<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1999
REGISTRATION NO. 333-72941
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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Amendment No. 4 to
Form S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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LASER VISION CENTERS, INC.
(Exact name of registrant in its charter)
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DELAWARE 43-1530063
(State of jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
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540 MARYVILLE CENTRE DRIVE, SUITE 200
ST. LOUIS, MISSOURI 63141
(314) 434-6900
(Address and telephone number of principal executive offices.)
ROBERT W. MAY, ESQ.
540 MARYVILLE CENTRE DRIVE, SUITE 200
ST. LOUIS, MISSOURI 63141
(314) 434-6900
(Name, address and telephone number of agent for service)
With copies to:
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JAMES R. DANKENBRING, ESQ. J. MARK KLAMER, ESQ.
DANKENBRING GREIMAN OSTERHOLT & HOFFMANN P.C. BRYAN CAVE LLP
120 SOUTH CENTRAL, SUITE 500 ONE METROPOLITAN SQUARE, SUITE 3600
ST. LOUIS, MISSOURI 63105 ST. LOUIS, MISSOURI 63102
(314) 863-7733 (314) 259-2000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as possible following the effectiveness of this registration
statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plan, 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. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE(1)(2) REGISTRATION FEE
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Common stock, par value $0.01 per share...... 1,978,000 $54,395,000 $15,122
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</TABLE>
(1) Includes 258,000 shares that the underwriters have the option to purchase
from selling stockholders to cover over-allotments, if any.
(2) Estimated solely for the purposes of computing the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended.
An Index of the Exhibits to this registration statement can be found at page
II-2.
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<PAGE> 2
1,720,000 Shares
LOGO
COMMON STOCK
------------------------
Laser Vision is offering 1,000,000 shares and the selling stockholders are
offering 720,000 shares. Our common stock is listed on the Nasdaq National
Market under the symbol "LVCI." On May 10, 1999, the reported last sale price of
the common stock on the Nasdaq National Market was $47.313 per share.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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PRICE $46.50 A SHARE
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<CAPTION>
Per Share Total
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Public offering price....................................... $46.50 $79,980,000
Underwriting discount....................................... $ 2.35 $ 4,042,000
Proceeds, before expenses, to Laser Vision.................. $44.15 $44,150,000
Proceeds, before expenses, to the selling stockholders...... $44.15 $31,788,000
</TABLE>
Certain selling stockholders have granted the underwriters the right to
purchase up to an additional 258,000 shares of common stock to cover
over-allotments. The underwriters expect to deliver the shares to purchasers on
or about May 14, 1999.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
------------------------
A.G. EDWARDS & SONS, INC.
PRUDENTIAL SECURITIES
WARBURG DILLON READ LLC
Prospectus dated May 11, 1999
<PAGE> 3
OUR ACTIVE U.S. SITES
Below is a map of the U.S. showing our ten fixed laser sites and the sites
served by our 25 mobile lasers and our 23 mobile cataract systems.
"ROLL-ON/ROLL-OFF" EXCIMER LASER SYSTEM
[Picture showing a mobile excimer laser system being loaded from its specially
modified delivery vehicle.]
<PAGE> 4
Some of the statements in this prospectus contain forward looking
information. These statements are found in the sections entitled "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." They include statements concerning
our business strategy, liquidity and capital expenditures, use of proceeds from
this offering, our financing plans, trends in our industry and trends in
government regulation.
You can identify these statements by forward looking words such as
"expect," "believe," "goal," "plan," "intend," "estimate," "may" and "will" or
similar words. You should be aware that these statements are subject to known
and unknown risks, uncertainties and other factors, including those discussed in
the section entitled "Risk Factors," that could cause the actual results to
differ materially from those suggested by the forward looking statements. See
"Forward Looking Statements."
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in our common stock. You should carefully read the entire
prospectus, including the documents incorporated by reference into it,
particularly the section entitled "Risk Factors" and the consolidated financial
statements and the notes to the consolidated financial statements. In this
prospectus, "Laser Vision," "we," "us" and "our" refer to Laser Vision Centers,
Inc., including its divisions and consolidated subsidiaries.
OUR BUSINESS
Laser Vision is one of the world's largest providers of excimer lasers,
related equipment and support services for the treatment of nearsightedness,
farsightedness and astigmatism. Our customers, who are eye surgeons, use our
excimer lasers to eliminate or reduce the need for eyeglasses or contact lenses
by reshaping the curvature of the cornea. Eye surgeons share access to our
equipment and pay us a fee for each procedure they perform. This allows them to
use sophisticated laser equipment without investment risk or maintenance
responsibility and allows us to more efficiently use our equipment. We provide
many of our eye surgeons with mobile excimer lasers that can be moved from
location to location. For eye surgeons who perform a high volume of laser
procedures, we provide excimer lasers at fixed sites. Our flexible delivery
system enlarges the pool of potential locations, eye surgeons and patients that
we can serve. We believe our flexible delivery system is our primary competitive
advantage since it allows us to effectively respond to changing market demands.
We also provide mobile equipment and support services for the treatment of
cataracts. Eye surgeons treat cataract disorders by removing the cloudy lens of
the eye and replacing it with a permanent implant lens. We believe we are the
world's largest provider of such cataract equipment and services. Our mobile
cataract business focuses on providing this equipment and the related services
to hospitals in smaller communities that do not have a resident eye surgeon.
We began providing commercial excimer lasers in Canada in 1991, and
expanded into Europe in 1993 and the U.S. in 1995. As of January 31, 1999, we
owned 28 mobile excimer lasers and 15 fixed site excimer lasers serving over 490
eye surgeons in over 180 locations. In addition, as of January 31, 1999, we
owned 23 mobile cataract units serving over 140 eye surgeons in over 220
locations. Most of our revenue is generated in the U.S.
During the nine months ended January 31, 1999, eye surgeons performed
40,003 excimer laser procedures using our equipment and services. This
represents a 105% gain over the 19,467 procedures performed for the nine months
ended January 31, 1998. Revenue increased to $33.6 million for the nine months
ended January 31, 1999 representing a 114% increase from $15.7 million for the
nine months ended January 31, 1998. Net income increased to $3.6 million for the
nine months ended January 31, 1999 from a net loss of $3.6 million for the nine
months ended January 31, 1998. We experienced losses in every quarter from our
inception through the quarter ended January 31, 1998.
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<PAGE> 5
OUR INDUSTRY IS GROWING
An industry source estimates that over 160 million Americans currently
require eyeglasses or contact lenses. Our excimer lasers and services directly
address the needs of most of this segment of the population. Industry sources
estimate that approximately 480,000 excimer laser procedures were performed in
the U.S. during 1998, an increase of 123% over the 215,000 procedures performed
during 1997. Industry sources project that the number of vision correction
surgeries will expand to 750,000 procedures in 1999 or a 56% increase over 1998
procedures. Additionally, cataract surgery is the most common therapeutic
surgical procedure performed on Americans age 65 and older. Over 1.3 million
cataract procedures are performed annually.
RECENT DEVELOPMENTS
In September 1998 we acquired Refractive Surgical Resources, Inc. ("RSR")
for $468,000 in cash and $2.1 million in notes payable. We believe RSR is the
world's largest provider of microkeratome access. The microkeratome is a device
which allows eye surgeons to perform the most popular type of excimer laser
surgery. Prior to the acquisition, approximately 60% of procedures performed
with our lasers included Bausch & Lomb microkeratomes provided by RSR. RSR is
now fully integrated into our refractive operations and as of January 31, 1999
we operated 43 microkeratomes. With increased demand for excimer laser
procedures, the availability of microkeratomes has become limited. The RSR
acquisition has helped increase our access to the supply of microkeratomes
needed to meet customer demands.
In December 1998 we acquired Midwest Surgical Services, Inc. ("MSS") for
$3.8 million in cash and notes (including accrued dividends), and may be
required to pay up to approximately $8.3 million in additional consideration,
depending upon the performance of MSS through July 2001. MSS is a mobile
provider of access to all the equipment required to convert a certified surgical
suite into a cataract surgical suite. This acquisition expanded our range of
products and services. It also allows us to market our excimer laser services to
eye surgeons served by MSS, most of whom do not presently perform excimer laser
surgery.
On March 31, 1999 we signed an agreement with KeraVision, Inc. to provide
its implantable corneal ring to our eye surgeon customers. The KeraVision
implantable corneal ring was recently approved by the FDA for treatment of mild
nearsightedness.
THE OFFERING
Common stock offered:
By Laser Vision............... 1,000,000 shares
By the selling stockholders... 720,000 shares
Common stock outstanding after
the offering(1)................. 12,103,056 shares
Use of proceeds by Laser
Vision.......................... Future payments relating to recent strategic
acquisitions, the purchase of additional
equipment, funding for possible future
strategic acquisitions, the expansion of
patient financing programs and working
capital and general corporate purposes. Laser
Vision will not receive any proceeds from the
sale of shares by the selling stockholders.
See "Use of Proceeds."
Nasdaq National Market symbol... LVCI
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(1) Based on shares outstanding as of May 7, 1999. Includes 420,000 shares which
will be issued upon exercise of options by certain of the selling
stockholders and sold in this offering. Does not include an aggregate of
2,922,849 shares of common stock reserved for issuance upon exercise of
outstanding options, warrants and convertible preferred stock. If the
underwriters exercise their over-allotment option in full, Laser Vision
expects that 43,500 shares will be issued upon further exercise of warrants
held by certain of the selling stockholders. See "Principal and Selling
Stockholders."
4
<PAGE> 6
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
The consolidated statement of operations data set forth below for the years
ended April 30, 1996, 1997 and 1998 are derived from the respective audited
consolidated financial statements of Laser Vision which are incorporated by
reference into and included in this prospectus. The statement of operations data
set forth below with respect to the years ended April 30, 1994 and 1995 are
derived from audited financial statements of Laser Vision which are not included
in or incorporated by reference into this prospectus. The following summary
interim financial data as of January 31, 1999 and for the nine months ended
January 31, 1998 and 1999 are unaudited and are derived from the interim
financial statements incorporated by reference and included in this prospectus.
In the opinion of management, the unaudited data have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for fair
presentation. Results for interim periods are not indicative of results for a
full year. The data set forth below should be read in conjunction with the
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus.
The unaudited pro forma information for the fiscal year ended April 30,
1998 and the unaudited pro forma information for the nine months ended January
31, 1999 give effect to the acquisitions of RSR and MSS as if the acquisitions
had occurred as of May 1, 1997. Deemed preferred dividends, net loss applicable
to common stockholders, basic and diluted loss per share for the nine months
ended January 31, 1998, the year ended April 30, 1998 and the related 1998 pro
forma amounts have been restated as discussed in Note 3 to the consolidated
financial statements included in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED APRIL 30, NINE MONTHS ENDED JANUARY 31,
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PRO FORMA PRO FORMA
1994 1995 1996 1997 1998 1998 1998 1999 1999
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(RESTATED) (RESTATED) (RESTATED)
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue..................... $ 2,106 $ 3,311 $ 3,918 $ 8,238 $23,469 $31,266 $15,666 $33,574 $39,805
Cost of revenue............. 1,768 3,375 4,240 7,590 16,750 21,359 11,732 22,346 26,484
------- ------- ------- -------- ------- ------- ------- ------- -------
Gross profit (loss)......... 338 (64) (322) 648 6,719 9,907 3,934 11,228 13,321
Selling, general and
administrative expense..... 2,238 3,144 5,831 9,719 9,592 12,377 7,078 7,927 9,704
Fixed asset impairment
provision.................. -- -- 3,063 2,772 -- -- -- -- --
------- ------- ------- -------- ------- ------- ------- ------- -------
Income(loss) from
operations................. (1,900) (3,208) (9,216) (11,843) (2,873) (2,470) (3,144) 3,301 3,617
Other income (expense)...... (310) (89) 413 (226) (623) (1,280) (479) (551) (884)
------- ------- ------- -------- ------- ------- ------- ------- -------
Net income (loss) before
taxes...................... (2,210) (3,297) (8,803) (12,069) (3,496) (3,750) (3,623) 2,750 2,733
Income tax benefit.......... -- -- -- -- -- -- -- 802 802
------- ------- ------- -------- ------- ------- ------- ------- -------
Net income (loss)........... (2,210) (3,297) (8,803) (12,069) (3,496) (3,750) (3,623) 3,552 3,535
Deemed preferred dividends
(Restated)................. -- -- (439) (126) (1,930) (1,930) (1,887) (122) (122)
------- ------- ------- -------- ------- ------- ------- ------- -------
Net income (loss) applicable
to common stockholders
(Restated)................. $(2,210) $(3,297) $(9,242) $(12,195) $(5,426) $(5,680) $(5,510) $ 3,430 $ 3,413
======= ======= ======= ======== ======= ======= ======= ======= =======
Net income (loss) per share
-- basic (Restated)........ $ (0.66) $ (0.82) $ (1.75) $ (1.45) $ (0.59) $ (0.62) $ (0.61) $ 0.34 $ 0.34
Net income (loss) per
share -- diluted
(Restated)................. $ (0.66) $ (0.82) $ (1.75) $ (1.45) $ (0.59) $ (0.62) $ (0.61) $ 0.31 $ 0.31
Weighted average number of
common shares outstanding
-- basic................... 3,356 4,001 5,278 8,421 9,178 9,178 9,055 9,987 9,987
Weighted average number of
common shares
outstanding -- diluted..... 3,356 4,001 5,278 8,421 9,178 9,178 9,055 11,574 11,574
SELECTED OPERATING DATA:
Excimer laser procedures.... 3,217 4,494 4,765 9,716 29,408 29,408 19,467 40,003 40,003
</TABLE>
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The as adjusted presentation below gives effect to the sale by us of
1,000,000 shares of common stock offered hereby at an offering price of $46.50,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses and including $3,257,297 which we will receive upon exercise
of 420,000 options and warrants to purchase common stock being offered by
certain selling stockholders.
Redeemable preferred stock and total stockholders' equity at January 31,
1999 have been restated as discussed in Note 3 to the consolidated financial
statements included in this prospectus.
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JANUARY 31, 1999
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ACTUAL AS ADJUSTED
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(RESTATED)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 8,272 $ 55,206
Working capital............................................. 5,778 52,712
Total assets................................................ 49,895 96,829
Total debt, excluding current portion....................... 8,581 8,581
Convertible preferred stock with mandatory redemption
provisions (Restated)..................................... 2,037 2,037
Accumulated deficit......................................... (28,455) (28,455)
Total stockholders' equity (Restated)....................... 22,835 69,769
</TABLE>
LASERVISION(R), LASERVISION CENTERS AND DESIGN(R), LASERVISION CENTERS(R),
LASERVISION CENTER(R), MOBILEXCIMER(R), LVC(R), LVCI(R) and the Laser Vision
logo are registered U.S. servicemarks of Laser Vision.
6
<PAGE> 8
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to purchase shares of our common stock.
SIGNIFICANT DECREASES IN EXCIMER LASER PRICES COULD HARM OUR BUSINESS BY MAKING
IT MORE ATTRACTIVE
FOR EYE SURGEONS TO BUY THEIR OWN LASERS AND BY FORCING US TO LOWER PRICES
A significant reduction in the price of excimer lasers could reduce demand
for our services by making it economically more attractive for eye surgeons to
buy excimer lasers for themselves instead of paying us a per procedure fee.
Also, excimer laser price decreases could force us to reduce our fees in
response to this reduction in demand or as a means to remain competitive with
other laser access providers. The excimer lasers we use currently have a retail
price of $525,000.
AN INCREASE IN THE NUMBER OF EYE SURGEONS WHO PERFORM ENOUGH EXCIMER LASER
PROCEDURES TO ECONOMICALLY JUSTIFY THE PURCHASE OF THEIR OWN LASERS MAY HARM OUR
BUSINESS
As excimer laser surgery becomes more commonplace, the number of eye
surgeons who can economically justify the purchase of their own laser may
increase. Unless the number of laser surgeries performed by eye surgeons who use
our services significantly increases as well, our business could be materially
harmed. Laser surgery is still a relatively new procedure for most eye surgeons,
and it generally takes time for eye surgeons to build up their case volume. Eye
surgeons who use our services perform an average of 20 to 30 procedures a month.
We estimate that an eye surgeon or practice group needs to perform approximately
60 procedures a month in one location in order to economically justify the
purchase of an excimer laser. This estimate is based upon a number of factors
including current prices for excimer lasers, current procedure fees charged by
eye surgeons and our current per procedure fee. This estimate does not take into
consideration the value an eye surgeon may place on our maintenance and support
services.
WE FACE INCREASING COMPETITION AND MUST CONTINUALLY ADAPT TO TECHNOLOGICAL
CHANGES AND
ADVANCES IN ORDER TO SUCCEED
The market for providing access to excimer lasers is increasingly
competitive. We also compete with other treatments for vision disorders,
including eyeglasses, contact lenses, incisional refractive surgery and corneal
rings. Further, we expect that our competitors may attempt to develop new
products that compete directly with the excimer lasers we use. In order to
compete successfully, we must adapt to technological changes and advances in the
treatment of vision disorders.
In certain markets, we compete with locally owned and operated laser
centers or eye surgeons who have purchased their own lasers and microkeratome
equipment. We compete with several other companies, including at least one
manufacturer of laser equipment, in providing access to excimer lasers. Four
excimer laser manufacturers have secured FDA approval and other manufacturers
are currently in the process of obtaining FDA approval for their lasers. These
manufacturers may choose to compete with us. LaserSight, Inc. and Autonomous
Technologies, Inc., manufacturers of excimer laser systems, have indicated that
they plan to compete with us. Non-manufacturing companies which compete with us
are:
- Clear Vision Laser Centers, Inc.
- LCA Vision, Inc.
- NovaMed Eyecare Management, LLC
- Omega Health Systems, Inc.
- Physicians Resource Group, Inc.
- TLC The Laser Center, Inc.
- Vision Twenty-One, Inc.
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<PAGE> 9
These or other companies could also introduce new or enhanced products with
features which would make our equipment obsolete or less marketable. Patients
and surgeons may choose other alternatives over our technology. If this occurs,
we may not be able to secure new equipment to allow us to compete effectively.
In the U.S., eye surgeons charge patients between $1,500 and $2,500 per eye
for excimer laser surgery. However, future price levels may decline in response
to competition. This could cause our eye surgeon customers to seek lower pricing
from us in order to compete. We have experienced price cutting in Europe and
Canada, where the regulatory environment is less stringent and there are no per
procedure royalties paid to laser manufacturers, making it easier to offer lower
pricing. Price cutting may occur in the U.S. This could force us to lower
prices, which could negatively affect our revenue and profitability. For a more
thorough discussion of our competitors, see "Business -- Competition" at page
41.
COMPETITORS MAY ATTEMPT TO USE OUR EXCLUSIVE INTELLECTUAL PROPERTY OR
PROPRIETARY TECHNOLOGY WHICH COULD WEAKEN OUR COMPETITIVE ADVANTAGES
We have secured patents for portions of the equipment we use to transport
our mobile lasers. Our patents and other proprietary technology offer us a
competitive advantage in the marketplace and are important to our success. Our
patents could be challenged, invalidated or circumvented in the future.
Litigation regarding intellectual property is common and our servicemark
registrations and patents may not adequately protect our intellectual property.
The defense and prosecution of intellectual property proceedings is costly and
involves substantial commitments of management time. Failure to successfully
defend our rights with respect to our intellectual property could have a
material adverse effect on our business, financial condition and results of
operations. In March 1999, we filed suit against one of our competitors and a
former employee for misappropriation of our proprietary technology. We cannot
assure you that this suit will be successful. For a more detailed description of
this suit, see "Business -- Legal Proceedings" at page 46.
EXCIMER LASER SURGERY MAY NOT ACHIEVE BROAD MARKET ACCEPTANCE WHICH WOULD LIMIT
OUR PROFITABILITY AND GROWTH
The failure of excimer laser surgery to achieve broad market acceptance
would limit eye surgeon demand for our equipment and services and have a
material adverse effect on our business, financial condition and results of
operations. To date, excimer laser surgery has not achieved widespread market
acceptance. We cannot give you any assurance that excimer laser surgery will be
widely accepted by either the medical community or the general population as an
alternative to existing methods of treating vision disorders. We also cannot
assure you that there will be any increase in the availability of insurance
coverage for laser eye surgery. The acceptance of excimer laser surgery may be
adversely affected by the following:
- the cost of surgery, which is not generally reimbursed by insurers or
other third parties
- concerns about safety and effectiveness
- general resistance to surgery
- the effectiveness of alternative methods of correcting vision disorders
- the lack of long-term follow-up data
- the possibility of unknown side effects
Any adverse reactions or other unfavorable publicity involving patient
outcomes could also adversely affect public acceptance of excimer laser surgery.
Market acceptance could also be affected by the lack of a broad population of
eye surgeons trained in excimer laser surgery. Promotional efforts by suppliers
of products or procedures which are alternatives to excimer laser surgery
procedures, including eyeglasses and contact lenses, may also adversely affect
market acceptance.
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<PAGE> 10
THE LACK OF LONG-TERM FOLLOW-UP DATA AND POTENTIAL COMPLICATIONS OR SIDE EFFECTS
ASSOCIATED WITH EXCIMER LASER SURGERY COULD ADVERSELY AFFECT OUR BUSINESS
Long-term follow-up data could reveal additional complications that may
have a material adverse effect on acceptance of laser eye surgery. We have not,
either alone or in collaboration with others, attempted to collect any data on
post-surgical problems resulting from laser surgery. Concern over the safety of
excimer laser procedures could adversely affect market acceptance of laser eye
surgery or result in adverse regulatory action, including product recalls. Any
of these factors could have a material adverse effect on our business, financial
condition and results of operations.
