996 from 66% in
1995. The slight decrease is attributable to a continuing erosion of per unit
prices of IOLs only partially offset by a greater proportion of IOL sales in the
domestic market for which the gross margin is higher than for export sales.
Selling and marketing expenses decreased to 27% of net sales in 1996 from 40%
of net sales in 1995, due primarily to sharply lower marketing expenses, due to
the Company's lack of working capital, and to slightly lower commission rates.
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General and administrative expenses were 46% of net sales in 1996 compared to
33% of net sales in 1995. As sales volume decreased dramatically during 1996,
the Company was not able to reduce its general and administrative expenses at
the same rate. In addition, fixed costs, such as rent, became a larger
percentage when juxtaposed against sales revenue.
Research and development expense decreased from $144,627 in 1995 to $24,530 in
1996. Because of a severe lack of working capital, the Company abandoned, in
late 1995 and early 1996, research and development projects related to potential
new products in the fields of corneal topography and glaucoma. A project to
develop a soft/foldable IOL was significantly cut back and only relatively
immaterial expense was incurred on this project in 1996, which expense was
accounted for as manufacturing labor.
Interest expense declined from $196,760 in 1995 to $144,627 in 1996. In both
years, the amount of borrowed debt of the Company was related principally to
accounts receivable which were lower throughout 1996 compared to 1995 because of
lower sales, resulting in lower interest accruals. The decrease in interest on
borrowed debt was only partially offset by a higher amount of interest incurred
with respect to certain past due obligations to creditors who charged interest
on past due amounts.
Net loss in 1996 was $213,816 compared to net loss of $992,573 in 1995. The
decline was due primarily to the factors noted above. Also in 1995, the Company
suffered losses of $369,088 relating to a joint venture for the development of
corneal topography technology and representing a complete write-off of the
Company's investment in the joint venture. 1996 results were favorably impacted
by a judgment of $161,053 received by the Company in a lawsuit against a
competitor for wrongful product disparagement, offset by approximately $105,000
incurred for legal fees.
Item 7. Financial Statements.
An index to the financial statements filed as part of this report appears at
Page F-1. The financial statements appear at Pages F-2 through F-12 of this
Report.
This Report does not include any report of independent auditors with respect to
the Company's consolidated balance sheet at December 31, 1995, and related
statement of operations, of shareholders' (deficit) equity and of cash flows for
the year then ended, as required by the rules and regulations of the Securities
and Exchange Commission with respect to Annual Reports on Form 10-KSB. Such
financial statements were filed with the Company's Annual Report on Form 10-KSB
for its fiscal year ended December 31, 1995, including a report of independent
auditors therein. The Company is not aware of any matters which would cause it
to modify any of such financial statements.
Item 8. Changes in and Disagreements with Accountants and Financial Disclosure.
On December 19, 1996, Price Waterhouse LLP ("Former Auditors") resigned as the
Company's independent accountant. In its reports for the Company's 1995 and 1994
fiscal years, the Former Auditors expressed "substantial doubt about the
Company's ability to continue as a going concern." During the 1995 and 1994
fiscal years and the interim period through December 19, 1996, there were no
disagreements between the Company and the Former Accountant on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure,
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which disagreement, if not resolved to their satisfaction, would have caused
them to make reference in connection with their opinion to the subject matter of
the disagreement.
On March 5, 1998, the Board of Directors of the Company engaged Olsen, Thielen &
Co., Ltd. ("New Auditors") as the Company's new independent auditors to audit
the Company's financial statements for the years ended December 31, 1996 and
December 31, 1997. The Company had not, prior to such engagement, consulted the
New Auditors regarding any financial statement matters, or otherwise, of the
Company.
PART III
Item 9. Directors and Executive Officers of the Registrants.
Following is a list that sets forth the names, ages, and positions (a) of all
executive officers, significant personnel, and directors as of April 15, 1998,
of the Company and of Star Tobacco and Pharmaceuticals, Inc. ("Star"), the
Company's subsidiary acquired by the Company on February 6, 1998, and (b) all
executive officers and directors of the Company during the 1996 fiscal year of
the Company:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Samuel P. Sears, Jr. 54 Chairman of the Board(1), Chief Executive
Officer(1), and Director of the Company
and of Star
John M. Gallahan 42 President, Chief Operating Officer, and
Director of Star and Director of the
Company(1)
Robert J. Fitzsimmons 61 President and Director of the Company;
Chairman of the Board and Chief Executive
Officer of the Company until February 6,
1998
Jonnie R. Williams 42 Director of Product Development and
Director of Marketing of Star
Robert J. DeLorenzo, M.D., 50 Director of the Company and Medical
Ph.D., M.P.H. Research Director of Star
Larry Leiske, M.D. 60 Director of the Company until February 5,
1998
Paul H. Lamb, III 65 Director of Star
Debra McCoy Seagrist 39 Vice President - Product Development of
the Company until August 1997
</TABLE>
(1) elected to such position on February 6, 1998
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All Directors hold office until the next annual meeting of stockholders or until
their successors are elected. Officers serve at the discretion of the Board of
Directors. As of April 15, 1998, neither the Company nor Star had any employment
agreements.
Samuel P. Sears, Jr. has been Chairman, Chief Executive Officer, and Director of
Star since September 1994. He has been a Director of the Company since 1985, and
its Chairman and Chief Executive Officer since February 6, 1998. From April 1993
to September 1994, Mr. Sears was "Of Counsel" to the New York law firm of
LeBouef, Lamb, Green & MacRae. Prior to April 1993, Mr. Sears was Managing
Partner of the Boston law firm of Burns & Levinson.
John M. Gallahan has been President, Chief Operating Officer, and a Director of
Star since October 1995. From 1991 to 1995, he was Vice President, Air Express
International Corporation, of Darien, Connecticut. Mr. Gallahan became a
Director of the Company on February 6, 1998.
Robert J. Fitzsimmons has been President and a Director of the Company since
1985. For at least five years prior to February 6, 1998, Mr. Fitzsimmons was
also Chairman and Chief Executive Officer of the Company.
Jonnie R. Williams has been Director of Product Development and Director of
Marketing of Star since 1994. Mr. Williams is a principal stockholder of the
Company and, until February 6, 1998, when the Company acquired all of the
capital stock of Star, was a principal stockholder of Star. While not holding a
position as Director or other officer position of the Company or Star, Mr.
Williams exercises significant control over, and spends substantial amounts of
business time to, the affairs of the Company and Star, and is considered a key
executive and a controlling person of the Company. Since the late 1980s, Mr.
Williams has been owner and President of Jonnie R. Williams Venture Capital
Company, an entity engaged in providing venture capital financing to start-up
businesses.
Robert J. DeLorenzo, M.D., Ph.D., M.P.H., became a Director of the Company on
February 17, 1998, as well as its Medical Research Director. From 1985 to
present, Dr. DeLorenzo has been: George B. Bliley III Professor and Chairman,
Department of Neurology, Medical College of Virginia, Richmond, Virginia
("MCV"); Professor, Department of Pharmacology at MCV; Neurologist-in-Chief, MCV
Hospitals; and (since 1986) Director, Molecular Neurobiology Research Facility
at MCV.
Larry Leiske, M.D., was a Director of the Company from 1987 until February 6,
1998. Dr. Leiske has been in the private practice of ophthalmology since 1967
and has held teaching positions at the University of Southern California School
of Medicine and the White Memorial Medical Center.
Paul H. Lamb III has been a Director of Star since 1990. Mr. Lamb has acted as a
key advisor to Star on matters pertaining to tobacco products for at least the
past five years.
Debra McCoy Seagrist resigned as Vice President - Product Development of the
Company in August 1997, a position she had held for at least the five previous
years.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than 10% of a registered class
of the Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Officers,
directors and greater than 10% beneficial owners are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of the forms furnished to the Company, or
written representations that no Forms 5 were required, the Company believes
that during the fiscal year ended December 31, 1996 all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.
