As filed with the Securities and Exchange Commission on October 31, 1997
Registration No. 333-35045
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------------------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
Sunrise Technologies International, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
77-0148208
(I.R.S. Employer Identification Number)
47265 Fremont Boulevard
Fremont, California 94538
(510) 623-9001
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
The Prentice Hall Corporation
1013 Centre Road
Wilmington, Delaware 19805
(302) 998-0595
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with copies to:
Don S. Hershman, Esq.
Holleb & Coff
55 East Monroe, Suite 4100
Chicago, Illinois 60603
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]__________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
----------------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
<CAPTION>
Proposed maximum Proposed maximum
Title of each class of securities Amount to be offering price aggregate Amount of
to be registered registered per unit (1) offering price (1) registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock............................... 10,273,519 $ 1.4688 $ 15,190,461.79 $ 4,603.17
====================================================================================================================================
<FN>
(1) Estimated solely for the purpose of determining the registration fee in accordance with Rule 457(c) under the Securities Act
of 1933, as amended. The above calculation is based on the average of the reported bid and asked prices of the common stock
on the OTC Bulletin Board on September 3, 1997.
</FN>
</TABLE>
__________________________________
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 31, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
10,273,519 Shares
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Common Stock
-----------------
The common stock, par value $0.001 per share ("Common Stock"), of
Sunrise Technologies International, Inc., a Delaware corporation ("Sunrise" and,
together with its subsidiaries, the "Company"), offered hereby (the "Offered
Shares") may be sold by certain stockholders, note holders and warrant holders
of Sunrise (collectively, the "Selling Securityholders"). The Company will not
receive any of the proceeds from the sale of the Offered Shares. Information
regarding the Selling Securityholders is set forth herein under the heading
"Selling Securityholders."
The Common Stock currently is traded in the over-the-counter market.
Price information for the Common Stock may be obtained from the OTC Bulletin
Board. On October 29, 1997, the closing price reported on the OTC Bulletin Board
was $4.00 per share. See "Description of Capital Stock -- Price Range of Common
Stock."
ACQUISITION OF THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
Some or all of the Offered Shares may be offered for sale and sold from
time to time by the Selling Securityholders in the over-the-counter market (or
any national securities exchange or interdealer quotation system on which the
Common Stock may then be listed), in privately negotiated transactions (which
may include block transactions) or otherwise. In addition, the Selling
Securityholders may engage in short sales and other transactions in the Common
Stock or derivatives thereof, and may pledge, sell, deliver or otherwise
transfer the Offered Shares in connection therewith. This Prospectus may be used
by the Selling Securityholders or by any broker-dealer who may participate in
sales of the Offered Shares. Participating broker-dealers may act as agents or
principals or both and may receive commissions, discounts or concessions in
connection with sales or other transfers of Offered Shares. See "Selling
Securityholders." Sunrise has agreed to pay the expenses of registering the
Offered Shares on behalf of the Selling Securityholders, other than
broker-dealer commissions, discounts or concessions and any legal fees incurred
by the Selling Securityholders in connection with sales of the Offered Shares.
No person is authorized by the Company or the Selling Securityholders
to give any information or to make any representations other than those
contained in this Prospectus. Neither the delivery of this Prospectus nor any
sale made hereunder shall create any implication that there has not been a
change in the information contained herein since the date hereof.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November __, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 (together with any
amendments, supplements, exhibits, annexes and schedules thereto, the
"Registration Statement") pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), and the rules and regulations thereunder, with respect
to the Offered Shares. This Prospectus does not include all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
the Prospectus as to the contents of any contract, agreement or other document
referred to in the Registration Statement are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information filed by
the Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at Seven World Trade Center, Suite 1300, New York, New York 10048, and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can be obtained by mail from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy
statements and other information that the Company files with the Commission
electronically are contained in the Internet Web site maintained by the
Commission at http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents heretofore filed by the Company with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act (File No.
0-17816) are hereby incorporated herein by reference: (i) annual report on Form
10-K for the year ended December 31, 1996 (filed April 11, 1997); (ii) quarterly
report on Form 10-Q for the quarter ended March 31, 1997 (filed May 15, 1997);
(iii) current reports on Form 8-K dated March 12, 1997 (filed March 27, 1997),
and June 26, 1997 (filed July 11, 1997); (iv) amendment to the current report on
Form 8-K dated June 26, 1997 (filed August 13, 1997); (v) quarterly report on
Form 10-Q for the quarter ended June 30, 1997 (filed August 14, 1997); and (vi)
current report on Form 8-K dated October 24, 1997 (filed October 27, 1997).
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference herein (other
than exhibits to any such document unless such exhibits are specifically
incorporated by reference into such document). Requests for such copies should
be directed to the Secretary of Sunrise, 47265 Fremont Boulevard, Fremont,
California 94538; telephone (510) 623-9001.
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, as it may be amended or supplemented, and certain
documents incorporated by reference herein contain or may contain both
statements of historical fact and "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Examples of forward-looking statements include: (i) projections of revenue,
income, earnings, capital expenditures, dividends, capital structure and other
financial items; (ii) statements of the plans and objectives of the Company or
its management; (iii) statements of the future economic performance of the
Company; and (iv) the assumptions underlying statements regarding the Company or
its business. Important factors, risks and uncertainties that could cause actual
results to differ materially from any forward-looking statements ("Cautionary
Statements") are disclosed herein, under the caption "Risk Factors" and
elsewhere, and in certain documents incorporated by reference herein. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus.
The Company
The Company develops, manufactures and markets laser systems for
applications in ophthalmology. All of the Company's business activities,
including engineering and development, manufacturing, assembly and testing take
place at the Company's facility in Fremont, California.
Since mid-1992, the Company has focused a significant portion of its
efforts on engineering and development of its holmium laser corneal shaping
product (the "LTK System") for the treatment of refractive errors of the eye,
such as hyperopia (farsightedness) and presbyopia (age-related loss of near
focusing ability). The LTK System, which is based upon patented technology
acquired in the Company's acquisitions of in-process technology from Laser
Biotech, Inc. and Emmetropix Corporation in 1992, currently is undergoing
premarket clinical studies in the United States, as required by the Food and
Drug Administration. Prior to this time the Company was primarily a developer
and manufacturer of dental laser systems. See "Business."
The Company has incurred substantial losses in the past five years,
which have seriously depleted its working capital. Historically, the Company has
been able to raise working capital through private placements of Common Stock
and securities convertible into Common Stock. Private placements of Common Stock
raised approximately $15,296,000 in net proceeds between 1994 and 1996. In the
first quarter of 1997, the Company issued, in a series of private placements, 5%
redeemable convertible notes due 1999 accompanied by warrants to purchase Common
Stock for aggregate net proceeds of approximately $3,743,000.
Sunrise was incorporated in 1987 under the laws of the State of
California and was reincorporated in 1993 under the laws of the State of
Delaware. The principal executive offices of the Company are located at 47265
Fremont Boulevard, Fremont, California 94538; telephone (510) 623-9001.
Recent Developments
Sale of Dental Business
On June 26, 1997, the Company sold substantially all of its assets
associated with its dental laser, air abrasion and composite curing systems to
Lares Research, a California corporation ("Lares"). At closing, Lares delivered
to the Company $4,000,000 in cash and a promissory note in the amount of
$1,500,000. Prior to the sale of the dental assets, a substantial portion of the
Company's revenues (98% in 1996 and 80% for the first six months of 1997) were
derived from the domestic and international sales of the Company's dental
products. However, operation of the dental business had contributed to the
Company's substantial losses in each of the last five years.
The Company intends to use the net proceeds from the sale of the dental
assets primarily for clinical trials for its ophthalmic products, including the
LTK System.
3
<PAGE>
Issuance of Convertible Notes
During the first quarter of 1997, the Company issued and sold, without
registration under the Securities Act in a series of private placements (the
"1997 Notes Placement"), an aggregate gross principal amount of $4,100,750 5%
redeemable convertible notes due 1999 (collectively, the "Notes") and
accompanying warrants to purchase Common Stock (collectively, the "Warrants").
An aggregate principal amount of $500,000 of the Notes were issued in
reliance on Regulation S under the Securities Act (the "Regulation S Notes"),
together with Warrants (the "Regulation S Warrants"). The Regulation S Notes are
convertible into Common Stock at a conversion price of $1.00 of Regulation S
Notes for each share of Common Stock. A Regulation S Warrant to purchase one
share of Common Stock, at an exercise price of $1.25, was issued without
additional consideration for each $2.00 of Regulation S Notes purchased. An
aggregate principal amount of $3,600,750 of the Notes were issued in reliance on
Regulation D under the Securities Act to "accredited investors" within the
meaning of Rule 501 thereunder (the "Regulation D Notes"), together with
Warrants (the "Regulation D Warrants"). The Regulation D Notes are convertible
into Common Stock at a conversion price of $0.875 of Regulation D Notes for each
share of Common Stock. A Regulation D Warrant to purchase one share of Common
Stock, at an exercise price of $1.00, was issued without additional
consideration for each $1.75 of Regulation D Notes purchased.
The Notes are convertible at any time prior to maturity, at the option
of the holders thereof, at the respective conversion prices discussed above,
subject to adjustment for any stock dividends, certain distributions, stock
splits or combinations or reclassifications of the Common Stock. The Notes
mature two years from their respective issue dates, and interest on the Notes is
cumulative from the respective issue date at an annual rate of 5%, payable at
maturity or conversion. The Notes are secured by a first lien on all of the
ophthalmic patents and patent applications of the Company. The Warrants may be
exercised at any time within five years from the respective date of their
issuance.
In connection with the 1997 Notes Placement, the Company issued to
Pennsylvania Merchant Group Ltd ("PMG"), the placement agent, warrants (the
"1997 PMG Warrants") to purchase up to 230,756 shares of Common Stock, an amount
equal to 5% of the shares of Common Stock into which the Notes are convertible.
The 1997 PMG Warrants are exercisable at an exercise price of $0.875 per share,
at any time within five years from the date of their issuance.
The Selling Securityholders
The Offered Shares, other than shares underlying the Placement Agent
Warrants (defined below), were acquired by the Selling Securityholders either:
(a) in July and August 1996 pursuant to private placements in the United States
in reliance on Regulation D and outside the United States in reliance on
Regulation S under the Securities Act (the "1996 Equity Placement"); or (b) in
the 1997 Notes Placement. Absent registration under the Securities Act, the
Offered Shares are subject to certain limitations on resale. The Registration
Statement of which this Prospectus forms a part has been filed in satisfaction
of certain registration rights granted by Sunrise to the Selling
Securityholders.
As of the date of this Prospectus, 1,016,460 of the Offered Shares have
not been issued by the Company but may be issued at any time upon exercise by
PMG of certain warrants, including the 1997 PMG Warrants, issued to PMG in
connection with certain transactions between the Company and PMG (collectively,
the "Placement Agent Warrants"). Also, certain of the Offered Shares have not
been issued
4
<PAGE>
by the Company but may be issued at any time upon conversion of Notes or
exercise of the Warrants by certain Selling Securityholders. See "Selling
Securityholders."
Plan of Distribution
The Offered Shares may be offered for sale and sold from time to time
by the Selling Securityholders in the over-the-counter market (or any national
securities exchange or interdealer quotation system on which the Common Stock
may then be listed), in privately negotiated transactions (which may include
block transactions) or otherwise. In addition, the Selling Securityholders may
engage in short sales and other transactions in the Common Stock or derivatives
thereof, and may pledge, sell, deliver or otherwise transfer the Offered Shares
in connection therewith. This Prospectus may be used by the Selling
Securityholders or by any broker-dealer who may participate in sales of the
Offered Shares. Participating broker-dealers may act as agents or principals or
both and may receive commissions, discounts or concessions in connection with
sales or other transfers of the Offered Shares. See "Plan of Distribution."
RISK FACTORS
The following factors should be considered carefully in evaluating an
acquisition of Common Stock.
History of Losses; Profitability Uncertain; Cash Flow Deficits
Since 1992, the Company has incurred substantial losses which have
depleted its working capital and reduced its stockholders' equity. The clinical
trials for its ophthalmic products, including the LTK System, will continue to
be a significant consumer of cash as the revenues from the Company's business
are not expected to be sufficient to cover its operating costs unless and until
approval from the Food and Drug Administration (the "FDA") is obtained to permit
domestic sale of the LTK System. There can be no assurance that FDA approval
will be obtained or when such approval may be obtained, but such approval is not
expected until late 1999 at the earliest.
The negative cash flows of the Company have been funded during 1995 and
1996 by the sale of additional equity. At December 31, 1996, cash and cash
equivalents of the Company was approximately $647,000. The Company's current
operations continue to be cash flow negative, limiting the Company's working
capital resources. Working capital at June 30, 1997, including the net proceeds
from the sale of the dental assets (approximately $3,589,000) and the net
proceeds from the 1997 Notes Placement (approximately $3,743,000), was
approximately $3,532,000. At June 30, 1997, the Company had an accumulated
deficit of $32,995,000. The Company's ability to continue as a going concern is
dependent upon performing profitably or obtaining further financing. Management
currently believes that existing working capital will provide sufficient funds
for the Company's planned operations in 1997 but that it will be required to
raise additional working capital to fund its activities beyond 1997. In this
regard, the Company has commenced discussions with prospective investors and
other finance sources to obtain working capital. No assurance can be given that
additional financing will be available or that, if available, it will be
available on terms favorable to the Company and its stockholders. Any additional
equity financing may be dilutive to the Company's stockholders. If funds are not
available to satisfy the Company's operating requirements, the Company may be
required to reduce substantially, or eliminate, certain areas of its product
development
5
<PAGE>
activities, limit or suspend its operations in their entirety or, under certain
circumstances, be forced to seek protection from creditors under the Bankruptcy
Act.
Continuing Losses Expected
The Company expects to report operating losses during 1997 and beyond.
The losses will come primarily from the expenses of the FDA approval process and
underlying clinical trials related to the LTK System. The Company will not have
any domestic revenues from this product line, other than limited sales to
doctors performing clinical trials, unless and until FDA approval is obtained.