Concerns with respect to the safety and effectiveness of excimer laser eye
surgery include predictability and stability of results. Potential complications
and side effects include:
- post-operative discomfort
- an increase in the light scattering properties of the cornea during
healing (corneal hazing)
- glare/halos (undesirable visual sensations produced by bright lights)
- decreases in contrast sensitivity
- temporary increases in pressure within the eye in reaction to medication
- modest fluctuations in focusing capabilities during healing
- modest decreases in best corrected vision (i.e., with corrective lenses)
- unintended over or under-corrections
- decline in corrective effect
- disorders of corneal healing, corneal scars and corneal ulcers
- induced astigmatism
WE DEPEND ON LIMITED SOURCES OF EXCIMER LASERS, MICROKERATOMES AND DISPOSABLE
BLADES AND SHORTAGES OF THESE ITEMS COULD HINDER OUR ABILITY TO INCREASE THE
VOLUME OF OUR BUSINESS
We currently use only one supplier, VISX, Incorporated ("VISX") for our
excimer lasers. If VISX became unable or unwilling to supply their lasers,
repair parts or services to us, our business could be materially adversely
affected.
We are primarily dependent on Chiron Vision, a subsidiary of Bausch & Lomb,
Incorporated to provide the microkeratomes, blades and other disposable items we
provide to eye surgeons for the most popular type of excimer laser surgery.
There are a limited number of manufacturers of microkeratomes and there can be
no assurance that microkeratomes and microkeratome blades will be available in
the amounts or within the time frames we require. Any shortages in our supplies
of this equipment could limit our ability to increase our volume of excimer
laser surgeries.
WE HAVE A LIMITED HISTORY OF PROFITABLE OPERATIONS AND OUR PLANNED EXPANSION
COULD CAUSE NET LOSSES
We commenced operations in 1989 and have posted net losses in every fiscal
year since inception. We achieved profitability for the fourth quarter ended
April 30, 1998, posting $127,000 in net income before taxes. In the first,
second and third quarters of this fiscal year, we posted $333,000, $958,000, and
$1.5 million in net income before taxes. However, we may experience net losses
as a result of our planned expansion of U.S. operations, and we cannot assure
you that our recent profitability will be ongoing.
OUR RECOGNITION OF NET DEFERRED TAX ASSETS MAY SUBSTANTIALLY INCREASE OR
DECREASE OUR EARNINGS PER SHARE AND AS A RESULT QUARTER-TO-QUARTER COMPARISONS
MAY BE UNRELIABLE UNLESS THEY ARE ADJUSTED TO ACCOUNT FOR THIS EFFECT
The amount of tax benefit or expense we recognize in the future may
fluctuate significantly and will depend upon our estimates of future taxable
income. If we can increase our estimates of future taxable
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income because of continued earnings, we may be able to record additional tax
benefits. However, if we are unable to sustain our current level of
profitability, we may have to decrease our estimates of future taxable income
and reverse the net tax benefit previously recorded.
In prior fiscal years, we generated significant net operating losses, which
are available to be carried forward for a limited number of years to offset
against future taxable income. Due to our history of losses, we could not
previously conclude that there would be any future taxable income with which to
offset the net operating loss carry forwards prior to their expiration. As a
result, no net tax benefit was recorded for the tax effect of the net operating
loss carry forwards until the quarter ended January 31, 1999.
For the nine months ended January 31, 1999, we had net income before taxes
of $2.8 million. Because we have now reached a significant level of
profitability and have had four consecutive quarters of profitable operations,
we are for the first time able to conclude under generally accepted accounting
principles that we will likely have taxable income in the future. Accordingly,
we have recorded a tax benefit for the portion of the net operating loss carry
forwards that we believe will likely be used in the next fiscal year.
FUTURE SALES OF LARGE AMOUNTS OF OUR UNRESTRICTED COMMON STOCK COULD DEPRESS OUR
SHARE VALUE
Sales of substantial amounts of common stock in the public market following
this offering, or the perception that such sales will occur, could cause the
market price of our common stock to drop. These factors could also make it more
difficult for us to raise funds through future offerings of common stock.
There will be 12,103,056 shares of common stock outstanding immediately
after this offering. Of these shares, 11,330,412 will be freely transferable
without restriction or further registration under the Securities Act unless held
by affiliates, as defined under Rule 144 under the Securities Act. As of May 7,
1999, an additional 2,922,849 shares of common stock were reserved for issuance
upon exercise of outstanding options, warrants and convertible preferred stock.
These shares of common stock have been registered and will be freely
transferable by non-affiliates upon exercise. For a more in-depth discussion of
these shares see "Shares Eligible for Future Sale."
In connection with this offering, Laser Vision, its directors, executive
officers and certain of its shareholders have agreed not to sell any shares of
common stock without the consent of A.G. Edwards & Sons, Inc. for 90 days after
the date of this prospectus. For further information on the underwriting
arrangements see "Underwriting."
WE MAY EXPERIENCE DIFFICULTIES IN MANAGING OUR GROWTH, INCLUDING THE ACQUISITION
OR INTEGRATION OF OTHER COMPANIES, WHICH COULD IMPAIR OUR BUSINESS
To accommodate our recent growth, we will need to implement a variety of
new or expanded business and financial systems, procedures and controls,
including the improvement of our accounting, marketing and other internal
management systems. There can be no assurance that such systems, procedures and
controls can be successfully implemented without disruption of our operations.
Our expansion could significantly strain our management, financial and other
resources. In addition, we have hired and may need to hire substantial numbers
of new employees. We cannot assure you that our systems, procedures, controls
and staffing will be adequate to support our operations. Failure to manage our
growth effectively could have a material adverse effect on our business,
financial condition and results of operations.
As part of our business, we may pursue acquisitions of complementary
companies, products and technologies. Our growth may be impeded to the extent
that we encounter difficulties in pursuing such acquisitions.
We may experience increased competition for acquisition candidates. This
would mean that fewer acquisition opportunities would be available to us and
that acquisition prices could increase. Additionally, businesses that we acquire
could experience problems that we are not aware of at the time of the
acquisitions. Such problems might include unknown liabilities, Year 2000
problems, software bugs or adverse litigation or claims.
10
<PAGE> 12
Integrating the management and operations of the businesses we acquire is
time consuming. We cannot guarantee that we will achieve any of the anticipated
synergies and other benefits we expect to realize from acquisitions, including
those reflected in our unaudited pro forma financial data. We may face the
following difficulties as a result of business integration:
- difficulty integrating the financial, operational and administrative
functions of acquired businesses
- difficulty integrating the products and services of acquired businesses
- delays in realizing the benefits of our strategies for acquired
businesses
- diversion of management's attention from our existing operations
- difficulty operating in markets in which we have little experience
- inability to retain customers of acquired businesses
- inability to retain key employees necessary to continue the operations
of acquired businesses
WE ARE DEPENDENT ON JOHN J. KLOBNAK AND JAMES C. WACHTMAN DUE TO THEIR VITAL
ROLE IN ESTABLISHING OUR BUSINESS RELATIONSHIPS AND PLAN OF OPERATION
Our success depends in part on our ability to recruit and retain certain
key personnel. The loss of the services of John J. Klobnak, Chairman of the
Board and Chief Executive Officer, and James C. Wachtman, President and Chief
Operating Officer, or other key personnel could have a material adverse effect
on Laser Vision. Laser Vision is the beneficiary of $2 million and $1 million
key-man life insurance policies on Mr. Klobnak and Mr. Wachtman, respectively,
but there can be no assurance that the benefits under these policies will be
sufficient to compensate us for the loss of their services.
OUR BUSINESS MAY BE IMPAIRED DUE TO GOVERNMENT REGULATIONS WHICH COULD RESTRICT
OUR EQUIPMENT (INCLUDING OUR MOBILE TRANSPORT SYSTEM), SERVICES AND
RELATIONSHIPS WITH EYE SURGEONS
We and laser manufacturers are subject to extensive federal, state, local
and foreign laws, rules and regulations, including:
- restrictions on the approval, distribution and use of medical devices
- anti-kickback statutes
- fee-splitting laws
- corporate practice of medicine restrictions
- self-referral laws
- anti-fraud provisions
- facility license requirements and certificates of need
- conflict of interest regulations
- sales and use taxes
Many of these laws and regulations are ambiguous, and courts and regulatory
authorities have provided little clarification. Moreover, state and local laws
vary from jurisdiction to jurisdiction. As a result, we may not always be able
to accurately interpret applicable law, and some of our activities could be
challenged.
The MobilExcimer has been approved by the FDA for certain uses. The
Roll-On/Roll-Off laser system consists of an excimer laser mounted on a
motorized, air suspension platform and transported in a specially modified
truck. We believe that use of this transport system does not require FDA
approval; the FDA has taken no position in regard to such approval. The FDA
could, however, take the position that excimer lasers are not approved for use
in this transport system. Such a view by the FDA could lead to an enforcement
action against us, which could impede our ability to maintain or increase our
volume of excimer laser surgeries. This could have a material adverse effect on
our business, financial condition and
11
<PAGE> 13
results of operations. Similarly, we believe that FDA approval is not required
for our mobile use of microkeratomes or the cataract equipment transported by
MSS. The FDA, however, could take a contrary position. This could result in an
enforcement action which could adversely affect our business, financial
condition and results of operations.
The lasers we provide are medical devices that in the United States are
subject to the jurisdiction of the FDA. In addition to FDA approval for the
initial uses of these lasers, new uses require separate approval. Obtaining such
approval can be an expensive and time consuming process, the success of which
cannot be guaranteed. The failure of our suppliers to obtain regulatory
approvals for any additional uses of lasers or otherwise comply with regulatory
requirements could have a material adverse effect on our business, financial
condition or results of operations.
Failure to comply with applicable FDA requirements could subject us, our
eye surgeon customers or laser manufacturers to enforcement actions, including
product seizure, recalls, withdrawal of approvals and civil and criminal
penalties. Any such enforcement action could have a material adverse effect on
our business, financial condition and results of operations. Further, failure to
comply with regulatory requirements, or any adverse regulatory action could
result in limitations or prohibitions on our use of excimer lasers. This could
have a material adverse effect on our business, financial condition and results
of operations.
The regulatory environment in which we operate may change significantly in
the future. Numerous legislative proposals have been introduced in Congress and
in various state legislatures over the past several years that could cause major
reforms of the U.S. health care system. We cannot predict whether any of these
proposals will be adopted or how they might affect our business. New or revised
legislation could have a material adverse effect on our business, financial
condition and results of operations.
For a more thorough description of these laws and regulations, see
"Business -- Government Regulation" at page 42.
WE MAY EXPERIENCE ADVERSE EFFECTS FROM THE FDA INVESTIGATION OF THE
INTERNATIONAL CARD
On March 11, 1998, we were served with a subpoena by the U.S. Department of
Justice pertaining to an investigation of the so-called "international card"
software. We have provided the documents requested by the subpoena and intend to
continue to fully cooperate in this matter. This investigation could have a
material adverse effect on our business, financial condition and results of
operations. For more information on the investigation see "Business -- Legal
Proceedings" at page 46.
THE YEAR 2000 COULD NEGATIVELY AFFECT THE COMPUTER PROGRAMS AND SYSTEMS UPON
WHICH WE DEPEND
Many currently installed computer systems, software programs and embedded
chips were designed to use only a two digit date field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. Until the date fields are updated, systems and programs
could fail or give erroneous results when referencing dates following December
31, 1999. Such failures or errors could occur prior to the actual turn of the
century. We rely on computer applications to manage and monitor our accounting,
sales, development and administrative functions. Further, the sophisticated
equipment that we provide to our clients is dependent on computer applications
and embedded technology for its operation. In addition, our customers, suppliers
and service providers are reliant upon computer applications, some of which may
contain technology which will fail as a result of the upcoming change in
century. Such failures could affect the interactions of these third parties with
Laser Vision. While we do not believe our computer systems, applications or
embedded technologies currently in use will be materially adversely affected by
the upcoming change in century, we or our technology may be adversely affected
by the change in century. Failure of our software, hardware or embedded
technology or that of our customers, suppliers or service providers could have a
material adverse impact on our business, financial condition and results of
operations. For a more detailed discussion of Year 2000 readiness issues, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance" at page 32.
12
<PAGE> 14
WE COULD BE SUED FOR PATIENT INJURIES, AND SUCH CLAIMS COULD NEGATIVELY AFFECT
OUR BUSINESS TO THE EXTENT THEY ARE UNINSURED
A partially or completely uninsured claim against us could have a material
adverse effect on our business, financial condition and results of operations.
The procedures performed with our equipment involve the potentially significant
risk of physical injury to patients. Such risk could result in product
liability, malpractice or other claims brought against us based upon injuries or
alleged injuries associated with a defect in a product's performance or
malpractice by a physician or technician. Some injuries or defects may not
become evident for a number of years. Therefore, the operation of any excimer
laser, microkeratome or cataract equipment may result in substantial claims
against us by patients who allege they were injured as a result of surgical
procedures. Although we have "umbrella" product and professional liability
insurance in the amount of $1 million per occurrence and $5 million in the
aggregate, we primarily rely and intend to continue to rely on physicians'
professional liability insurance policies and manufacturers' insurance policies
for product liability coverage. We require our eye surgeon customers to maintain
certain levels of professional liability insurance, and our agreements with eye
surgeon customers contain certain cross-indemnification provisions. We cannot
assure you that these eye surgeons will carry sufficient insurance.
13
<PAGE> 15
THE COMPANY
Laser Vision is incorporated in Delaware. Our principal executive offices
are located at 540 Maryville Centre Drive, Suite 200, St. Louis, Missouri 63141,
and our telephone number is (314) 434-6900.
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$43.7 million. We base this estimate on a public offering price of $46.50 per
share. We have deducted estimated underwriting discounts and commissions and
estimated offering expenses. We will not receive any of the proceeds from the
sale of common stock by the selling stockholders.
While we currently have no specific plan for the net proceeds we will
receive from this offering, the principal reasons for this offering are:
- future payments relating to recent strategic acquisitions
- the purchase of additional equipment
- funding for possible future strategic acquisitions
- the expansion of patient financing programs
- working capital and general corporate purposes
We currently have no agreements or understandings with respect to any
material future acquisition. Until we use the proceeds for business purposes, we
intend to invest the net proceeds from this offering in short-term, government
securities and other investment-grade, interest-bearing securities.
14
<PAGE> 16
PRICE RANGE OF COMMON STOCK
Since 1996 the common stock has been traded on the over-the-counter market
through the Nasdaq National Market under the symbol "LVCI." Prior to that time,
our common stock was traded on the over-the-counter market through the Nasdaq
SmallCap Market, and on the Boston Stock Exchange.
The following table sets forth the high and low sale prices of the common
stock as reported by the Nasdaq National Market for the period commencing
November 18, 1996, and the high and low bid prices of the common stock on the
Nasdaq SmallCap Market for the period from May 1, 1995 to November 15, 1996. The
Nasdaq SmallCap Market prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not reflect actual transactions.
<TABLE>
<CAPTION>
PRICE RANGE
------------------
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED APRIL 30, 1996
First Quarter............................................. $ 8.750 $ 7.875
Second Quarter............................................ 16.375 8.500
Third Quarter............................................. 16.875 11.375
Fourth Quarter............................................ 15.250 12.375
FISCAL YEAR ENDED APRIL 30, 1997
First Quarter............................................. $14.500 $ 7.000
Second Quarter............................................ 9.125 6.875
Third Quarter............................................. 7.625 4.938
Fourth Quarter............................................ 6.625 5.125
FISCAL YEAR ENDED APRIL 30, 1998
First Quarter............................................. $ 8.250 $ 6.000
Second Quarter............................................ 10.063 6.750
Third Quarter............................................. 9.000 6.500
Fourth Quarter............................................ 14.500 6.875
FISCAL YEAR ENDING APRIL 30, 1999
First Quarter............................................. $16.875 $10.125
Second Quarter............................................ 13.125 8.500
Third Quarter............................................. 29.500 10.750
Fourth Quarter............................................ 49.500 25.250
FISCAL YEAR ENDING APRIL 30, 2000
First Quarter (through May 10, 1999)...................... $48.375 $43.125
</TABLE>
On May 10, 1999, the last reported sale price of the common stock on the
Nasdaq National Market was $47.313 per share. As of such date, there were
approximately 352 holders of record of the common stock.
15
<PAGE> 17
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth the unaudited capitalization of Laser Vision
as of January 31, 1999 and as adjusted to reflect the estimated net proceeds to
Laser Vision from this offering and $3,257,297 from the exercise of 420,000
warrants and options by certain selling stockholders. We base this estimate on a
public offering price of $46.50 per share and the application of the estimated
net proceeds from this offering. The table set forth below should be read in
conjunction with the consolidated financial statements, related notes and other
financial information included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 8,272 $ 55,206
======== ========
Current portion of notes payable and capitalized lease
obligations............................................... 6,816 6,816
======== ========
Non-current portion of notes payable and capitalized lease
obligations............................................... 8,581 8,581
-------- --------
Series B convertible preferred stock with mandatory
redemption provisions (Restated - see Note 3 to the
consolidated financial statements)........................ 2,037 2,037
Stockholders' equity:.......................................
Common stock par value $.01 per share: 50,000,000 shares
authorized, 10,568,694 (11,988,694, as adjusted) issued
and outstanding(1)..................................... 106 120
Warrants and options...................................... 1,270 1,248
Paid-in-capital........................................... 49,914 96,856
Accumulated deficit....................................... (28,455) (28,455)
-------- --------
Total stockholders' equity (Restated)....................... 22,835 69,769
-------- --------
Total capitalization (Restated)........................... $ 33,453 $ 80,387
======== ========
</TABLE>
- - ---------------
(1) Does not include 3,343,878 shares reserved for issuance upon exercise of
options, warrants and convertible preferred stock as of January 31, 1999.
16
<PAGE> 18
DILUTION
The tangible book value of Laser Vision at January 31, 1999 was
approximately $15.7 million, or approximately $1.48 per share of common stock.
Net tangible book value represents the amount of Laser Vision's tangible assets
less total liabilities, divided by total number of shares of common stock
outstanding.
Dilution per share represents the difference between the amount per share
paid by investors in this offering and the net tangible book value per share at
January 31, 1999 as adjusted to give effect to this offering. After giving
effect to the sale of the shares of common stock by Laser Vision hereby at an
offering price of $46.50 per share and the receipt and application of the
estimated net proceeds therefrom (approximately $46.9 million after deducting
underwriting discounts and commissions and estimated offering expenses payable
by Laser Vision and adding $3,257,297 from the exercise of 420,000 warrants and
options by certain selling stockholders) the net tangible book value of Laser
Vision on a pro forma as adjusted basis as of January 31, 1999 would have been
$62.6 million or $5.22 per share of common stock. This represents an immediate
increase in net tangible book value of $3.74 per share to existing shareholders
and an immediate dilution of $41.28 per share to purchasers participating in
this offering.
The following table illustrates the dilution per share described above:
<TABLE>
<S> <C> <C>
Offering price per share of common stock.................... $46.50
Net tangible book value per share at January 31, 1999..... $1.48
Increase in net tangible book value per share attributable
to the issue of shares of common stock................. $3.74
-----
Pro forma net tangible book value per share after the issue
of shares of common stock................................. $ 5.22
------
Dilution per share to investors in this offering............ $41.28
======
</TABLE>
17
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
The consolidated statement of operations data set forth below for the years
ended April 30, 1996, 1997 and 1998 and the balance sheet data at April 30, 1997
and 1998 are derived from the respective audited consolidated financial
statements of Laser Vision which are incorporated by reference and included in
this prospectus. The statement of operations data set forth below with respect
to the years ended April 30, 1994 and 1995 and the balance sheet data at April
30, 1994, 1995 and 1996 are derived from the audited financial statements of
Laser Vision which are not included or incorporated by reference in this
prospectus. The following summary interim financial data as of January 31, 1999
and for the nine months ended January 31, 1998 and 1999 are unaudited and are
derived from the interim financial statements incorporated by reference and
included in this prospectus. In the opinion of management, the unaudited data
have been prepared on the same basis as the audited consolidated financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation. Results for interim periods are
not indicative of results for a full year. The data set forth below should be
read in conjunction with the consolidated financial statements and related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
Deemed preferred dividends, net loss applicable to common stockholders,
basic and diluted loss per share for the nine months ended January 31, 1998 and
the year ended April 30, 1998 have been restated as discussed in Note 3 to the
consolidated financial statements included in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED APRIL 30, JANUARY 31,
--------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- ---------- ---------- --------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue............................................. $ 2,106 $ 3,311 $ 3,918 $ 8,238 $ 23,469 $ 15,666 $ 33,574
Cost of revenue..................................... 1,768 3,375 4,240 7,590 16,750 11,732 22,346
------- ------- ------- -------- -------- -------- --------
Gross profit (loss)................................. 338 (64) (322) 648 6,719 3,934 11,228
Selling, general and administrative expense......... 2,238 3,144 5,831 9,719 9,592 7,078 7,927
Fixed asset impairment provision.................... -- -- 3,063 2,772 -- -- --
------- ------- ------- -------- -------- -------- --------
Income (loss) from operations....................... (1,900) (3,208) (9,216) (11,843) (2,873) (3,144) 3,301
Other income (expense)..............................