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Item 10. Executive Compensation.
The following table sets forth certain information concerning compensation paid
and accrued to the Chief Executive Officer of the Company for the three fiscal
years ended December 31, 1997. The Chief Executive Officer was the only
executive officer or significant employee whose annual compensation exceeded
$100,000 in any of such fiscal years.
<TABLE>
<CAPTION>
Annual Annual Compensation All Other
Individual Compensation Paid Accrued But Not Paid Compensation
- ---------- ----------------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Robert J. Fitzsimmons
Chairman of the Board, 1995 - $179,156 1995 - $ -- 1995 - (2)
President and Chief Executive 1996 - $103,179 1996 - $ 58,831(1) 1996 - 15,706
Officer 1997 - $ 15,456 1997 - $147,619(1) 1997 - 15,706
</TABLE>
(1) See "Item 12. Certain Relationships and Related Transactions"
below regarding the issue to Mr. Fitzsimmons of shares of Common
Stock of the Company in partial consideration of the cancellation
of indebtedness of the Company to Mr. Fitzsimmons, including
indebtedness for accrued compensation set forth in the above
table.
(2) Less than 10% of compensation paid for year.
The Company entered into a five-year employment agreement with Robert J.
Fitzsimmons on November 1, 1989, which provided that Mr. Fitzsimmons would serve
as Chief Executive Officer of the Company at an annual salary of $120,000
subject to increase by the Board of Directors. Such agreement was renewed for an
additional five-year term beginning November 1, 1994. Mr. Fitzsimmons' annual
salary was increased twice by the Board, once in 1990 and again in 1991, to a
level of $192,000. Mr. Fitzsimmons' employment agreement provided that, in the
event of a hostile change in control of the Company, and in the event Mr.
Fitzsimmons' employment was terminated as a result thereof, the Company was
obligated to make a cash payment to Mr. Fitzsimmons totaling 299.99% of his
average annual base salary during the five-year period prior to termination.
This employment agreement was canceled on February 6, 1998, with Mr. Fitzsimmons
releasing the Company from any liability under the agreement in consideration
for the issue of shares of Common Stock of the Company to Mr. Fitzsimmons. (See
"Item 12. Certain Relationships and Related Transactions" below.)
In 1994, Mr. Fitzsimmons was granted an option to acquire 150,000 shares of
Common Stock at an exercise price of $0.50 per share. The option was exercisable
with respect to 50,000 shares at year end. The option was due to expire on
February 28, 1999. As of year end, the option was out-of-the-money. No options
were granted to Mr. Fitzsimmons in 1996. See "Certain Relationships and Related
Transactions."
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of March 30, 1998, certain information with
respect to the beneficial ownership of the Company's Common Stock and the
Company's Series B Preferred Stock by each beneficial owner of more than 5% of
the Company's Common Stock, each Director of the Company, and all Directors and
Officers and significant personnel of the Company and of Star as a group.
<TABLE>
<CAPTION>
Percentage
Percentage of of Voting
Voting Rights of
Rights of Securities
Securities Owned if All
Owned Prior Shares of
Amount of Percentage to Conversion Series B
Name and Address Amount of Series B of Series B of Series B Preferred
of Individual or Identity Common Preferred Preferred Preferred Stock are
of Group Stock(1) Stock(1) Stock Stock(1) Converted(1)
- ------------------------- ---------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Jonnie R. Williams.............. 42,498,890(2)(3) 12,956,979(2)(3) 93.7 44.7 79.7
16 S. Market Street
Petersburg, VA 23803
Francis E. O'Donnell,
Jr., M.D. .................... 42,498,890(2)(4) 12,956,979(2)(4) 93.7 44.7 79.7
709 The Hamptons Lane
Chesterfield, MO 63017
Robert J. Fitzsimmons........... 1,152,281 -0- -0- 7.9 2.2
1997 Sloan Place
St. Paul, MN 55117
Samuel P. Sears, Jr............. 440,600 60.9756 .4 1.9 .8
16 S. Market Street
Petersburg, VA 23803
Robert J. DeLorenzo, M.D.,
Ph.D., M.P.H. ................ 500,000 60.9756 .4 2.3 .9
Medical College of Virginia
MCV Box 980599
Richmond, VA 23298
John M. Gallahan................ 200,000 60.9756 .4 .2 .4
16 S. Market Street
Petersburg, VA 23803
All Directors and............... 44,791,177 13,139.904 95.0 57.0 84.0
Officers and Significant
Personnel
</TABLE>
- ------------------
(1) Shares of Series B Preferred Stock are convertible into shares of Common
Stock at the rate of 3,280 shares of Common Stock for each share of Series
B Preferred Stock. Consequently, shares of Common Stock shown in the table
include shares of Common Stock into which the shares of Series B Preferred
Stock are convertible. Shares of Common Stock, Class A Preferred Stock and
Series B Preferred Stock all vote as one class. Holders of Common Stock
are entitled to one vote for each share held, and holders of Series B
Preferred Stock are entitled to five hundred votes for each share held.
(2) Includes 11,573.8311 shares of Series B Preferred Stock, convertible
into 37,962,166 shares of Common Stock, owned of record by Regent Court
Partnership, a general partnership of which Jonnie R. Williams and Francis
E. O'Donnell, Jr., are the sole partners.
(3) Includes 691.5740 shares of Series B Preferred Stock, convertible into
2,268,362 shares of Common Stock, owned by a trust for the benefit of the
children of Jonnie R. Williams. Mr. Williams disclaims beneficial
ownership of these shares.
(4) Includes 691.5740 shares of Series B Preferred Stock, convertible into
2,268,362 shares of Common Stock, owned by a trust for the benefit of the
descendants of Francis E. O'Donnell, Jr. Also includes 691.5740 shares of
Series B Preferred Stock, convertible into 2,268,362 shares of Common
Stock, owned by trusts of which Dr. O'Donnell is trustee but in which
neither he nor any member of his family has a beneficial interest. Dr.
O'Donnell disclaims any beneficial interest in such shares.
Item 12. Certain Relationships and Related Transactions.
Throughout 1996, the Company owed Robert J. Fitzsimmons, Chairman of the Board,
President and Chief Executive Officer of the Company during that year, the sum
of $172,500 plus accrued interest in consideration for loans provided by Mr.
Fitzsimmons in March 1994 and April 1995. The sums bear interest at two percent
(2%) in excess of the prime rate. At December 31, 1996, the amount of accrued
interest was $48,343.
12
<PAGE> 13
In February 1994, the Company issued to Mr. Fitzsimmons a stock option to
acquire 150,000 shares of Common Stock at $0.50 per share. The option was due to
expire on February 28, 1999. On February 5, 1998, 50,000 of such shares were
exercisable and options to purchase 100,000 shares were exercisable only upon
satisfaction of certain conditions which had not yet occurred. On February 6,
1998, the Company agreed to issue to Mr. Fitzsimmons a total of 887,500 shares
of Common Stock of the Company in consideration for (i) cancellation of
indebtedness of the Company to Mr. Fitzsimmons for unpaid compensation and for
the loans of Mr. Fitzsimmons to the Company in the aggregate amount at February
6, 1998 of $378,950, (ii) the mutual termination of Mr. Fitzsimmons' employment
contract with the Company (See "Item 10. Executive Compensation" above), and
(iii) cancellation of options held by Mr. Fitzsimmons to purchase shares of
Common Stock of the Company, as described above.
Samuel P. Sears, Jr., a Director of the Company and, effective February 6, 1998,
Chairman and Chief Executive Officer of the Company, provided legal services to
the Company during 1995 and 1996. Fees payable to Mr. Sears for such services
for those years were $38,175 and $500, respectively. As of December 31, 1996,
Mr. Sears was owed a total of $56,332 for legal services. In February 1998, Mr.