The international revenues from the LTK product line are not projected to be
sufficient to cover the cost of the approval process.
Going Concern Report
The Company's independent auditors have included an explanatory
paragraph in its report covering the Company's financial statements for the year
ended December 31, 1996, which paragraph emphasizes substantial doubt as to the
Company's ability to continue as a going concern, based primarily on the
recurring operating losses that have been incurred by the Company. Failure to
return to profitable operations or to obtain other financing could result in a
reorganization or complete liquidation of the Company.
Effects of FDA Approval Requirements and Government Regulation on Marketability
of the Company's Systems
The Company's activities are subject to extensive regulation by the FDA
and similar health authorities in certain foreign countries. The LTK System is
regulated as a Class III medical device by the FDA under the Food, Drug and
Cosmetic Act (the "FDC Act"). Class III medical devices require a Premarket
Approval ("PMA") by the FDA prior to commercial sale in the United States. The
PMA process (and underlying clinical studies) is lengthy, the outcome is
difficult to predict and requires substantial commitments of the Company's
financial resources and management's time and effort. Delays in obtaining or
failure to obtain required regulatory approvals or clearances in the United
States and other countries would postpone or prevent the marketing of the LTK
System and other devices and would impair the Company's ability to generate
funds from operations, which in turn would have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will be able to obtain in a timely manner, if at
all, required PMA in the United States for intended uses of the LTK System, or
for any other devices for which the Company may seek approvals or clearances.
The Company has been issued an Investigational Device Exemption (an
"IDE") by the FDA to permit it to generate data necessary to support a PMA
application for the use and marketing of the LTK System in laser thermal
keratoplasty ("LTK") applications for hyperopia (farsightedness). The FDA has
advised the Company that the initial Phase IIa clinical trials conducted by the
Company did not produce enough statistically significant data to enable the FDA
to determine that the treatment algorithms employed in such clinical trials were
predictable or effective for the treatment of hyperopia (farsightedness). On
September 5, 1996, the FDA authorized the Company to treat an additional 100
subjects at five United States locations in a continuation of Phase IIa clinical
trials using a treatment algorithm developed by the Company in the course of the
initial Phase IIa clinical trials and in the course of studies conducted by
ophthalmologists in Mexico, Great Britain and Canada. Enrollment of patients in
the continued clinical
6
<PAGE>
trial, which was completed in July 1997, was limited to the treatment of 40
subjects for the +1 diopter treatment group and 60 subjects for the +2 diopter
treatment group. In August 1997, the Company received conditional approval from
the FDA to expand the investigation to include an additional 100 patients using
the same treatment algorithm. Such approval is conditional on the Company
agreeing to continue the investigation at the same five sites previously
approved and at three additional sites that were approved during treatment of
the first 100 patients, as well as adding tests that the Company has already
initiated to evaluate glare and contrast sensitivity. In October 1997, the
Company received conditional approval from the FDA to retreat patients in the
LTK clinical survey for hyperopia on an as-needed basis. The Company also
received conditional approval from the FDA to treat presbyopic patients in a new
clinical trial. The investigation will be a sub-study of the primary hyperopic
study and will include 60 patients at four sites.
The FDA will grant a PMA with respect to a particular procedure
performed with the LTK System only if and when it is satisfied that the use of
the device for that procedure is a safe and effective treatment for the
condition indicated. In granting a PMA, the FDA may restrict the types of
patients who may be treated, thereby limiting the market acceptance of the LTK
System. Even if FDA approval is obtained, a marketed product is subject to
continual review. Later discovery of previously unknown problems or failure to
comply with applicable regulatory requirements may result in restrictions on the
marketing of a product or withdrawal of the product from the market, in addition
to possible criminal and/or civil proceedings. Modifications to a device that is
the subject of an approved PMA, its labeling, or manufacturing process may
require approval by the FDA of PMA supplements or new PMAs. Supplements to a PMA
often require the submission of the same type of information required for an
initial PMA, except the supplement is generally limited to information needed to
support the proposed change from the product covered by the original PMA. There
can be no assurance the LTK System will be shown to be safe and effective, or
that it will be approved or cleared by the FDA or foreign regulatory bodies, for
the intended uses for which it is being investigated. Modifications could also
be required if the Company is unable to reach a satisfactory licensing
arrangement with the University of Miami on a jointly developed component of the
delivery system. See "-- Patent Concerns" below.
Any products manufactured or distributed by the Company will be subject
to pervasive and continuing regulation by the FDA. The FDC Act also requires the
Company to manufacture its products in registered establishments, in accordance
with the FDA's Good Manufacturing Practices ("GMP") regulations, and to list its
devices with the FDA. Such manufacturing facilities are subject to periodic GMP
inspections by the FDA. GMP regulations impose certain procedural and
documentation requirements with respect to manufacturing and quality assurance
activities. The FDA has proposed changes to the GMP regulations which will
likely increase the cost of compliance with GMP requirements. Labeling and
promotional activities are subject to scrutiny by the FDA and, and in certain
instances, by the Federal Trade Commission.
In addition, the introduction of the Company's products in foreign
countries may require obtaining individual foreign regulatory clearances in
numerous countries. Although the Company's products have been sold in
approximately 15 foreign countries, sales of the LTK System require rigorous
regulatory approvals before being sold in the United States and Japan. There can
be no assurance that the Company will be able to obtain regulatory clearances
for its products in the United States or foreign markets.
Uncertain Market Acceptance of the LTK System
7
<PAGE>
Although the Company has another ophthalmic laser product, the gLase
210, the Company has and intends to concentrate its efforts primarily on the
development of the LTK System, a holmium laser corneal shaping product, for the
correction of hyperopia (farsightedness) and will be dependent upon the
successful development of that system to generate increased revenues. Use of the
LTK System for LTK has not yet been introduced commercially in the United
States, and there can be no assurance that if approved by the FDA, such system
will be accepted by either the ophthalmic community or the general population as
an alternative to existing methods of treating refractive vision disorders. Many
ophthalmologists may have already invested significant time and resources in
developing expertise in other corrective ophthalmic techniques. Acceptance of
LTK may be affected adversely by its cost, concerns relating to its safety and
efficacy, the general resistance to use of laser products on the eye, the
effectiveness of alternative methods of correcting refractive vision disorders,
the lack of long-term follow-up data and the possibility of unknown side
effects. Promotional efforts by suppliers of products or procedures which are
alternatives to the LTK System, including eyeglasses, contact lenses and laser
and non-laser surgical procedures, may also adversely affect the market
acceptance of LTK. The Company's failure to achieve broad market acceptance of
LTK will have a material adverse effect on the Company's business, financial
condition and results of operations.
Safety and Efficacy Concerns; Lack of Long-Term Follow-Up
The Company has developed only limited clinical data to date on the
safety and efficacy of the LTK System in correcting hyperopia (farsightedness),
and related long-term safety and efficacy data. The FDA has not yet determined
whether the LTK System will prove to be safe or effective for the predictable
and reliable treatment of hyperopia (farsightedness) or other common vision
problems. Potential complications and side effects from the use of the LTK
System include mild foreign body sensation, temporary increased light
sensitivity, modest fluctuations in refractive capabilities during healing,
unintended over or under-corrections, regression of effect, and induced
astigmatism. There can be no assurance that long-term safety and efficacy data
when collected will be consistent with the clinical trial results previously
obtained or will demonstrate that the LTK System can be used safely and
successfully to treat hyperopia (farsightedness) in a broad segment of the
population on a long-term basis.
Loss of Dental Revenues
Prior to the sale of the dental assets in June 1997, the Company's
revenues were substantially derived from the sale of its dental laser and air
abrasive products. These sales represented 98% and 80% of the Company's revenues
in 1996 and the first six months of 1997, respectively. By selling the dental
assets, the Company has lost a significant source of continued revenue, although
the dental assets had recently been making a negative contribution to the
Company's financial results.
Limited Trading Market; Application of the Penny Stock Rules
On July 8, 1995, the Common Stock was delisted from The Nasdaq Stock
Market because the Company was unable to maintain the requisite standards for
continued listing. Accordingly, trading of the Common Stock is now conducted on
an electronic bulletin board established for securities that do not meet the
Nasdaq listing requirements. As a result, an investor may find it more difficult
to dispose of, or to obtain accurate quotations as to the price of the Common
Stock.
While the Company intends to eventually pursue being relisted on The
Nasdaq Stock Market, the Company's securities are now subject to the
Commission's "penny stock rules" that impose additional sales
8
<PAGE>
practice requirements on brokers-dealers who sell such securities to persons
other than established customers and accredited investors (generally defined as
an investor with a net worth in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with a spouse). For transactions covered by this
rule, the broker-dealer must make a special suitability determination for the
purchaser and must have received the purchaser's written consent to the
transaction prior to sale. Consequently, the Company's delisting may affect the
ability of broker-dealers to sell the Company's securities. There can be no
assurance that the Company will be successful in being relisted on The Nasdaq
Stock Market in the near future, if at all.
The Commission has adopted regulations that define "penny stock" to be
any equity security that has a market price (as defined) of less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
current quotations of the securities and, if the broker-dealer is the sole
market-maker, the monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. As a result of these regulations, an investor
may find it difficult to dispose of Common Stock.
Competition
The vision correction industry is subject to intense competition. The
significant competitive factors in the industry include price, convenience,
success relative to vision correction, acceptance of new technologies, patient
satisfaction and government approval. Patients with hyperopia (farsightedness)
can achieve vision correction with eyeglasses, contact lenses and possibly with
other technologies and surgical techniques currently under development, such as
corneal implants, lens replacement and surgery using different types of lasers.
The success of any competing alternative to LTK for treating hyperopia
(farsightedness) would have a material adverse effect on the Company's business,
financial condition and results of operations. Most of the Company's competitors
have substantially greater financial capabilities for product development and
marketing than the Company, which may enable such competitors to market their
products or procedures to the consumer and to the ophthalmic community in a more
effective manner.
The excimer laser is the dominant laser used for the treatment of
refractive disorders, although it is not currently approved to treat hyperopia
(farsightedness) in the United States or Japan, other than in limited clinical
trials. In the United States, VISX, Inc. ("VISX") and Summit Technologies, Inc.
("Summit") are the leading manufacturers of excimer refractive surgical systems.
While the Company believes the LTK process offers several distinct advantages
over the use of excimer lasers for treating hyperopia (farsightedness),
including ease of use and decreased invasiveness, both VISX and Summit have
significantly greater financial resources than the Company and have received FDA
approval for their respective excimer laser products for treating myopia
(nearsightedness). In addition, certain of the Company's competitors, including
Summit, have developed LTK devices for the treatment of hyperopia
(farsightedness). The Company believes its LTK System is superior to those of
its competitors and that use of Summit's holmium laser system for LTK may
violate certain of the Company's patents. None of the Company's competitors is
currently engaged in United States clinical trials to approve their LTK devices
for treating hyperopia (farsightedness). Although neither the VISX and Summit
excimer laser products nor the Summit LTK devices are currently approved for
treating hyperopia (farsightedness) in the United States and Summit discontinued
its clinical trials for treating hyperopia (farsightedness) with
9
<PAGE>
its holmium laser system in 1996, any alternative treatment offered by VISX or
Summit will have a competitive advantage because of the name recognition being
created by the current promotion of excimer laser product for correcting myopia
(nearsightedness) using lasers and the fact that VISX and Summit have been able
to establish a base of customers that are currently using their products. See
"Business -- Vision Correction Market."
Patent Concerns
Although the Company believes it holds dominant United States process
patents for the use of holmium lasers in non-destructive cornea shaping, process
and apparatus patents relating to shaping the cornea with holmium lasers have
been issued to others. An apparatus patent, generally, is a patent on a machine
or device. A process patent is a patent on a method of treating material to
produce a particular result or product, or on a new use of an apparatus, a
product or composition. The Company believes it is not infringing on any patents
held by others, however, if patents held by others were adjudged valid and
interpreted broadly in an adversarial proceeding, they could be deemed to cover
one or more aspects of the Company's holmium laser corneal shaping systems or
use of such systems to perform LTK or other procedures. There can be no
assurance that the Company will not be subject to one or more claims for patent
infringement, that the Company would prevail in any such action or that its
patents will afford protection against competitors with similar technology.
In the event the LTK System is adjudged to infringe a patent in a
particular market, the Company and its customers may be enjoined from making,
selling, and using such system in such market or be required to obtain a
royalty-bearing license, if available, on acceptable terms. Alternatively, in
the event a license is not offered or available, the Company might be required
to redesign those aspects of the LTK System held to infringe so as to avoid
infringement. Any redesign could delay reintroduction of the Company's products
into certain markets, or may be so significant as to be impractical. If redesign
efforts were impractical, the Company could be prevented from manufacturing and
selling the infringing products, which would have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition, the Company has attempted to negotiate with the University
of Miami to reach agreement regarding the non-exclusive use of a component of
the delivery system used in the LTK System which was jointly developed by the
Company and the University. The Company believes that it will be able to make
reasonable arrangements with the University. If, however, the Company is unable
to conclude negotiations with the University successfully, the University may
seek to prohibit the manufacture, sale and use of the delivery system presently
configured in the LTK System by asserting a patent of the University against the
Company. If the Company is forced to redesign the LTK System, such redesign
efforts could be time consuming, expensive and prolong FDA review.
Reliance on Key Personnel
The Company's principal executive officers have extensive experience in
ophthalmic research, development and sales. The loss of the services of any of
the Company's executive officers or other key personnel, or the failure of the
Company to attract and retain other skilled and experienced personnel on
acceptable terms, could have a material adverse effect on the Company's
business, results of operations and financial condition. Any transactions and
loans by and between the Company and an affiliate will be made or entered into
on terms that are no less favorable to the Company than those that can be
obtained from unaffiliated third parties. All such material affiliated
transactions and loans, and any
10
<PAGE>
forgiveness of loans, will be approved by a majority of the Company's
independent directors that do not have an interest in the transaction and who
have access, at the Company's expense, to the Company's or independent legal
counsel.