Interest income and other.......................... 21 37 437 268 377 257 306
Interest expense................................... (156) (242) (216) (597) (1,000) (736) (835)
Minority interest in net (income) loss of
subsidiary....................................... -- 116 192 103 -- -- (22)
Provision for loss on advance...................... (175) -- -- -- -- -- --
------- ------- ------- -------- -------- -------- --------
Other income (expense), net......................... (310) (89) 413 (226) (623) (479) (551)
------- ------- ------- -------- -------- -------- --------
Net income (loss) before taxes...................... (2,210) (3,297) (8,803) (12,069) (3,496) (3,623) 2,750
Income tax benefit.................................. -- -- -- -- -- -- 802
------- ------- ------- -------- -------- -------- --------
Net income (loss)................................... (2,210) (3,297) (8,803) (12,069) (3,496) (3,623) 3,552
Deemed preferred dividends (Restated)............... -- -- (439) (126) (1,930) (1,887) (122)
------- ------- ------- -------- -------- -------- --------
Net income (loss) applicable to common stockholders
(Restated)......................................... $(2,210) $(3,297) $(9,242) $(12,195) $ (5,426) $ (5,510) $ 3,430
======= ======= ======= ======== ======== ======== ========
Net income (loss) per share -- basic (Restated)..... $ (0.66) $ (0.82) $ (1.75) $ (1.45) $ (0.59) $ (0.61) $ 0.34
Net income (loss) per share -- diluted (Restated)... $ (0.66) $ (0.82) $ (1.75) $ (1.45) $ (0.59) $ (0.61) $ 0.31
Weighted average number of common shares
outstanding -- basic............................... 3,356 4,001 5,278 8,421 9,178 9,055 9,987
Weighted average number of common shares
outstanding -- diluted............................. 3,356 4,001 5,278 8,421 9,178 9,055 11,574
SELECTED OPERATING DATA:
Excimer laser procedures............................ 3,217 4,494 4,765 9,716 29,408 19,467 40,003
</TABLE>
18
<PAGE> 20
Convertible preferred stock with redemption provisions and total
stockholders' equity at April 30, 1998 and January 31, 1999 have been restated
as discussed in Note 3 to the consolidated financial statements included in this
prospectus.
<TABLE>
<CAPTION>
APRIL 30,
--------------------------------------------------- JANUARY 31,
1994 1995 1996 1997 1998 1999
------ ------- -------- -------- ---------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 706 $ 2,126 $ 12,672 $ 3,794 $ 8,430 $ 8,272
Working capital (deficit)................................... (244) (1,301) 10,002 1,654 5,554 5,778
Total assets................................................ 9,135 11,318 28,913 22,870 30,829 49,895
Total debt, excluding current portion....................... 2,464 406 1,375 6,133 6,585 8,581
Convertible preferred stock with mandatory redemption
provisions (Restated)...................................... -- -- 14,539 -- 1,915 2,037
Accumulated deficit......................................... (4,342) (7,639) (16,442) (28,511) (32,007) (28,455)
Total stockholders' equity (Restated)....................... 4,594 6,349 7,453 10,276 13,578 22,835
</TABLE>
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
interim and unaudited pro forma financial statements and related notes and the
consolidated financial statements of Laser Vision and related notes included
elsewhere in this prospectus. This discussion contains forward looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those discussed here. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in the section
entitled "Risk Factors."
OVERVIEW
General
Laser Vision was incorporated in Delaware in 1988 and initially provided
medical advertising and marketing services in the U.S., primarily to eye
surgeons. By 1991, we shifted our strategic emphasis to emerging eye surgery
technology based on the use of excimer lasers.
After purchasing our first excimer laser, we determined that FDA approval
for laser surgery in the U.S. would require a lengthier process than originally
anticipated. As a result, we decided to enter the international market for
excimer laser access where regulatory restrictions were less prohibitive.
Between late 1991 and mid-1992, we acquired three commercial laser centers in
Canada and began developing the first MobilExcimer system. In July 1993, we
opened a fourth Canadian center and purchased six excimer lasers installed in
Europe. In April 1994, we acquired eight additional lasers installed in Europe.
The first procedure on our MobilExcimer system was performed in Ontario, Canada
in September 1994. For a description of our mobile systems, see "Business --
Mobile Systems" at page 38.
In December 1994, Laser Vision became the primary provider of excimer
lasers to Columbia/HCA ambulatory surgery centers. In addition, by the fall of
1995, we extended testing of our MobilExcimer system to England, opened two
European centers and acquired an additional MobilExcimer unit.
In October 1995 and March 1996, the FDA approved the use of the excimer
lasers manufactured by Summit Technology, Inc. ("Summit") and VISX to treat low
to moderate nearsightedness. This made it possible for us to begin providing
U.S. eye surgeons with access to excimer lasers. In the nine months ended
January 31, 1996, we opened three fixed site laser centers in the U.S. During
the quarter ended April 30, 1996, we purchased assets from a former competitor
for approximately $300,000 in cash to expand our European operations and used
our MobilExcimer system to service and consolidate a number of European
locations which had previously been fixed sites.
At the beginning of fiscal 1997, it was clear that the domestic market for
excimer laser surgery was developing more slowly than most experts had
anticipated. In 1997 and 1998, we responded by expanding our capacity to provide
mobile services through the development of our flexible delivery system which
includes our "Roll-On/Roll-Off" method of providing laser equipment to surgeons
as well as our strategy involving selected fixed site locations. Consequently,
we converted the majority of our fixed site lasers (including those located at
Columbia/HCA ambulatory surgery centers) to Roll-On/Roll-Off use. The
Roll-On/Roll-Off delivery system increased our flexibility to serve multiple
sites and allowed us to more efficiently use our equipment.
During the last two years we have closed centers and consolidated
operations outside of the U.S. We anticipate further declines in the
significance of our international operations both relative to our U.S. business
and in terms of total revenue. We believe that our equipment and services are
not as attractive to eye surgeons internationally because foreign health care
consumers seem less willing to pay for procedures which are not reimbursed by
health care plans. We continue to concentrate our efforts primarily on small to
medium sized markets in the U.S. which we believe provide the best opportunities
for growth.
20
<PAGE> 22
History of Operating Results
We have experienced losses in each fiscal year since the inception of our
business through fiscal 1998. The quarter ended April 30, 1998 (the last quarter
of fiscal 1998) was our first profitable quarter, and our profits have increased
in each quarter since then. Many of the factors described above contributed to
our history of losses. First, because the FDA approval process for excimer
lasers took more than two years longer than we anticipated when we became a
public company in 1991, we were unable to provide services in the U.S. for an
extended period. Our operations in Canada and Europe have not been profitable
because these markets have greater competition and excimer laser surgery still
has generally not achieved wide acceptance in these markets. These factors led
to price cutting in those markets which compounded the effect of low demand. In
fiscal 1996 and 1997, the Company recorded charges for the impairment of fixed
assets in those markets which also increased our international losses.
Meanwhile in the U.S. the first excimer laser was finally approved by the
FDA in late 1995 for a limited range of refractive problems. This laser was
manufactured by Summit. The VISX laser was approved in March, 1996. Our volume
of U.S. procedures, however, did not increase rapidly. There are several reasons
for this, some of which affected the industry as a whole, others of which
primarily pertained to our business. Factors which affected the entire industry
included the following: shipments of lasers took longer than expected; it took
several months for a significant number of eye surgeons to be trained to perform
excimer laser surgery; the limited range of refractive problems approved by the
FDA; and public awareness and acceptance of excimer laser surgery was much lower
than expected. With respect to our business specifically, our initial strategy
of installing fixed lasers at the Columbia/HCA surgery centers proved
unsuccessful, and we were unable to produce enough procedure volume to break
even.
In early 1997 we broadened our strategy to include mobile lasers. This
allowed us to increase the use of our lasers, and proved to be an effective way
of entering new markets, introducing new eye surgeons to excimer laser surgery
and competing in smaller markets where there was less competition. In addition,
1997 saw the beginning of an upsurge in the acceptance of excimer laser surgery
by both eye surgeons and their patients. Finally, the FDA broadened the range of
approved uses of the VISX laser in 1997, which contributed to the potential
market.
In 1997 and 1998, we added technicians, support personnel and support
systems at a rate much greater than our business was increasing. This made our
losses increase. But as our procedure volume began to increase at a greater
rate, and our addition of new personnel slowed to a rate more consistent with
our overall growth, our losses began to decrease. As noted above, we first
achieved profitability in the last quarter of fiscal 1998. Our profits have
increased since then as our procedure volume per laser has continued to increase
and our number of lasers has grown.
21
<PAGE> 23
The following table provides a history of our operating income, i.e.,
income or (loss) from operations by geographic area and fiscal period. This
information describes our net operating income (loss) by source and market which
allows for a better understanding of our segments of operations. "Domestic
operations" reflect the operating income (loss) for both U.S. refractive
operations and the related marketing and training programs. The table also
includes the fixed asset impairment provisions for the corresponding geographic
area.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL NINE MONTHS ENDED
(IN MILLIONS) 1996 1997 1998 JANUARY 31, 1999
------------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Domestic operations................................... $(3.6) $ (6.7) $(2.1) $ 3.3
Domestic fixed asset impairment....................... -- (2.4) -- --
Domestic cataract operations.......................... -- -- -- 0.1
Canadian operations................................... (0.6) (0.5) 0.0 0.0
Canadian fixed asset impairment....................... (0.7) (0.2) -- --
European operations................................... (1.9) (1.8) (0.8) (0.1)
European fixed asset impairment....................... (2.4) (0.2) -- --
----- ------ ----- -----
Income (loss) from operations......................... (9.2) (11.8) (2.9) 3.3
Net interest income (expense)......................... 0.2 (0.4) (0.6) (0.5)
Minority interest..................................... 0.2 0.1 -- --
----- ------ ----- -----
Net income (loss) before taxes........................ (8.8) (12.1) (3.5) 2.8
Income tax benefit.................................... -- -- -- 0.8
----- ------ ----- -----
Net income (loss)..................................... $(8.8) $(12.1) $(3.5) $ 3.6
===== ====== ===== =====
</TABLE>
Trends and Uncertainties
We have identified certain trends in our core refractive surgery business
which we believe may have a material effect on our future financial condition or
results of operation. We cannot quantify the rates at which these trends will
occur.
We expect the refractive surgery market will continue to grow at least in
the near term and that this growth will have a positive effect on our business
by increasing the number of refractive procedures performed on our lasers. We
also expect a gradual decline in the price we pay for excimer laser equipment,
which together with the increase in our expected number of mobile systems and
fixed sites, will gradually reduce our cost of providing a procedure.
The acquisition of RSR has enabled us to provide microkeratome access and
the acquisition of MSS has allowed us to provide mobile cataract services. In
future periods we expect RSR revenues to profitably contribute to the growth of
the domestic refractive business. Although RSR has been completely integrated
with the rest of Laser Vision's refractive surgery operations, we expect RSR to
generate enough income from operations to cover its goodwill amortization and
interest expense and increase Laser Vision's net income before taxes.
In future periods we expect MSS operations to continue to contribute to the
Laser Vision results of operations. Due to seasonal factors in the markets which
MSS serves, the amount of operating income which MSS is expected to provide to
us will vary from quarter to quarter. In addition, the amount of operating
income which MSS is expected to provide from December 4, 1998 to July 31, 2000
will affect the contingent payments to the former MSS shareholders and the final
amount of the goodwill associated with this acquisition. MSS will operate as a
separate subsidiary until the contingent payments are determined as of July 31,
2000. Since the final MSS goodwill will vary with MSS' net income before taxes,
we expect MSS' income from operations to cover its goodwill amortization and
interest at any level of profitability where MSS earns a contingent payment.
We have identified several other trends which may have a negative effect on
our business. We cannot quantify the rates at which these trends will occur.
These trends are a decline in our revenue per procedure, an increase in our
proportion of domestic fixed laser sites which have lower revenue per
22
<PAGE> 24
procedure than our mobile lasers and increasing competitive effects from
additional domestic lasers and laser access providers. These competitive effects
may force us to lower our prices. In addition, lower laser prices may induce eye
surgeons to purchase their own lasers. For a more complete description of these
possible effects, see the first three risk factors on page 7.
Other uncertainties exist which could have a material effect on our future
financial position or results of operation but are not considered likely to
occur. These include:
- the timing of any changes in the amount of the royalty fee we pay on
refractive laser procedures
- the effects of the FDA investigation on international cards usage
- the rate of increase in the number of non-laser refractive procedures
- the rate of change in the cost of refractive laser surgery to patients
- the influence of third party providers on both the price and number of
refractive procedures.
If profitability continues to increase in future periods, Laser Vision may
record additional income tax benefits in the fourth quarter of fiscal 1999 and
during fiscal 2000. If the market value of Laser Vision's common stock is
significantly above the exercise price of vested non-qualified options and
warrants when the option and warrant holders choose to exercise, Laser Vision
could receive income tax deductions which would reduce future taxable income
payable in cash. The income tax expense reported in operating results would not
benefit from the tax deductions associated with non-qualified options and
warrants, as such benefits will be recognized directly in stockholders' equity.
We recently signed an agreement with KeraVision, Inc. to provide its
implantable corneal ring to eye surgeons who use our services. The KeraVision
implantable corneal ring was recently approved by the FDA for the treatment of
mild nearsightedness. As is true for our excimer laser business, we will provide
the equipment and supplies necessary to perform this procedure in exchange for a
per procedure fee. We expect to purchase around $1 million in equipment, and
$0.5 million in inventory, pursuant to this agreement in fiscal 2000. With
respect to revenue, we expect that there will be a lag time of at least several
months before a significant number of our eye surgeon customers can be trained
to perform this procedure. Accordingly, we do not expect this technology to have
a significant impact on our business until at least the third quarter of fiscal
2000. We cannot quantify what that impact will be.
Revenue Recognition
Laser revenue and cataract revenue are recognized when the surgical
procedures are performed. Advertising revenue is recognized as earned, upon
delivery of print media or upon broadcast of TV or radio advertisements. Revenue
for conducting training sessions for eye surgeons is recognized as earned, upon
completion of the course.
Cost of revenue includes royalty fees and professional medical services,
depreciation and amortization and other costs. Other costs include laser
maintenance including optics and gasses, mobile equipment travel, laser and
cataract technician salaries, and medical supplies for the LaserVision Centers
division. For the MarketVision division and training programs, client media and
production costs are expensed when revenue is earned. Advertising costs are
expensed as incurred and included in selling, general and administrative
expenses for the LaserVision Centers division.
23
<PAGE> 25
RESULTS OF OPERATIONS
The following table breaks out revenue by source. This table also includes
"net revenue contribution." Net revenue contribution is revenue less royalty
fees paid to VISX and amounts paid to eye surgeons for professional medical
services rendered at our fixed laser sites. Management believes that net revenue
contribution provides relevant and useful information to investors because it
reflects the dollars available to cover Laser Vision's fixed and variable costs
after excluding variable costs which Laser Vision pays to third parties. Net
revenue contribution should not be considered as an alternative to gross profit,
operating income and net income as a measure of profitability. Finally, the
table includes certain profitability amounts as a percentage of total revenue
and net revenue contribution.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED APRIL 30, JANUARY 31,
---------------------------------- --------------------
1996 1997 1998 1998 1999
------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUE
Domestic refractive....................... $ 286 $ 4,094 $19,699 $12,940 $29,174
International refractive.................. 2,198 2,959 2,748 2,090 2,062
Cataract.................................. 0 0 0 0 1,323
Marketing and training.................... 1,434 1,185 1,022 636 1,015
------- -------- ------- ------- -------
TOTAL REVENUE............................... 3,918 8,238 23,469 15,666 33,574
Royalty fees and professional medical
services................................ 360 1,985 8,030 5,389 11,416
------- -------- ------- ------- -------
REVENUE LESS ROYALTY FEES AND PROFESSIONAL
MEDICAL SERVICES, "NET REVENUE
CONTRIBUTION"............................. 3,558 6,253 15,439 10,277 22,158
GROSS PROFIT................................ $ (322) $ 648 $ 6,719 $ 3,934 $11,228
% of total revenue........................ (8%) 8% 29% 25% 33%
% of net revenue contribution............. (9%) 10% 44% 38% 51%
INCOME (LOSS) FROM OPERATIONS............... $(9,216) $(11,843) $(2,873) $(3,144) $ 3,301
% of total revenue........................ (235%) (144%) (12%) (20%) 10%
% of net revenue contribution............. (259%) (189%) (19%) (31%) 15%
NET INCOME (LOSS) BEFORE TAXES.............. $(8,803) $(12,069) $(3,496) $(3,623) $ 2,750
% of total revenue........................ (225%) (147%) (15%) (23%) 8%
% of net revenue contribution............. (247%) (193%) (23%) (35%) 12%
</TABLE>
RSR revenues for September 1998 through January 1999 are included in
domestic refractive revenues. MSS revenues for December 1998 and January 1999
are shown as cataract revenues.
Nine Months Ended January 31, 1999 Compared to the Nine Months Ended January 31,
1998
Laser Vision has continued to provide excimer laser access to additional
sites throughout the U.S. In addition, the acquisition of RSR on September 1,
1998 has enabled us to provide microkeratome access and the acquisition of MSS
on December 4, 1998 has allowed us to provide cataract services.
Revenue. Total revenue increased by 114% or $17.9 million to $33.6 million
for the nine months ended January 31, 1999 from $15.7 million for the nine
months ended January 31, 1998.
The increase is attributable to higher domestic refractive revenue of $16.2
million, cataract revenue of $1.3 million and a $379,000 increase in marketing
and training revenue. The $16.2 million increase in domestic revenue is
attributable to an increase of $14.6 million related to the number of procedures
performed by our eye surgeon customers in the U.S. and $1.6 million from the RSR
acquisition. The cataract revenue is attributable to the acquisition of MSS.
Cost of Revenue/Gross Profit (Loss). Cost of revenue increased by 90% or
$10.6 million to $22.3 million for the nine months ended January 31, 1999 from
$11.7 million for the nine months ended January 31, 1998. Royalty fees and
medical services increased to $11.4 million from $5.4 million in these
24
<PAGE> 26
respective periods due to the increased number of procedures performed on our
lasers in the U.S. Depreciation and amortization increased by 21% or $661,000 to
$3.9 million from $3.2 million in these respective periods. This was primarily
due to a $817,000 increase in depreciation from lasers and mobile equipment
purchases partially offset by a $156,000 decrease from the amortization of a
management services contract which has been terminated.
Other costs of revenue increased by 126% or $3.9 million to $7.0 million
for the nine months ended January 31, 1999 from $3.1 million for the nine months
ended January 31, 1998. This was primarily due to increased costs, including
mobile laser engineer salaries, travel and set-up related costs of $2.2 million,
an increase in medical supplies of $479,000 and an increase in laser and
equipment maintenance costs of $511,000. Other costs of revenue related to
cataract services were $660,000.
Total gross profit improved by 185% or $7.3 million to $11.2 million for
the nine months ended January 31, 1999 from $3.9 million for the nine months
ended January 31, 1998. The variable gross profit, excluding depreciation,
increased to $15.1 million from $7.2 million. This was primarily due to a $6.7
million increase from the increase in the number of laser procedures performed
in the U.S., $0.7 million from the MSS acquisition, and $0.5 from the RSR
acquisition. Variable gross profit excludes the fixed costs of depreciation and
amortization and thus shows the benefit of incremental revenue changes. Variable
gross profit should not be considered as an alternative to gross profit,
operating profit and net income as a measure of profitability. As a percentage
of total revenue, total gross profit increased to 33% from 25% for the nine
months ended January 31, 1999 and 1998, respectively.
Operating Expense. Selling, general and administrative expense increased
by 12% or $849,000 to $7.9 million for the nine months ended January 31, 1999
from $7.1 million for the nine months ended January 31, 1998. This is primarily
attributable to an increase of $329,000 related to the MSS acquisition and an
increase of $876,000 in salaries and related expenses partially offset by a
decrease of $75,000 in general and administrative expenses and a decrease of
$302,000 in selling and marketing expenses. The $876,000 increase in salaries
and related expenses includes a $989,000 domestic increase due to annual raises,
additional marketing and accounting support personnel and variable compensation
related to revenue and profitability and was offset by a $111,000 decrease in
European salaries at fixed sites which were closed. The $302,000 decrease in
selling and marketing expense reflects a $99,000 decrease in Canadian media
marketing for a fixed site which was closed, a $38,000 decrease in European
fixed site marketing and a $165,000 decrease in U.S. marketing (which was offset
by U.S. marketing salaries). Operating expenses for the nine months ended
January 31, 1999 include $122,000 of goodwill amortization for the RSR and MSS
acquisitions. As a percentage of total revenue, operating expense decreased from
45% to 24% for the nine months ended January 31, 1998 and 1999, respectively.
Operating expenses as a percentage of total revenue decreased by 22% because of
the leverage resulting from a 114% growth in total revenues compared to a 12%
growth in operating expenses.
Income (Loss) from Operations. Income from operations increased by $6.4
million to $3.3 million during the nine months ended January 31, 1999 from a
loss of $3.1 million during the nine months ended January 31, 1998. This was
primarily due to the $5.4 million increased profit on the increase in U.S.
revenues, a $0.1 million increase in Canadian profits and a $0.9 million
increase in European profits. As a percentage of total revenue, income from
operations was 10% for the nine months ended January 31, 1999.
Other Income (Expense). Higher interest expense and minority interest in
net income of subsidiary partially offset by higher interest income caused a 15%
or $72,000 increase to a net $551,000 in other expense during the nine months
ended January 31, 1999 from a net $479,000 in other expense during the nine
months ended January 31, 1998. This was primarily due to $96,000 of interest
from the RSR and MSS acquisitions.
Net Income (Loss). Net income increased by $7.2 million to $3.6 million
for the nine months ended January 31, 1999 from a net loss of $3.6 million for
the nine months ended January 31, 1998. This was primarily attributable to a
$6.3 million increase related to the increased volume of domestic refractive
procedures involving our equipment and $.8 million from the recognition of
income tax benefits in the nine
25
<PAGE> 27
months ended January 31, 1999. As a percentage of total revenue, net income was
11% for the nine months ended January 31, 1999.
Fiscal Year Ended April 30, 1998 Compared to Fiscal Year Ended April 30, 1997
During the year ended April 30, 1998, we continued to develop the U.S.
market by targeting eye surgeons in medium-sized markets. We served these
markets primarily with our newly developed Roll-On/Roll-Off mobile system.