Sears received a total of 225,300 shares of Common Stock in consideration of
cancellation of such indebtedness.
In November 1993, the Company issued to Mr. Sears a stock option to acquire
50,000 shares of Common Stock at $0.50 per share in recognition of his services
as a Director and counsel to the Company since 1985. The option was due to
expire on January 31, 2001. On February 6, 1998, the Company issued to Mr. Sears
15,000 shares of Common Stock of the Company in consideration of the
cancellation of his stock option.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
An index to exhibits filed as part of this Report or
incorporated herein by reference appears at Pages 15 to
18 of this Report.
(b) Reports on Form 8-K
Not applicable.
13
<PAGE> 14
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EYE TECHNOLOGY, INC.
(Registrant)
By: /s/ SAMUEL P. SEARS, JR.
----------------------------------------------------------------------------
Dated: April 20, 1998 Samuel P. Sears, Jr., Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ JOHN M. GALLAHAN
----------------------------------------------------------------------------
Dated: April 20, 1998 John M. Gallahan, Director
By: /s/ ROBERT J. FITZSIMMONS
----------------------------------------------------------------------------
Dated: April 20, 1998 Robert J. Fitzsimmons, Director
By: /s/ SAMUEL P. SEARS, JR.
----------------------------------------------------------------------------
Dated: April 20, 1998 Samuel P. Sears, Jr., Director
14
<PAGE> 15
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
1. Independent Auditors' Report F-2
2. Consolidated Balance Sheet - December 31, 1996 and 1995 F-3
3. Consolidated Statement of Operations
for the Two Years Ended December 31, 1996 F-4
4. Consolidated Statement of Stockholders' Deficit
for the Two Years Ended December 31, 1996 F-5
5. Consolidated Statement of Cash Flows
for the Two Years Ended December 31, 1996 F-6
6. Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Eye Technology, Inc.
St. Paul, Minnesota
We have audited the accompanying consolidated balance sheet of Eye Technology,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides 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 Eye Technology, Inc.
and subsidiaries as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
St. Paul, Minnesota /s/ OLSEN THIELEN & CO., LTD.
April 13, 1998
F-2
<PAGE> 17
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
(1995 is not covered by Independent Auditors' Report)
================================================================================
<TABLE>
<CAPTION>
ASSETS
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 64,266 $ 5,649
Accounts Receivable, Net of Allowance for Doubtful
Accounts of $180,000 and $107,000 102,623 472,695
Inventories 1,049,257 1,085,867
Prepaid Expenses and Other 4,413 39,781
----------- -----------
Total Current Assets 1,220,559 1,603,992
----------- -----------
PROPERTY AND EQUIPMENT:
Machinery and Equipment 498,516 641,080
Furniture and Fixtures 272,040 272,158
Leasehold Improvements 39,838 39,838
----------- -----------
Total 810,394 953,076
Less Accumulated Depreciation 733,389 859,108
----------- -----------
Net Property and Equipment 77,005 93,968
----------- -----------
OTHER ASSETS
Purchased Technology 414,434 635,508
Other 23,225 25,009
----------- -----------
Total Other Assets 437,659 660,517
----------- -----------
TOTAL ASSETS $ 1,735,223 $ 2,358,477
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes Payable to Related Party $ 172,500 $ 152,000
Current Portion of Long-Term Debt 796,520 897,480
Accounts Payable 405,399 598,306
Accrued Professional Fees 491,477 466,664
Accrued Compensation 124,517 151,647
Accrued Commissions 153,575 202,596
Other Accrued Liabilities 219,271 230,049
----------- -----------
Total Current Liabilities 2,363,259 2,698,742
----------- -----------
LONG-TERM DEBT -- 73,920
----------- -----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK, Class A, Convertible,
2,570 shares issued and outstanding at liquidation value 257,000 257,000
----------- -----------
STOCKHOLDERS' DEFICIT:
Common Stock, $.01 par value, 10,000,000 shares authorized 3,435,190
and 3,438,656 shares issued and outstanding, respectively 34,352 34,387
Additional Paid-In Capital 8,777,505 8,777,505
Accumulated Deficit (9,696,893) (9,483,077)
----------- -----------
Total Stockholders' Deficit (885,036) (671,185)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,735,223 $ 2,358,477
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 18
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(1995 is not covered by Independent Auditors' Report)
================================================================================
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
SALES $ 2,293,311 $ 4,164,987
COST OF GOODS SOLD 810,373 1,436,262
----------- -----------
GROSS PROFIT 1,482,938 2,728,725
----------- -----------
OPERATING EXPENSES:
Selling and Marketing 612,974 1,652,014
General and Administrative 1,044,289 1,356,005
Research and Development 24,530 166,798
----------- -----------
Total Operating Expenses 1,681,793 3,174,817
----------- -----------
LOSS FROM OPERATIONS (198,855) (446,092)
----------- -----------
OTHER INCOME (EXPENSES):
Write-off of Investment in Joint Venture -- (274,422)
Equity in Loss of Joint Venture -- (94,666)
Litigation Settlement 161,053 --
Interest Expense (144,627) (196,760)
Other (31,387) 19,367
----------- -----------
Total Other Income (Expenses) (14,961) (546,481)
----------- -----------
NET LOSS $ (213,816) $ (992,573)
=========== ===========
BASIC AND DILUTED NET LOSS PER SHARE $ (.06) $ (.29)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,436,923 3,418,406
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 19
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1996 AND 1995
(1995 is not covered by Independent Auditors' Report)
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-In Accumulated
Shares Amount Capital Deficit
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
BALANCE on December 31, 1994 3,401,156 $ 34,012 $8,727,880 $(8,490,504)
Issuance of Common Stock for
Accrued Liability 37,500 375 49,625
Net Loss (992,573)
---------- -------- ---------- -----------
BALANCE on December 31, 1995 3,438,656 34,387 8,777,505 (9,483,077)
Stock Cancelled (3,466) (35)
Net Loss (213,816)
---------- -------- ---------- -----------
BALANCE on December 31, 1996 3,435,190 $ 34,352 $8,777,505 $(9,696,893)
========== ======== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 20
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(1995 is not covered by Independent Auditors' Report)
================================================================================
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(213,816) $(992,573)
Adjustments to Reconcile Net Loss to Net Cash
Provided By Operating Activities:
Depreciation and Amortization 236,884 197,198
Write-off of Investment in Joint Venture -- 274,422
Equity in Loss of Joint Venture -- 94,666
Gain on Disposal of Property and Equipment (8,847) (4,000)
(Increase) Decrease In:
Accounts Receivable 370,072 325,586
Inventories 36,610 225,172
Prepaid Expenses and Other 37,152 12,071
Increase (Decrease) In:
Accounts Payable and Accrued Liabilities (255,023) 239,930
--------- ---------
Net Cash Provided By Operating Activities 203,032 372,472
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment -- (10,075)
Proceeds Received on Sale of Equipment 10,000 4,000
--------- ---------
Net Cash Provided By (Used In) Investing Activities 10,000 (6,075)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Long-Term Debt and Notes Payable 516,832 53,587
Principal Payments on Long-Term Debt and Notes Payable (671,212) (556,961)
Common Stock Cancelled (35) --
--------- ---------
Net Cash Used In Financing Activities (154,415) (503,374)
--------- ---------
NET INCREASE (DECREASE) IN CASH 58,617 (136,977)
CASH at Beginning of Year 5,649 142,626
--------- ---------
CASH at End of Year $ 64,266 $ 5,649
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid $ 87,399 $ 165,319
Non Cash Transactions:
Debt Issued for Accounts Payable -- 50,000
Debt Issued for Accrued Liabilities -- 150,952
Common Stock Issued for Accrued Liabilities -- 50,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 21
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1995 information is not covered by Independent Auditors' Report)
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Nature of Business - Eye Technology, Inc. (the Company) researches, designs,
develops, manufactures and sells intraocular lenses and other ophthalmic
products. Export sales in 1996 and 1995 were approximately $579,000 and
$952,000. No one geographical area was significant. No customer accounted for
10% or more of the Company's net sales during any of the periods presented.