Potential Anti-Takeover Effects
The Company has adopted a stockholder rights plan. The plan and
provisions of the Company's Certificate of Incorporation, as amended, the
Company's Bylaws, as amended, and the Delaware General Corporation Law (the
"Delaware Law") may have the effect of delaying, discouraging, inhibiting,
preventing or rendering more difficult an attempt to obtain control of the
Company by means of a tender offer, business combination, proxy contest or
otherwise. These provisions include the charter authorization of "blank check"
preferred stock, classification of the Board of Directors, a restriction on the
ability of the stockholders to take actions by written consent and a Delaware
Law provision imposing restrictions on business combinations with certain
interested parties. See "Description of Capital Stock."
SELECTED FINANCIAL INFORMATION
The statement of operations data set forth below with respect to the
fiscal years ended December 31, 1994, 1995 and 1996 and the balance sheet data
at December 31, 1995 and 1996 are derived from, and are qualified by reference
to the Company's audited financial statements included elsewhere in this
Prospectus and should be read in conjunction with those financial statements and
the notes thereto. The statement of operations data for the years ended December
31, 1992 and 1993 and the balance sheet data at December 31, 1992, 1993 and 1994
are derived from audited financial statements not included in this Prospectus.
The statement of operations data for the six months ended June 30, 1996 and 1997
and the balance sheet data at June 30, 1997 are derived from unaudited financial
statements. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for such periods.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of results to be expected for the full fiscal year.
The Company's independent auditors have included an explanatory
paragraph in their report covering the Company's financial statements for the
year ended December 31, 1996, which paragraph emphasizes substantial doubt as to
the Company's ability to continue as a going concern, based primarily on the
recurring operating losses that have been incurred by the Company. Failure to
return to profitable operations or to obtain other financing could result in a
reorganization or complete liquidation of the Company.
11
<PAGE>
<TABLE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Six Months Ended
Fiscal Year Ended December 31, June 30,
1992 1993 1994 1995 1996 1996 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT
OF OPERATIONS DATA:
Net revenues .......................... $ 8,550 $ 11,860 $ 7,578 $ 5,294 $ 5,654 $ 2,560 $ 2,463
Gross profit .......................... 3,604 5,009 1,340 1,637 1,638 522 504
Purchase of in-process
technology .......................... 8,466 -- -- -- -- -- --
Income (loss) from
operations .......................... (13,337) (6,452) (6,917) (4,187) (6,020) (3,025) (3,380)
Income tax expense
(benefit) ........................... (1,612) 232 -- -- -- -- --
Net income (loss) ..................... (11,640) (6,624) (6,910) (4,130) (5,968) (2,992) (2,551)
Net income (loss)
per share (1) ....................... (1.44) (0.74) (0.68) (0.28) (0.23) (0.12) (0.09)
Weighted average shares
outstanding (1) ..................... 8,111 8,955 10,129 14,935 26,414 25,355 27,879
</TABLE>
<TABLE>
<CAPTION>
June
December 31, 30,
1992 1993 1994 1995 1996 1997
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE
SHEET DATA:
Working capital ....................... $ 7,877 $ 1,965 $ 1,101 $ 4,541 $ 1,073 $ 3,532
Total assets .......................... 10,339 5,511 3,822 6,689 3,741 5,616
Redeemable convertible
notes ............................... -- -- -- -- -- 3,658
Other long-term debt .................. 79 18 -- -- -- --
Stockholders' equity
(deficit) ........................... 9,038 2,708 1,357 4,745 1,272 (64)
</TABLE>
12
<PAGE>
- ---------------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements.
13
<PAGE>
BUSINESS
The Company develops, manufactures and markets laser and other systems
for applications in ophthalmology.
Ophthalmic Products
Corneal Shaping System (the LTK System)
In April 1992, Sunrise acquired Laser Biotech, Inc., a California
corporation ("Laser Biotech"), through a merger of a wholly-owned subsidiary of
Sunrise with Laser Biotech (the "Merger"). Laser Biotech was founded in 1986 by
Bruce J. Sand, M.D., FACS, to research and develop a precision laser instrument
for eye surgery. In connection with the Merger, the Company also acquired
certain patent and patent applications held by Dr. Sand covering the LTK
technique for reshaping the cornea using a holmium laser. The LTK technique
alters the shape of the cornea to correct refractive disorders such as hyperopia
(farsightedness) and presbyopia (age-related loss of near focusing ability)
without removing corneal tissue. The procedure employs a laser to selectively
shrink the collagen in the cornea, changing the curvature of the cornea and
thereby changing the refractive power of the eye. By comparison, excimer laser
systems for corneal reshaping developed by Summit and VISX remove parts of the
cornea to achieve changes in refraction. Laser Biotech conducted pre-clinical
studies to gain preliminary information on the efficacy and safety of the
product, which resulted in positive indications that the LTK System could be
applied successfully and safely to correct refractive errors.
In May 1992, the Company acquired substantially all of the in-process
technology of Emmetropix Corporation, a Texas corporation ("Emmetropix"),
including an assignment of certain patent applications and related technology
from an Emmetropix shareholder which the Company believes will be useful in
developing the LTK System.
The LTK System incorporates a holmium laser source built into a
standard slit-lamp to perform the LTK procedure. A slit-lamp is a binocular
microscope used regularly by ophthalmologists to examine an eye binocularly
under high magnification. The LTK System, which allows for easy alignment on a
patient's eye, delivers eight simultaneous laser beams disposed in a circle of
varying diameters for two seconds or less exposure to complete the treatment.
The LTK procedure typically is performed on the area of the eye that is outside
the central visual zone, leaving the central cornea untouched.
The Company received an IDE from the FDA to begin Phase I clinical
trials of the LTK System on human subjects in the first quarter of 1992. Phase I
trials commenced in June 1992 using a prototype LTK System designed and
developed by the Company. The Company completed Phase I of the clinical work for
the LTK System and filed its results with the FDA in June 1993. In September
1993, the Company received clearance to begin Phase IIa clinical trials for the
treatment of hyperopia (farsightedness). The trials were conducted at Doheny Eye
Institute at USC and Baylor University and completed in November 1994. In
February 1995, the Company filed its request with the FDA to commence Phase IIb
clinical trials. In March 1995, the FDA cited various deficiencies in the
Company's February letter and requested additional information which the Company
submitted in December 1995. In January 1996, the FDA responded to the Company's
submittal by requesting current follow-up data on all Phase IIa patients. In
March 1996, the Company provided the current follow-up data on all Phase IIa
patients. On September 5, 1996, the FDA authorized the Company to treat an
additional 100 subjects at five United States locations in a continuation of
Phase IIa clinical trials using a treatment algorithm
14
<PAGE>
developed by the Company in the course of the initial Phase IIa clinical trials
and in the course of studies conducted by ophthalmologists in Mexico, Great
Britain and Canada. Enrollment of patients in the continued clinical trial,
which was completed in July 1997, was limited to the treatment of 40 subjects
for the +1 diopter treatment group and 60 subjects for the +2 diopter treatment
group. The LTK System has been found to be most effective for the treatment of
patients in these groups, which covers the majority of those requiring treatment
for hyperopia (farsightedness). In August 1997, the Company received conditional
approval from the FDA to expand the investigation to include an additional 100
patients using the same treatment algorithm. Such approval is conditioned on the
Company agreeing to continue the investigation at the same five sites previously
approved and at three additional sites that were approved during treatment of
the first 100 patients, as well as adding tests and forms of analyses that the
Company has already initiated to evaluate glare and contrast sensitivity. In
October 1997, the Company received conditional approval from the FDA to retreat
patients in the LTK clinical survey for hyperopia on an asneeded basis. The
Company also received conditional approval from the FDA to treat presbyopic
patients in a new clinical trial. The investigation will be a sub-study of the
primary hyperopic study and will include 60 patients at four sites.
Clinical trials of the LTK System were initiated outside the United
States in early 1993 and are ongoing. The Company has obtained FDA export
clearance to market the LTK System in most European countries, Turkey, Saudi
Arabia, Canada, Mexico, Brazil, China, Korea, Hong Kong, the Bahamas, and other
countries, although such sales are subject to the individual regulatory
authority of each country. Following regulatory approvals, the Company commenced
marketing the LTK System overseas in December 1993, primarily in Europe, for the
treatment of hyperopia (farsightedness). To date, international sales of the LTK
System have been limited, as the Company has elected to focus its limited
financial resources on completion of United States clinical trials rather than
on the high start-up costs associated with such international sales.
There can be no assurance that the FDA will approve the results of
continued clinical trials, that the PMA will be approved or that the Company
will successfully develop or market the LTK System.
Ophthalmic Laser System for Glaucoma
In 1990, the Company developed the gLase 210 ophthalmic system (the
"gLase 210 System"), a holmium laser system designed to perform a filtering
procedure for the treatment of glaucoma. Conventional filtering procedures,
whereby a permanent drainage duct is created to relieve the pressure in the eye,
is a difficult surgical procedure and is currently being performed only by a
limited number of glaucoma specialists. The gLase 210 System emits radiation at
a wavelength that is highly absorbed by water and, therefore, by all tissues in
the body because water is the main constituent of all body tissues. The goal of
a filtering procedure is to relieve the pressure inside the eye by making a
small hole in the sclera, the strong wall of the eye. The pulsed nature of the
holmium laser, combined with the wavelength, provide an effective and efficient
way of creating a hole in the sclera with minimal disturbance to surrounding
tissues. The laser beam is brought to the target inside the eye with a 200
micron fiber built into a special probe that emits the laser beam at a right
angle to the fiber axis.
The design characteristics and the unique delivery device of the gLase
210 System enables the ophthalmologist to perform this procedure on an
outpatient basis, thus sometimes avoiding the use of an operating room and
hospitalization sometimes required with traditional filtering surgery. Foreign
sales of the gLase 210 System commenced on a limited basis during the second
quarter of 1990. Domestic sales commenced in December 1990 when the Company
received FDA clearance to begin commercial sale
15
<PAGE>
of the product line in the United States for the filtering procedure. The gLase
210 System is currently marketed directly and through dealers, distributors and
manufacturer's representatives in the United States and through distributors
internationally. Sales of the gLase 210 System have been limited, as the product
has not proven to be superior to other glaucoma treatments, and never
represented more than 11% of the Company's revenues in any year.
Sale of the Dental Business
The Company began as a developer and manufacturer of dental laser
systems. On June 26, 1997, the Company completed the sale of substantially all
of its assets associated with its dental laser, air abrasion and composite
curing systems to Lares in exchange for $4,000,000 in cash and a promissory note
in the amount of $1,500,000, with two installments due in three and four years,
respectively. The net proceeds of this sale are being used to conduct the
clinical trials for the Company's ophthalmic products, including the LTK System.
Prior to the sale, a substantial portion of the Company's revenues (98% in 1996
and 80% in the first six months of 1997) were derived from domestic and
international sales of the Company's dental products. However, operation of the
dental business had caused the Company to incur substantial losses in each of
the last five years of operations and were forecast to continue to show losses,
as a result of the steady decline in demand and market saturation for such
products.
The Vision Correction Market
Products and procedures that correct vision impairment resulting from
refractive errors of the eye constitute one of the largest medical markets
worldwide. In the United States, approximately 150 million people use eyewear
(glasses or contact lenses) to correct refractive errors. In 1994, United States
consumers spent approximately $14 billion for such purchases. Outside the United
States, at least 300 million additional people use eyewear to correct refractive
errors. The vision correction industry is subject to intense competition. The
significant competitive factors in the industry include price, convenience,
success relative to vision correction, acceptance of new technologies, patient
satisfaction and government approval.
Many eyewear users with myopia (nearsightedness) have sought refractive
surgery procedures, such as radial keratotomy and photo refractive keratectomy
("PRK"), as an alternative to eyewear. PRK has been used in an estimated
1,000,000 procedures worldwide, with over 150,000 of such procedures performed
in the United States. In PRK, an excimer laser is used to remove, irreversibly,
tissue within the optical zone to reshape the cornea. The excimer laser is the
dominant laser used for the treatment of refractive disorders, although it is
not currently approved to treat hyperopia (farsightedness) in the United States
or Japan, other than in limited clinical trials. In the United States, VISX and
Summit are the leading manufacturers of excimer refractive surgical systems.
Both VISX and Summit have received FDA approval for their respective excimer
laser products for treating myopia (nearsightedness).
In addition to the use of eyeglasses and contact lenses, patients with
hyperopia (farsightedness) may be able to achieve vision correction with other
technologies and surgical techniques currently under development, such as
corneal implants, lens replacement and surgery using different types of lasers.
The Company believes the LTK process offers several distinct advantages over the
use of excimer lasers for treating hyperopia (farsightedness), including ease of
use and decreased invasiveness. In contrast to radial keratotomy and PRK
procedures, there is no surgical trauma or major inconvenience with the LTK
process. Certain of the Company's competitors, including Summit, have developed
LTK devices for the treatment of hyperopia (farsightedness). These companies
produce a contact-mode holmium laser system
16
<PAGE>
equipped with a hand-held probe that delivers laser energy to a single spot on
the cornea during each application. The physician must move the probe
sequentially from spot to spot in order to produce treatment patterns. Since
laser energy is not delivered simultaneously and in a non-contact fashion to
form a ring of spots as it is with the LTK System developed by the Company, the
cornea is changed less consistently during treatment, which may lead to
irregular induced astigmatism. Management of the Company believes that the
contact-mode treatment of its competitors' devices will not be embraced by
physicians. Further, based on discussions with its patent counsel, the Company
believes that Summit's holmium laser system may violate certain of the Company's
patents. None of the Company's competitors is currently engaged in United States
clinical trials to approve their holmium laser devices for the treatment of
hyperopia (farsightedness).