Revenue. Total revenue increased by 185% or $15.2 million to $23.5 million
for the year ended April 30, 1998 from $8.2 million for the year ended April 30,
1997.
The increase in revenue was attributable to a $15.6 million increase in
domestic revenue, a $211,000 decrease in European and Canadian revenue and a
$163,000 decrease in marketing and training revenue. The increase in domestic
revenue was attributable to an increase both in the number of U.S. lasers in
operation and the number of procedures performed by our eye surgeon customers on
each laser in the U.S. The decrease in European and Canadian revenue was
attributable to the closing of certain unprofitable fixed sites and the
conversion of most of them to mobile sites during the year. The decrease in
marketing and training revenue was due to lower marketing revenues resulting
from our focus on the domestic refractive market as opposed to third party
marketing.
Cost of Revenue/Gross Profit. Cost of revenue increased by 121% or $9.2
million to $16.8 million for the year ended April 30, 1998 from $7.6 million for
the year ended April 30, 1997. This was primarily due to an increase of $5.4
million in total domestic per procedure royalties, an increase of $2.0 million
in mobile laser engineer salaries and travel costs, an increase of $963,000 in
depreciation expense and an increase of $657,000 in professional medical
services costs.
Total gross profit increased by 937% or $6.1 million to $6.7 million for
the year ended April 30, 1998 from $648,000 for the year ended April 30, 1997.
The variable gross profit, excluding depreciation, increased by 171% or $7.0
million to $11.2 million from $4.1 million for the year ended April 30, 1997.
This was primarily due to higher volumes of procedures performed with our
equipment at an increased number of sites. As a percentage of total revenue,
total gross profit increased to 29% from 8% for the years ended April 30, 1998
and 1997, respectively.
Operating Expense. Selling, general and administrative expense decreased
by 1% or $127,000 to $9.6 million for the year ended April 30, 1998 from $9.7
million for the year ended April 30, 1997. Decreases for the year ended April
30, 1998 in general and administrative expense of $310,000 and selling and
marketing expense of $839,000 were partially offset by increases in salaries and
related expenses of $970,000 and depreciation and amortization expense of
$52,000. The $970,000 increase in salaries and related expenses was attributed
to a $1,091,000 domestic increase (more employees, annual raises and variable
compensation based on operating results), a $36,000 Canadian decrease primarily
due to the closing of a fixed site and a $85,000 European decrease primarily due
to the closing of two fixed sites. The $839,000 decrease in selling and
marketing expenses was attributed to a $448,000 domestic decrease primarily
because of the conversion from fixed sites to mobile systems, a $169,000
Canadian decrease due to the closing of a fixed site and a $222,000 European
decrease due to the closing of two fixed sites.
Income (Loss) from Operations. The loss from operations decreased by 76%
or $9.0 million to $2.9 million for the year ended April 30, 1998 from $11.8
million for the year ended April 30, 1997. This was primarily due to the $4.6
million operating profit earned on the increase in U.S. revenues, a decrease in
fixed asset impairment provisions of $2.8 million, a $0.6 million reduced
operating loss from the Canadian operations and a $1.0 million reduced operating
loss from the European operations. Both international operations benefitted from
the closing of unprofitable fixed sites.
Other Income (Expense). Other income (expense) increased by 176% or
$397,000 to a net expense of $623,000 for the year ended April 30, 1998 from a
net expense of $226,000 for the year ended April 30, 1997. This increase was
primarily due to an increase of $403,000 in interest expense.
26
<PAGE> 28
Fiscal Year Ended April 30, 1997 Compared to Fiscal Year Ended April 30, 1996
During the year ended April 30, 1997, we focused on the development of the
U.S. market. During the last quarter of fiscal 1997 we began aggressively
pursuing our mobile strategy in the U.S. by redeploying several of our fixed
site lasers and utilizing our newly developed Roll-On/Roll-Off strategy.
Revenue. Total revenue increased by 110% or $4.3 million to $8.2 million
for the year ended April 30, 1997 from $3.9 million for the year ended April 30,
1996.
The increase in total revenue was attributable to a $3.6 million increase
in U.S. revenue, a $776,000 increase in European revenue and a $249,000 decrease
in marketing and training. The increase in U.S. revenue for the LaserVision
Centers division was attributable primarily to the increased number of lasers in
operation and procedures performed on each laser in the U.S. The increase in
European revenue was attributable to the increased number of procedures
performed in the Solihull and Edinburgh centers and the increased number of
procedures performed on the MobilExcimer system. The decrease in marketing and
training revenue was due to reduced marketing revenues from third parties as we
refocused our marketing efforts on the rapidly growing domestic refractive
market.
Cost of Revenue/Gross Profit (Loss). Cost of revenue increased by 79% or
$3.4 million to $7.6 million for the year ended April 30, 1997 from $4.2 million
for the year ended April 30, 1996. This increase was partially attributable to a
$1.5 million or 76% increase in depreciation expense to $3.5 million from $2.0
million in these respective periods due to the increased inventory of lasers and
other medical equipment.
Excluding laser and medical equipment depreciation expense, cost of revenue
increased by 82% or $1.9 million from $2.3 million to $4.1 million for the years
ended April 30, 1996 and 1997 respectively. This $1.9 million increase was
primarily due to an increase of $1.1 million in total domestic per procedure
royalties, $548,000 in professional medical services, $142,000 in laser gas
costs on higher volumes of laser procedures and the addition of certain new
centers.
Total gross profit increased by 301% or $970,000 to $648,000 for the year
ended April 30, 1997 from a loss of $322,000 for the year ended April 30, 1996.
The variable gross profit, excluding depreciation, increased to $4.1 million in
the year ended April 30, 1997 from $1.7 million in the year ended April 30,
1996. This increase was primarily due to higher volumes of laser procedures. As
a percentage of total revenue, total gross profit for the year ended April 30,
1997 was 8%.
Operating Expense. Selling, general and administrative expense increased
by 67% or $3.9 million to $9.7 million for the year ended April 30, 1997 from
$5.8 million for the year ended April 30, 1996. This was primarily due to an
increase of $1.6 million in general and administrative expense, an increase of
$1.3 million in salaries and related expenses, an increase of $208,000 in
depreciation and amortization expense and an increase of $868,000 in selling and
marketing expenses. The $1.3 million increase in salaries and related expenses
was attributed to a $1.1 million domestic increase (more employees, annual
raises and variable compensation based on operating results) and a $0.2 million
European increase for a new European general manager and two new fixed sites.
The $868,000 increase in selling and marketing expenses was attributable to a
$771,000 domestic increase for new fixed site refractive centers, a $36,000
Canadian increase for new mobile locations and a $61,000 European increase
associated with two new fixed sites.
The fixed asset impairment provision decreased by 10% or $291,000 to $2.8
million for the year ended April 30, 1997 from $3.1 million for the year ended
April 30, 1996. The $3.1 million fixed asset impairment provision in fiscal 1996
was for VISX Model B lasers which could not be reimported for use in the U.S.
The fiscal 1997 provision of $2.8 million was due to the following four
situations which occurred during the fourth quarter of fiscal 1997: (a) We
determined it was not feasible to mobilize the Summit excimer lasers. Further,
the VISX Star laser received FDA approval for treating astigmatism which
diminished U.S. market interest in the Summit lasers that could not treat
astigmatism. As a result, we
27
<PAGE> 29
reassessed our plans for operating these lasers and recognized a provision for
impairment of $2,006,000 to record those assets at fair value based upon
expected remaining net cash flows and expected salvage values. (b) We determined
that the international market for VISX B lasers was deteriorating due to
increased competition from lasers manufactured and sold in Europe. As a result,
we reassessed our plans for operating these lasers and recognized an additional
provision for impairment of $425,000 to record those assets at fair value based
upon expected remaining net cash flows and expected salvage values. (c) We
determined that ten of the twenty-five Vision Correction, Inc. physicians did
not intend to develop their refractive practices using our mobile excimer
lasers, resulting in a $141,000 write off of the proportionate share of the
related U.S. goodwill acquired as part of Laser Vision's acquisition of Vision
Correction, Inc. in August 1995. (d) The Med-Source operations included in
domestic results from operations were closed. All remaining goodwill related to
Med-Source of $200,000 was written off. Operating results for the three fiscal
years subsequent to the recording of these impairment charges benefitted by
approximately $770,000 by having lower non-cash expenses for depreciation of
equipment and amortization of goodwill. Operating results for subsequent fiscal
periods also benefitted, by an undeterminable amount, from the disposition of
fixed site international and domestic equipment which previously had negative
cash flows. These benefits cannot be quantified because the equipment previously
used at fixed sites was partially replaced by mobile equipment serving multiple
sites.
Income (Loss) from Operations. The domestic loss from operations increased
by 156% or $5.6 million to $9.2 million for the year ended April 30, 1997 from
$3.6 million for the year ended April 30, 1996. This was primarily due to a $2.3
million write-down of lasers and related equipment, a $2.1 million increase in
the loss from U.S. laser operations, and an $891,000 increase in payroll.
The Canadian loss from operations decreased by 46% or $625,000 to $725,000
for the year ended April 30, 1997 from $1.4 million for the year ended April 30,
1996. This was primarily due to a decrease of $477,000 in the write-down of
lasers and related medical equipment and a decrease in the loss from operations
of $114,000 in a Canadian center which became a MobilExcimer site.
The European loss from operations decreased by 54% or $2.3 million to $2.0
million for the year ended April 30, 1997 from $4.3 million for the year ended
April 30, 1996. This was primarily due to a decrease in the write-down of lasers
and related medical equipment of $2.2 million.
Other Income (Expense). Other income (expense) decreased to a net expense
of $226,000 during the year ended April 30, 1997 from a net income of $413,000
during the year ended April 30, 1996. This decrease was due to a $169,000
decrease in interest income and other, a $381,000 increase in interest expense
and an $89,000 decrease in minority interest in the net loss of a subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
General
Laser Vision's primary sources of liquidity for the next year are expected
to consist of cash generated by operations, vendor financing, proceeds from the
exercise of options and warrants, and the proceeds from this offering. We
believe we could raise additional cash from borrowing or the sale of debt or
additional equity securities, if necessary.
We have generated positive cash flow from operations for every quarter
since the quarter ended April 30, 1998. Our cash flow from operations for the
nine months ended January 31, 1999 was sufficient to cover ongoing operations
for that period, including the amount of the purchase price of new equipment not
covered by financing, but not including the acquisitions of RSR and MSS. We
expect that normal ongoing liquidity needs will continue to be covered from the
operations of the business.
We had fixed asset impairment provisions in two fiscal years. The $2.8
million fixed asset impairment provision for the year ended April 30, 1997 and
the $3.1 million provision for the year ended April 30, 1996 were non-cash
expenses associated with non-current assets and did not affect working capital
or cash flows. Five of our six Summit lasers are leased, and those lease
payments will continue until the fall of
28
<PAGE> 30
1999 for two lasers and until the summer of 2001 on three other lasers. The
impairment provision during the year ended April 30, 1997 did not affect Laser
Vision's future lease commitments.
Laser Vision has access to financing on a laser by laser basis for up to
90% of the purchase price of such lasers. We expect to continue to have access
to this financing option for at least the next nine months. Other equipment
vendors do not provide equipment financing.
Certain of the selling stockholders will exercise warrants and options to
purchase a total of 420,000 shares of common stock for sale in this offering,
which will yield proceeds to Laser Vision of $3,257,297. Laser Vision expects
that other option and warrant holders will exercise options and warrants prior
to their expiration, but we cannot predict when such exercises will occur.
The net proceeds of this offering are expected to total approximately $44.2
million. Together with the cash flow from operations, proceeds from the exercise
of options and warrants and laser financing, we believe this will be sufficient
to fund our expected cash needs as described below for the foreseeable future,
exclusive of any acquisitions.
Our principal cash needs include normal operating expenses, the purchase of
additional equipment, the payments of contingent consideration for RSR and MSS,
the expansion of patient financing programs and any cash needs for any future
acquisitions.
Our normal operating expenses include procedure royalty fees, salaries,
travel and lodging, medical supplies, equipment maintenance, professional fees,
rent and utilities.
We expect to purchase about $11 million of new equipment in fiscal year
2000. As noted above, we have available laser financing for up to 90% of the
purchase price of excimer lasers. Alternatively, we may choose to pay a larger
proportion of the purchase price in cash, and may also choose to accelerate the
purchase of our equipment if we believe demand for our services warrants it. We
believe we would be able to obtain third party financing for excimer lasers if
we lost access to our current financing source, although we do not know the
terms on which such financing may be available.
The RSR acquisition requires an additional $1.8 million in payments
including interest in addition to the $500,000 that was paid on February 28,
1999. The MSS acquisition requires a non-contingent payment of $1 million on
April 30, 1999 and up to $8.25 million of contingent consideration in cash and
Laser Vision common stock. The contingent consideration is based upon MSS
meeting certain operating income targets for the five-month period ending April
30, 1999, the twelve-month period ending April 30, 2000, and the three-month
period ending July 31, 2000. Up to 50% of the contingent consideration may be
paid in Laser Vision common stock valued at market rate, with the balance to be
paid in cash. The amount of contingent consideration paid in common stock is at
the sole discretion of Laser Vision.
Laser Vision currently offers a program for patient financing, the funds
for which are provided primarily by a third party lender. The amount of such
financing currently is $2.3 million. We expect that we will expand this program
this year by up to $5 million. We may fund this program ourselves. We believe we
could find a third party lender to provide financing for the expected expansion.
If cash generated from our normal operations is significantly less than
anticipated, we have several strategies to deal with it. First, we can use the
maximum amount of financing available for the purchase of new equipment. Second,
we can slow down the purchase of new equipment. Third, we can choose the option
of funding 50% of the contingent consideration for the MSS acquisition with
common stock. Fourth, we can fund the patient financing program from a third
party or choose not to expand this program. Fifth, we can delay any potential
acquisitions, or attempt to fund such acquisitions with stock or cash raised
from third party sources. Finally, Laser Vision believes it would be able to
raise additional money through the borrowing of funds or the sale of debt or
additional equity securities.
Working Capital
Cash and cash equivalents decreased by 2% or $158,000 to $8.3 million at
January 31, 1999 from $8.4 million at April 30, 1998. At January 31, 1999,
working capital had increased by 4% or $224,000 to
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$5.8 million from $5.6 million at April 30, 1998. The ratio of current assets to
current liabilities at January 31, 1999 was 1.36 to one, compared to 1.64 to one
at April 30, 1998.
Accounts receivable increased $4.7 million from April 30, 1998 to January
31, 1999 and $1.8 million from April 30, 1997 to April 30, 1998 primarily due to
increased procedures performed in the U.S. and an increased number of customers
being invoiced monthly instead of weekly.
The increases of $1.0 million in inventory, $1.2 million of prepaid
expenses and other current assets, and $3.1 million of accounts payable from
April 30, 1998 to January 31, 1999, as well as the $1.2 million increase in
other accrued liabilities, from April 30, 1997 to April 30, 1998 are primarily
attributable to the increased procedures performed in the U.S.
Cash Flows -- Operating Activities
Net cash provided by operating activities increased by $5.4 million to $4.3
million for the nine months ended January 31, 1999 from a use of $1.0 million
for the nine months ended January 31, 1998. The cash flows provided by operating
activities during the nine months ended January 31, 1999 primarily represent the
net income in the period plus depreciation and amortization and a net increase
in current liabilities, less increases in accounts receivable, deferred taxes,
and prepaid expenses and other current assets. The increases in current
liabilities, accounts receivable, and prepaid expenses and other current assets
are a result of increased procedure volumes. Net cash used in operating
activities during the nine months ended January 31, 1998 primarily represents
the net loss incurred in this period less depreciation and amortization plus
increases in accounts receivable and prepaid expenses and other current assets
partially offset by increases in current liabilities.
Net cash provided by operating activities increased $6.7 million to $1.0
million for fiscal 1998 from a use of $5.7 million for fiscal 1997 which was an
increase in cash used of 101% or $2.9 million from a use of $2.8 million for the
fiscal year ended 1996. The cash flows provided by operating activities during
fiscal 1998 primarily represent the net loss incurred in this period less
depreciation and amortization and an increase in accounts payable and accruals,
offset by an increase in accounts receivable and inventory. The cash flows used
by operating activities during fiscal 1997 primarily represent the net loss
incurred in this period less depreciation, amortization and fixed asset
impairment and an increase in accounts payable, offset by an increase in
accounts receivable. The cash flows used for operating activities in fiscal 1996
primarily represent the net loss incurred less depreciation, amortization and
fixed asset impairment.
Cash Flows -- Investing Activities
Net cash used in investing activities increased by 140% or $4.2 million to
$7.2 million for the nine months ended January 31, 1999 from $3.0 million for
the nine months ended January 31, 1998. Cash used for investing during the nine
months ended January 31, 1999 was used to acquire equipment for the expanding
U.S. market and for the acquisitions of MSS and RSR. Cash used for investing
during the nine months ended January 31, 1998 was used to acquire equipment for
the expanding U.S. market. At January 31, 1999, we had made deposits with VISX
to purchase five new excimer lasers for use in the U.S. at three fixed sites and
on two mobile units. We will owe $1.6 million when these excimer lasers and
mobile units are delivered. Laser Vision expects capital expenditures for
equipment to continue at or above recent levels during the next 12 months.
Net cash used in investing activities decreased by 11% or $534,000 to $4.1
million for fiscal 1998 from $4.7 million in fiscal 1997 which was a decrease of
41% or $3.2 million from $7.9 million in fiscal 1996. These changes were
primarily due to the acquisition of equipment, equipment deposits and
acquisitions.
Cash Flows -- Financing Activities
Net cash provided by financing activities decreased by 64% or $4.8 million
to $2.7 million for the nine months ended January 31, 1999 from $7.4 million for
the nine months ended January 31, 1998. Cash
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provided by financing during the nine months ended January 31, 1999 was
primarily provided by the exercise of stock options and warrants, offset by
principal payments under capitalized lease obligations and notes payable. Cash
provided by financing during the nine months ended January 31, 1998 was
primarily provided by a private placement of preferred stock, proceeds from the
exercise of stock options and warrants, and proceeds from loan financings,
partially offset by principal payments under capitalized lease obligations and
notes payable.
Net cash provided by financing activities increased by 421% or $6.3 million
to $7.8 million for fiscal 1998 from $1.5 million for fiscal 1997 which was a
decrease of 93% or $19.8 million from $21.3 million for fiscal 1996. Net cash
provided by financing for fiscal 1998 was primarily due to proceeds from a
private offering of preferred stock, notes payable and exercise of stock options
and warrants offset by the repayment of notes payable and capitalized lease
payments. Net cash provided by financing activities during fiscal 1997 was
primarily due to proceeds received from notes payable and the exercise of stock
options offset by the repayment of certain notes payable and capitalized lease
obligations. Net cash provided by financing for fiscal 1996, was primarily due
to proceeds received from a private placement of our convertible preferred stock
with a provision for mandatory redemption in 2005 and the exercise of warrants.
Laser Vision expects to continue to fund future operations from existing
cash and cash equivalents, revenues received from providing laser access and
marketing services, the exercise of stock options and warrants and future debt
or equity financing as required. There can be no assurance that capital will be
available when needed or, if available, that the terms for obtaining such funds
will be favorable to Laser Vision.
As discussed in Note 3 to the consolidated financial statements included in
this prospectus Laser Vision has restated its financial statements to account
for the beneficial conversion feature and the mandatory redemption features of
its Series B convertible preferred stock. The restatement resulted in the
recognition of an additional $1,732,000 deemed preferred dividend at the
issuance date, which was reported as a charge to paid-in capital and net loss
applicable to common stockholders, and an increase in the carrying value of the
Series B shares. The recognition of the deemed dividend did not affect our cash
flows for the period, and subsequent recognition of additional deemed dividends
associated with the beneficial conversion feature will not affect our future
cash flows. However, under some circumstances, as defined in the preferred stock
agreement, the holders of the Series B shares may be able to require us to
redeem their shares for cash. These circumstances include the delisting of the
common stock by Nasdaq, bankruptcy or change of control of Laser Vision, and the
decline in the price of the common stock to less than approximately $2.00 per
share. While there can be no assurance that these circumstances will not arise,
Laser Vision believes the likelihood of redemption occurring is remote.
Accordingly, the redemption features of the Series B shares are not expected to
adversely impact our cash flows or liquidity.
Income Taxes
At April 30, 1998, Laser Vision had approximately $31 million of net
operating losses available to be carried forward to offset future taxable income
and which expire in the years 2006 through 2013. However, as a result of the
history of losses incurred by Laser Vision, at April 30, 1998 there was
insufficient objective evidence of future taxable income to utilize the net
operating loss carryforwards ("NOL's") prior to their expiration. As a result, a
valuation allowance was recorded for substantially all of the estimated $13
million of deferred tax assets which are principally associated with the net
operating losses at April 30, 1998, as management believed it was more likely
than not that they would not be realized before expiration.
In the fourth quarter of fiscal 1998, Laser Vision's operations became
profitable. For the nine months ended January 31, 1999, Laser Vision had pretax
income of approximately $2.8 million. Because of the improving levels of and
trend in profitability, management was able for the first time to conclude based
on objective evidence that Laser Vision will likely have taxable income in the
next fiscal year. As a result, a portion of the valuation allowance was reduced
and Laser Vision recognized a $0.8 million net tax benefit
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during the three months ended January 31, 1999, as management believed it was
more likely than not that a portion of the deferred tax assets would be realized
before expiration.