B. Operations and Cash Flow - As reflected in the accompanying consolidated
financial statements, the Company has incurred losses from operations and has a
net capital deficiency. In addition, the limited availability of additional
working capital indicates uncertainty as to whether current financing
arrangements will be sufficient to fund current operations and financial
commitments. The Company has significant current debt obligations and is in
default under these debt obligations which gives the lenders the right to call
the obligations at their discretion. The Company also is in technical default on
its obligations in conjunction with the purchase of technology (See Note 6).
Management continues to pursue various financing alternatives, and is in the
process of raising additional capital which it believes will be sufficient for
the Company to continue normal operations. In addition, the shareholders of the
Company have agreed to financially support the operations of the entity and
believe they have the ability to do so.
C. Consolidation - The accompanying consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly-owned.
All intercompany accounts and transactions have been eliminated in
consolidation.
D. Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
E. Fair Value of Financial Instruments - The Company's financial instruments
consist of cash, short-term trade receivables and payables for which the current
carrying amounts approximate fair market value. Additionally, the borrowing
rates currently available to the Company approximate the rates for debt
agreements with similar terms and average maturities.
F. Inventories - Inventories are recorded at the lower of first-in, first-out
cost or market. Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw Materials $ 5,626 $ 25,052
Work in Process 471,135 373,576
Finished Goods 572,496 687,239
---------- ----------
$1,049,257 $1,085,867
========== ==========
</TABLE>
F-7
<PAGE> 22
G. Property and Equipment - Property and equipment are recorded at cost.
Additions, improvements or major renewals are capitalized. Any gains or losses
on property and equipment retirements are reflected in the current year's
operations. Depreciation is computed using the straight-line method over
estimated useful lives as follows:
Machinery and equipment 10 years
Furniture and fixtures 3 to 5 years
Leasehold improvements Term of lease
H. Research and Development Costs - Research and development costs are expensed.
I. Purchased Technology - The Company acquired technology in 1994 (See Note 6).
As the result of industry advances, this technology is becoming outdated more
rapidly than originally estimated, and sales volumes are not meeting original
expectations. The Company has evaluated its investment in this technology and
reduced its estimated life from 10 years to 3 years beginning in 1996.
Amortization expense included on the statement of operations was $221,075 in
1996 and $70,901 in 1995. Accumulated amortization was $291,976 and $70,901 as
of December 31, 1996 and 1995.
J. Revenue Recognition - For domestic intraocular lens sales, which are
regulated by the Food and Drug Administration, the Company generally recognizes
revenue after the intraocular lenses have been surgically implanted and
notification has been received from the physician or institution. For
international sales, which are not regulated by the FDA, the Company recognizes
revenue when the lenses are shipped. The Company generally recognizes revenue on
equipment sales upon shipment of the product.
K. Loss Per Common Share - Net loss per common share is computed under the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share". The Statement requires the Company to present its net income per share
in basic and diluted forms and to restate net income per share from prior
periods to conform with the new statements. No restatement of prior earnings per
share was necessary. Basic loss per common share is computed by dividing net
loss by the weighted average number of common shares outstanding during the
period. Diluted loss per common share includes the dilutive effect of potential
common shares outstanding. The Company's potential common shares outstanding
include stock options and preferred stock. Basic and diluted earnings per share
were the same in 1996 and in 1995 because all potential common shares were
antidilutive for both years.
NOTE 2 - LONG-TERM DEBT AND CREDIT FACILITY
Long-term debt and credit facility obligations consisted of the following:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Line of credit facility with a finance company, which provides for
borrowings determined periodically based on contractual percentages of
accounts receivable and inventories, as defined in the loan agreement.
Borrowings under the credit facility are payable on demand and bear
interest at the bank's reference rate plus six percent (14.50% at December
31, 1996). In February 1997 this agreement was terminated. $ 450,354 $ 577,252
</TABLE>
F-8
<PAGE> 23
<TABLE>
<S> <C> <C>
Obligations in conjunction with settlement of a lawsuit, payable in various
monthly and quarterly installments through May 1997, with 10% to 13%
interest. This obligation is callable by the holder due to the Company's
default on scheduled installments. $ 101,258 $ 101,258
Obligation in conjunction with technology purchase, payable in monthly
installments through May 1996, with 12% interest. Secured by purchased
technology (See Note 6). This obligation is callable by the holder and
subject to surrender of purchased technology due to the Company's default
on scheduled installments. 84,804 106,047
Unsecured note payable to a partnership in monthly installments of $2,350,
through June 1996, with 8% interest. This obligation is callable by the
holder due to the Company's default on scheduled monthly installments. 72,164 72,164
Obligation to a finance company, payable in monthly payments of $2,499 and
$1,169 through December 1996 with 9% and 13% interest. This obligation is
callable by the holder due to the Company's default on scheduled installments. 42,886 42,282
Term note payable to bank. 22,917 47,917
Contracts payable in various monthly installments with 8% to 8.5% interest.
Collateralized by equipment. 22,137 24,480
--------- --------
Total 796,520 971,400
Less: Current Portion (796,520) (897,480)
--------- --------
Long-Term Debt $ - $ 73,920
========= ========
</TABLE>
NOTE 3 - NOTES PAYABLE TO RELATED PARTY
The Company has various unsecured notes payable to an officer/shareholder. The
notes are due on demand with interest at 2% in excess of the prime rate (8.5% at
December 31, 1996).
NOTE 4 - JOINT VENTURE AGREEMENT
In 1992, the Company entered into a joint venture agreement to finance the
completion of a laser corneal mapping system. The Company received a 33% equity
interest in the joint venture. The Company has accounted for its investment
under the equity method of accounting whereby the Company has recognized its
share of the operating results of the joint
F-9
<PAGE> 24
venture as a component of its operations. During the fourth quarter of 1995 the
Company determined that the cost to further develop and promote the product was
in excess of future benefits and abandoned its efforts relating to this joint
venture. Accordingly, the Company wrote off $274,422 of remaining joint venture
interest, which principally represented the Company's unamortized cost in excess
of the investee's tangible net assets (goodwill) which was being amortized over
a ten year period.
NOTE 5 - PREFERRED STOCK AND STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has 100,000 shares of $.01 par value preferred stock authorized
which includes 4,000 shares of Class A Convertible Redeemable preferred stock.
During May 1993, the Company sold 2,000 shares of Class A Convertible Redeemable
Preferred Stock for $100 per share and issued 570 shares to retire debt. Each
share of the Preferred Stock is convertible into 80 shares of common stock of
the Company at the option of the holder. The Preferred Stock has the right to
share in dividends declared on the Company's common stock and has certain
liquidation preferences.
The Preferred Stock must be redeemed by the Company on June 30, 2000 at $100 per
share. In addition, redemption of the Preferred Stock may be accelerated, at the
option of the holder or the Company, subject to the Company receiving cumulative
proceeds from the sale of shares of qualifying capital stock, as defined, of not
less than $500,000. In the event of acceleration, the Preferred Stock would be
redeemable at a price of $120 per share through July 1, 1994, and increasing at
a rate of 8% each July 1 thereafter. The carrying value of the Preferred Stock
does not include the potential additional acceleration premium as the Company
has not sold this level of qualifying capital stock. Had accelerated redemption
been required, the carrying value of the Preferred Stock would be $388,584 and
$359,800 at December 31, 1996 and 1995.