Although neither the VISX and Summit excimer laser products nor the
Summit LTK devices are currently approved for treating hyperopia
(farsightedness) in the United States and Summit discontinued its clinical
trials for treating hyperopia (farsightedness) with its holmium laser system in
1996, any alternative treatment offered by VISX or Summit will have a
competitive advantage because of the name recognition being created by the
current promotion of excimer laser products in PRK procedures and the fact that
VISX and Summit have been able to establish a base of customers that are
currently using their products. In addition, most of the Company's competitors,
including VISX and Summit, have substantially greater financial capabilities for
product development and marketing than the Company, which may enable such
competitors to market their products or procedures to the consumer and to the
ophthalmic community in a more effective manner. The success of any competing
alternative to LTK for treating hyperopia (farsightedness) would have a material
adverse effect on the Company's business, financial condition and results of
operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
For the Year Ended December 31, 1996
Overview
The Company has incurred substantial losses in the past five years
which have seriously depleted its working capital. Sales of its existing dental
products at current levels were not expected to be sufficient to sustain both
the existing business and the continued development and regulatory licensing of
additional products including the LTK System. Historically, the Company has been
able to raise additional working capital for all aspects of its business through
the private placement of its common stock. These private placements raised
approximately $15,546,000 in gross proceeds (approximately $15,296,000 in net
proceeds) between 1994 and 1996 in new equity for the Company. Pursuant to the
1997 Notes Placement, consisting of two-year convertible notes and warrants, the
Company raised approximately $3,743,000 in net proceeds.
On March 12, 1997 the Company announced that it had entered into an
agreement for the sale of the dental assets to Lares, a privately held company
located in Chico, California. See "-- For the Six Months Ended June 30, 1997"
below.
Since its inception, the Company has generated revenues from the
manufacture and sale of laser systems for applications in the dental and medical
fields. In 1994, the Company introduced an air abrasive
17
<PAGE>
cavity preparation system for the dental market. After an initial period of
commercial success, laser product sales decreased steadily from a high of
approximately $20,000,000 in 1991 to approximately $2,000,000 in 1996. During
1996, the FDA Dental Advisory Panel voted to reject the Company's application
for the utilization of its dental laser products for hard tissue application,
which further limited the potential market for these products. The Company did
not anticipate significant increases in revenues from existing laser products in
1997.
In 1992, the Company acquired patented technology covering the use of a
holmium laser to reshape the cornea, which the Company believes will be useful
in the treatment of hyperopia (farsightedness), presbyopia (age-related near
focusing ability) and surgical overcorrection from PRK. The Company filed its
IDE with the FDA in 1992 and commenced Phase I clinical trials in that year. The
FDA approval process is expected to continue through at least 1999 with the cost
of clinical studies increasing as the number of sites and patients increases
during the period. Although the Company has had limited sales of its LTK System
outside the United States, significant revenues cannot be expected unless and
until FDA approval is obtained to market the system in the United States.
<TABLE>
The following table sets forth certain operations data as a percentage
of net revenue for the periods indicated.
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net revenues................................................................... 100% 100% 100%
Cost of revenues............................................................... 71 69 82
------ ----- -----
Gross profits.................................................................. 29 31 18
------ ----- -----
Other costs and expenses:
Engineering and development........................................... 23 23 20
Sales, marketing and regulatory....................................... 64 43 50
General and administration............................................ 48 44 39
------ ----- -----
Total other costs and expenses................................................. 135 110 109
------ ----- -----
Loss from operations........................................................... (106) (79) (91)
Interest income, net of expense................................................ 1 1 --
------ ----- -----
Loss before taxes on income.................................................... (105) (78) (91)
Income tax expense (benefit)................................................... -- -- --
------ ----- -----
Net Loss....................................................................... (105%) (78%) (91%)
====== ===== =====
</TABLE>
Revenues
The Company's revenues have historically been comprised primarily of sales
related to its dental products (98% in 1996, 76% in 1995 and 79% in 1994).
Revenues fell from $7,578,000 in 1994 to $5,294,000 in 1995, a decrease of
approximately 30%. The decrease is attributable to reduced demand for the
Company's dental laser products, which was partially offset by sales of the
Company's dental air abrasive products, first shipped in mid-1994. The Company
had achieved significant sales of dental laser products in Germany in 1994.
These sales levels in Germany were not achieved in later periods. During 1995,
the Company terminated its relationship with its exclusive distributor in
Germany. Sales of the Company's ophthalmic products, primarily non-United States
sales of the LTK System, were also lower in 1995 than 1994. Non-dental sales
represented 20% of revenue in 1994, 22% in 1995 and 2% in 1996.
18
<PAGE>
Revenues increased from $5,294,000 in 1995 to $5,654,000 in 1996, an
increase of approximately 7%. Sales of dental laser systems during 1996
increased slightly from prior levels. Sales of ophthalmic products were
insignificant in 1996 as the Company concentrated its limited resources on its
FDA clinical studies rather than overseas marketing. Significant increases in
sales of the Company's air abrasive products during 1996 more than offset the
decrease in sales of its ophthalmic products. The introduction of the MicroPrep
Associate in the first quarter of 1996 provided the impetus for the increase in
sales of the air abrasive product line.
Gross Profits
Gross profit margins were 18%, 31% and 29% in 1994, 1995 and 1996,
respectively. The 1995 improvement in gross profit, when compared to 1994, is
attributed to introduction of the cost-reduced MicroPrep Director, increased
pricing though direct distribution and improved manufacturing efficiencies.
Gross profit margins decreased in 1996 to 29% primarily as a result of
increased sales of dental products through distributors and the decrease in
sales of the LTK System which carries a higher gross margin than dental
products.
Engineering and Development
Engineering and development expenses were $1,561,000, $1,218,000 and
$1,326,000 for the years ended 1994, 1995 and 1996, respectively. Engineering
and development expenses decreased by $343,000 in 1995, due primarily to
completion of development of the MicroPrep product.
Engineering and development increased by $108,000 in 1996 compared to 1995
due primarily to development costs associated with the CureStar curing system, a
dental product introduced in the first quarter of 1997.
Sales, Marketing and Regulatory
Sales, marketing and regulatory expenses were $3,763,000, $2,277,000 and
$3,632,000 for the years ended 1994, 1995 and 1996, respectively.
The Company currently markets its ophthalmic lasers and marketed its dental
products through a small direct sales organization working with dealers,
distributors and manufacturer's representatives in the United States.
Distribution for all products internationally is handled through distributors.
The Company had 13 direct sales employees at the end of 1995, and three at the
end of 1996.
Sales, marketing and regulatory expenses decreased to $2,277,000 in 1995,
approximately a 39% reduction from the 1994 level. This reduction is principally
due to the lower international sales and marketing costs, including commissions,
as a result of decreased revenues in Germany.
Sales, marketing and regulatory expenses increased in 1996 over 1995 by 60%
due primarily to incremental costs associated with the development of a direct
sales force late in 1995, the launch of the MicroPrep Associate in the first
quarter of 1996 and costs associated with the expansion of the Phase IIa FDA
ophthalmic clinical studies and FDA review of the Company's PMA submitted for
use of its dental lasers for hard tissue applications.
19
<PAGE>
General and Administrative
General and administrative expenses were $2,933,000, $2,329,000 and
$2,700,000 for the years ended 1994, 1995 and 1996, respectively.
The Company's general and administrative expenses consist primarily of
product liability and officer and director liability insurance premiums;
accounting, legal and other fees related to financial transactions, patent and
general corporate matters, and litigation as well as provisions for the
Company's allowance for bad debts. General and administrative expenses decreased
to $2,329,000 in 1995, approximately a 21% reduction from the 1994 level, due
primarily to reduction in legal and accounting fees associated with litigation.
General and administrative expenses in 1996 increased 16% compared to 1995
primarily as a result of costs associated with the proposed acquisition of
EyeSys Technologies, which acquisition was never consummated, and the
development of a new management team for the ophthalmic business.
Income taxes
At December 31, 1996 and 1995, all deferred tax assets computed in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", have been fully offset by a valuation allowance.
As of December 31, 1996, the Company had federal net operating loss
carry-forwards of approximately $25,000,000. The ownership provisions of the
Internal Revenue Code of 1986 would limit the utilization of the carry-forwards
should there be a substantial change in the Company's ownership.
Net loss
The Company reported losses of $6,910,000, $4,130,000 and $5,968,000 in
1994, 1995 and 1996, respectively.
The net loss in 1994 was due principally to a severe drop in laser sales in
both the domestic and international marketplace and a decrease in foreign sales
of dental lasers. Somewhat offsetting these reductions were the initial sales of
the MicroPrep and across-the-board reductions in operating expenses.
The net loss in 1995 was due principally to the continued low level of
sales, excess manufacturing capacity and the Company's need to maintain the
basic sales, marketing, regulatory and corporate infrastructure. Although
across-the-board operating expense reductions totaled $2,433,000 in 1995 when
compared to 1994, the reductions did not offset the low level of sales volume.
The net loss in 1996 was due primarily to increased selling, marketing and
product development costs required to grow the business. A new sales, marketing
and regulatory team was hired to focus on sales of the LTK System outside the
United States and FDA clinical trials were expanded, along with expansion of
clinical research, to further advance the technology.
20
<PAGE>
Liquidity and Capital Resources
As of December 31, 1996 the Company had $647,000 in cash and cash
equivalents. The Company's operating activities used $5,297,000 in cash during
1996. This was funded from the reduction of cash and $2,495,000 net proceeds
received from a common stock private placement in August 1996.
Working capital amounted to $4,541,000 at December 31, 1995 and decreased
to $1,073,000 at December 31, 1996. The overall reduction in working capital is
consistent with the current year loss and fund raising activity.
The Company's current operations continue to be cash flow negative, further
straining the Company's working capital resources. The level of product sales
was not sufficient to provide enough cash to pursue the Company's dental
business and support ongoing development and regulatory approval of the LTK
System. Management's plans included selling the Company's dental assets and the
field of use rights related to its dental business. Subsequent to the sale,
which occurred on June 26, 1997, the Company is now focussing on further
developing and seeking regulatory approval of its ophthalmic related products.
Although dental related sales represented the majority of historical sales (98%
in 1996, 76% in 1995 and 79% in 1994), the dental business had recently become
unprofitable and was contributing negatively to the Company's cash flow.
Management's strategic plan is to use the proceeds from the sale of the dental
assets and the 1997 Notes Placement to further develop the ophthalmic products,
specifically the LTK System. There can be no assurance that the LTK System will
receive regulatory approval and that the Company will be successful in
developing, manufacturing and making the LTK System or other ophthalmic related
products. In February and March 1997, the Company completed private placements
of 5% convertible notes due 1999 (convertible into common stock) and warrants to
purchase common stock, for aggregate net proceeds of approximately $3,743,000.
See "-- For the Six Months Ended June 30, 1997" below.
See "Risk Factors -- History of Losses; Profitability Uncertain; Cash Flow
Deficit," "-- Continuing Losses Expected" and "-- Going Concern Report."
For the Six Months Ended June 30, 1997
Financial Condition
As of June 30, 1997, the Company had $4,129,000 in cash and cash
equivalents. The Company's operating activities used $4,040,000 in the six
months ended June 30, 1997 and used $5,297,000 in cash during fiscal 1996. A
substantial portion of the 1996 and 1997 losses was funded by a series of
private placements of the Company's common stock in 1996, for aggregate net
proceeds of approximately $2,495,000 (collectively, the "1996 Stock
Placements"), and the 1997 Notes Placement, for aggregate net proceeds of
approximately $3,743,000.
The Company's current operations continue to be cash flow negative,
limiting the Company's working capital resources. Working capital at June 30,
1997, including the net proceeds from the sale of the Dental Assets
(approximately $3,589,000), amounted to approximately $3,532,000. At December
31, 1996, working capital amounted to approximately $1,073,000. The Company's
ability to continue as a going concern is dependent upon performing profitably
or obtaining further financing. Management
21
<PAGE>
believes existing working capital will provide sufficient funds for the
Company's planned operations in 1997.
The Company's independent auditors have included an explanatory paragraph
in their report covering the Company's financial statements for the year ended
December 31, 1996, which paragraph emphasizes substantial doubt as to the
Company's ability to continue as a going concern, based primarily on the
recurring operating losses that have been incurred by the Company. Failure to
return to profitable operations or to obtain other financing could result in a
reorganization or complete liquidation of the Company.
Results of Operations
Revenues of $1,454,000 and $2,463,000 for the three and six month periods
ended June 30, 1997 represent a 40% increase and 4% decrease, respectively, from
revenues of $1,039,000 and $2,560,000 for the same periods in 1996. These
results are due to higher sales of ophthalmic products in 1997 offset by a
decline in demand for the Company's dental laser products. For the three and six
month periods ended June 30, 1997 sales of dental laser and air abrasive
products accounted for 76% and 80%, respectively, of total revenue.
Gross profits as a percentage of revenue increased to 31% for the three
month period ended June 30, 1997 from approximately 14% for the same period in
1996. This increase is due primarily to an increase in the proportion of sales
of ophthalmic products, at higher gross margins, and to favorable pricing on
dental laser products. Gross profits as a percentage of revenue were 20% for the
six month period ended June 30, 1997, essentially unchanged from the same period
in 1996.
Engineering and development expenses totaled $262,000 and $535,000 for the
three and six month periods ended June 30, 1997 compared to $283,000 and
$625,000 for the same periods of 1996. Such expenses were higher in 1996 due
primarily to one-time costs, including consulting costs, associated with the
CureStar composite curing system, a dental product introduced in the first
quarter of 1997.
Sales, marketing and regulatory costs were $784,000 and $1,443,000 for the
three and six month periods, respectively, ended June 30, 1997 compared to
$769,000 and $1,716,000 for the same periods of 1996. The increase for the three
month period is due primarily to increased marketing and regulatory spending for
the ophthalmic products offset by reduced marketing for dental products. The
decrease for the six month period is due primarily to higher costs in the first
quarter of 1996 incurred in connection with the launch of the Associate(R), a
dental, air-abrasive product.
General and administrative expenses were $1,200,000 and $1,906,000 for the
three and six month periods, respectively, of 1997 compared to $640,000 and
$1,206,000 for the same periods of 1996, primarily as a result of changes in the
Company's management team including charges related to the separation and
release of certain executive officers and directors.
Gain on sale of dental assets for the periods ended June 30, 1997 of
$1,740,000 results from $4,000,000 cash proceeds from the sale less cost of
assets sold and the ADT transfer fee, transaction fees and other costs of
approximately $762,000. The Company intends to recognize gain on the remaining
$1,500,000 of the purchase price evidenced by Lares' promissory note (the "Lares
Note") as cash is collected on the Lares Note, less additional transfer fees
payable to ADT when the first installment of the Lares Note is received by the
Company.