Management will continue to review and assess the realizability of the
deferred tax assets on a quarterly basis. The amount of net tax benefit or
expense recognized in the future may fluctuate significantly depending on
management's estimates of future taxable income. If Laser Vision's profitability
continues to improve, additional reductions in the valuation allowance may be
recognized. Generally, the benefit arising from the reduction in the valuation
allowance is reflected in the statement of operations as a reduction of income
tax expense. However, if an incremental tax benefit is attributed to certain
equity transactions that did not impact operating results, such as those arising
from the exercise of non-qualified stock options and warrants, the tax benefit
of the release of the valuation allowance would be reflected directly in
stockholders' equity.
Regardless of when the reduction in the valuation allowance is recognized
or whether the tax benefit is recognized in the statement of operations or
directly in equity, the utilization of the NOL's will substantially reduce Laser
Vision's cash obligations for the payment of any income taxes otherwise due over
the next several years.
YEAR 2000
Year 2000 Compliance
We are aware that some information technology systems may not function
properly at the onset of the year 2000. These systems record only the last two
digits of a date's year instead of the full four digits. For example, they would
record "00" as the year for dates in both 1900 and 2000. This could cause those
systems to process and record information incorrectly or possibly fail to
function in the year 2000.
Our services, operations, customers, suppliers and service providers all
rely on information technology systems, both hardware and software, to function
properly. This includes readily apparent systems such as those controlling VISX
excimer lasers used as a key part of our services as well as less obvious ones
such as those required to provide electricity to our main facility.
Suppliers: We have been surveying existing suppliers about the ability of
their systems and products to properly handle dates for the year 2000 and
beyond. VISX has advised us that its lasers will remain fully functional from a
medical standpoint through the year 2000 and beyond. VISX has determined that
the laser systems do not properly print or store patient report dates and
procedures performed in the year 2000 or beyond. VISX is in the process of
developing and testing a solution to this problem and expects to have it
available to us by the middle of 1999.
The cataract equipment used by MSS and the microkeratome equipment used for
LASIK procedures are not affected by the Year 2000 situation and will remain
fully functional from a medical viewpoint according to the cataract and
microkeratome equipment manufacturers.
If our other suppliers do not reply or cannot provide Year 2000 compliant
products, we may need to locate alternative sources for goods and services.
Operations: We have been gathering information from vendors about Year
2000 compliance for each of the major elements of our internal information
technology systems. Based on the statements from vendors, we understand the
following:
Our operating systems, which include MS Windows NT, MS Windows 98, MS
Windows 95 and Novell IntraNetware, are all Year 2000 compliant in their latest
versions. We will need to run a service pack for our MS Windows NT and Novel
IntraNetware systems to bring them up to the current version. We expect to
complete this by the second quarter of calendar 1999.
Our key applications which include MS exchange server, Solomon financial
software for Windows, MS Office 97 and Microbilt Credit Commander will be Year
2000 compliant after running a service pack
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for the applications to bring them up to the current version of software. We
expect to complete this during the second and third quarters of calendar 1999.
Our Mitel SX-200 telephone system is Year 2000 compliant. Our Colorado
Replay Plus Active Voice 1400 voicemail system is not Year 2000 compliant. We
expect to replace this system by the third quarter of calendar 1999.
Our computer hardware, which is all PC based, is Year 2000 compliant with
the exception of a few older personal computers. The hardware used to control
our local area network is Year 2000 compliant. We expect to install any
necessary upgrades or replace any computers that are not Year 2000 compliant
during the second and third quarters of calendar 1999.
We have received notification from the owners and managers of our facility
that it is Year 2000 compliant with regard to building security, heating, and
lighting controls.
Costs to Address Year 2000 Issues
We expect that any remaining costs for Year 2000 compliance will be less
than $100,000 and that the majority of these disbursements will be for equipment
purchases and therefore will be capitalized and depreciated. The total
anticipated costs for Year 2000 compliance (past and future) is expected to be
less than $150,000. However, we may spend more money than we have estimated, and
this could have a material adverse effect on our results of operations and
financial condition. At this stage in the assessment process, we do not believe
that the Year 2000 issue will materially impact our financial position, results
of operations or cash flows in future periods. There can be no assurance that
operating problems or expenses related to the Year 2000 issue will not arise
with our computer systems and software or that our customers or suppliers will
be able to resolve their Year 2000 issues in a timely manner. Accordingly, we
plan to devote the necessary resources to resolve all significant Year 2000
issues in a timely manner.
Contingency Plans
The most reasonably likely worst case Year 2000 scenario would be that a
solution to the VISX laser printing and storing of patient report dates for
procedures performed in the year 2000 and beyond is not corrected in a timely
manner. To the extent that any computer documentation of procedures is
unavailable, we are prepared to manually produce the necessary reports. As we
complete our internal review and external surveys we will prepare additional
contingency plans to prepare for the problems that we believe are reasonably
likely to arise. However, despite our best efforts, we may not anticipate all
problems that may ultimately arise.
Risks of Year 2000 Issues
We will continue preparations with the goal of ensuring that the
information technology relating to our services, operations and suppliers will
recognize dates and function properly in the year 2000 and beyond. However,
unanticipated problems could affect our ability to provide services to our
customers or interrupt or prevent deliveries from suppliers at the onset of the
year 2000. As a result, we could suffer a material adverse impact to our
business, financial position and results of operation due to a loss of revenue,
legal claims or extra expenses caused by unanticipated year 2000 computer
problems.
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INDUSTRY BACKGROUND
REFRACTIVE VISION DISORDERS
The human eye functions much like a camera, incorporating a lens system
which focuses light (the cornea and the lens), a variable aperture system which
regulates the amount of light passing through the eye (the iris), and film which
records the image (the retina). Light from a distant object passes through the
cornea, iris, and lens, which together focus the light on the retina. The retina
contains light sensitive receptors which transmit the image through the optic
nerve to the brain. Seventy-five percent of the focusing power of the eye is
provided by the curvature of the cornea.
Refractive disorders prevent the eye from properly focusing images on the
retina. Nearsightedness (myopia), farsightedness (hyperopia) and other
irregularities in the shape of the cornea (astigmatism) are the most common
refractive disorders. If the cornea is too steep or too flat, the eye cannot
properly focus the light passing through it onto the retina, and the individual
sees a blurred image. Historically, consumers have most often chosen eyeglasses
or contact lenses to correct refractive disorders.
Excimer Laser Surgical Procedures
The excimer laser is used to treat nearsightedness, farsightedness and
astigmatism. Excimer laser surgery corrects the amount of curvature of the
cornea, which in turn eliminates or reduces the need for corrective lenses. An
excimer laser emits energy in a pulse lasting only several billionths of a
second. High-energy ultraviolet light produced by the excimer laser creates a
"non-thermal" process known as ablation, which does not damage adjacent tissue.
The laser manufactured by VISX, which is the laser we provide, is currently
approved to treat nearsightedness of up to -12 diopters with astigmatism of up
to -4 diopters and farsightedness of up to +6 diopters. To date, this is the
widest range of indications for any FDA-approved laser. Lasers manufactured by
Summit, Autonomous Technologies, Inc. ("Autonomous") and Nidek, Inc. ("Nidek")
have also received FDA approval, though for more limited overall indications.
There are primarily two procedures that use the excimer laser to correct
vision disorders: Laser In-Situ Keratomileusis ("LASIK") and Photorefractive
Keratectomy ("PRK"). Prior to performing these procedures, the eye surgeon
determines the correction required and programs the excimer laser. The excimer
laser software then calculates the optimal number of pulses needed to achieve
the intended correction. Both LASIK and PRK are done on an outpatient basis
without general anesthesia, using only topical anesthetic eye drops. During
these procedures, the patient wears an eyelid holder to prevent blinking. The
patient reclines in a chair and looks at a target while the surgeon prepares the
patient's eye for the procedure. The surgeon uses a foot pedal to trigger a
rapid succession of excimer laser pulses. The typical procedure takes 15 to 30
minutes from set-up to completion. The excimer laser itself is generally used
for less than 40 seconds.
LASIK
LASIK came into widespread commercial use in 1997. With LASIK, an eye
surgeon uses a microsurgical instrument called a microkeratome to open a thin
flap of tissue on the surface of the cornea. The flap is only about 30% of the
cornea's thickness. The eye surgeon lays the flap back and applies excimer laser
pulses to the cornea to treat the eye according to the patient's prescription.
The eye surgeon then folds the cornea flap back into place and it naturally
re-adheres and heals. With LASIK, the patient experiences virtually no
discomfort. The LASIK procedure offers two additional advantages over the PRK
procedure: LASIK usually allows the eye surgeon to treat both eyes of a patient
on the same day and LASIK patients experience much more rapid recovery. Most
LASIK patients see well enough to resume most normal activities the day after
the procedure and heal completely within one to three months. Currently, most
excimer laser procedures in the U.S. and Canada are LASIK.
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PRK
PRK has been used commercially since 1985. With PRK, the eye surgeon
prepares the eye by gently removing the surface layer of the cornea called the
epithelium. The surgeon then reshapes the curvature of the cornea using the
excimer laser. Since the layer removed is extremely thin, the cornea maintains
its strength. Following PRK, a patient typically experiences blurred vision and
discomfort until the epithelium heals. The patient usually experiences a
substantial improvement in clarity of vision within a few days following PRK.
However, it generally takes a patient one month, but may take up to six months,
to realize the full benefit of PRK.
Other Refractive Surgical Procedures
Refractive disorders may also be treated by other surgical techniques such
as radial keratotomy ("RK"). RK is a procedure used to correct nearsightedness
in which an eye surgeon uses a scalpel to make a series of cuts in a radial
pattern around the outer portion of the cornea. The healing of the incisions
causes a flattening of the cornea and corrects small to moderate amounts of
nearsightedness. RK is a manual procedure that is highly dependent on the skill
of the eye surgeon. In addition, RK involves incisions into the corneal tissue
which weakens the structure of the cornea. We believe that RK is used in a small
percentage of the surgeries performed to treat refractive disorders.
CATARACT VISION DISORDERS
Cataracts are a common vision disorder affecting many individuals as they
age. A cataract is a cloudy or opaque area in the normally transparent lens of
the eye. As the cloudiness increases, it prevents light rays from passing
through the lens and focusing on the retina, the light sensitive tissue lining
the back of the eye. As the cataract initially develops, it may not disturb
vision. But as the cataract worsens, several specific symptoms may develop,
including blurred vision, sensitivity to light and glare, increased
nearsightedness, or distorted images.
Cataract Surgical Procedures
Currently eye surgeons treat a cataract by surgical removal and implant. In
cataract surgery, the eye surgeon removes the cloudy lens, and in most cases
replaces it with a permanent artificial lens which restores the focusing power
of the eye. Cataract surgery is generally done on an outpatient basis. During
the procedure, eye drops and medications are administered to help the patient
relax, and a local anesthetic is given to make the surgery essentially painless.
Most cataract removals now do not require stitches or the use of a patch. After
the procedure, a patient is able to go home within a few hours.
While cataract surgery does not require the use of an excimer laser, a YAG
laser is used in a follow-up procedure after approximately 25% to 40% of
cataract removals. The YAG laser is a small, relatively inexpensive solid state
laser. It is used to break up the haziness which may develop in the eye's
central membrane three or four months after cataract removal.
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BUSINESS
Laser Vision provides excimer lasers and other equipment to eye surgeons
for the treatment of nearsightedness, farsightedness, astigmatism and cataracts.
We also provide related support services. We are one of the largest providers of
access to such equipment and services in the U.S. Much of our equipment is
mobile, and we routinely move it from location to location in response to
customer demand. We also provide our equipment at fixed locations. Our flexible
delivery system enlarges the pool of potential locations, eye surgeons and
patients that we can serve, and allows us to effectively respond to changing
market demands.
Eye surgeons pay us a fee for each procedure they perform using our
equipment. We typically provide each piece of equipment to many different eye
surgeons, which allows us to more efficiently use the equipment and offer it at
an affordable price. We refer to our practice of providing equipment to multiple
eye surgeons as "shared access".
Eye surgeons take advantage of our shared access and flexible delivery
system for a variety of reasons including the ability to:
- avoid a large capital investment
- eliminate the risks associated with buying high-technology equipment
that may rapidly become obsolete
- use the equipment without responsibility of maintenance or repair
- cost effectively serve small to medium-sized markets and remote
locations
- serve satellite locations even in large markets
We provide a broad range of value-added services to the eye surgeons who
use our equipment, including initial training, technical support and equipment
maintenance, marketing, clinical advisory service, patient financing and
practice satelliting. Eye surgeons who are developing their practices, or who
perform limited numbers of procedures, find our support services particularly
attractive. We continue to look for ways to expand our support services, so that
we can offer value to those surgeons who perform enough procedures to otherwise
justify the purchase of their own equipment. For a thorough description of our
support services, see "Value-Added Support Services" at page 39.
We provide mobile cataract equipment and services through our MSS
subsidiary which focuses on developing relationships between local hospitals,
referring optometrists and eye surgeons in small to medium sized markets. In
this way, we expand the demand for "close to home" cataract surgery which we
make economically feasible through our shared-access approach and mobile
systems.
Our excimer laser and cataract businesses are operated relatively
separately at this time. We entered the cataract business only recently with our
purchase of MSS in December 1998. At the time of that purchase, approximately
80% of the eye surgeons using MSS services were not performing excimer laser
surgery. We expect over time to cross market both our excimer laser and cataract
services to the eye surgeons we serve.
MARKET TRENDS
The Refractive Market
An industry source estimates that over 160 million Americans currently
require eyeglasses or contact lenses. Approximately 100 million Americans
purchased eye wear in 1997. Consumers in the U.S. spent approximately $15.4
billion on eyeglasses, contact lenses and other corrective lenses in 1997
according to industry sources.
Industry sources estimate that in 1998, 480,000 excimer laser correction
procedures were performed in the U.S., an increase of 123% from the 215,000
procedures performed in 1997. Industry sources project
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excimer laser correction procedures will expand to 750,000 procedures in 1999, a
56% increase over 1998 procedures. In November 1998 the VISX excimer laser was
approved for the treatment of farsightedness. This recent approval broadens the
potential market for excimer laser surgery.
The Cataract Market
In the U.S., cataract surgery currently is the most common therapeutic
surgical procedure performed on Americans age 65 and older. Medicare pays $3.4
billion a year for 1.0 million of the 1.3 million cataract procedures performed
annually. There are currently 34 million Americans who are age 65 and older.
This segment of the population is growing at an annual rate of 1.2%.
According to the American Academy of Ophthalmology, individuals between the
ages of 52 and 64 have a 50% chance of having a cataract. By age 75, almost
everyone has a cataract. Fifty percent of the people between the ages of 75 and
85 with cataracts have lost some vision as a result. According to the National
Eye Institute, cataracts account for approximately 42% of all blindness even
though an effective surgical treatment is available.
BUSINESS STRATEGY
Our strategy is to provide eye surgeons cost-effective access to surgical
equipment used for excimer laser and cataract procedures.
Our business strategy includes the following elements:
- Offering a Flexible Delivery System. Our focus on a flexible delivery
system of mobile and fixed locations is unique. Our mobile system
incorporates patented technology and provides us with advantages over
our competitors. We are able to address growing markets and meet the
needs of customers who do not initially and may never have the procedure
volume to warrant the fixed investment of purchasing an excimer laser.
In addition, our flexible delivery system allows us to provide our
customers with options to address changes in demand. For eye surgeons
with increased procedure volumes, we provide fixed site lasers. This
allows surgeons to continue to take advantage of our support services
while avoiding the risks associated with purchasing their own equipment.
- Increasing Penetration in New and Existing Markets. We intend to
increase our market penetration in existing markets and to expand into
new markets. We primarily target eye surgeons in smaller or middle sized
markets that would not otherwise be able to support the substantial
investment required to purchase and maintain a laser. These underserved
markets typically have less competition. For any new market, our mobile
lasers allow us to enter with lower initial procedure volume because we
can spread our investment over multiple locations. It also allows us to
enter a new market with less risk because we do not have to make a large
fixed investment, and can easily discontinue service to a location if
procedure volumes do not increase sufficiently. We provide access to our
excimer lasers to eye surgeons or practice groups who intend to perform
as few as five procedures. We seek to increase the number of eye
surgeons and locations we serve. We continue to expand our geographic
coverage by adding mobile and fixed excimer lasers. We anticipate adding
six mobile lasers and twelve fixed site lasers in fiscal year 2000.
- Maximizing the Use of Our Equipment. We attempt to maximize the use of
each of our lasers and cataract equipment. For our mobile systems, we
try to reduce the size of the geographic region served by each mobile
system and to increase the number of eye surgeons and locations served
within a region. We also strive to optimize the routing schedules of our
equipment. For eye surgeons at both mobile and fixed sites our support
services help identify ways to increase case volume. In addition, all of
our certified engineers are trained by the laser manufacturer and Laser
Vision to service, repair and maintain the laser, which helps us reduce
the set-up and down time of our equipment.
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- Providing Value-Added Services to Eye Surgeons. Our value-added support
services help surgeons to adopt excimer laser surgical procedures and
enhance their practices and procedure growth. These services include
training, technical support and equipment, maintenance, marketing,
clinical advisory service, patient financing and clinical practice
satelliting. For a more complete description of these services see
"--Value-Added Support Services" at page 39.
- Expanding Our Products and Services. Our eye surgeon customers need
many types of equipment and services to perform various surgeries. We
intend to explore expansion of our equipment and services to help us
provide additional value to our current customers as well as attract new
ones. We seek to internally develop or acquire these products and
services. Our acquisition of MSS and RSR are two recent examples. The
RSR acquisition allows us to provide equipment complementary to our
existing laser surgery business. The MSS acquisition has allowed us to
expand into the cataract market which we did not previously serve.
EXCIMER LASER BUSINESS
Eye surgeons use the excimer laser to reshape the curvature of the cornea
in order to correct nearsightedness, farsightedness and astigmatism. Most of the
laser procedures performed by eye surgeons using our equipment also involve a
microkeratome. Our excimer laser and microkeratome services are provided through
our flexible delivery system including both mobile systems and fixed site
locations.
Mobile Systems
Our mobile laser systems are typically used by eye surgeons who perform
fewer than 20 procedures per month. One of our certified laser engineers
accompanies each of our mobile excimer lasers. If an eye surgeon uses our
microkeratomes, we generally supply two microkeratomes and a second Laser Vision
employee, who is trained by the microkeratome manufacturer and us as a surgical
technician. Our mobile laser equipment is provided in two ways: the
"Roll-On/Roll-Off" and the "MobilExcimer" laser systems.
Roll-On/Roll-Off Laser System
The Roll-On/Roll-Off laser system consists of an excimer laser mounted on a
motorized air suspension platform. This system allows an excimer laser to be
moved upon reaching its destination. We transport the Roll-On/Roll-Off laser
system between locations in a specially modified truck. We have patented certain
aspects of this transport system. Due to the design of the Roll-On/Roll-Off
system, our lasers usually require only minor adjustments and minimal set-up
time at each destination. Eye surgeons use our Roll-On/Roll-Off system in their
offices and at hospitals and ambulatory surgical centers. As of January 31,
1999, we had 25 Roll-On/Roll-Off systems in operation, all but two of which were
located in the U.S.
MobilExcimer
The MobilExcimer is a self-contained mobile suite with all the equipment
necessary to perform laser procedures. We have patented certain aspects of this
system. This system is most appropriate for serving eye surgeons, hospitals and
ambulatory surgical centers that cannot accommodate a Roll-On/Roll-Off system.
As of January 31, 1999 we had three MobilExcimer systems in operation, two in
the U.S. and one in Canada.
Fixed Site Lasers
Our fixed site lasers are dedicated to single locations where eye surgeons
perform at least 75 procedures per month. As of January 31, 1999 we had ten U.S.
sites, one Canadian site and four European sites. We own two of these fixed
sites and the remainder are owned by third parties. Currently all of our fixed
sites are used by more than one surgeon. Some fixed sites exclusively serve
single practice groups and others are located in ambulatory surgery centers
where they can be used by any qualified eye surgeon. We anticipate that fixed
site lasers in the U.S. will make up an increasing percentage of our overall
business.
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Microkeratomes
Since the acquisition of RSR in September 1998, we have provided increased
microkeratome access for excimer laser procedures. We now own 43 microkeratomes
which allows us to offer microkeratome access to both our excimer laser
customers and our non-excimer laser customers. Microkeratomes are used in over
90% of the procedures performed with our excimer lasers. In January 1999 we
provided 46% of the microkeratomes for these procedures.
Procedure Volume
Approximately 91% of the procedures performed on our excimer lasers in the
U.S. for the nine month period ended January 31, 1999 were LASIK surgeries.
During the same period, approximately 8% of those procedures were PRK surgeries.
A small number constituting approximately 1% of procedures on our lasers, were
phototherapeutic keratectomy procedures, which is a non-refractive procedure
used to treat certain disorders such as corneal scars, and in some cases, is an
alternative to corneal transplant.
The table below illustrates the quarterly growth in the number of excimer
laser procedures performed by our customers since the fourth quarter of fiscal
year 1996.
CHART
QUARTERLY PROCEDURE VOLUME WORLDWIDE
<TABLE>
<CAPTION>
QUARTER ENDED NUMBER OF EXCIMER LASER PROCEDURES
<S> <C>
April 1996 1,465
July 1996 1,799
Oct. 1996 2,272
Jan. 1997 2,475
April 1997 3,170
July 1997 4,846
Oct. 1997 6,830
Jan. 1998 7,791
April 1998 9,941
July 1998 11,297
Oct. 1998 12,767
Jan. 1999 15,939
</TABLE>
CATARACT BUSINESS
We believe that our MSS subsidiary is the world's largest provider of
mobile equipment and services necessary to convert a certified surgical center
into a cataract surgical suite. One of our certified surgical technicians
transports this equipment from one surgery location to the next and prepares the
equipment at each stop so that the operating room is ready for cataract surgery.