COMMON STOCK
The Company has reserved up to 40,000 shares of common stock for issuance to
certain sales representatives under an incentive stock performance plan. Under
this plan, the Company may award shares of common stock as an incentive to the
sales representatives who achieve designated sales performance criteria. Through
December 31, 1996, the Company has awarded a total of 30,000 shares of common
stock to four sales representatives. No awards were given in 1996 or 1995.
STOCK OPTIONS AND WARRANTS
The Company has reserved 200,000 shares of its common stock for issuance to
officers and key employees under an incentive stock option plan. Generally,
options become exercisable over a three year period and expire five years after
the date of grant. Options are granted at an excess of the fair market value of
the common stock on the date of grant. The following is a summary of Plan
activity:
<TABLE>
<CAPTION>
Number of Exercise
Shares Price
--------- ------------
<S> <C> <C>
Balance, December 31, 1994 119,625 $ .38 - 2.50
Canceled 61,625 .38 - 2.50
-------
Balance, December 31, 1995 58,000 .38
Canceled 2,000 .38
-------
Balance, December 31, 1996 56,000 .38
=======
</TABLE>
F-10
<PAGE> 25
At December 31, 1996, options granted under the Plan to acquire 56,000 shares of
common stock were exercisable and 109,750 were available for grant.
In November 1993, the Company issued a stock option, outside of the Plan, to a
director of the Company to purchase 50,000 shares of common stock at an exercise
price of $.50 per share. The option expires on January 31, 2001.
In February 1994, the Company issued a stock option, outside of the Plan, to the
president/director of the Company to purchase 150,000 shares of common stock at
an exercise price of $.50 per share. The option expires on February 28, 1999.
Options to acquire 50,000 shares are presently exercisable. Options to purchase
100,000 shares are exercisable contingent upon the satisfaction of certain
conditions which have not yet occurred.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain of its facilities and equipment under noncancelable
operating leases which expire in 1998. Rent expense and future minimum rental
commitments for these leases are as follows:
<TABLE>
Expense:
<S> <C>
1996 $ 256,424
1995 236,000
Commitments:
1997 $ 187,415
1998 155,176
-------------
Total Commitments $ 342,591
=============
</TABLE>
TECHNOLOGY PURCHASE AGREEMENT
In March 1994, the Company entered into an agreement with a developer of a
microkeratome unit to acquire certain of the company's technology including an
FDA 510K certification for consideration of $769,500. Upon signing the
agreement, the Company made a nonrefundable deposit of $200,000. Under the terms
of the agreement, the Company is required to pay the balance of the purchase
price in varying installments through May 1996. Should the Company be unable to
comply with the payment terms of this agreement, the $200,000 deposit along with
50% of any payments made in excess of this amount will be forfeited and the
Company will be required to surrender any and all rights to the assets referred
to above. The Company is currently in default on its payments, however, the
Company has not received notice from the note holder of mandatory surrender of
the acquired technology and is attempting to become current on this past due
amount.
F-11
<PAGE> 26
CONSULTING AGREEMENTS
In connection with a negotiated settlement in August 1991, the Company entered
into an agreement with a medical professional for consulting services to be
rendered during the five-year period 1994 through 1998. Consulting fees under
the agreement are $50,000 per year. In February 1998, the Company agreed to
settle this agreement, including amounts in arrears, for a fee of $25,000 and
further agreed to consulting services for quarterly fees of $12,500 from June
1998 through March 2000.
LITIGATION
The Company is involved in legal actions in the ordinary course of its business.
Although the outcome of any such legal actions cannot be predicted, in the
opinion of management, there is no legal proceeding pending against or involving
the Company whose outcome is likely to have a material adverse effect upon the
consolidated financial position or results of operations of the Company.
NOTE 7 - INCOME TAXES
At December 31, 1996 and 1995, the Company had net operating loss carryforwards
of approximately $7.8 million and $7.6 million expiring from 2003 to 2011. No
provision for income taxes has been reflected in the accompanying consolidated
statements of operations. A valuation allowance has been established for the
entire 1996 and 1995 net deferred tax benefit of $3.1 million and $3.0 million
because its realization is not likely.
The provision for income taxes varied from the federal statutory tax rate as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Statutory Federal Income Tax Rate (35)% (35)%
State Tax, Net of Federal Benefit -- --
Increase in Net Operating Loss Carryforwards 35 35
---- ----
Effective Rate --% --%
==== ====
</TABLE>
NOTE 8 - SUBSEQUENT EVENTS
On February 6, 1998, the Company entered into a stock exchange agreement with
the shareholders of Star Tobacco and Pharmaceuticals, Inc. (Star) to exchange
shares of Series B Convertible Voting Preferred Stock of Eye Technology, Inc.
for 100% of the issued common stock of Star.
In conjunction with this agreement, the Company entered into a number of
subscription and stock acquisition agreements with employees, ex-employees,
vendors, and board members to settle stock options and claims for back wages or
services. As a result of these agreements, 1,402,550 shares of common stock were
issued. In addition, judgements or claims for products or services were settled
for payments of $178,000 less than face value. In February and March 1998, an
additional 2,900,000 shares of common stock was sold for $1.4 million.
F-12
<PAGE> 27
EYE TECHNOLOGY, INC.
Index to Exhibits
<TABLE>
<CAPTION>
Number Description Location
- ------ ----------- --------
<S> <C> <C>
3(i)(a) Restated Certificate of Incorporation Incorporated by reference to
Exhibit No. 3a, Annual Report on
Form 10-KSB for fiscal year
ended December 31, 1992
3(i)(b) Certificate of Amendment of Restated Certificate Filed herewith.
of Incorporation dated effective April 2, 1993
3(i)(c) Certificate of Amendment of Restated Certificate Filed herewith.
of Incorporation dated effective April 2, 1993
3(ii) Bylaws of the Company as Amended to Date Incorporated by reference to
Exhibit No. 3b, Annual Report on
Form 10-KSB for fiscal year
ended December 31, 1992
4(a) Option to Purchase Shares of Common Stock Incorporated by reference to
dated as of December 1, 1993, to Exhibit No. 4c, Annual Report on
Samuel P. Sears, Jr. Form 10-KSB for fiscal year
ended December 31, 1994
4(b) Certificate of Designations, Preferences and Incorporated by reference to
Rights of Class A Convertible Preferred Stock Exhibit No. 4h, Annual Report on
Form 8-KSB, dated June 7, 1993
4(c) Certificate of Designation of Series B Convertible Filed herewith.