22
<PAGE>
Interest expense for the three and six month periods ended June 30, 1997 of
$131,000 and $943,000, respectively, represents primarily non-cash deemed
interest associated with the issuance of the Notes.
Net loss for the three and six month periods ended June 30, 1997 of
$163,000 and $2,551,000, respectively, is due primarily to the decreased demand
for the Company's dental products and non-cash interest expense of $943,000
associated with the 1997 Notes Placement, offset by the gain on the sale of the
dental assets in June.
On June 26, 1997, the Company completed the sale of the dental assets.
Since this transaction occurred at the end of the quarter, there was no material
impact on revenues or loss from operations resulting from the sale of the dental
assets. The gain of $1,740,000, as described above, resulted in a decrease in
loss per share of $.06 for the three month period ended June 30, 1997.
PRO FORMA FINANCIAL STATEMENTS
Unaudited Comparative Per Share Data
The following table sets forth: (1) the historical net loss per share and
the historical book value per share of the Common Stock; and (2) the unaudited
pro forma net loss per share after giving effect to the sale of the dental
assets on a retroactive basis excluding the gain (if any) from the sale for pro
forma net loss per share. The information presented in the table should be read
in conjunction with the unaudited pro forma condensed financial statements, the
Company's historical consolidated financial statements and unaudited interim
consolidated financial statements and the notes thereto appearing elsewhere
herein or incorporated by reference. No cash dividends have been declared by the
Company.
Historical Pro Forma
---------- ---------
Net Loss Per Share
Fiscal year ended December 31, 1996 $(0.23) $ (0.17)
Six months ended June 30, 1997 (0.09) (0.09)
Book Value Per Share At
December 31, 1996 0.05 N/A
June 30, 1997 (0.00) N/A
1. The Company's historical net loss per share represents amounts for the
year ended December 31, 1996 and six months ended June 30, 1997.
2. The Company's historical book value per share is calculated by
dividing stockholders' equity by the number of shares of Common Stock
outstanding at the end of the period (27,868,613 shares at December 31, 1996;
27,886,247 shares at June 30, 1997).
3. The unaudited pro forma net loss per share is based on the weighted
average number of shares of Common Stock outstanding during the period
(26,414,218 shares for the year ended December 31, 1996; 27,879,000 shares for
the six months ended June 30, 1997).
23
<PAGE>
Unaudited Pro Forma Condensed Financial Statements
The following unaudited pro forma condensed financial statements
represent the transaction in which the Company sold the assets associated with
its dental laser, air abrasive and composite curing systems, substantially under
the terms of an asset purchase agreement dated March 25, 1997 (the "Asset
Purchase Agreement"), to Lares, an unaffiliated corporation. The sale was
consummated on June 26, 1997.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results that would have occurred
if the sale had been consummated as presented in the accompanying unaudited pro
forma condensed financial information nor is it necessarily indicative of future
operating results.
The unaudited pro forma condensed financial information should be read in
conjunction with the accompanying note and the historical financial statements,
including the notes thereto, of the Company.
24
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1996
(In thousands, except per share data)
<CAPTION>
Sunrise Less
Technologies Sunrise Sunrise
International, Dental Ophthalmic
Inc. Business Business
--------- --------- ---------
(a) (b) (c)
<S> <C> <C> <C>
Net revenues ........................................................ $ 5,654 $ 5,514 $ 140
Cost of revenues .................................................... 4,016 3,900 116
-------- -------- --------
Gross profit ........................................................ 1,638 1,614 24
Other costs and expenses:
Engineering and development .................................. 1,326 470 856
Sales, marketing and regulatory .............................. 3,632 2,765 867
General and administrative ................................... 2,700 -- 2,700
-------- -------- --------
Total other costs and expenses ...................................... 7,658 3,235 4,423
-------- -------- --------
Net loss from operations ............................................ (6,020) (1,621) (4,399)
Net interest income ................................................. 52 31 21
-------- -------- --------
Net loss ............................................................ $ (5,968) $ (1,590) $ (4,378)
======== ======== ========
Net loss per share .................................................. $ (0.23) $ (0.17)
======== ========
Shares used in calculation of net loss per
share ............................................................... 26,414 26,414
======== ========
<FN>
(a) Represents historical Sunrise financial statements, including dental assets to be sold.
(b) Represents historical Sunrise dental assets to be sold, exclusive of any gain realized on the sale.
(c) Represents historical Sunrise, net of dental assets to be sold, exclusive of any gain realized on the
sale.
</FN>
</TABLE>
25
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997
(In thousands, except per share data)
<CAPTION>
Sunrise
Technologies Less
International, Sunrise
Inc., including Dental Sunrise
gain on sale of Business and Ophthalmic
dental assets related gain Business
-------- -------- --------
(a) (b) (c)
<S> <C> <C> <C>
Net revenues ........................................................ $ 2,463 $ 1,968 $ 495
Cost of revenues .................................................... 1,959 1,738 221
-------- -------- --------
Gross profit ........................................................ 504 230 274
Other costs and expenses:
Engineering and development ................................... 535 220 315
Sales, marketing and regulatory ............................... 1,443 746 697
General and administrative .................................... 1,906 1,018 888
-------- -------- --------
Total other costs and expenses ...................................... 3,884 1,985 1,899
-------- -------- --------
Net loss from operations ............................................ (3,380) (1,755) (1,625)
Gain on sale of dental assets ....................................... 1,740 1,740 --
Net interest income ................................................. 32 10 22
Net interest expense, including non-cash
interest expense associated with the
issuance of redeemable, convertible
notes ............................................................. (943) (3) (940)
-------- -------- --------
Net loss ............................................................ $ (2,551) $ (8) $ (2,543)
======== ======== ========
Net loss per share .................................................. $ (0.09) $ (0.09)
======== ========
Shares used in calculation of net loss per
share ............................................................... 27,879 27,879
======== ========
<FN>
(a) Represents historical Sunrise financial statements, including dental business sold.
(b) Represents historical Sunrise dental business sold, including any gain related to the sale.
(c) Represents historical Sunrise, net of dental business sold, exclusive of gain realized on the sale.
</FN>
</TABLE>
26
<PAGE>
NOTE TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
Year Ended December 31, 1996 and Six Months Ended June 30, 1997
The pro forma condensed financial statements give effect to the following
pro forma adjustments:
On June 26, 1997, Sunrise Technologies International, Inc. (the "Company")
sold the assets associated with its dental laser, air abrasive and composite
curing systems (the "Dental Assets"), substantially under the terms of the Asset
Purchase Agreement dated March 25, 1997, to Lares Research ("Lares"), an
unaffiliated corporation.
Under the terms of the Asset Purchase Agreement, the Company transferred
to Lares all of the Dental Assets except for cash and accounts receivable. All
liabilities of the dental operations were retained by the Company except for
certain obligations relating to royalties and a supply contract. At closing,
Lares paid the Company $4,000,000 in cash and delivered a promissory note in the
principal amount of $1,500,000 (the "Lares Note"), which bears interest at 8%.
Under the Lares Note, $1,000,000 is payable on the third anniversary of the
closing, and $500,000 is payable on the fourth anniversary of the closing. The
Lares Note is subordinate in right of payment to Lares' obligations to its bank
(the "Bank"). Lares has agreed that so long as the Lares Note is outstanding its
aggregate obligations to the Bank will not exceed $4,750,000. Although the
Company anticipates collecting interest and principal on the Lares Note, due to
subordination of the Lares Note to Lares' Bank, collection is not reasonably
assured and the Company intends to recognize proceeds from the sale and interest
on the Lares Note as cash is received.
After completing the sale of the Dental Assets the Company paid to ADT a
transfer fee of $275,000. In addition, on collection of the Lares Note principal
the Company will pay to ADT an additional transfer fee of ten percent of cash
collected on the $1,000,000 first installment of the Lares Note. This liability
has not been recognized in the unaudited pro forma condensed financial
statements given that collection of the first installment of the Lares Note is
not reasonably assured.
The Company's revenues were substantially derived from the sale of its
dental laser and air abrasive products. These sales represented 98% and 80% of
the Company's revenues in 1996 and the first six months of 1997, respectively.
Four million dollars of the purchase price, paid in cash, is being used by the
Company to fund its ophthalmic activities; however, by selling the Dental
Assets, the Company loses a significant source of continued revenue.
No profit from the sale has been reflected in the unaudited pro forma
condensed statements of operations due to the nonrecurring nature of this
transaction.
27
<PAGE>
<TABLE>
MANAGEMENT
The following persons serve as the current executive officers and
directors of Sunrise:
<CAPTION>
NAME AGE POSITION
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
C. Russell Trenary, III 40 President and Chief Executive Officer and Director
Timothy A. Marcotte 40 Vice President, Finance and Chief Financial Officer
Jeannie G. Cecka 35 Vice President, Clinical and Regulatory Affairs
Paul M. Malin 44 Vice President, Sales and Marketing
Robert A. Haddad 50 Vice President, Operations and Product Development
Joseph D. Koenig 67 Chairman of the Board and Director
Michael S. McFarland, M.D. 47 Director
Ronald A. Slocum 57 Director
</TABLE>
Mr. Trenary was appointed the Chief Executive Officer of the Company in
June 1997. In November 1996, Mr. Trenary was appointed President and Chief
Operating Officer of the Company and was also appointed to the Board of
Directors of the Company as a Class III director. Mr. Trenary was appointed
President and Chief Operating Officer of Laser Biotech, Inc., a wholly owned
subsidiary of the Company, in April 1996. From 1995 until the time he joined the
Company, Mr. Trenary served as Senior Vice President of Sales and Marketing for
Vidamed, Inc. Prior to 1995, Mr. Trenary served in various positions with
Allergan, Inc., most recently as Senior Vice President, General Manager of AMO
Surgical Products, an ophthalmic business. Mr. Trenary has an M.B.A. degree from
Michigan State University and a B.S. degree from Miami University.
Mr. Marcotte was appointed Vice President, Finance and Chief Financial
Officer of the Company in August 1997. From December 1996 to August 1997, Mr.
Marcotte was Vice President and Chief Financial Officer of InfoGain Corporation,
an information technology consulting firm. From June 1996 to December 1996, Mr.
Marcotte was the Vice President and Chief Financial Officer of IRIDEX
Corporation, a medical device manufacturer of ophthalmic laser products. From
May 1995 to June 1996, Mr. Marcotte served as the Executive Vice President of
Finance and Operations and Chief Financial Officer and Secretary for Now
Software, Inc., a desktop software developer, and from May 1993 to May 1995, he
served as Vice President of Finance and Operations and Chief Financial Officer
at the same company. From January 1992 to May 1993, Mr. Marcotte was the
Corporate Controller at Central Point Software Incorporated, a desktop software
developer. Mr. Marcotte has an M.B.A. degree and a B.S. degree from the
University of Michigan.
Ms. Cecka was appointed Vice President, Clinical and Regulatory Affairs of
the Company in July 1996. From March 1995 to April 1996, Ms. Cecka was Director
of Clinical and Regulatory Affairs at MedAcoustics, Inc. From September 1992 to
February 1995, Ms. Cecka was Manager of Clinical Research
28
<PAGE>
for Baxter Novacor, a developer and marketer of left ventricular assist devices.
Prior to September 1992, Ms. Cecka spent seven years at Allergan, Inc. holding
positions ranging from Manager, Clinical Affairs to Director, Worldwide Clinical
Research. Ms. Cecka has an M.B.A. degree from Pepperdine University and a B.S.
degree from UC Irvine.
Mr. Malin was appointed Vice President, Sales and Marketing, of the
Company in May 1996. Prior to joining the Company, Mr. Malin was the Director of
Marketing at IRIDEX Corporation, a medical device manufacturer of ophthalmic
laser products from July 1995 to May 1996. From October 1983 to July 1995, Mr.
Malin held various senior sales and marketing positions at Allergan, Inc. Mr.
Malin has an M.B.A. from Pepperdine University and a B.A. degree from Washington
and Lee University.
Mr. Haddad joined the Company in March 1997 as Vice President, Operations
and Product Development. From April 1992 to March 1997, Mr. Haddad was Vice
President, Operations, of IRIDEX Corporation, a medical device manufacturer of
ophthalmic laser products. Mr. Haddad has an M.B.A. degree from Sacramento State
University and a B.S. degree from California State Polytechnic University.
Mr. Koenig was appointed to the board of directors of the Company in
December 1994. Mr. Koenig had also served as a director of the Company from
August 1991 through January 1994. He has been a consultant for Koenig
Associates, a management consulting firm, since October 1984. Mr. Koenig is also
a director of Ancot Corporation, Hench Controls Corporation and Cardiac
Mariners. Mr. Koenig has a B.S. degree in Electrical Engineering from the
University of Illinois.
Dr. McFarland was appointed to the board of directors of the Company in
October 1997. From 1980, Dr. McFarland has been a practicing ophthalmologist in
Arkansas. Dr. McFarland was the recipient of the Innovators Award of the Irish
American Ophthalmological Association in 1992 for his development of sutureless
cataract surgery. Dr. McFarland has a B.S. degree from Hendrix College and a
M.D. degree from the University of Arkansas.
Mr. Slocum was appointed to the board of directors of the Company in
December 1994. From 1991 until his retirement in 1996, Mr. Slocum had been
employed by Bank of America Idaho, most recently as President, Chief Executive
Officer and Chairman of the Board. Mr. Slocum is also a Director of Bank of
America Oregon. Mr. Slocum has a B.S. degree in Business Management from San
Diego University.
DESCRIPTION OF CAPITAL STOCK
The current authorized capitalization of Sunrise consists of 75,000,000
shares of Common Stock and 2,000,000 shares of Preferred Stock, par value $0.001
per share ("Preferred Stock"). As of October 20, 1997, there were 28,883,862
issued and outstanding shares of Common Stock. No shares of Preferred Stock have
been issued or reserved for issuance by the board of directors of the Company
(the "Board").