Through this mobile approach, local optometrists are able to refer their
patients, the majority of which are elderly, to eye surgeons who offer the
convenience of "close to home" sophisticated cataract surgical services. As of
January 31, 1999 we operated 23 mobile cataract systems.
VALUE-ADDED SUPPORT SERVICES
We offer eye surgeons value-added support services that distinguish us from
our competitors, enhance our ability to compete for business and enable us to
grow with our customers by offering them various service and support
arrangements. The following value-added services help our eye surgeon customers
to expand their practices thereby increasing the use of our equipment and
services:
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<PAGE> 41
- Training. We conduct regular training sessions throughout the U.S. in
conjunction with laser and microkeratome manufacturers. These sessions
are designed to certify new eye surgeons in the use of excimer lasers
and microkeratomes. We also provide ongoing clinical training for all of
our engineers and technicians.
- Technical Support and Equipment Maintenance. As of January 31, 1999 we
employed 26 certified laser engineers, 17 microkeratome technicians and
23 cataract equipment technicians. Our laser engineers perform most of
our laser maintenance. Having our own certified laser engineers helps
ensure rapid response to any repair needs for our excimer lasers.
- Marketing. We offer a comprehensive marketing program that includes
print and broadcast advertising, Internet web pages, direct mail and
other media based programs. We assist our customers in directing their
marketing efforts. Strategies include direct mailings with information
related to excimer laser surgery, collateral and point of purchase
materials to reach patients during office visits, and videotape
presentations which can be used to educate patients about laser surgery.
In addition, we work to form relationships between eye surgeons and
optometrists. These optometric networks are valuable in referring
patients to eye surgeons who use our equipment and services. We help to
form these referral networks by training optometrists, who are then able
to provide pre-operative screenings as well as post-surgical follow-up
to their patients. We also provide our eye surgeon customers with
marketing materials designed to foster these referrals and generate new
patients.
- Clinical Advisory Service. We maintain a Clinical Advisory Board which
conducts regular conference calls with our eye surgeon customers. These
conference calls are chaired by our clinical advisors, who are eye
surgeons with extensive clinical experience. In addition, we conduct
clinical advisory meetings at the two major ophthalmic conferences each
year. Our clinical advisors also make themselves available to consult
with our eye surgeon customers outside of regularly scheduled conference
calls and meetings.
- Patient Financing. We offer our eye surgeon customers a comprehensive
patient financing program. Under this program, offered through a third
party consumer finance company, our eye surgeon customers may offer
their patients the ability to finance their excimer laser surgery. Eye
surgeons pay us a one-time fee for each patient who takes advantage of
this program. We guarantee the repayment of amounts financed under this
program. We intend to expand our patient financing programs with certain
proceeds from this offering.
- Practice Satelliting. We assist eye surgeons with high-volume practices
who desire to serve smaller markets through satellite surgical
locations. This program allows our eye surgeon customers to leverage
their time performing eye surgery.
SALES AND MARKETING
Refractive Surgery
Our refractive surgery sales force consists of six regional managers, five
practice group members and four part-time telemarketing employees. Our
telemarketing employees regularly contact eye surgeons throughout the U.S. in
order to develop interest in, and demand for, our services. Our regional
managers develop sales leads which come from sources such as telemarketing and
customer contact through trade shows and professional organizations. After
identifying a prospective eye surgeon customer, the regional manager guides the
eye surgeon through the contract process. Our practice development group then
arranges the necessary training and marketing assistance required by each
individual customer. Once an eye surgeon is prepared to initiate surgeries using
our services and equipment, our operations department assumes primary
responsibility for the ongoing relationship. In response to our anticipated
growth, we intend to hire an additional two regional managers and five practice
group members.
Cataract Surgery
Our MSS sales staff focuses on identifying small to medium sized markets
which do not have convenient access to the services of a cataract eye surgeon.
After identifying such a market, our sales staff
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<PAGE> 42
will contact the local hospital and local optometrists to develop interest in
"close to home" cataract surgery services. When there is sufficient interest,
our sales staff brings the hospital and optometrists in contact with an eye
surgeon who is willing to provide services to that local market. By bringing
these various parties into contact, we increase demand for our mobile cataract
services.
Provision of Credit
Our eye surgeon customers are responsible for collecting payment from their
patients. We collect our procedure fees directly from each eye surgeon.
Procedure fee invoices are generated weekly or monthly depending on the billing
terms established by contract between Laser Vision and the eye surgeon. We
require each eye surgeon customer to pay all procedure fees within 15 days of
receipt of our invoice. Our collection experience with eye surgeons has been
very good. We have reserved for anticipated uncollectable amounts.
We also offer a financing program for patients as a value-added service to
our eye surgeon customers. This program enables patients to finance the
procedure fee through a third-party consumer finance company. Laser Vision
guarantees the repayment of credit extended pursuant to this program in exchange
for a fee paid by the eye surgeon. Total fees received by Laser Vision for
providing the guarantee have historically not been significant and were less
than $100,000 in the fiscal year ended April 30, 1998. As of January 31, 1999,
the loan portfolio balance for the financing program was $2,295,000. Bad debts
have constituted less than 5% of the total amounts financed and management
provides an allowance for all anticipated uncollectable amounts.
SUPPLIERS
The current retail cost of a VISX excimer laser is $525,000. The purchase
price includes a one-year warranty on all parts except the optics (mirror and
glass components), which carry a 30-day warranty. We are required to pay a
royalty fee of $250 to VISX for each procedure performed.
As of January 31, 1999, we had 43 active excimer lasers worldwide. We
currently use VISX lasers only, but we have the flexibility to utilize lasers
produced by any of the currently approved manufacturers, depending on the eye
surgeon's preference and sales structures or inducements which may be offered by
the manufacturer. We currently have an additional five excimer lasers on order
from VISX.
The retail cost of a Bausch & Lomb microkeratome is approximately $55,000.
We currently purchase all of our microkeratomes and microkeratome blades from
Bausch & Lomb.
SIGNIFICANT CUSTOMERS
Fees collected from Minnesota Eye Consultants, P.A. constituted 21%, 24%
and 3% of our total revenues in fiscal 1998, 1997 and 1996, respectively. These
fees were generated at multiple locations from the use of both mobile and fixed
site lasers. The loss of this customer would have a material adverse effect on
Laser Vision. Minnesota Eye Consultants is an eye surgeon practice group whose
president is Richard L. Lindstrom, M.D. Dr. Lindstrom is a member of our board
of directors and is our medical director. Minnesota Eye Consultants is also
limited partner in a limited liability partnership established by Laser Vision
to own and operate one mobile laser in Minnesota.
COMPETITION
Refractive Surgery
The market for providing access to excimer lasers is highly competitive. We
compete with laser centers operated by local operators and eye surgeons who have
purchased their own laser. We also compete with several other companies,
including at least two manufacturers of laser equipment, in providing access to
excimer lasers in the U.S. Other companies are currently in the process of
gaining FDA approval for their lasers, and these companies may elect to enter
the laser center business. Other non-manufacturing companies which have
indicated they intend to operate or already operate laser centers in the U.S.
are Clear Vision Laser Centers, Inc., LCA Vision, Inc., NovaMed Eyecare
Management, LLC, Omega Health Systems, Inc., Physicians Resource Group, Inc.,
TLC The Laser Center, Inc. and Vision Twenty-One, Inc. Omega Health Systems,
Inc. recently announced that it intends to pursue a mobile
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<PAGE> 43
strategy, and we understand that Nidek is also pursuing a mobile strategy. We
will monitor any such efforts closely and will enforce the exclusivity of our
patents and other intellectual property. We have filed suit against Nidek and a
former employee for misappropriation of our proprietary technology, among other
things. For a more detailed description of this suit, see "-- Legal Proceedings"
at page 46.
The services and equipment we offer also compete with other forms of
treatment for refractive disorders, including eyeglasses, contact lenses, radial
keratotomy, corneal rings and other technologies currently under development. We
expect that companies may attempt to develop new products directly competitive
with our excimer lasers. Other companies could introduce new or enhanced
products with features which render our equipment obsolete or less marketable.
Our success will depend in large part on our ability to adapt to technological
changes and advances in the treatment of refractive vision disorders.
Cataract Surgery
Our MSS subsidiary competes with several other companies that provide
mobile cataract services including Vantage Technology, Inc., Southeastern
Instruments, Inc. and American Eye Instruments, Inc. MSS also competes with
local hospitals and surgery centers which offer cataract surgery.
For further discussion regarding potential competition see "Risk
Factors -- We face increasing competition and must continually adapt to
technological changes and advances in order to succeed" at page 7.
PATENTS AND TRADEMARKS
LASERVISION(R), LASERVISION CENTERS AND DESIGN(R), LASERVISION CENTERS(R),
LASERVISION CENTER(R), LVC(R), LVCI(R), and MOBILEXCIMER(R) are registered U.S.
servicemarks of Laser Vision. In addition, we own servicemark registrations in a
number of foreign countries. We have also secured patents for the MobilExcimer
mounting system, and for certain aspects of our Roll-On/Roll-Off system. Our
intellectual property, including servicemarks, patents and other proprietary
technology give us a competitive advantage in the marketplace and are important
to our success. See "Risk Factors -- Competitors may attempt to use our
exclusive intellectual property or proprietary technology which could weaken our
competitive advantages" at page 8.
GOVERNMENT REGULATION
Excimer lasers used in the U.S. are regulated by the FDA and cannot be sold
in the U.S. until the FDA grants approval for the device. In the U.S., VISX,
Summit, Autonomous and Nidek are the only excimer laser manufacturers with FDA
approval to market their lasers. In addition, we have obtained, as a
manufacturer, FDA approval of the MobilExcimer. Excimer laser manufacturers that
obtain FDA approval for use of their excimer lasers are subject to continuing
regulation by the FDA, including periodic inspections to determine compliance
with regulations. Although the FDA has not sought to regulate surgeons' use of
approved and unmodified excimer lasers, it enforces numerous regulations
including regulations prohibiting the sale and promotion of lasers for
non-indicated uses.
While excimer lasers are not approved by the FDA for LASIK, surgeons in the
U.S., including those affiliated with us and our competitors, have performed
LASIK using their discretion as a practice of medicine matter. The FDA may seek
to challenge this practice in the future.
The following is a more detailed description of certain laws and
regulations that affect our operations.
Restrictions on Medical Devices
In the U.S., the FDA regulates the manufacturing, labeling, distribution
and marketing of medical devices, including excimer lasers, microkeratomes and
certain equipment we provide for use in cataract surgery. The excimer lasers and
other major equipment that we use have been authorized by the FDA for certain
uses, as has the MobilExcimer.
Once FDA approval is obtained, however, medical device manufacturers are
subject to continuing FDA obligations. For example, the FDA requires that
medical devices be manufactured in accordance with its Quality System
Regulations. In essence, this means that medical devices must be manufactured
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<PAGE> 44
and records must be maintained in a prescribed manner with respect to
production, testing and control activities. In addition, the FDA sometimes
imposes restrictions and requirements regarding the labeling and promotion of
medical devices, with which users (such as Laser Vision) as well as
manufacturers must comply. Non-compliance with FDA requirements could subject
manufacturers and Laser Vision to enforcement action, including:
- product seizures
- recalls
- withdrawal of approvals
- civil and criminal penalties
Any such enforcement action could have a material adverse effect on our
business, financial condition and results of operations.
To authorize new uses of medical devices, manufacturers are required to
obtain a supplemental FDA authorization. Obtaining these authorizations is time
consuming and expensive, and we cannot be sure that manufacturers of the devices
we use will be able to obtain any such additional FDA authorizations. Further,
later discovery of problems with the medical devices we use or the manufacture
or failure to comply with manufacturing or labeling requirements may result in
restrictions on use of the devices or enforcement action against the
manufacturers, including withdrawal of devices from the market. Changes in
legislation or regulation could affect whether and how we can use the devices.
These and other regulatory actions could limit the supply of devices we use or
our ability to use them, which could have a material adverse effect on our
business, financial condition and results of operations.
Anti-Kickback Statutes
In the U.S., the federal anti-kickback statute prohibits the knowing and
willful solicitation, receipt, offer or payment of any kickback in connection
with:
- the referral of patients
- the ordering or purchasing of items or services payable in whole or in
part under Medicare, Medicaid or other federal health care programs
Some courts have interpreted the federal anti-kickback statute broadly to
prohibit payments intended to induce the referral of Medicare or Medicaid
business, regardless of any other legitimate motives. Sanctions for violations
of the anti-kickback statute include:
- criminal penalties
- civil penalties of up to $50,000 per violation
- exclusion from Medicare, Medicaid and other federal programs
According to the U.S. Office of the Inspector General, eye surgeons and
optometrists who engage in agreements to refer business may be violating the
anti-kickback statute. Further, violations may occur even with respect to
non-Medicare or Medicaid services if the arrangement has an impact on the
referral pattern for Medicare or Medicaid services.
Some states have enacted statutes similar to the federal anti-kickback
statute which are applicable to all referrals of patients. Although we have
endeavored to structure our contractual relationships in compliance with these
laws, authorities could determine that our business practices are in violation
of such laws. This could have a material adverse effect on our business,
financial condition and results of operations.
Fee-Splitting
Many states prohibit professionals (including eye surgeons and
optometrists) from paying a portion of a professional fee to another individual
unless that individual is an employee or partner in the same professional
practice. Violation of a state's fee-splitting prohibition may result in civil
or criminal fines, as
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well as loss of licensing privileges. Many states offer no clear guidance on
what relationships constitute fee-splitting, particularly in the context of
providing management services for doctors. Although we have endeavored to
structure our contractual relationships in material compliance with these laws,
state authorities could find that fee-splitting prohibitions apply to our
business practices. This could have a material adverse effect on our business,
financial condition and results of operations.
Corporate Practice of Medicine and Optometry
The laws of many states prohibit business corporations, such as Laser
Vision, from practicing medicine and employing or engaging physicians to
practice medicine. Some states prohibit business corporations from practicing
optometry or employing or engaging optometrists to practice optometry. Such laws
preclude companies that are not owned entirely by eye care professionals from:
- employing eye care professionals
- controlling clinical decision making
- engaging in other activities that are deemed to constitute the practice
of optometry or ophthalmology
This prohibition is generally referred to as the prohibition against the
corporate practice of medicine or optometry. Violation of this prohibition may
result in civil or criminal fines, as well as sanctions imposed against the
professional through licensing proceedings. Although we have endeavored to
structure our contractual relationships in compliance with these laws, if any
aspect of our operations were found to violate state corporate practice of
medicine or optometry prohibitions, this could have a material adverse effect on
our business, financial condition and results of operations.
Self-Referral Laws
The U.S. federal self-referral law (the "Stark Law") prohibits physicians
(including optometrists) from referring their Medicare or Medicaid patients for
certain health services to any provider with which they (or their immediate
family members) have a financial relationship. Certain referrals, however, fit
within specific exceptions in the statute or regulations. The penalties for
violating the Stark Law include:
- denial of payment for the health services performed
- civil fines of up to $15,000 for each service provided pursuant to a
prohibited referral
- a fine of up to $100,000 for participation in a circumvention scheme
- possible exclusion from Medicare and Medicaid programs
At this time it is unclear how eye doctors are affected under the law.
While we believe that our present business practices will not be affected, there
can be no assurance that we fully comply with the Stark Law or similar state
laws. This could have a material adverse effect on our business, financial
condition and results of operations.
Other Anti-Fraud Provisions
Certain federal and state laws impose penalties on health care providers
and those who provide services to such providers (including businesses such as
Laser Vision) that fraudulently or wrongfully bill government or other
third-party payors for health care services. Such penalties include substantial
civil and criminal fines and imprisonment. In addition, the federal law
prohibiting false Medicare/Medicaid billings allows a private person to bring a
civil action in the name of the U.S. government for violations of its
provisions. Such private individuals can obtain a portion of the false claims
recovery if the action is successful. We believe that we operate in material
compliance with these laws. We do not know whether any of our activities will be
challenged or reviewed by governmental authorities or private parties asserting
false claims. Any such actions could have a material adverse effect on our
business, financial condition and results of operations.
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Facility Licensure and Certificate of Need
State Departments of Health may require us to obtain licenses in the
various states in which we initiate or acquire business operations. We believe
that we have obtained the necessary licensure in states where licensure is
required and that we are not required to obtain licenses in other states.
However, some of the regulations governing the need for licensure are unclear
and there is little guidance available regarding certain interpretative issues.
Therefore, it is possible that a state regulatory authority could determine that
we are improperly conducting business operations without a license. This could
subject us to significant fines or penalties, result in our being required to
cease operations in that state and could otherwise have a material adverse
effect on our business, financial condition and results of operations. We have
no reason to believe that we will be unable to obtain necessary licenses without
unreasonable expense or delay, but there can be no assurance that we will be
able to obtain any required license.
Some states require permission by the State Department of Health in the
form of a Certificate of Need ("CON") prior to the construction or modification
of an ambulatory care facility or the purchase of certain medical equipment in
excess of a certain amount. We believe that we have obtained the necessary CONs
in states where a CON is required. However, some of the regulations governing
the need for CONs are unclear and there is little guidance to cover certain
interpretive issues. Therefore, it is possible that a state regulatory authority
could determine that we are improperly conducting business operations without a
CON. This could have a material adverse effect on our business, financial
condition and results of operations. There can be no assurance that we will be
able to acquire a CON in all states where it is required.
Health Care Reform
Health care reform is considered by many in the U.S. to be a national
priority. Several states are also currently considering health care proposals.
We cannot predict what additional action, if any, the federal government or any
state may ultimately take with respect to health care reform or when any such
action will be taken. Health care reform may bring radical changes in the
financing and regulation of the health care industry, which could have a
material adverse effect on our business, financial condition and results of
operations.
EMPLOYEES
As of January 31, 1999, we had 170 employees. None of our employees is
subject to a collective bargaining arrangement. We consider our relations with
our employees to be good. As we expand, we expect to hire additional employees
in technical, marketing and management positions.
DESCRIPTION OF PROPERTY
We lease 9,970 square feet of space in St. Louis County, Missouri for our
corporate headquarters and will lease an additional 4,500 square feet beginning
in April 1999. We also utilize 2,700 square feet of space in St. Louis County,
Missouri for our St. Louis LaserVision Center, under a five-year lease.
MSS occupies 7,000 square feet of office/warehouse space in Bloomington,
Minnesota under a lease expiring in July 2001.
LaserVision Europe Limited, our wholly-owned European subsidiary, leases
approximately 3,000 square feet of space on Harley Street in London, England,
which houses the Harley Street Laser Vision Centre.
All other lasers operated by Laser Vision are used in centers owned or
leased by other parties. Laser Vision does not have any material lease
obligations associated with such centers.
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LEGAL PROCEEDINGS
In March 1998, Laser Vision was served with a subpoena by the U.S.
Department of Justice. We understand that the subpoena is part of an
industry-wide investigation into the so-called "international card" software
that enabled excimer lasers to be used to perform laser eye surgeries for higher
nearsightedness (greater than -6.0 diopters) than were initially approved by the
FDA. The FDA subsequently approved use of an excimer laser for higher
nearsightedness in January 1998. Many eye surgeons have taken the position that
FDA restrictions on use of laser equipment through software control, rather than
the traditional means of labeling, deny physicians the flexibility to treat
individual patients as the physician deems medically necessary, and represent an
unwarranted intrusion upon the physicians' right to practice medicine according
to their best medical judgment. The subpoena requested several categories of
documents, including documents describing the Laser Vision correspondence and
agreements with VISX, and documents relating to Laser Vision's use of
international cards, which we have provided. We intend to continue to fully
cooperate in this matter. As discussed above under "-- Government
Regulation -- Restrictions on Medical Devices," non-compliance with FDA
requirements could subject Laser Vision to various enforcement actions. We are
unable to assess the effect, if any, of this investigation on our financial
condition or results of operations. See "Risk Factors -- We may experience
adverse effects from the FDA investigation of the international card" at page
12.
On March 12, 1999, we filed suit in U.S. District Court for the Eastern
District of Missouri against Nidek, Custom Trailerwerks, Inc. and a former
employee of Laser Vision. In this suit, we allege infringements of Laser
Vision's patents, breaches of a confidentiality and non-competition agreement,
unfair competition, and misappropriation of Laser Vision's trade secrets and
confidential information. This suit arises from the defendants' development of a
mobile laser system that is substantially similar to the proprietary technology
we employ in our Roll-On/Roll-Off system. At this time, no answer has been filed
in this suit. We are therefore unable to currently assess the outcome.
We are currently involved in other, non-material litigation. Other than as
described above, we do not expect that any outstanding or pending legal
proceedings, individually or in the aggregate, will have a material adverse
effect upon our future results of operations, liquidity or financial condition.
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and key personnel of Laser Vision, their
positions with Laser Vision, and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ---- --- --------
<S> <C> <C>
John J. Klobnak(1)(3)..................... 48 Chairman of the Board and Chief Executive Officer
Robert W. May(1).......................... 51 Vice-Chairman of the Board, General Counsel and
Secretary
James C. Wachtman......................... 38 President and Chief Operating Officer
B. Charles Bono III....................... 51 Executive Vice President, Chief Financial Officer and
Treasurer
James B. Tiffany.......................... 42 Vice President of Sales
Thomas L. Eakins.......................... 44 President and Chief Executive Officer, MSS
Dr. Henry Simon(3)........................ 68 Director
James M. Garvey(1)(2)..................... 51 Director
Richard Lindstrom, M.D.(3)................ 52 Director
Steven C. Straus(2)....................... 42 Director
</TABLE>
- - ---------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
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John J. Klobnak. Mr. Klobnak has served as Chairman of the Board and Chief
Executive Officer of Laser Vision since July 1993. From 1990 to 1993, Mr.