Preferred Stock
4(d) Option to Purchase Shares of Common Stock Incorporated by reference to
dated as of February 28, 1994, to Exhibit No. 4d, Annual Report on
Robert J. Fitzsimmons Form 10-KSB for fiscal year
ended December 31, 1994
10(a) Employment Agreement dated November 1, 1989, Incorporated by reference to
between Robert J. Fitzsimmons and Eye Exhibit No. 10ii, Annual Report
Technology, Inc. on Form 10-K for fiscal year
ended December 31, 1989
10(b) Lease Agreement dated August 1990 for lease of Incorporated by reference to
offices and manufacturing space in St. Paul, Exhibit No. 10f, Annual Report on
Minnesota Form 10-K for fiscal year ended
December 31, 1990
</TABLE>
15
<PAGE> 28
<TABLE>
<CAPTION>
Number Description Location
- ------ ----------- --------
<S> <C> <C>
10(c) First Amendment to Lease Agreement for lease of Incorporated by reference to
office and manufacturing space in St. Paul, Exhibit No. 10i, Annual Report on
Minnesota Form 10-KSB for fiscal year
ended December 31, 1992
10(d) License Agreement by and between Eye Incorporated by reference to
Technology, Inc. and Ioptex Research Inc., dated Exhibit No. 10w, Annual Report
September 28, 1990 on Form 10-K for fiscal year
ended December 31, 1990
10(e) Addendum to License Agreement by and between Incorporated by reference to
Eye Technology, Inc. and Ioptex Research Inc., Exhibit No. 10n, Annual Report
dated January 13, 1994 on Form 10-KSB for fiscal year
ended December 31, 1993
10(f) Equipment Lease Agreement by and between Eye Incorporated by reference to
Technology, Inc. and Noel G. Bissonette, dated Exhibit No. 10y, Annual Report
August 31, 1990 on Form 10-K for fiscal year
ended December 31, 1990
10(g) Joint Venture Agreement by and among Eye Incorporated by reference to
Technology, Inc., Kera-Metrics Inc., and the Exhibit No. 10y, Annual Report
Stockholders of Kera-Metrics Inc., dated on Form 10-KSB for fiscal year
November 27, 1992 ended December 31, 1992
</TABLE>
16
<PAGE> 29
<TABLE>
<CAPTION>
Number Description Location
- ------ ----------- --------
<S> <C> <C>
10(h) Distribution Agreement by and between Incorporated by reference to
Kera-Metrics Corporation and Eye Technology, Exhibit No. 10z, Annual Report
Inc., dated November 27, 1992 on Form 10-KSB for fiscal year
ended December 31, 1992
10(i) Promissory Note from Eye Technology, Inc. to Incorporated by reference to
Burns & Levinson, dated June 4, 1993 Exhibit No. 10dd, Annual Report
on Form 10-KSB for fiscal year
ended December 31, 1993
10(j) Consulting and License Agreement by and Incorporated by reference to
between Eye Technology, Inc. and Paul Fyfe, Exhibit No. 10ee, Annual Report
dated October 29, 1993 on Form 10-KSB for fiscal year
ended December 31, 1993
10(k) Accounts Receivable Financing Agreement dated Incorporated by reference to
June 2, 1994 between the Company and Republic Exhibit No. 10z, Annual Report
Acceptance Corporation on Form 10-KSB for fiscal year
ended December 31, 1994
10(l) Security Agreement dated June 2, 1994, between Incorporated by reference to
the Company and Republic Acceptance Exhibit No. 10aa, Annual Report
Corporation on Form 10-KSB for fiscal year
ended December 31, 1994
10(m) Security Agreement dated June 2, 1994, between Incorporated by reference to
Eye Technology International, Inc. and Republic Exhibit No. 10bb, Annual Report
Acceptance Corporation on Form 10-KSB for fiscal year
ended December 31, 1994
</TABLE>
17
<PAGE> 30
<TABLE>
<CAPTION>
Number Description Location
- ------ ----------- --------
<S> <C> <C>
10(n) Guaranty of Payment for Existing and/or Future Incorporated by reference to
Indebtedness, dated June 2, 1994 between Eye Exhibit No. 10cc, Annual Report
Technology International, Inc. and Republic on Form 10-KSB for fiscal year
Acceptance Corporation ended December 31, 1994
10(o) Amendment to Agreement by and between the Incorporated by reference to
Company and Microprecision Instrument Exhibit No. 10ee, Annual Report
Company, Inc., dated December 13, 1994 on Form 10-KSB for fiscal year
ended December 31, 1994
10(p) Amendment to Agreement by and between the Incorporated by reference to
Company and Microprecision Instrument Exhibit No. 10ff, Annual Report
Company, Inc., dated March 28, 1995 on Form 10-KSB for fiscal year
ended December 31, 1994
10(q) Stock Exchange Agreement dated February 6, Incorporated by reference to
1998 between the Company and the stockholders Exhibit No. 10.1, Current Report
of Star Tobacco and Pharmaceuticals, Inc. on Form 8-K, dated February 19,
1998
21 Subsidiaries of the Company Incorporated by reference to
Exhibit No. 22, Annual Report on
Form 10-KSB for fiscal year
ended December 31, 1995
23 Consent of Independent Public Accountants Filed herewith.
27 Financial Data Schedule Filed herewith.
</TABLE>
18
<PAGE> 1
EXHIBIT 3(i)(b)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
EYE TECHNOLOGY, INC.
Pursuant to Section 242
of the General Corporation
Law of the State of Delaware
Eye Technology, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation") DOES HEREBY CERTIFY:
1. That ARTICLE FOURTH of the Restated Certificate of Incorporation of
the Corporation is amended by deleting the first paragraph thereof in its
entirety and inserting in lieu thereof:
FOURTH: The total number of shares of stock which the Corporation has
the authority to issue is Five Million (5,000,000) shares of Common
Stock having a par value of one cent ($.01) per share (hereinafter
called "Common Stock") and One Hundred Thousand (100,000) shares of
Preferred Stock having a par value of one cent ($.01) per share
(hereinafter called "Preferred Stock"), making a total of Five Million
One Hundred Thousand (5,100,000) shares of stock.
2. That upon the effectiveness of the foregoing amendment to Article
FOURTH of the Restated Certificate of Incorporation and simultaneously
therewith, each share of Common Stock of the Corporation, having a par value of
one cent ($.01) per share, issued and outstanding, or held in the treasury of
the Corporation, immediately prior to the effectiveness of such amendment, shall
be changed into and become one-tenth fully paid and nonassessable share of
Common Stock having a par value of one cent ($.01) per share. No fractional
interests resulting from such reverse stock split shall be issued, but in lieu
thereof, the Corporation shall round up to the nearest whole share of Common
Stock, par value $.01 per share, and issue a new certificate representing the
new number of shares, including a whole share representing any such fractional
interest, to all stockholders of record as of the close of business on April 2,
1993.
3. That the foregoing amendment has been duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware by the favorable vote of a majority of each class of outstanding
stock of the Corporation entitled to vote thereon and
<PAGE> 2
that this Certificate of Amendment of Restated Certificate of Incorporation
shall be effective at 5:00 p.m. Eastern Standard Time on April 2, 1993.
Signed and attested to on March 25, 1993.
/s/ Robert J. Fitzsimmons
----------------------------------
Robert J. Fitzsimmons, President
ATTEST:
/s/ Samuel P. Sears, Jr.
- --------------------------
Samuel P. Sears, Jr.,
Secretary
<PAGE> 1
EXHIBIT 3(i)(c)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
EYE TECHNOLOGY, INC.
Pursuant to Section 242
of the General Corporation
Law of the State of Delaware
Eye Technology, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation") DOES HEREBY CERTIFY:
1. That ARTICLE FOURTH of the Restated Certificate of Incorporation of
the Corporation is amended by deleting the first paragraph thereof in its
entirety and inserting in lieu thereof:
FOURTH: The total number of shares of stock which the Corporation shall
have the authority to issue is Ten Million (10,000,000) shares of
Common Stock having a par value of one cent ($.01) per share
(hereinafter called "Common Stock") and One Hundred Thousand (100,000)
shares of Preferred Stock having a par value of one cent ($.01) per
share (hereinafter called "Preferred Stock"), making a total of Ten
Million One Hundred Thousand (10,100,000) shares of stock.
2. That the foregoing amendment has been duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware by the favorable vote of a majority of each class of outstanding
stock of the Corporation entitled to vote thereon and that this Certificate of
Amendment of Restated Certificate of Incorporation shall be effective at 5:01
p.m. Eastern Standard Time on April 2, 1993.
Signed and attested to on March 25, 1993.
/s/ Robert J. Fitzsimmons
----------------------------------
Robert J. Fitzsimmons, President
ATTEST:
/s/ Samuel P. Sears, Jr.
- --------------------------
Samuel P. Sears, Jr.,
Secretary
<PAGE> 1
EXHIBIT 4(c)
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CONVERTIBLE
PREFERRED STOCK
OF
EYE TECHNOLOGY, INC.