The following summary of the terms of the Company's capital stock does
not purport to be complete and is qualified in its entirety by reference to the
terms set forth in the Company's Certificate of Incorporation, as amended to
date (the "Sunrise Certificate").
29
<PAGE>
Common Stock
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders of the Company. Stockholders do not have
cumulative voting rights. In the event of a liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to share equally and
ratably in any assets remaining after the payment of all debts and liabilities
of the Company, subject to the prior rights, if any, of the holders of Preferred
Stock. Holders of Common Stock do not have preemptive or other subscription or
conversion rights. Common Stock is not subject to redemption and the outstanding
shares, including the Offered Shares, are fully paid and nonassessable.
Preferred Stock
Preferred Stock may be issued from time to time in one or more series, as
determined by the Board. The directors may fix or alter from time to time the
designation, powers, preferences and rights of the shares of each series of
Preferred Stock, provided that the directors may alter the qualifications,
limitations or restrictions of any series of Preferred Stock only prior to the
issuance of any shares of such series. The directors may also establish from
time to time the number of shares constituting any series of Preferred Stock.
The directors may increase or decrease the number of shares subsequent to the
issuance of shares of a series, so long as the directors do not decrease the
number of authorized shares of a series below the number of shares of such
series then outstanding. The issuance of shares of Preferred Stock may have
voting and conversion rights which could adversely affect the holders of shares
of Common Stock. Under certain circumstances, the issuance of shares of
Preferred Stock may render more difficult or tend to discourage a merger, tender
offer or proxy contest, the assumption of control by a holder of a large block
of the Company's securities or the removal of incumbent management. The Company
will not issue Preferred Stock unless such issuance is approved by a majority of
the Company's independent directors who do not have an interest in the
transaction and who will have access, at the Company's expense, to the Company's
or independent legal counsel.
As of the date hereof, the Board has not designated any series of
Preferred Stock.
Price Range of Common Stock
As of October 29, 1997, there were 691 holders of record of the Common
Stock. Price information for Common Stock may be obtained from the OTC Bulletin
Board. The table below sets forth the reported high and low bid quotations of
the Common Stock as reported on the OTC Bulletin Board for the periods
indicated.
30
<PAGE>
HIGH ASK (1) LOW BID (1)
------------ -----------
1995
First Quarter......................... $1.97 $0.69
Second Quarter........................ $1.25 $0.56
Third Quarter......................... $2.37 $0.50
Fourth Quarter........................ $2.44 $0.94
1996
First Quarter......................... $1.44 $1.34
Second Quarter........................ $2.31 $1.13
Third Quarter......................... $2.00 $0.88
Fourth Quarter........................ $2.13 $0.81
1997
First Quarter......................... $1.72 $0.75
Second Quarter........................ $1.41 $0.94
Third Quarter......................... $3.94 $1.00
Fourth Quarter (to October 29)........ $5.09 $3.50
(1) Bid and ask prices are quoted on the OTC Bulletin Board in increments of
1/32. Certain of the bid and ask prices set forth in this table have
been rounded to the nearest cent.
On October 29, 1997, the closing price of the Common Stock as reported
on the OTC Bulletin Board was $4.00 per share. The over-the-counter market
quotations provided herein may reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
Dividends
In the past three years, the Company has not declared or paid any cash
dividend on the Common Stock. The Company currently intends to retain any and
all future earnings to finance its business. Accordingly, the Company does not
anticipate paying cash or other dividends on the Common Stock in the foreseeable
future.
Delaware Law and Certain Charter and Bylaw Provisions
The Sunrise Certificate contains the following special provisions that
may delay, defer or prevent a change in control of the Company:
The Board of Directors is divided into three classes, with members
serving three-year terms ending in successive years. An objective of the
classified Board is to facilitate continuity and stability of the Company's
management and policies, since a majority of the Directors at any given time
will have prior experience as Directors of the Company. However, classification
also makes it more difficult for the stockholders to change a majority of the
Board of Directors. It would take at least two annual meetings
31
<PAGE>
to elect a majority of the Board of Directors, unless the Sunrise Certificate
was amended to eliminate provisions for a classified Board of Directors.
The Sunrise Certificate also provides that Directors may only be removed
with cause by the vote of the holders of a majority of the voting power of the
outstanding voting stock of the Company. In addition, the Sunrise Certificate
provides that the Board of Directors may, from time to time, fix the number of
Directors constituting the Board of Directors and fill vacancies on the Board of
Directors.
The Sunrise Certificate authorizes the Board of Directors to fix or
alter from time to time the designation, powers, preferences and rights of the
Preferred Stock of each series and the qualifications, limitations or
restrictions of any unissued series of Preferred Stock, and to establish the
number of shares constituting any such series.
The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware (the "Delaware Law"). In general,
Section 203 prohibits certain publicly-held Delaware corporations from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person or entity
became an interested stockholder, unless the business combination is approved in
a prescribed manner or certain other exceptions apply. For purposes of Section
203, a "business combination" is defined broadly to include mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person or entity who, together with affiliates and associates, owns, or within
the three immediately preceding years of a business combination did own, 15% or
more of the corporation's outstanding voting stock.
In accordance with the Sunrise Certificate, for nominations for the
Board of Directors or for other business to properly brought by a stockholder
before an annual meeting of stockholders, the stockholder must first have given
timely notice thereof in writing to the Secretary of the Company. To be timely,
a stockholder's notice generally must be delivered not less than 60 days nor
more than 90 days prior to the annual meeting. The notice must contain, among
other things, certain information about the stockholder delivering the notice
and as applicable, background about the nominee or a description of the proposed
business to be brought before the meeting.
The Sunrise Certificate and the Bylaws provide that no action is
permitted to be taken by the stockholders of the Company by written consent.
Special meetings may be called only by the Board of Directors, the Chairman of
the Board or the Chief Executive Officer of the Company. These provisions could
have the effect of delaying until the next annual stockholders' meeting
stockholder actions which are favored by the holders of a majority of the
outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Common
Stock, because such person or entity, even if it acquired a majority of the
outstanding voting securities of the Company, would be able to take action as a
stockholder (such as electing new Directors or approving a merger) only at a
duly called stockholders' meeting, and not by written consent.
The Delaware Law provides generally that the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless a corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. The affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the outstanding voting stock of the Company is
required to: (a) alter, amend or adopt new Bylaws; and (b) to alter, amend or
repeal Article V, VI or VII of the Sunrise Certificate. Such stockholder vote
would
32
<PAGE>
be in addition to any separate class vote that might in the future be required
pursuant to the terms of any Preferred Stock that might be outstanding at the
time any such amendments are submitted to stockholders. See "Risk Factors --
Potential Anti-Takeover Effects."
Stockholders' Rights Plan
Each issued and outstanding share of Common Stock has associated with
it one right to purchase from the Company a share of Common Stock (the "Rights")
at a price of $20 (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in the rights agreement (the "Rights
Agreement") between the Company and ChaseMellon Shareholder Services, L.L.C., as
rights agent (the "Rights Agent"). The Rights will be evidenced by the Common
Stock certificates. Until the earlier to occur of: (i) ten business days
following a public announcement that a person or group of affiliated or
associated persons has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of Common Stock, or any
person who acquires beneficial ownership in a Permitted Transaction, as defined
below (an "Acquiring Person"); or (ii) ten business days (or such later date as
may be determined by action of the Board of Directors prior to any person
becoming an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer, the consummation of
which would result in the beneficial ownership by a person or group of 15% or
more of such outstanding shares of Common Stock (the earlier of such dates being
the "Distribution Date").
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the shares of Common Stock. Until
the Distribution Date (or earlier redemption or expiration of the Rights), new
shares of Common Stock certificates issued upon transfer or new issuances of
shares of Common Stock will contain the notation incorporating the Rights
Agreement by reference. As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights (the "Rights Certificates") will be
mailed to holders of record of the shares of Common Stock as of the close of
business on the Distribution Date and such separate Rights Certificates alone
will evidence the Rights. The Rights are not exercisable until the Distribution
Date and will expire on October 24, 2007 (the "Final Expiration Date"), unless
extended or unless the Rights are earlier redeemed by the Company.
The Purchase Price payable and the number of shares of Common Stock or
other securities or property issuable upon exercise of the Rights are subject to
adjustment in certain circumstances. In the event any person or entity becomes
an Acquiring Person and one of the following events have occurred, then proper
provision will be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will then be void), will have
the right to receive upon exercise that number of shares of Common Stock having
a market value of two times the applicable exercise price of the Right: (i) the
Company is the surviving corporation in a merger with an Acquiring Person and
the shares of Common Stock are not changed or exchanged; (ii) the Acquiring
Person engages in certain self-dealing transactions with the Company; (iii) any
person becomes the beneficial owner of 15% or more of the outstanding shares of
Common Stock (unless the event in which such person acquired 15% or more of the
outstanding shares of Common Stock is a Permitted Transaction); or (iv) the
Company engages in a reclassification or recapitalization that results in an
increase of 1% or more in the Acquiring Person's percentage of ownership of the
Company.
A Permitted Transaction is a stock acquisition or tender or exchange
offer pursuant to a definitive agreement that would result in a person
beneficially owning 50% or more of the outstanding shares of shares of Common
Stock and that was approved by the directors (including a majority of the
directors not in association with an Acquiring Person) prior to the execution of
the agreement or the public announcement of the offer. In the event that the
Company is acquired in a merger or other business combination transaction or 50%
or more of its consolidated assets or earning power are sold, unless such event
is a Permitted Transaction, proper provisions will be made so that each holder
of a Right will have the right to receive, upon the exercise of the Right at the
then applicable exercise price, that number of shares of common stock of the
acquiring company that at the time of such transaction will have a market
<PAGE>
value of two times the applicable exercise price of the Right. At any time prior
to the tenth business day following an Acquiring Person's acquisition of 15% or
more of the outstanding shares of the shares of Common Stock, the Board of
Directors, with concurrence of a majority of the directors in office at the time
the Rights Agreement was adopted or whose initial election or nomination for
election by the Company's stockholders was approved by a majority of the such
directors then serving on the Board of Directors (the "Continuing Directors"),
may redeem the Rights in whole, but not in part, at a price of $0.001 per Right.
In addition, the Board of Directors may extend or reduce the period during which
the Rights are redeemable, so long as the Rights are redeemable at the time of
such extension or reduction. Immediately upon any redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price. The terms of the Rights may be
amended by the Board of Directors, with concurrence of a majority of the
Continuing Directors, without the consent of the holders of the Rights,
including an amendment to extend the Final Expiration Date, except that from and
after the Distribution Date no such amendment may adversely affect the economic
interests of the holders of the Rights. See "Risk Factors -- Potential
Anti-Takeover Effects."
<TABLE>
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common
Stock as of October 29, 1997 by certain members of management and by all
executive officers and directors of the Company, as a group. The Company is not
aware of any person who beneficially owns more than 5% of the outstanding Common
Stock.
<CAPTION>
Beneficial Ownership (1)
-------------------------------------
Number of Percent of
Shares Shares
-------------------------------------
<S> <C> <C>
C. Russell Trenary, III (2)........................................ 329,522 1.1
Timothy A. Marcotte (3)............................................ 22,613 0.1
Paul M. Malin (4).................................................. 43,539 0.2
Jeannie G. Cecka (5)............................................... 39,692 0.1
Robert A. Haddad (6)............................................... 39,071 0.1
Joseph D. Koenig (7)............................................... 37,292 0.1
Michael S. McFarland (8)........................................... 12,667 *
Ronald A. Slocum (9)............................................... 47,292 0.2
All executive officers and directors as a group
(8 persons)...................................................... 571,688 1.9
=======
<FN>
(1) Based on information provided by each of the identified officers and
directors.
(2) Includes 259,438 shares that Mr. Trenary does not currently own, but
which he has the right to acquire within 60 days of October 17, 1997,
pursuant to outstanding options granted under the Company's stock option
plan ("Options") and 68,517 shares associated with convertible notes and
warrants purchased in February 1997.
(3) Consists of shares that Mr. Marcotte does not currently own, but which
he has the right to acquire within 60 days of October 17, 1997, pursuant
to Options.
(4) Includes 41,363 shares that Mr. Malin does not currently own, but which
he has the right to acquire within 60 days of October 17, 1997, pursuant
to Options.
(5) Includes 34,592 shares that Ms. Cecka does not currently own, but which
she has the right to acquire within 60 days of October 17, 1997,
pursuant to Options.
(6) Includes 9,071 shares that Mr. Haddad does not currently own, but which
he has the right to acquire within 60 days of October 17, 1997, pursuant
to Options.
33
<PAGE>
(7) Consists of shares that Mr. Koenig does not currently own, but which he
has the right to acquire within 60 days of October 17, 1997, pursuant to
Options.
(8) Includes 6,667 shares that Dr. McFarland does not currently own, but
which he has the right to acquire within 60 days of October 17, 1997,
pursuant to Options.
(9) Includes 37,292 shares that Mr. Slocum does not currently own, but which
he has the right to acquire within 60 days of October 17, 1997, pursuant
to Options.
</FN>
</TABLE>
SELLING SECURITYHOLDERS
The Offered Shares, other than shares underlying Placement Agent
Warrants, were acquired by the Selling Securityholders either: (a) in the 1996
Equity Placement; or (b) in the 1997 Notes Placement. Absent registration under
the Securities Act, the Offered Shares are subject to certain limitations on
resale. The Registration Statement of which this Prospectus forms a part has
been filed in satisfaction of certain registration rights granted by the Company
to the Selling Securityholders.
Certain of the Selling Securityholders, PMG and M.J. Meehan & Co., are
or are affiliated with members of the National Association of Securities
Dealers, Inc. ("NASD"). PMG has engaged from time to time, and in the future PMG
and/or M.J. Meehan & Co. and/or their respective affiliates may engage, in
market-making activities with respect to the Common Stock. PMG, M.J. Meehan &
Co. and their respective affiliates have engaged from time to time, and in the
future may engage, in purchase and sale transactions involving Common Stock,
including transactions with other NASD member firms. The Selling
Securityholders, including PMG and M.J. Meehan & Co., and any participating
broker or dealer may be deemed to be "underwriters" within the meaning of the
Securities Act. Any commissions, discounts or concessions and any gain realized
by a person deemed to be an underwriter may be deemed to be underwriting
compensation to such person. From time to time since 1994, PMG has provided
financial advisor and investment banking services to the Company pursuant to
engagement and other agreements (the "PMG Agreements"). Under the PMG
Agreements, Sunrise has agreed to indemnify PMG and certain of its affiliates
and employees from and against certain losses and liabilities.