Klobnak served as Laser Vision's Chairman, President and Chief Executive
Officer. From 1986 to 1990, he served as Chief Operating Officer and
subsequently President of MarketVision, a partnership acquired by Laser Vision
upon its inception in 1990. Prior to 1986, Mr. Klobnak was engaged in marketing
and consulting.
Robert W. May. Mr. May joined Laser Vision as its Vice-Chairman and
General Counsel in September 1993. Prior to joining Laser Vision as a full-time
employee, Mr. May served as Corporate Secretary, General Corporate Counsel and a
director of Laser Vision. He was engaged in private legal practice in St. Louis,
Missouri from 1985 until 1993.
James C. Wachtman. Mr. Wachtman joined Laser Vision as Chief Operating
Officer of North America operations effective June 1996 and became President in
August 1998. From 1983 until he joined Laser Vision, Mr. Wachtman was employed
in various positions by McGaw, Inc., a manufacturer of medical disposables. Most
recently, he served as Vice President of Operations of CAPS, a hospital pharmacy
division of McGaw.
B. Charles Bono III. Mr. Bono joined Laser Vision as Executive Vice
President, Chief Financial Officer and Treasurer in October 1992. From 1980 to
1992, Mr. Bono was employed by Storz Instrument Company (a global marketer of
ophthalmic devices and pharmaceutical products that is now a part of Bausch and
Lomb Surgical) serving as Vice President of Finance from 1987 to 1992.
James B. Tiffany. Mr. Tiffany joined Laser Vision in December 1998 as Vice
President of Sales. For the prior thirteen years, Mr. Tiffany held a number of
positions with Storz Instrument Company and Bausch and Lomb Surgical. While with
Storz, Mr. Tiffany served as Director of Marketing and Vice President of Sales
and Marketing. From January 1998, he served as Vice President for Commercial
Operations for the U.S., Canada and Latin America for Bausch and Lomb Surgical.
Thomas L. Eakins. Mr. Eakins is President and Chief Executive Officer of
MSS, which Laser Vision acquired in December 1998. He formerly served in that
capacity from 1993 to 1996. He has been involved in the ophthalmic industry
since 1976.
Dr. Henry Simon. Dr. Simon has served as a director of Laser Vision since
November 1995. Since 1996, he has served as Chairman of Schroder Venture
International Life Sciences Advisers, a venture capital advisory company
("SVILSA"). From 1993 to 1996 he served as Chief Executive Officer and Managing
Partner of SVILSA. Dr. Simon has served as Chairman of Mitel, Inc., a
manufacturer of telecommunications equipment and Shire Pharmaceutical Group plc,
a British company.
James M. Garvey. Mr. Garvey has served as a director of Laser Vision since
November 1995. Mr. Garvey serves as Chief Executive Officer and Managing Partner
of Schroder Ventures Life Sciences Advisors, a venture capital advisory company
which he joined in May 1995. From 1989 to 1995, Mr. Garvey was Director of
Allstate Venture Capital, the $600 million venture capital division of Allstate
Corp. after initially directing Allstate Venture Capital's health care
investment activity. Mr. Garvey is currently a director of JCN Healthcare,
Mednova Ltd., Orthovita, Inc. and has served as director and Chairman of several
public and private healthcare companies.
Richard L. Lindstrom, M.D. Dr. Lindstrom has served as a director of Laser
Vision since November 1995. Since 1979, Dr. Lindstrom has been engaged in the
private practice of ophthalmology and has been the President of Minnesota Eye
Associates P.A. (formerly Lindstrom, Samuelson & Hardten Ophthalmology
Associates, P.A.) since 1989. In 1989, Dr. Lindstrom founded the Phillips Eye
Institute Center for Teaching & Research, a ophthalmic research and surgical
skill education facility, and he currently serves as the Center's Medical
Director. Dr. Lindstrom has served as an Associate Director of the Minnesota
Lions Eye Bank since 1987. From 1980 to 1989, he served as a Professor of
Ophthalmology at the University of Minnesota. Dr. Lindstrom received his M.D.,
B.A. and B.S. degrees from the University of Minnesota.
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Steven C. Straus. Mr. Straus has served as a director of Laser Vision
since January 1996. He currently serves as President and Chief Operating Officer
of the Jordan Industries, Inc. Healthcare Products Group. Prior to 1998, Mr.
Straus was Senior Vice President of the Ambulatory Surgery Division of
Columbia/HCA and was employed in a similar capacity with Medical Care America,
Inc. from 1993 until Medical Care America was merged into Columbia/HCA in 1994.
From 1986 to 1993, Mr. Straus held various positions with Baxter Healthcare
Corporation.
There are no family relationships between any of the directors or executive
officers of Laser Vision.
CERTAIN RELATIONSHIPS OF OFFICERS AND DIRECTORS
We have entered into a limited partnership agreement with Minnesota Eye
Consultants, P.A. for the operation of one of our Roll-On/Roll-Off mobile
systems. Dr. Richard Lindstrom, a director and medical director of Laser Vision,
is president of Minnesota Eye Consultants. Laser Vision is the general partner
and owns 60% of the partnership. Minnesota Eye Consultants, P.A. is a limited
partner and owns 40% of the partnership. Laser Vision contributed equipment
valued at $650,000 to the partnership and will receive $260,000 from Minnesota
Eye Consultants. Laser Vision receives a revenue-based management fee from the
partnership. Dr. Lindstrom receives compensation from Laser Vision in his
capacity as medical director.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table and notes set forth certain information with respect to
the beneficial ownership of Laser Vision's common stock as of January 31, 1999,
both before and after giving effect to the sale of shares of common stock in
this offering (excluding over-allotments, if any) for the following:
- all of Laser Vision's directors and executive officers
- all directors and executive officers of Laser Vision as a group
- the selling stockholders
- all those known by Laser Vision to be beneficial owners of more than 5%
of Laser Vision's common stock
The table below sets forth the names of the selling stockholders and the
number of shares which may be sold respectively by the selling stockholders
pursuant to this prospectus as of the date of this prospectus. "Shares
Beneficially Owned" prior to and after the offering include those shares that
could be acquired through the possible exercise of outstanding options and
warrants granted under the Incentive Stock Option Plan, the Non-Qualified Stock
Option Plan and the Non-Qualified Warrant Plan and other unregistered warrants
which are presently exercisable.
Pursuant to the rules of the Commission, shares of common stock which an
individual or group has a right to acquire within 60 days pursuant to the
exercise of options or warrants are deemed to be outstanding for the purpose of
computing the percentage of ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person shown on the table.
The information included below is based upon information provided by the
selling stockholders. Because this offering may not result in the sale of all
additional shares pursuant to over-allotments, no definitive estimate as to the
percentage of common stock that will be held by the selling stockholders after
this offering can be provided. The table below has been prepared on the
assumption that the over-
48
<PAGE> 50
allotment option has not been exercised in whole or in part, and that all of the
shares offered under this prospectus will be sold to unaffiliated parties. See
"Underwriting."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING SHARES AFTER THE OFFERING
------------------------- BEING ----------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- - ------------------------ --------- ---------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John J. Klobnak.......................................... 413,832 3.79% 50,000 363,832 2.95%
Robert W. May............................................ 199,922 1.84% 50,000 149,922 1.23%
Dr. Henry Simon(1)....................................... 886,010 8.29% 250,000 636,010 5.25%
James M. Garvey(1)....................................... 885,610 8.28% 250,000 635,610 5.25%
Richard L. Lindstrom, M.D.(2)............................ 197,730 1.82% 120,000 77,730 0.64%
Steven C. Straus......................................... 18,723 1.18% 14,000 4,723 0.04%
James C. Wachtman........................................ 175,893 1.62% 50,000 125,893 1.03%
B. Charles Bono.......................................... 153,863 1.43% 50,000 103,863 0.85%
James B. Tiffany......................................... 1,375 0.01% -- 1,375 0.01%
All officers and directors as a group (9 persons)(3)..... 2,066,271 17.71% 584,000 1,482,271 11.58%
Alan F. Gillam........................................... 80,079 0.75% 80,000 79 0.00%
T. Wesley Dunn........................................... 62,862 0.59% 21,000 41,862 0.35%
Frank J. Bono, III....................................... 37,435 0.35% 20,000 17,435 0.14%
Rikki L. Bradley......................................... 22,750 0.21% 10,000 12,750 0.11%
Robert M. Freyman........................................ 10,736 0.10% 5,000 5,736 0.05%
Schroder Ventures
International Life Sciences Fund LP1..................... 328,683 3.08% 94,810 233,873 1.94%
Schroder Ventures
International Life Sciences Fund LP2..................... 73,041 0.69% 21,069 51,972 0.43%
Schroder Ventures
International Life Sciences Trust........................ 115,694 1.09% 33,372 82,322 0.68%
Schroder Ventures Managers Limited,
as Investment Manager for the Schroder Ventures
International Life Sciences Co-investment Scheme......... 2,602 0.02% 751 1,851 0.02%
Barings (Guernsey) Limited,
as Trustee of the Schroder UK Venture I Extension Fund... 65,000 0.61% 18,750 46,250 0.38%
Schroder UK Venture Fund III Trust....................... 114,207 1.07% 32,944 81,263 0.67%
Schroder UK Venture Fund III LP1......................... 111,640 1.05% 32,203 79,437 0.66%
Schroder UK Venture Fund III LP2......................... 55,820 0.52% 16,101 39,719 0.33%
Vinik Asset Management, L.P., VGH Partners, L.L.C., Vinik
Partners, L.P., Vinik Asset Management, L.L.C., Jeffrey
N. Vinik, Michael S. Gordon and Mark D. Hostetter, 260
Franklin Street, Boston, Massachusetts 02110(4).......... 902,900 8.47% -- 902,900 7.48%
RGC International Investors, LDC(5)...................... 642,978 5.69% -- 642,978 5.05%
</TABLE>
- - ---------------
(1) Beneficial ownership established by virtue of membership on the Board of
Directors of Laser Vision as the representative of Schroder Ventures Life
Science Advisors, Inc., an affiliate of the holders of 866,687 shares of
Laser Vision's common stock. The shares being offered are held by various
entities represented by Schroder Ventures Life Science Advisors, Inc.
(2) Includes presently exercisable warrants and options to purchase common
stock granted to Dr. Lindstrom by the Board of Directors pursuant to the
Non-Qualified Option Plan and Non-Qualified Warrant Plans as a director and
medical director to Laser Vision and to acquire an excimer laser from Dr.
Lindstrom.
(3) Includes presently exercisable options and warrants to purchase an
aggregate of 757,575 shares of common stock granted to four executive
officers (two of which are also directors) of Laser Vision. The shares
offered by the officers and directors will be the result of their exercise
of 284,000 of such options and warrants. An additional 493,625 options and
warrants to purchase shares of common stock are owned but are not presently
exercisable by these executive officers. Includes presently exercisable
options and warrants to purchase an aggregate of 669,000 shares of common
stock granted to directors (two of which are also executive officers of
Laser Vision). An additional 441,700
49
<PAGE> 51
options and warrants to purchase shares of common stock are owned but not
presently exercisable by these directors or their affiliates.
(4) Vinik Asset Management, L.P. and Vinik Partners, L.P. are Delaware limited
partnerships. VGH Partners, L.L.C. and Vinik Asset Management, L.L.C. are
Delaware limited liability companies. Jeffrey N. Vinik, Michael S. Gordon
and Mark D. Hostetter are U.S. citizens.
(5) RGC International Investors, LDC owns 200,000 vested warrants and 3,250
shares of Series B Convertible Preferred Stock, which could convert within
60 days into 444,048 shares of common stock.
The following table sets forth the number of exercisable warrants and
options held by persons included on the preceding table, the number of warrants
and options held by such persons that are not presently exercisable, and the
number of warrants and options which each such person will exercise to obtain
shares to be included in this offering. This table has been prepared on the
assumption that the underwriters do not exercise their over-allotment option in
full or in part.
<TABLE>
<CAPTION>
EXERCISABLE WARRANTS AND WARRANTS AND
WARRANTS AND OPTIONS NOT PRESENTLY OPTIONS BEING
NAME OF BENEFICIAL OWNER OPTIONS EXERCISABLE EXERCISED
- - ------------------------ ------------ --------------------- -------------
<S> <C> <C> <C>
John J. Klobnak.............................. 248,250 150,000 --
Robert W. May................................ 197,450 95,000 50,000
Dr. Henry Simon.............................. 18,323 31,677 --
James M. Garvey.............................. 18,323 31,677 --
Dr. Richard L. Lindstrom..................... 178,323 91,677 120,000
Steven C. Straus............................. 18,323 31,677 14,000
James C. Wachtman............................ 173,000 115,000 50,000
B. Charles Bono.............................. 137,500 95,000 50,000
James B. Tiffany............................. 1,375 38,625 --
All officers and directors as a group (9
persons)................................... 985,871 685,329 284,000
Alan F. Gillam............................... 80,000 -- 80,000
T. Wesley Dunn............................... 62,500 22,500 21,000
Frank J. Bono, III........................... 36,750 7,500 20,000
Rikki L. Bradley............................. 22,750 25,000 10,000
Robert M. Freyman............................ 10,250 8,750 5,000
-------
420,000
=======
</TABLE>
In addition, the selling stockholders listed in the following table have
granted to the underwriters options, exercisable within 30 days from the date of
the offering, to purchase up to 258,000 shares of common stock solely to cover
over-allotments, if any. See "Underwriting." The number of shares of common
stock subject to underwriters' options is set forth opposite each selling
stockholder's name. The number and percentage of shares beneficially owned by
each selling stockholder following the offering assumes that the underwriters
exercise the over-allotment option in full.
50
<PAGE> 52
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES OFFERED OWNED
SUBJECT TO OVER- AFTER THE OFFERING
ALLOTMENT ---------------------
NAME OPTIONS NUMBER PERCENTAGE
- - ---- ---------------- ------- ----------
<S> <C> <C> <C>
John J. Klobnak....................................... 14,500 349,332 2.82%
Robert W. May......................................... 14,500 135,422 1.10%
James C. Wachtman..................................... 14,500 111,393 0.91%
B. Charles Bono....................................... 14,500 89,363 0.73%
Schroder Ventures International Life Sciences Fund
LP1................................................. 75,848 158,025 1.30%
Schroder Ventures International Life Sciences Fund
LP2................................................. 16,855 35,117 0.29%
Schroder Ventures International Life Sciences Trust... 26,698 55,624 0.46%
Schroder Ventures Managers Limited, as Investment
Manager for the Schroder Ventures International Life
Sciences Co-investment Scheme....................... 601 1,250 0.01%
Barings (Guernsey) Limited, as Trustee of the Schroder
UK Venture I Extension Fund......................... 15,000 31,250 0.26%
Schroder UK Venture Fund III Trust.................... 26,355 54,908 0.45%
Schroder UK Venture Fund III LP1...................... 25,762 53,675 0.44%
Schroder UK Venture Fund III LP2...................... 12,881 26,838 0.22%
</TABLE>
Each of Messrs. May, Bono and Wachtman will exercise 64,500 warrants to
obtain shares to be included in this offering if the underwriters exercise their
over-allotment option in full.
As required by the Commission rules under Section 16 of the Securities and
Exchange Act of 1934, Laser Vision notes that during the fiscal year ended April
30, 1998 and subsequent interim periods, all reports regarding transactions in
Laser Vision's common stock were timely filed.
DESCRIPTION OF SECURITIES
The shares offered hereby are shares of common stock of Laser Vision.
Dividends may be paid on the common stock of Laser Vision at the discretion of
the Board of Directors, but no dividend or distribution may be made to holders
of common stock other than a dividend payable in common stock of Laser Vision
until all accrued dividends on preferred stock of Laser Vision have been paid.
We have never declared or paid any cash dividends. We anticipate that for the
foreseeable future we will follow a policy of not declaring dividends and
instead retaining earnings, if any, for use in our business. The common stock
has exclusive voting power except as required by law and except to the extent
that voting rights are granted in connection with the issue of preferred stock.
There are no preemptive rights in conjunction with ownership of the common stock
of Laser Vision.
Laser Vision's Amended Certificate of Incorporation contains an
anti-takeover provision which makes it a less attractive target for an
acquisition of control by an outsider who does not have the support of Laser
Vision's Board of Directors. This provision requires an affirmative vote of 80%
of all outstanding shares to approve certain business combinations involving
entities owning beneficially at least 10% of Laser Vision's shares. It also
requires that such business combinations be approved by a majority of the
outstanding shares, excluding any shares owned beneficially by entities seeking
to participate in such business combinations.
Laser Vision's Amended Certificate of Incorporation authorizes the issuance
of "blank check" preferred stock with such designations, rights and preferences
as may be determined from time to time by the Board of Directors. Accordingly,
the Board of Directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
Laser Vision's common stock, thus making it difficult for a third party to
obtain voting control of Laser Vision. In the event of issuance, the preferred
stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of Laser Vision.
51
<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, there will be 12,103,056 shares of common
stock outstanding (assuming no exercise of the underwriters' over-allotment
option or any outstanding warrants, options or convertible preferred stock,
except for exercises of warrants and options by selling stockholders resulting
in the issuance of shares sold in this offering). Of these 12,103,056 shares of
common stock, 11,330,412 shares (including the 1,720,000 shares sold in this
offering), will be freely tradable without restriction or further registration
under the Securities Act, except that (i) 772,644 of such shares are subject to
90 day lock-up agreements ("Lock Up Agreements") with the representatives of the
underwriters and will be available to be sold 90 days after the date of this
prospectus, and (ii) any of such shares purchased or owned by "affiliates" of
Laser Vision Centers, Inc., as that term is defined in "Rule 144" under the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 described below. All of the 772,644 shares of common stock (the
"Restricted Stock") are deemed "restricted securities" under Rule 144.
Laser Vision and certain of its stockholders who will hold 772,644 shares
of common stock in the aggregate immediately following the closing of the
offering have agreed that, without the prior consent of A.G. Edwards & Sons,
Inc., on behalf of the underwriters, they will not, during the period ending 90
days after the date of this prospectus offer, sell, assign, transfer, encumber,
pledge, contract to sell, grant an option to purchase or otherwise dispose of,
other than by operation of law, shares of common stock owned or deemed to be
beneficially owned by them, except, in certain instances, shares of common stock
that are not "restricted securities" and are otherwise freely tradable by them.
A.G. Edwards & Sons, Inc. may release Laser Vision or the stockholders from
these restrictions, in whole or in part, at any time in its sole discretion.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the registration statement of which this prospectus is a
part, a stockholder, including an affiliate, who has beneficially owned
restricted securities for at least one year from the later of the date such
securities were acquired from Laser Vision, or (if applicable) the date they
were acquired from an affiliate, is entitled to sell, within any three month
period, a number of shares that does not exceed the greater of 1% of the then
outstanding shares of common stock (approximately 121,030 shares after the
offering) or the average weekly trading volume in the common stock during the
four calendar weeks proceeding the date on which notice of such sale was filed
under Rule 144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition, under
Rule 144(k), if a period of at least two years has elapsed between the later of
the date restricted securities were acquired from Laser Vision, or (if
applicable) the date they were acquired from an affiliate of Laser Vision, a
stockholder who is not an affiliate of Laser Vision at the time of sale and has
not been an affiliate for at least three months prior to the sale is entitled to
sell the shares immediately without compliance with the foregoing requirements
under Rule 144.
Laser Vision has filed registration statements on Form S-8 under the
Securities Act to register 2,950,000 shares common stock issuable under its
Incentive Stock Option Plan, Non-Qualified Stock Option Plan and Non-Qualified
Warrant Plan. The resale of shares issued upon the exercise of stock options or
warrants or other rights thereunder will be restricted and subject to Rule 144
limitations applicable to affiliates of Laser Vision and to the Lock Up
Agreements noted above, if applicable.
No prediction can be made as to the effect, if any, that market sales of
shares of common stock, or the availability of shares for sale, will have on the
market price of the common stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of common stock in the public market
could adversely affect the market price of the common stock and could impair
Laser Vision's future ability to raise capital through an offering of its equity
securities.
52
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among
Laser Vision, the selling stockholders and the representatives on behalf of the
underwriters, the underwriters have agreed severally to purchase from Laser
Vision and the selling stockholders the following respective number of shares of
common stock at the offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- - ----------- ---------
<S> <C>
A.G. Edwards & Sons, Inc.................................... 375,000
Prudential Securities Incorporated.......................... 375,000
Warburg Dillon Read LLC..................................... 375,000
BT Alex. Brown Incorporated................................. 34,000
CIBC World Markets Corp..................................... 34,000
Credit Lyonnais Securities (USA) Inc........................ 34,000
Donaldson, Lufkin & Jenrette Securities Corp................ 34,000
Hambrecht & Quist LLC....................................... 34,000
Lehman Brothers Inc......................................... 34,000
Merrill Lynch & Co.......................................... 34,000
Morgan Stanley & Co. Incorporated........................... 34,000
SG Cowen Securities Corporation............................. 34,000
Advest Inc.................................................. 17,000
Brean Murray & Co., Inc..................................... 17,000
Dain Rauscher Wessells...................................... 17,000
First Union Capital Markets Corp............................ 17,000
GunnAllen Financial, Inc.................................... 17,000
Harris Webb & Garrison Inc.................................. 17,000
Ladenburg Thalmann & Co. Inc................................ 17,000
Legg Mason Wood Walker, Incorporated........................ 17,000
Leerink Swann & Company..................................... 17,000
Jefferies & Company, Inc.................................... 17,000
McDonald Investments Inc. A KeyCorp Company................. 17,000
Pacific Growth Equities Inc................................. 17,000
Raymond James & Associates, Inc............................. 17,000
The Robinson-Humphrey Company, LLC.......................... 17,000
Sanders Morris Mundy........................................ 17,000
Schneider Securities, Inc................................... 17,000
SunTrust Equitable Securities Corporation................... 17,000
---------
Total..................................................... 1,720,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters will purchase all such shares of the common stock if any of such
shares are purchased. The underwriters are obligated to take and pay for all of
the shares of common stock offered hereby (other than those covered by the
over-allotment option described below) if any are taken.