Eye Technology, Inc., a Delaware corporation, DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of
said corporation by virtue of its certificate of incorporation as amended and in
accordance with the General Corporation Law of the State of Delaware, said Board
of Directors has duly adopted a resolution providing for the issuance of a
series of Preferred Stock, par value $.01 per share, designated as Series B
Convertible Preferred Stock, which resolution reads as follows:
"BE IT RESOLVED, that the Board of Directors (the "Board of Directors")
of Eye Technology, Inc. (the "Corporation") hereby authorizes the issuance of a
series of Preferred Stock and fixes its designation, powers, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations and restrictions thereof, as follows:
SECTION 1. DESIGNATION. The distinctive serial designation of said
series shall be "Series B Convertible Preferred Stock" (hereinafter called
"Series B"). Each share of Series B shall be identical in all respects with all
other shares of Series B.
SECTION 2. NUMBER OF SHARES. The number of shares in Series B shall
initially be 15,000, which number may from time to time be increased or
decreased (but not below the number thereof then outstanding) by the Board of
Directors. Shares of Series B that are redeemed, purchased or otherwise acquired
by the Corporation or converted into Common Stock shall be canceled and shall
revert to authorized but unissued shares of Preferred Stock undesignated as to
series.
SECTION 3. DIVIDENDS. The holders of shares of Series B shall be
entitled to receive, when, as and if declared by the Board of Directors, but
only out of funds legally available therefor, cash dividends at the annual rate
of $150 per share, and no more, payable annually on the second day of January in
each year with respect to the annual dividend period (or portion thereof) for
the immediately preceding calendar year preceding such respective dividend
payment date, to holders of record on the respective date, not more than sixty
nor less than ten days preceding such dividend payment date, fixed for such
purpose by the Board of Directors in advance of payment of each particular
dividend.
So long as any share of Series B remains outstanding, no dividend
whatever shall be paid or declared and no distribution shall be made on any
junior stock, other than a dividend payable solely in junior stock, and no
shares of junior stock shall be purchased, redeemed or otherwise acquired for
consideration by the Corporation, directly or indirectly (other than as a result
of a reclassification of junior stock, or the exchange or conversion of one
share of junior stock in each case, for or into
<PAGE> 2
another share of junior stock, and other than through the use of the proceeds of
a substantially contemporaneous sale of other shares of junior stock), unless
all declared and unpaid dividends on all outstanding shares of Series B for all
past dividend periods shall have been paid. Subject to the foregoing, and not
otherwise, such dividends (payable in cash, stock or otherwise) as may be
determined by the Board of Directors may be declared and paid on any junior
stock from time to time out of any funds legally available therefor, and the
shares of Series B shall not be entitled to participate therein.
SECTION 4. LIQUIDATION RIGHTS. In the event of any voluntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of shares of Series B shall be entitled, before any distribution or
payment is made to the holders of any junior stock, to be paid in full the
redemption price in effect at the date of such distribution as provided in
Section 5 hereof.
If such amount shall have been paid in full to all holders of shares of
Series B, the remaining assets of the Corporation shall be distributed among the
holders of junior stock, according to their respective rights and preferences
and in each case according to their respective numbers of shares. For the
purposes of this Section 4, the consolidation or merger of the Corporation with
any other corporation shall not be deemed to constitute a liquidation,
dissolution or winding up of the Corporation.
SECTION 5. REDEMPTION. Series B shall not be redeemable by the
Corporation prior to December 21, 2022. On or after December 31, 2022, the
Corporation, at the option of the Board of Directors, may redeem in whole or in
part the shares of Series B at the time outstanding, upon notice given as
hereinafter specified, at the redemption price as provided in this Section 5.
The redemption price for shares of Series B shall be $3,000 per share, together
with declared and unpaid dividends to the redemption date.
Notice of every redemption of shares of Series B shall be mailed by
first class mail, postage prepaid, addressed to the holders of record of the
shares to be redeemed at their respective last addresses as they shall appear on
the books of the Corporation. Such mailing shall be a least 30 days and not more
than 60 days prior to the date fixed for redemption. Any notice which is mailed
in the manner herein provided shall be conclusively presumed to have been duly
given, whether or not the stockholder receives such notice, and failure duly to
give such notice by mail, or any defect in such notice, to any holder of shares
of Series B designated for redemption shall not affect the validity of the
proceedings for the redemption of any other shares of Series B.
In case of redemption of a part only of the shares of Series B at the
time outstanding, the redemption may be either pro rata or by lot. The Board of
Directors shall have full power and authority, subject to the provisions herein
contained, to prescribe the terms and conditions upon which shares of Series B
shall be redeemed from time to time.
If notice of redemption shall have been duly given, and if on or before
the redemption date specified therein all funds necessary for such redemption
shall have been set aside by the Corporation, separate and apart from its other
funds, in trust for the pro rata benefit of the holders of the shares called for
redemption, so as to be and continue to be available therefor, then,
notwithstanding that any certificate for shares so called for redemption shall
not have been
2
<PAGE> 3
surrendered for cancellation, on and after such redemption date, all shares so
called for redemption shall no longer be deemed outstanding and all rights with
respect to such shares shall forthwith on such redemption date cease and
terminate, except only the right of the holders thereof to receive the amount
payable on redemption thereof, without interest.
Any funds so set aside or deposited by the Corporation which shall not
be required for such redemption because of the exercise of any right of
conversion or exchange subsequent to the date of such deposit shall be released
or repaid to the Corporation forthwith. Any funds so set aside or deposited, as
the case may be, and unclaimed at the end of three years from such redemption
date shall, to the extent permitted by law, be released or repaid to the
Corporation, after which time the holders of the shares so called for redemption
shall look only to the Corporation for payment thereof.
SECTION 6. CONVERSION RIGHTS. The holders of shares of Series B shall
have the right, at their option, at any time before the date fixed for the
redemption of such share to surrender the certificate evidencing such share,
accompanied by written notice of election to convert, and receive in lieu
thereof a certificate evidencing Three Thousand Two Hundred and Eighty (3,280)
shares of Common Stock of this Corporation.
The shares of Series B shall be convertible at the principal office of
the Corporation, and at such other office or offices, if any, as the Board of
Directors may designate, into fully paid and non-assessable shares (calculated
as to each conversion to the nearest 1/100th of a share) of Common Stock of the
Corporation.
In order to convert shares of Series B into Common Stock the holder
thereof shall surrender at the office or offices hereinabove mentioned the
certificate or certificates therefor, duly endorsed or assigned to the
Corporation or in blank, and give written notice to the Corporation at said
office or offices that such holder elects to convert such shares. No payment or
adjustment shall be made upon any conversion on account of any unpaid dividends
on the shares of Series B surrendered for conversion or on account of any
dividends on the Common Stock issued upon conversion.
Shares of Series B shall be deemed to have been converted immediately
prior to the close of business on the day of the surrender of the certificates
for such shares for conversion in accordance with the foregoing provisions, and
the person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock at such time. As promptly as practicable on or after the
conversion date, the Corporation shall issue and shall deliver at such office a
certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion, together with payment in lieu of any fraction of
a share, as hereinafter provided, to the person or persons entitled to receive
the same. In case shares of Series B are called for redemption, the right to
convert such shares shall cease and terminate at the close of business on the
third full business day prior to the date fixed for redemption, unless default
shall be made in payment of the redemption price.
No fractional shares of Common Stock shall be issued upon conversion of
shares of Series B, but, instead of any fraction of a share which would
otherwise be issuable, the Corporation at its option may make a cash settlement
in respect thereof on the basis of the closing price of the Common Stock on the
date of conversion, or may issue scrip certificates exchangeable together with
3
<PAGE> 4
other such scrip certificates aggregating one or more full shares for
certificates representing such full share or shares. Until the exchange thereof
for certificates representing full common shares, the holder of any such scrip
certificates shall not be entitled to receive dividends thereon, to vote with
respect thereto, or to have any other rights by virtue thereof as a shareholder
of this Corporation, except such rights, if any, as the Board of Directors may
in its discretion determine in the event of dissolution of this Corporation.