The following table assumes that each of the Selling Securityholders
will sell all of the Offered Shares set forth opposite such Selling
Securityholder's name. However, one or more of the Selling Securityholders may
sell only a portion or may sell none of the Offered Shares set forth opposite
such Selling Securityholder's name.
34
<PAGE>
<TABLE>
<CAPTION>
Number
of
Common Shares Shares
Beneficially Owned Prior Held of Common Shares Beneficially
to the Offering (1) Record to Owned After the Offering (1)
------------------------------------- be Sold in -----------------------------------
Number of Percent the Number of Percent
Shares of Class Offering Shares of Class
<S> <C> <C> <C> <C> <C>
1996 Equity Placement:
Robert L. Cahill, Jr.................. 145,000 * 60,000 85,000 *
Joseph D. Casey....................... 20,000 * 20,000 0 --
Donald S. Chapman..................... 1,270,588 (2) 4.6 320,588 800,000 2.9
Faith S. Chapman...................... 1,270,588 (3) 4.6 150,000 800,000 (4) 2.9
Paul Ernest........................... 42,353 * 42,353 0 --
Mark P. Ettinger, Trustee of
the Mark P. Ettinger
Revocable Trust dated
February 1, 1995...................... 185,500 (5) * 55,000 130,500 *
Joseph E. Gallo, Trustee
F/B/O Stephanie A. Gallo
1987 Non-Exempt Family
Trust U/ART IV
December 16, 1987..................... 493,722 (6) 1.8 313,725 179,997 *
Jospeh E. Gallo, Trustee
F/B/O Ernest J. Gallo 1987
Non-Exempt Family Trust
U/ART IV December 16, 1987............ 493,727 (7) 1.8 313,725 180,002 *
Joseph E. Gallo, Trustee
F/B/O Joseph C. Gallo 1987
Non-Exempt Family Trust
U/ART IV December 16, 1987............ 493,726 (8) 1.8 313,725 180,001 *
Russell H. Harbaugh Jr.,
Trustee for Brett Alan
Tritsch Trust DTD
October 12, 1981...................... 20,000 (9) * 20,000 0 --
Russell H. Harbaugh Jr.,
Trustee for Robert Christian
Tritsch Trust DTD
October 12, 1981...................... 20,000 (9) * 20,000 0 --
35
<PAGE>
Number
of
Common Shares Shares
Beneficially Owned Prior Held of Common Shares Beneficially
to the Offering (1) Record to Owned After the Offering (1)
------------------------------------- be Sold in -----------------------------------
Number of Percent the Number of Percent
Shares of Class Offering Shares of Class
Russell H. Harbaugh Jr.,
Trustee for Shane Drue
Tritsch Trust DTD
October 12, 1981...................... 20,000 (9) * 20,000 0 --
Russell H. Harbaugh Jr.,
Trustee for Tanni Maria
Tritsch Trust DTD
October 12, 1981...................... 20,000 (9) * 20,000 0 --
Russell H. Harbaugh Jr.,
Trustee for Todd Charles
Tritsch Trust DTD
October 12, 1981...................... 20,000 (9) * 20,000 0 --
Russell H. Harbaugh Jr.,
Trustee for Brett Alan
Tritsch Trust DTD
December 20, 1984..................... 20,000 (9) * 20,000 0 --
Russell H. Harbaugh Jr.,
Trustee for Robert Christian
Tritsch Trust DTD
December 20, 1984..................... 10,000 (9) * 10,000 0 --
Russell H. Harbaugh Jr.,
Trustee for Shane Drue
Tritsch Trust DTD
December 20, 1984..................... 10,000 (9) * 10,000 0 --
Russell H. Harbaugh Jr.,
Trustee for Tanni Maria
Tritsch Trust DTD
December 20, 1984..................... 20,000 (9) * 20,000 0 --
Russell H. Harbaugh Jr.,
Trustee for Todd Charles
Tritsch Trust DTD
December 20, 1984..................... 20,000 (9) * 20,000 0 --
Russell H. Harbaugh Jr.,
Trustee for Steven Andrew
Oxley Trust DTD
December 9, 1985...................... 10,000 (9) * 10,000 0 --
R.B. Jowell........................... 50,000 * 50,000 0 --
36
<PAGE>
Number
of
Common Shares Shares
Beneficially Owned Prior Held of Common Shares Beneficially
to the Offering (1) Record to Owned After the Offering (1)
------------------------------------- be Sold in -----------------------------------
Number of Percent the Number of Percent
Shares of Class Offering Shares of Class
Charles C. Killin, Trustee
for Thomas E. Oxley Trust
DTD September 3, 1952................. 100,000 (10) * 100,000 0 --
Charles C. Killin, Trustee
for Mary Jane Tritsch Trust
DTD September 3, 1952................. 100,000 (10) * 100,000 0 --
M.J. Meehan & Co...................... 176,471 * 176,471 0 --
Stephen Michael Oxley................. 20,000 * 20,000 0 --
Michael Patipa........................ 100,000 * 50,000 50,000 *
Harry Wallaesa........................ 48,824 * 18,824 30,000 *
Helen Wilkes.......................... 40,000 * 40,000 0 --
1997 Notes Placement:
David C. Brown........................ 171,428 * 171,428 0 __
Richard C. Goodwin.................... 171,428 * 171,428 0 --
Dr. Donald Sanders
IRA
Oppenheimer & Company, Inc.,
Custodian
Account No. 320-15187................. 857,142 3.1 857,142 0 --
Jeffrey Meloche....................... 85,713 * 85,713 0 --
Joseph Meloche........................ 85,713 * 85,713 0 --
Paul R. Yoder, Jr..................... 85,713 * 85,713 0 --
Donald, Lufkin & Jenrette Securities
Corporation, Custodian
F/B/O Frank J. Campbell III
Account No. 698-101714................ 61,500 * 61,500 0 --
EDJ Limited........................... 90,000 * 90,000 0 --
Amir L. Ecker......................... 150,000 * 150,000 0 --
Donald, Lufkin & Jenrette Securities
Corporation, Custodian
F/B/O Amir L. Ecker
Account No. 698-103058................ 105,000 * 105,000 0 --
37
<PAGE>
Number
of
Common Shares Shares
Beneficially Owned Prior Held of Common Shares Beneficially
to the Offering (1) Record to Owned After the Offering (1)
------------------------------------- be Sold in -----------------------------------
Number of Percent the Number of Percent
Shares of Class Offering Shares of Class
FMS Profit Sharing.................... 171,428 * 171,428 0 --
Gregory A. Frankenfield
and Carol G. Frankenfield,
JTWROS................................ 12,000 * 12,000 0 --
Harvey Kahn........................... 222,000 * 222,000 0 --
Clifford J. Kalista, Jr. and
Phyllis D. Kalista - JT............... 90,000 * 90,000 0 --
Mary Losty............................ 81,000 * 81,000 0 --
Salomon Melgen........................ 514,286 1.8 514,286 0 --
Daniel J. O'Connor.................... 85,713 * 85,713 0 --
Porter Partners, L.P.................. 423,000 1.5 423,000 0 --
The Charles Post Charitable
Remainder Trust....................... 342,858 1.2 342,858 0 --
Donaldson, Lufkin &
Jenrette Securities
Corporation, Custodian
F/B/O John A. Retzlaff
Account No. 698-708245................ 188,571 * 188,571 0 --
Donaldson, Lufkin &
Jenrette Securities
Corporation, Custodian
F/B/O Leonid Roytman
Account No. 698-705175................ 75,000 * 75,000 0 --
Dr. Donald Sanders
IRA
Oppenheimer & Company, Inc.,
Custodian
Acct. No. 320-15167................... 205,713 * 205,713 0 --
Perry D. Snavely, Jr.................. 90,000 * 90,000 0 --
Carolyn Wittenbraker.................. 37,500 * 37,500 0 --
Lawton Chiles and
Rhea Chiles........................... 171,428 * 171,428 0 --
William M. Aden....................... 171,428 * 171,428 0 --
38
<PAGE>
Number
of
Common Shares Shares
Beneficially Owned Prior Held of Common Shares Beneficially
to the Offering (1) Record to Owned After the Offering (1)
------------------------------------- be Sold in -----------------------------------
Number of Percent the Number of Percent
Shares of Class Offering Shares of Class
Alan B. Aker and
Ann G. Kasten-Aker,
JTWROS................................ 428,571 1.5 428,571 0 --
Jerre Minor Freeman, M.D.............. 171,428 * 171,428 0 --
J.L. Gayton........................... 42,857 42,857
Johnnie L. Gayton
UTA Charles Schwab &
Co. Inc.
IRA Contributory Dtd
1/20/83............................... 85,713 * 85,713 0 --
Manus C. Kraff, M.D................... 428,571 1.5 428,571 0 --
Scott McQueen......................... 30,000 * 30,000 0 --
Post Eye Center PC
401k Plan U/A dtd 1-01-89
CT Post, Jr. TTEE..................... 171,429 * 171,429 0 --
Coutts (Jersey) Limited
- -JY798967............................. 750,000 2.7 750,000 0 --
Pennsylvania Merchant Group Ltd....... 1,084,977 3.9 1,084,977 0 --
<FN>
- ----------
* Less than one percent.
(1) Determined as of June 30, 1997.
(2) Includes 150,000 shares held of record by Faith S. Chapman, all of which are Offered Shares.
(3) Includes 1,120,588 shares held of record by Donald S. Chapman, 320,588 of which are Offered Shares.
(4) Includes 800,000 shares held of record by Donald S. Chapman.
(5) Includes 19,000 shares held in a joint tenant account with Scott Ettinger and 20,000 shares held in a joint tenant account
with Susan Ettinger. Scott Ettinger and Susan Ettinger are members of the immediate family of Mark P. Ettinger, trustee of
this Selling Securityholder.
39
<PAGE>
(6) Includes 113,330 shares held of record by Joseph E. Gallo, Trustee, FBO Stephanie A. Gallo Family Trust, dated August 17,
1990; and 66,667 shares held of record by Stephanie A. Gallo, Trustee of the Stephanie A. Gallo Grantor Trust, dated
December 14, 1993. Does not include shares held of record by Joseph E. Gallo as trustee for other trusts.
(7) Includes 113,335 shares held of record by Joseph E. Gallo, Trustee, FBO Ernest J. Gallo Family Trust, dated December 16,
1991 and 66,667 shares held of record by Ernest J. Gallo, Trustee of the Ernest J. Gallo Grantor Trust, dated December 14,
1993. Does not include shares held of record by Joseph E. Gallo as trustee for other trusts.
(8) Includes 113,335 shares held of record by Joseph E. Gallo, Trustee, FBO Joseph C. Gallo Family Trust, dated December 22,
1994 and 66,666 shares held of record by Joseph C. Gallo, Trustee of the Joseph C. Gallo Grantor Trust, dated April 28,
1994. Does not include shares held of record by Joseph E. Gallo as trustee for other trusts.
(9) Does not include shares held of record by Russell H. Harbaugh Jr. as trustee for other trusts.
(10) Does not include shares held of record by Charles C. Killin as trustee for other trusts.
(11) Consists solely of shares underlying the Placement Agent Warrants.
</FN>
</TABLE>
PLAN OF DISTRIBUTION
General
Some or all of the Offered Shares may be offered for sale and sold from
time to time by the Selling Securityholders in the over-the-counter market (or
any national securities exchange or interdealer quotation system on which the
Common Stock may then be listed), in privately negotiated transactions (which
may include block transactions) or otherwise. In addition, the Selling
Securityholders may engage in short sales and other transactions in the Common
Stock or derivatives thereof, and may pledge, sell, deliver or otherwise
transfer the Offered Shares in connection therewith. This Prospectus may be used
by the Selling Securityholders or by any broker-dealer who may participate in
sales of the Offered Shares. Participating broker-dealers may act as agents or
principals or both and may receive commissions, discounts or concessions in
connection with sales or other transfers of Offered Shares. The Company has not
entered into any agreements or arrangements relating to the sale of the Offered
Shares.
The Company has agreed to pay the expenses of registering the Offered
Shares on behalf of the Selling Securityholders, other than broker-dealer
commissions, discounts or concessions and any legal fees incurred by the Selling
Securityholders in connection with sales of the Offered Shares. The Company and
the Selling Securityholders have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
Suitability Standards
An investment in the Offered Shares involves certain risks and is
suitable only for persons of adequate financial means. The Company's securities
are now subject to the Commission's "penny stock rules" that impose additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and accredited investors (generally
defined as an investor with a net worth in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with a spouse). For transactions
covered by this rule, the broker-dealer must make a special suitability
determination for the purchaser and must have received the purchaser's written
consent to the transaction prior to sale. In addition, certain state securities
commissions are requiring investors residing in their state
40
<PAGE>
to be subject to additional suitability standards. Investors in California and
Oregon must have either: (i) a minimum annual gross income of $65,000 and a net
worth (exclusive of home, home furnishings and automobiles) of $65,000; or (ii)
a net worth (determined with the foregoing exclusions) of $225,000.
Investors in Kentucky must be accredited investors.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Offered
Shares by the Selling Securityholders.
EXPERTS
The consolidated financial statements of Sunrise at December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996,
appearing in this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Offered Shares
will be passed upon for the Company by Holleb & Coff, Chicago, Illinois.