In the event that this Corporation at any time prior to such conversion
either (a) subdivide the outstanding Common Stock into a greater number of
shares, (b) combine the outstanding Common Stock into a smaller number of
shares, (c) change the outstanding Common Stock into the same or given number of
shares of any other class or classes or shares, (d) declare on or in respect of
the Common Stock a dividend payable in shares or other securities of this
Corporation, or (e) offer to the holders of Common Stock any rights to subscribe
for shares or for other securities of this Corporation, then the holders of the
Series B shall be entitled, as the case may be, to receive the same number of
Common Stock or shares of any other class or classes of shares or other
securities of this Corporation or shall be entitled to subscribe for and
purchase at the same price that the shares or securities are offered to holders
of Common Stock, the number of such shares or the amount of such securities as
will represent the same proportion of the outstanding Common Stock prior to such
increase or decreases as they would have been entitled to receive or subscribe
for, as the case may be, had they been holders of the number of Common Stock
into which their preferred shares were convertible on the record date for any
such dividend or subscription.
In the event this Corporation, at any time while any of such Series B
shares are outstanding shall be consolidated with or merged into any other
corporation or corporations, or shall sell or lease all or substantially all of
its property and business, lawful provisions shall be made as part of the terms
of such consolidation, merger, sale, or lease that the holder of such Series B
may thereafter receive in lieu of such Common Stock otherwise issuable to
him/her upon conversion of such Series B, but at the conversion rate which would
otherwise be in effect at the time of conversion as herein provided, the same
kind and amount of securities or assets as may be issuable, distributable, or
payable upon such consolidation, merger, sale, or lease, with respect to Common
Stock of this Corporation.
Upon proper authorization by an amendment to the certificate of
incorporation, the Corporation shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued Common Stock,
for the purpose of issuance upon conversion of shares of Series B, the full
number of shares of Common Stock then deliverable upon the conversion of all
shares of Series B then outstanding.
The Corporation will pay any and all taxes that may be payable in
respect of the issuance or delivery of shares of Common Stock on conversion of
shares of Series B pursuant thereto. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of shares of Common Stock in a name other than that
in which the shares of Series B so converted were registered, and no such
issuance or delivery shall be made unless and until the person requesting such
issuance has paid to the Corporation the amount of any such tax or has
established to the satisfaction of the Corporation that such tax has been paid.
4
<PAGE> 5
SECTION 7. VOTING RIGHTS. Except as otherwise provided by the General
Corporation Law of the State of Delaware, the holders of Common Stock and the
holders of shares of Series B shall have the right to vote or consent at all
meetings of the shareholders of this Corporation or in respect of all matters on
which the consent of shareholders is required as one class. The holders of each
share of Series B shall be entitled to 500 votes for each such share held.
So long as any shares of Series B are outstanding, in addition to any
other vote or consent of stockholders required by law or by the certificate of
incorporation, the consent of the holders of at least 66 2/3% of the shares of
Series B and of all other series of the Preferred Stock similarly entitled to
vote upon the matters specified in this paragraph at the time outstanding,
acting as a single class regardless of series, given in person or by proxy,
either in writing without a meeting or by vote at any meeting called for the
purpose, shall be necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the
provisions of the certificate of incorporation, or of the by-laws, of
the Corporation, which would alter or change the powers, preferences or
special rights of the holder of the Series B and of all such other
series of the Preferred Stock so as to affect them adversely; provided,
however, that the amendment of the provisions of the certificate of
incorporation so as to authorize or create, or to increase the
authorized amount of, any junior stock or any shares of any class or
series ranking on a parity with the shares of Series B and all such
other series of the Preferred Stock shall not be deemed to affect
adversely the powers, preferences or special rights of the holders of
the shares of Series B and all such other series of the Preferred
Stock; and provided, further, that if any such amendment, alteration or
repeal would affect adversely any powers, preferences or special rights
of the holders of the shares of Series B which are not enjoyed by some
or all of the holders of the other series otherwise entitled to vote in
accordance with this paragraph, the consent of the holders of at least
66 2/3% of the shares of Series B and of all other series similarly
affected, similarly given, shall be required in lieu of the consent of
the holders of at least 66 2/3% of the shares of Series B and of all
other series of the Preferred Stock otherwise entitled to vote in
accordance with this paragraph;
(ii) The authorization or creation of, or the increase in the
authorized amount of, any shares of any class or any security
convertible into shares of any class ranking prior to the shares of
Series B in the distribution of assets on any liquidation, dissolution,
or winding up of the Corporation or in the payment of dividends; or
(iii) The merger or consolidation of the Corporation with or
into any other corporation, unless the surviving or resulting
corporation will thereafter have no class or series of shares and no
other securities either authorized or outstanding ranking prior to the
Series B in the distribution of assets on liquidation, dissolution or
winding up or in the payment of dividends, except the same number of
shares and the same amount of other securities with the same rights and
preferences as the shares and securities of the Corporation
respectively authorized and outstanding immediately preceding such
merger or consolidation, and each holder of shares of Series B
immediately preceding such merger or consolidation shall receive the
same number of shares, with the same rights and preferences, of the
surviving or resulting corporation;
5
<PAGE> 6
provided , however, that no such consent of the holders of Series B shall be
required if, at or prior to the time when such amendment, alteration or repeal
is to take effect or when the issuance of any such prior shares or convertible
security or securities is to be made, or when such consolidation or merger,
purchase or redemption is to take effect, as the case may be, provision is made
for the redemption of all shares of Series B at the time outstanding.
So long as any shares of Series B are outstanding, in addition to any
other vote or consent of stockholders required by law or by the certificate of
incorporation, the consent of the holders of at least a majority of the shares
of Series B given in person or by proxy, either in writing without a meeting or
by vote at any meeting called for the purpose, shall be necessary for effecting
or validating any increase or decrease (but not below the number of shares
thereof then outstanding) in the authorized number of shares of Series B, or the
authorization or creation of, or the increase in the authorized number of, any
shares of any class or series or any security convertible into shares of any
class or series ranking on a parity with the Series B in the distribution of
assets on any liquidation, dissolution or winding up of the Corporation or in
the payment of dividends; provided, however, that no such consent shall be
required if, at or prior to the time such increase, decrease, authorization or
creation of parity shares is to be made, provision is made for redemption of all
shares of Series B at the time outstanding.
SECTION 8. DEFINITION. As used herein with respect to Series B, the
following term shall have the following meaning:
(a) The term "junior stock" shall mean the Common Stock and
any other class or series of stock of the Corporation hereafter
authorized over which Series B has preference or priority in the
payment of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Corporation.
SECTION 9. OTHER RIGHTS. The shares of Series B shall not have any
powers, preferences or relative, participating, optional or other special
rights, or qualifications, limitations or restrictions thereof, other than as
set forth herein."
IN WITNESS WHEREOF, Eye Technology, Inc. has caused this certificate
to be signed by Robert J. Fitzsimmons, its President, this 6th day of
February, 1998.
EYE TECHNOLOGY, INC:
By: /s/ Robert J. Fitzsimmons
----------------------------
Name: Robert J. Fitzsimmons
--------------------------
Title: President
-------------------------
ATTEST:
By: Samuel P. Sears, Jr.
------------------------------------
Samuel P. Sears, Jr., Secretary
6
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8, Number 33-16602 and 33-61310 of Eye Technology, Inc. of
our report dated April 13, 1998 appearing on page F-2 of the Annual Report on
Form 10-KSB.
St. Paul, Minnesota /s/ OLSEN THIELEN & CO., LTD.
April 17, 1998
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