41
<PAGE>
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..............................................................F- 2
Consolidated Balance Sheets as of December 31, 1995
and 1996................................................................................................F- 3
Consolidated Statements of Operations for the Years
Ended December 31, 1994, 1995 and 1996..................................................................F- 4
Consolidated Statement of Stockholders' Equity for the
Three Years Ended December 31, 1996.....................................................................F- 5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996........................................................................F- 6
Notes to Consolidated Financial Statements.....................................................................F- 7
Schedule II Valuation and Qualifying Accounts..................................................................F-15
Condensed Consolidated Statements of Operations --
Three and Six Months ended June 30, 1997 and
1996 (unaudited)........................................................................................F-16
Condensed Consolidated Balance Sheets -- June 30, 1997
(unaudited) and December 31, 1996.......................................................................F-17
Condensed Consolidated Statements of Cash Flows --
Six Months ended June 30, 1997 and 1996 (unaudited).....................................................F-18
Notes to Condensed Consolidated Financial Statements...........................................................F-19
</TABLE>
F-1
<PAGE>
[Report of Independent Certified Public Accountants]
F-2
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Consolidated Financial Statements
[to be provided by the Printer]
F-3
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made hereby, and if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Selling Securityholders. This Prospectus does not
constitute an offer to sell or the solicitation of any offer to buy any security
other than the shares of Common Stock offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of any offer to buy the shares of
Common Stock by anyone in any jurisdiction in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation is
not qualified to do so, or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus, nor any sale
made hereunder shall, under any circumstances, create any implication that there
has not been a change in the facts set forth in this Prospectus or in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to the date hereof.
----------
TABLE OF CONTENTS
Page
----
Available Information........................................................ 1
Incorporation of Certain Information
by Reference............................................................... 1
Disclosure Regarding Forward-Looking
Statements................................................................. 2
Prospectus Summary........................................................... 3
Risk Factors................................................................. 5
Selected Financial Information............................................... 11
Business..................................................................... 14
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 17
Pro Forma Financial Statements............................................... 23
Management................................................................... 28
Description of Capital Stock................................................. 29
Share Ownership by Principal Stockholders and
Management................................................................. 33
Selling Securityholders...................................................... 34
Plan of Distribution......................................................... 40
Use of Proceeds.............................................................. 41
Experts...................................................................... 41
Legal Matters................................................................ 41
Index to Consolidated Financial Statements...................................F-1
================================================================================
================================================================================
10,273,519 Shares
SUNRISE TECHNOLOGIES
INTERNATIONAL, INC.
Common Stock
----------
PROSPECTUS
----------
November ___, 1997
================================================================================
<PAGE>
PART II
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company and the Selling
Securityholders in connection with the sale of the Common Stock being
registered. All amounts are estimates except the registration fee.
Amount to be Paid
-----------------
SEC Registration Fee........................................ $ 4,603
Printing.................................................... 15,000
Legal Fees and Expenses..................................... 100,000
Accounting Fees and Expenses................................ 15,000
Blue Sky Fees and Expenses.................................. 55,000
Transfer Agent and Registrar Fees........................... 5,000
Miscellaneous............................................... 20,000
--------
Total.................................................. $ 214,603
Item 15. Indemnification of Directors and Officers
Section 102(b)(7) of the General Corporation Law of the State of
Delaware (the "Delaware Law") grants corporations the right to limit or
eliminate the personal liability of their directors in certain circumstances in
accordance with provisions therein set forth. The Sunrise Certificate contains a
provision eliminating director liability to Sunrise and its stockholders for
monetary damages for breach of fiduciary duty as a director. The provision does
not, however, eliminate or limit the personal liability of a director: (i) for
any breach of such director's duty of loyalty to the Company or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under the Delaware
statutory provision making directors personally liable, for improper payment of
dividends or improper stock purchases or redemptions; or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision offers persons who serve on the Company's Board protection against
awards of monetary damages resulting from breaches of their duty of care (except
as indicated above). As a result of this provision, the ability of the Company
or a stockholder thereof to successfully prosecute an action against a director
for a breach of his duty of care is limited. However, the provision does not
affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care. The Commission
has taken the position that the provision will have no effect on claims arising
under federal securities laws.
Section 145 of the Delaware Law grants corporations the right to
indemnify their directors, officers, employees and agents in accordance with the
provisions therein set forth. The Company's Bylaws provide that the corporation
shall, subject to limited exceptions, indemnify its directors and executive
officers to the fullest extent not prohibited by the Delaware Law. The Company's
Bylaws provide further that the Company shall have the power to indemnify its
other officers, employees and other agents as set forth in the Delaware Law.
Such indemnification rights include reimbursement for expenses incurred by such
director, executive officer, other officer, employee or agent in advance of the
final disposition of such proceeding in accordance with the applicable
provisions of the Delaware Law.
II-1
<PAGE>
The Company has entered into agreements with certain of its directors
and officers pursuant to which the Company has agreed to indemnify such
directors and officers to the fullest extent permitted under applicable law. In
addition, the Company has purchased insurance containing customary terms and
conditions as permitted by law on behalf of its directors and officers, which
may cover liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
<TABLE>
Item 16. Exhibits
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
3 Articles of Incorporation
3.1 Certificate of Correction to the Certificate of Incorporation
5 Opinion regarding legality
5.1 Opinion of Holleb & Coff as to the legality of the Offered Shares being
registered
10 Material Contracts
10.1 Lease Agreement with Bayside Spinnaker Partners III, as lessor, for the
lease of facilities at 47527 Fremont Boulevard, Fremont, California,
dated July 16, 1991. (1)
10.2 Patent License Agreement between Sunrise and Patlex Corporation dated
January 1, 1990. (2)
10.3 Agreement between Sunrise and the University of Miami, Department of
Ophthalmology, dated October 28, 1991. (1)
10.4 Joint Development and Exclusive Manufacturing Agreement dated
April 17, 1993 between Sunrise and Danville Engineering, Inc. (3)
10.5 Settlement Agreement between Sunrise and American Dental Laser, Inc.,
dated February 4, 1993 (confidential treatment has previously been
granted for portions of this exhibit). (4)
10.6 License Agreement between Sunrise and American Dental Laser, Inc.,
dated February 4, 1993 (confidential treatment has previously been
granted for portions of this exhibit). (4)
10.7 Settlement Agreement between Sunrise and American Dental
Technologies, dated July 30, 1996. (5)
10.8 Form of Indemnification Agreement between Sunrise and each of its
officers and directors. (2)
II-2
<PAGE>
10.9 1988 Stock Option Plan, as amended. (2)
10.10 Employment Agreement entered into between Sunrise and Joseph W.
Shaffer, dated April 5, 1989. (2)
10.11 Form of 1992 Private Placement Warrant. (4)
10.12 Form of Placement Agent Warrant. (4)
10.13 Form of U.S. Note and Warrant Purchase Agreement entered into by
Sunrise and the signatories thereto, relating to the 1997 Notes
Offering. (7)
10.14 Form of Offshore Note and Warrant Purchase Agreement entered into by
Sunrise and the signatories thereto, relating to the 1997 Notes
Offering. (7)
10.15 Asset Purchase Agreement between Sunrise and Lares
Research, providing for the sale of the Company's Dental Business. (7)
10.16 1997 Stock Option Plan.
10.17 Form of Rights Agreement entered into between Sunrise and
ChaseMellon Shareholder Services, L.L.C., relating to Sunrise's adoption
of its stockholder rights plan.
10.18 Form of Change of Control Agreement by and between Sunrise and its
President and Chief Executive Officer.
10.19 Form of Change of Control Agreement between Sunrise and its executive officers (other
than the President and Chief Executive Officer).
10.20 Form of Indemnification Agreement between Sunrise and its executive
officers.
11 Statement re Computation of Per Share Earnings
11.1 Statement re Computation of Per Share Loss. (7)
23 Consents
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Holleb & Coff (included in Exhibit 5.1)
24 Power of Attorney (included on signature page)
<FN>
---------------
* Previously filed.
II-3
<PAGE>
(1) Incorporated by reference from Sunrise's Annual Report on Form 10-K for the year
ended December 31, 1991 (File No. 0-17816).
(2) Incorporated by reference from Sunrise's Registration Statement on Form S-1, as
amended (File No. 33-36768).
(3) Incorporated by reference from Sunrise's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 0-17816).
(4) Incorporated by reference from Sunrise's Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 0-17816).
(5) Incorporated by reference from Sunrise's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (File No. 0-17816).
(6) Incorporated by reference from Sunrise's Annual Report on Form 10-K for the year
ended December 31, 1995 (File No. 0-17816).
(7) Incorporated by reference from Sunrise's Annual Report on Form 10-K for the year
ended December 31, 1996 (File No. 0-17816).
(8) Incorporated by reference from Sunrise's Current Report on
Form 8-K dated October 24, 1997 (filed October 27, 1997)
(File No. 0-17816).
</FN>
</TABLE>
Item 17. Undertakings
Pursuant to Item 512(a) of Regulation S-K
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sale are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
II-4
<PAGE>
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Pursuant to Item 512(h) of Regulation S-K
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this amendment to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Fremont, state of California, on
October 31, 1997.
Sunrise Technologies International, Inc.
By: /s/ C. Russell Trenary, III
------------------------------------------
C. Russell Trenary, III
President and Chief Executive Officer
II-6
<PAGE>
POWERS OF ATTORNEY
Each person whose signature appears below hereby appoints C. Russell
Trenary and Timothy A. Marcotte, and each of them severally, acting alone and
without the other, his true and lawful attorney-in-fact with authority to
execute in the name of each such person, and to file with the Securities and
Exchange Commission, together with any exhibits thereto and other documents
therewith, any and all amendments (including without limitation post-effective
amendments) to this amended registration statement, and to sign any registration
statement for the same offering covered by this amended registration statement
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act, necessary or advisable to enable the registrant to comply with the
Securities Act and any rules, regulations and requirements of the Securities and
Exchange Commission in respect thereof, which amendments may make such changes
in this amended registration statement as the aforesaid attorney-in-fact deems
appropriate.
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
October 31, 1997 /s/ C. Russell Trenary, III
- ----------------- ------------------------------------------------
Date C. Russell Trenary, III
President, Chief Executive Officer and Director
(Principal Executive Officer)
October 31, 1997 /s/ Timothy A. Marcotte
- ----------------- ------------------------------------------------
Date Timothy A. Marcotte
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
October 31, 1997 /s/ Joseph D. Koenig
- ----------------- ------------------------------------------------
Date Joseph D. Koenig
Chairman of the Board and Director
October 31, 1997 /s/ Ronald A. Slocum
- ----------------- ------------------------------------------------
Date Ronald A. Slocum
Director
October 31, 1997 /s/ Michael S. McFarland
- ----------------- ------------------------------------------------
Date Michael S. McFarland
Director
II-7
EXHIBIT 5.1
HOLLEB & COFF
ATTORNEYS AT LAW
55 EAST MONROE STREET
SUITE 4100
CHICAGO, ILLINOIS 60603-5896
(312) 807-4600
TELECOPIER (312) 807-3900
DON S. HERSHMAN
(312) 807-4660
OPINION OF HOLLEB & COFF
October 31, 1997
Sunrise Technologies International, Inc.
47265 Fremont Blvd.
Fremont, California 94538
Ladies and Gentlemen:
We have acted as special counsel for Sunrise Technologies
International, Inc., a Delaware corporation (the "Company"), in connection with
the Company's Registration Statement on Form S-2, as amended (the "Registration
Statement") being filed by the Company under the Securities Act of 1933, as
amended, with respect to 10,273,519 shares (the "Shares") of the Company's
common stock, par value $.001 per share (the "Common Stock"), which may be
disposed of from time to time by the selling securityholders (the "Selling
Securityholders") named therein.
In connection with the preparation of the Registration Statement and
this letter, we have examined, considered and relied solely upon the following
documents (collectively, the "Documents"): the Registration Statement; the
Company's Amended and Restated Certificate of Incorporation as filed with the
Secretary of State of the State of Delaware; Bylaws; a Certificate of Good
Standing of the Company issued on October 20, 1997 by the Secretary of State of
the State of Delaware; the forms of U.S. Offshore Note and Warrant Purchase
Agreements between certain of the Selling Securityholders and the Company (the
"1997 Warrant Agreement"); certain minutes of the meetings of the Company's
Board of Directors; a certificate of the Company's president; and such matters
of law as we have considered necessary or appropriate for the expression of the
opinions contained herein.
In rendering the opinions set forth below, we have assumed without
investigation the genuineness of all signatures and the authenticity of all
documents submitted to us as originals, the conformity to authentic original
documents of all documents submitted to us as copies, and the veracity of the
Documents. As to questions of fact material to the opinions hereinafter
expressed, we have relied upon the representations and warranties of the Company
made in the Documents. We would call your attention to the fact that Eric M.
Fogel, a partner of this law firm, also acts as the Secretary of the Company.
Based solely upon and subject to the Documents, and subject to the
qualification set forth below, we are of the opinion that the Shares have been
duly authorized and when the
<PAGE>
HOLLEB & COFF
ATTORNEYS AT LAW
Sunrise Technologies International, Inc.
October 31, 1997
Page 2
Shares have been duly delivered against payment therefor, as contemplated in the
1997 Warrant Agreement, the Shares will be validly issued, fully paid and
nonassessable.
Although we have acted as counsel to the Company in connection with
certain other matters, our engagement is limited only to matters which have been
specifically referred to us. Consequently, there may exist matters of a legal
nature involving the Company in connection with which we have not been consulted
and have not represented the Company. This opinion letter is limited to the
matters stated herein and no opinions may be implied or inferred beyond the
matters expressly stated herein. The opinions expressed herein are as of the
date hereof, and we assume no obligation to update or supplement such opinions
to reflect any facts or circumstances that may hereafter come to our attention
or any changes in law that may hereafter occur.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus contained in the Registration Statement.
Very truly yours,
/s/ Holleb & Coff
HOLLEB & COFF
/ks
<PAGE>
HOLLEB & COFF
ATTORNEYS AT LAW
Sunrise Technologies International, Inc.
October 31, 1997
Page 3
- ------------------ COMPARISON OF HEADERS ------------------
- -HEADER 1-
HOLLEB & COFF
ATTORNEYS AT LAW
Sunrise Technologies International, Inc.
October 31, 1997
Page #
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 10, 1997, in the Registration Statement (Form S-2
No. 333-35045) and related Prospectus of Sunrise Technologies International,
Inc. for the registration of 10,273,519 shares of its common stock.
/s/ Ernst & Young LLP
------------------------------
Palo Alto, California
October 31, 1997