The representatives of the underwriters have advised Laser Vision and the
selling stockholders that they propose to offer such shares of common stock to
the public at the offering price set forth on the cover page of this prospectus
and to certain dealers at such price less a concession not in excess of $1.40
per share. The underwriters may allow, and such dealers may re-allow, a
concession not in excess of $0.10
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<PAGE> 55
per share to certain other dealers. After the offering, the offering price and
other selling terms may be changed by the underwriters.
Pursuant to the underwriting agreement, certain of the selling stockholders
have granted to the underwriters an option, exercisable for thirty (30) days
after the date of this prospectus, to purchase up to 258,000 additional shares
of common stock at the offering price, less the underwriting discounts and
commissions set forth on the cover page of this prospectus, solely to cover
over-allotments.
To the extent that the underwriters exercise such option, the underwriters
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth to such
underwriter's name in the preceding table bears to the total number of shares in
such table, and certain of the selling stockholders will be obligated, pursuant
to the option, to sell such shares to the underwriters.
Laser Vision and each of its directors and executive officers, the related
interests of such directors and executive officers and the selling stockholders
have agreed not to sell or otherwise dispose of any shares of common stock for a
period of ninety days after the date of this prospectus without the prior
written consent of A.G. Edwards & Sons, Inc. A.G. Edwards may, in its sole
discretion, allow any of such parties to dispose of common stock or other
securities prior to the expiration of such 90-day period. There are, however, no
agreements between A.G. Edwards and such parties that would allow them to do so
as of the date of this prospectus. See "Risk Factors -- Future sales of large
amounts of unrestricted common stock could depress our share value" at page 10.
The following table summarizes the discounts and commissions to be paid to
the underwriters by Laser Vision and the selling stockholders in connection with
this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.
<TABLE>
<CAPTION>
PAID BY PAID BY
LASER VISION SELLING STOCKHOLDERS
------------------------ ------------------------
NO FULL NO FULL
EXERCISE EXERCISE EXERCISE EXERCISE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Per share............................... $ 2.35 $ 2.35 $ 2.35 $ 2.35
Total................................... $2,350,000 $2,350,000 $1,692,000 $2,298,300
</TABLE>
Laser Vision expects to incur expenses of approximately $315,000 in
connection with this offering.
Laser Vision and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act.
Until the distribution of the common stock is completed, rules of the
Commission may limit the ability of the underwriters and certain selling group
members to bid for and purchase the common stock. As an exception to these
rules, the underwriters are permitted to engage in certain transactions that
stabilize, maintain or otherwise affect the price of the common stock.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell a greater aggregate number of
shares of common stock than is set forth on the cover page of this prospectus,
the underwriters may reduce the short position by purchasing shares of common
stock in the open market. This is known as a "syndicate covering transaction."
The underwriters may also elect to reduce any short position by exercising all
or part of the over-allotment option described above.
The underwriters may also impose a penalty bid on certain selling group
members. This means that if the underwriters purchase common stock in the open
market to reduce the selling group members' short position or to stabilize the
price of the common stock, it may reclaim the amount of the selling concession
from the selling group members who sold those shares of common stock as part of
the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The
54
<PAGE> 56
imposition of a penalty bid might also have an effect on the price of a security
to the extent that it were to discourage resales of the security.
Neither Laser Vision nor the representatives make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
Laser Vision nor the representatives make any representation that the
underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Each of A.G. Edwards & Sons, Inc. and Warburg Dillon Read LLC has served,
and may in the future serve, as a financial advisor to Laser Vision from time to
time.
LEGAL MATTERS
The validity of the common stock offered hereby and certain other legal
matters will be passed upon for Laser Vision by Dankenbring Greiman Osterholt &
Hoffmann P.C., St. Louis, Missouri. Certain legal matters in connection with
this offering will be passed upon for the underwriters by Bryan Cave LLP, St.
Louis, Missouri.
EXPERTS
The consolidated financial statements of the Company as of April 30, 1998
and 1997 and for each of the three years in the period ended April 30, 1998
included in this prospectus and the consolidated financial statements of the
Company as of April 30, 1998 and 1997 and for each of the three years in the
period ended April 30, 1998 incorporated by reference to the Annual Report on
Form 10-K/A of Laser Vision Centers, Inc. and the audited financial statements
of Midwest Surgical Services, Inc. for the two years ended April 30, 1998 and
the audited financial statements of Refractive Surgical Resources, Inc. for the
year ended April 30, 1998 included in Laser Vision Centers, Inc. Form 8-K/A
dated February 12, 1999 and April 22, 1999 have been so included or incorporated
in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
FORWARD LOOKING STATEMENTS
This prospectus contains forward looking statements which involve risks and
uncertainties. Such forward looking statements include:
- our belief that the market for excimer laser correction is growing
- our belief that the recent FDA approval of the sale of excimer lasers
for the treatment of hyperopia will increase the market for excimer
laser correction
- our strategy to (i) expand the use of our mobile excimer laser systems,
(ii) expand our market share through purchasing additional excimer
lasers and setting up new fixed site lasers across the U.S., (iii)
utilize target marketing among "baby boomers" and other population
groups, and (iv) expand the scope of our vision correcting services,
such as cataract services, through acquisitions of related businesses
and by providing development opportunities to eye surgeon practices and
community hospitals
- our belief that expected economies of scale and geographic coverage of
our network of affiliated doctors will improve our competitive position
to obtain managed care contracts
- our belief that we will be able to conform our operations in all
material respects to applicable health care laws and obtain required
licenses and certificates of need
55
<PAGE> 57
- other statements preceded by, followed by or that include the words
"believes," "expects," "intends," "anticipates," "potential" and other
similar expressions
We claim the protection of the safe harbor for forward looking statements
contained in the Private Securities Litigation Reform Act of 1995 for the
foregoing statements. The following important factors, in addition to those
discussed elsewhere in this prospectus, could affect our future results and
could cause those results to differ materially from those expressed in the
forward looking statements:
- our limited operating history, prior losses from operations and the
uncertainty of future profits
- the uncertainty of market acceptance of excimer laser correction
- obsolescence of equipment
- price decreases of lasers
- our dependence on affiliated doctors
- competition in providing excimer laser correction, secondary care and
managed care
- quarterly fluctuations in our operating results
- potential side effects and long-term results of excimer laser correction
- potential malpractice liability and the availability of insurance
- our ability to manage growth
- our inability to execute our acquisition strategy
- the risk of continued reduction of reimbursement rates for secondary
care
- risks associated with compliance with applicable federal and state laws
concerning health care and related matters
- risks associated with technological changes
- dependence on key personnel
- risks associated with intellectual property and propriety technology
- other risks described in "Risk Factors"
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Commission. We have filed with the Commission a registration statement on Form
S-3 under the Securities Act of 1933 to register the offering of the shares of
common stock offered hereby. This prospectus constitutes a part of the
registration statement. Prospective investors may read and copy the registration
statement and its exhibits and schedules without charge at the Public Reference
Room maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Prospective investors may obtain information on the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition,
we are required to file electronic versions of these documents with the
Commission through the Commission's Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system. The Commission maintains a World Wide Web Site at
http:www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
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<PAGE> 58
INFORMATION INCORPORATED BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with the SEC, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered part of this prospectus, and information that we file later with
the Commission will automatically update and supersede the information in this
prospectus. The following documents, previously filed by Laser Vision with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference:
(1) Laser Vision's Annual Report on Form 10-K/A for the year ended April 30,
1998.
(2) Laser Vision's Quarterly Reports on Form 10-Q/A for the quarters ended
January 31, 1999, October 31, 1998 and July 31, 1998.
(3) Laser Vision's Current Report on Form 8-K/A filed with the Commission on
April 22, 1999.
(4) Laser Vision's Current Report on Form 8-K/A filed with the Commission on
February 12, 1999.
(5) Laser Vision's Current Report on Form 8-K filed with the Commission on
December 22, 1998.
(6) The description of Laser Vision's common stock contained in its registration
statement on Form 8-A filed with the Commission on November 5, 1993.
All reports and other documents filed by us pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this prospectus
and prior to the termination of this offering shall be deemed to be incorporated
by reference into this prospectus and shall be a part hereof from the date of
filing of such reports and documents.
Laser Vision will provide without charge to each person, including any
beneficial owner, to whom a copy of this prospectus is delivered, upon such
person's written or oral request that includes the address (including title or
department) and telephone number to which such information is to be directed, a
copy of any and all information incorporated by reference in this prospectus
(other than exhibits to the information that is incorporated by reference,
unless such exhibits are specifically incorporated by reference herein). You can
request such documents by writing or calling us at 540 Maryville Centre Drive,
Suite 200, St. Louis, Missouri 63141, telephone (314) 434-6900, Attention:
Robert W. May.
57
<PAGE> 59
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants......................... F-2
Consolidated Balance Sheet................................ F-3
Consolidated Statement of Operations...................... F-5
Consolidated Statement of Changes in Stockholders'
Equity................................................. F-6
Consolidated Statement of Cash Flow....................... F-7
Notes to Consolidated Financial Statements................ F-9
Unaudited Pro Forma Combined Statements of Operations....... F-27
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Laser Vision Centers, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index, after the restatement described in Note 3, present fairly,
in all material respects, the financial position of Laser Vision Centers, Inc.
and its subsidiaries at April 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
April 30, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 3, the Company has restated its 1998 financial
statements to account for a beneficial conversion feature related to preferred
stock and to reclassify the presentation of preferred stock.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
June 12, 1998, except as to Note 18,
which is as of January 1, 1999 and
Note 3, which is as of April 21, 1999
F-2
<PAGE> 61
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30, 1997 APRIL 30, 1998 JANUARY 31, 1999
-------------- ------------------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............... $ 3,794,000 $ 8,430,000 $ 8,272,000
Restricted cash......................... 461,000 471,000 545,000
Accounts receivable, net................ 1,719,000 3,503,000 8,186,000
Inventory............................... 538,000 1,185,000 2,142,000
Prepaid expenses and other current
assets............................... 377,000 686,000 1,849,000
Deferred tax asset...................... -- -- 944,000
----------- ----------- -----------
Total current assets............... 6,889,000 14,275,000 21,938,000
EQUIPMENT
Laser equipment......................... 12,617,000 16,485,000 20,360,000
Medical equipment....................... 750,000 713,000 2,530,000
Mobile equipment........................ 1,599,000 3,498,000 6,978,000
Furniture and fixtures.................. 1,316,000 1,374,000 1,664,000
Accumulated depreciation................ (3,799,000) (7,879,000) (11,710,000)
----------- ----------- -----------
Total equipment, net............... 12,483,000 14,191,000 19,822,000
OTHER ASSETS
Restricted cash......................... 1,239,000 974,000 804,000
Goodwill, net........................... 836,000 678,000 6,548,000
Tradename and service mark costs, net... 136,000 113,000 98,000
Deferred contract rights................ 1,238,000 -- --
Future services obtained for issuance of
warrants and options, net............ -- 539,000 510,000
Rent deposits and other, net............ 49,000 59,000 175,000
----------- ----------- -----------
Total other assets................. 3,498,000 2,363,000 8,135,000
----------- ----------- -----------
Total assets....................... $22,870,000 $30,829,000 $49,895,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 62
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30, 1997 APRIL 30, 1998 JANUARY 31, 1999
-------------- ------------------- -------------------
(UNAUDITED)
(RESTATED - NOTE 3) (RESTATED - NOTE 3)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current portion of notes payable........ $ 1,003,000 $ 2,365,000 $ 5,373,000
Current portion of capitalized lease
obligations.......................... 690,000 672,000 1,443,000
Line of credit.......................... -- -- 268,000
Accounts payable........................ 2,078,000 2,667,000 5,770,000
Accrued compensation.................... 616,000 981,000 1,397,000
Other accrued liabilities............... 848,000 2,036,000 1,909,000
----------- ----------- -----------
Total current liabilities.......... 5,235,000 8,721,000 16,160,000
NON-CURRENT LIABILITIES
Notes payable........................... 4,544,000 5,907,000 6,278,000
Capitalized lease obligations........... 1,589,000 678,000 2,303,000
Deferred revenue........................ 134,000 30,000 --
----------- ----------- -----------
Total non-current liabilities...... 6,267,000 6,615,000 8,581,000
MINORITY INTEREST......................... -- -- 282,000
COMMITMENTS AND CONTINGENCIES
CONTINGENT EQUITY, COMMON STOCK AND STOCK
OPTIONS ISSUED FOR CONTRACT RIGHTS (NOTE
5)...................................... 1,092,000 -- --
SERIES B CONVERTIBLE PREFERRED STOCK WITH
MANDATORY REDEMPTION PROVISIONS
(RESTATED - NOTE 3)..................... -- 1,915,000 2,037,000
STOCKHOLDERS' EQUITY
Common stock, par value of $.01 per
share, 50,000,000 shares authorized;
8,817,057, 9,687,323 and 10,568,694
shares issued and outstanding,
respectively......................... 88,000 97,000 106,000
Warrants and options (Restated - Note
3)................................... 36,000 1,261,000 1,270,000
Paid-in capital (Restated - Note 3)..... 38,663,000 44,227,000 49,914,000
Accumulated deficit..................... (28,511,000) (32,007,000) (28,455,000)
----------- ----------- -----------
Total stockholders' equity......... 10,276,000 13,578,000 22,835,000
----------- ----------- -----------
Total liabilities, contingent
equity, redeemable equity and
stockholders' equity............ $22,870,000 $30,829,000 $49,895,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 63
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED APRIL 30, ENDED JANUARY 31,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(RESTATED - (RESTATED -
NOTE 3) NOTE 3)
<S> <C> <C> <C> <C> <C>
Revenue........................ $ 3,918,000 $ 8,238,000 $23,469,000 $15,666,000 $33,574,000
Cost of revenue
Royalty fees and professional
medical services.......... 360,000 1,985,000 8,030,000 5,389,000 11,416,000
Depreciation and
amortization.............. 1,973,000 3,472,000 4,435,000 3,224,000 3,885,000
Other costs (Note 2)......... 1,907,000 2,133,000 4,285,000 3,119,000 7,045,000
----------- ------------ ----------- ----------- -----------
Gross profit (loss)..... (322,000) 648,000 6,719,000 3,934,000 11,228,000
Selling, general and
administrative expense....... 5,831,000 9,719,000 9,592,000 7,078,000 7,927,000
Fixed asset impairment
provision (Note 7)........... 3,063,000 2,772,000 -- -- --
----------- ------------ ----------- ----------- -----------
Income (loss) from
operations........... (9,216,000) (11,843,000) (2,873,000) (3,144,000) 3,301,000
Other income (expense)
Minority interest in net
(income) loss of
subsidiary................ 192,000 103,000 (22,000)
Interest and other income.... 437,000 268,000 377,000 257,000 306,000
Interest and other expense... (216,000) (597,000) (1,000,000) (736,000) (835,000)
----------- ------------ ----------- ----------- -----------
Net income (loss) before
taxes................ (8,803,000) (12,069,000) (3,496,000) (3,623,000) 2,750,000
Income tax benefit............. -- -- -- -- 802,000
----------- ------------ ----------- ----------- -----------
Net income (loss)....... (8,803,000) (12,069,000) (3,496,000) (3,623,000) 3,552,000
Deemed preferred dividends
(Restated - Note 3).......... (439,000) (126,000) (1,930,000) (1,887,000) (122,000)
----------- ------------ ----------- ----------- -----------
Net income (loss) applicable to
common stockholders (Restated
- Note 3).................... $(9,242,000) $(12,195,000) $(5,426,000) $(5,510,000) $ 3,430,000
=========== ============ =========== =========== ===========
Net income (loss) per
share -- basic
(Restated - Note
3)................... $ (1.75) $ (1.45) $ (0.59) $ (0.61) $ 0.34
=========== ============ =========== =========== ===========
Net income (loss) per
share -- diluted
(Restated - Note
3)................... $ (1.75) $ (1.45) $ (0.59) $ (0.61) $ 0.31
=========== ============ =========== =========== ===========
Weighted average number of
common shares outstanding --
basic........................ 5,278,000 8,421,000 9,178,000 9,055,000 9,987,000
Weighted average number of
common shares outstanding --
diluted...................... 5,278,000 8,421,000 9,178,000 9,055,000 11,574,000
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 64
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- PAID-IN ACCUMULATED WARRANTS STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT AND OPTIONS EQUITY
---------- -------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995...................... 4,452,555 $ 45,000 $13,943,000 $(7,639,000) -- $ 6,349,000
Exercise of incentive and non-qualified
options....................................... 100,210 1,000 468,000 -- -- 469,000
Exercise of C, D, non-qualified, underwriter
and other warrants............................ 363,294 3,000 2,137,000 -- -- 2,140,000
Exercise of Class B and F warrants............. 1,159,690 12,000 6,910,000 -- -- 6,922,000
Issuance of common stock in private offering... 242,218 2,000 1,143,000 -- -- 1,145,000
Issuance of common stock in conjunction with
acquisitions (Note 6)......................... 98,026 1,000 911,000 -- -- 912,000
Costs associated with issuance of convertible
preferred stock with mandatory redemption
provision..................................... -- -- (1,242,000) -- -- (1,242,000)
Dividends accrued on convertible preferred
stock with mandatory redemption in 2005 (Note
11)........................................... -- -- (439,000) -- -- (439,000)
Net loss for the year ended
April 30, 1996................................ -- -- -- (8,803,000) -- (8,803,000)
---------- -------- ----------- ------------ ---------- ------------
Balance at April 30, 1996...................... 6,415,993 64,000 23,831,000 (16,442,000) -- 7,453,000
Issuance of restricted shares of common
stock......................................... 20,609 -- 160,000 -- -- 160,000
Exercise of incentive and non-qualified
options....................................... 28,790 -- 147,000 -- -- 147,000
Dividends accrued on convertible preferred
stock with mandatory redemption in 2005 (Note
11)........................................... -- -- (126,000) -- -- (126,000)
Conversion of preferred stock with mandatory
redemption in 2005 (Note 11).................. 2,349,991 24,000 14,641,000 -- -- 14,665,000
Warrants and options issued (Note 16).......... -- -- -- -- $ 36,000 36,000
Shares issued to 401(k) plan for employees..... 1,674 -- 10,000 -- -- 10,000
Net loss for the year ended
April 30, 1997................................ -- -- -- (12,069,000) -- (12,069,000)
---------- -------- ----------- ------------ ---------- ------------
Balance at April 30, 1997...................... 8,817,057 88,000 38,663,000 (28,511,000) 36,000 10,276,000
Issuance of warrants and preferred stock with
beneficial conversion feature (Restated - Note
3)............................................ -- -- 3,667,000 -- 245,000 3,912,000
Exercise of incentive and non-qualified options
and warrants.................................. 410,123 4,000 2,178,000 -- -- 2,182,000
Deemed dividends on convertible preferred stock
(Restated - Note 3)........................... -- -- (1,930,000) -- -- (1,930,000)
Conversion of preferred stock (Restated - Note
3)............................................ 452,146 5,000 1,585,000 -- -- 1,590,000
Warrants and options issued (Note 15).......... -- -- -- -- 980,000 980,000
Shares issued to 401(k) plan for employees..... 7,997 -- 64,000 -- -- 64,000
Net loss for the year ended April 30, 1998..... -- -- -- (3,496,000) -- (3,496,000)
---------- -------- ----------- ------------ ---------- ------------
Balance at April 30, 1998...................... 9,687,323 97,000 44,227,000 (32,007,000) 1,261,000 13,578,000
Exercise of warrants and options (unaudited)... 874,583 9,000 5,717,000 -- (148,000) 5,578,000
Deemed dividends on convertible preferred stock
(unaudited)................................... -- -- (122,000) -- -- (122,000)
Warrants and options issued (unaudited)........ -- -- -- -- 157,000 157,000
Shares issuable to 401(k) plan for employees
(unaudited)................................... 6,788 -- 92,000 -- -- 92,000
Net income for the nine month period ended
January 31, 1999 (unaudited).................. -- -- -- 3,552,000 -- 3,552,000
---------- -------- ----------- ------------ ---------- ------------
Balance at January 31, 1999 (unaudited)........ 10,568,694 $106,000 $49,914,000 $(28,455,000) $1,270,000 $ 22,835,000
========== ======== =========== ============ ========== ============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 65
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED APRIL 30, ENDED JANUARY 31,
------------------------------------------ --------------------------
1996 1997 1998 1998 1999
----------- ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS -- OPERATING ACTIVITIES
Net income (loss)............................ $(8,803,000) $(12,069,000) $(3,496,000) $(3,623,000) $ 3,552,000
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 2,203,000 3,910,000 4,925,000 3,600,000 4,335,000
Fixed asset impairment..................... 3,063,000 2,772,000 -- -- --
Deferred income taxes...................... -- -- -- -- (944,000)
Imputed interest........................... 74,000 -- -- -- --
Compensation paid in common stock, options
or warrants.............................. -- 46,000 326,000 249,000 311,000
Minority interest in net income (loss) of
subsidiary............................... (192,000) (103,000) -- -- 22,000
Changes in assets and liabilities, net of
effect of acquisitions:
Decrease (increase) in accounts
receivable............................... 23,000 (914,000) (1,784,000) (1,650,000) (3,343,000)
Increase in inventory...................... (87,000) (378,000) (647,000) (434,000) (265,000)
Increase in prepaid expenses and other
current assets........................... (232,000) (54,000) (146,000) (235,000) (710,000)
Increase in accounts payable............... 380,000 1,581,000 590,000 570,000 2,465,000
Increase (decrease) in accrued
liabilities.............................. 746,000 (479,000) 1,257,000 494,000 (1,089,000)
----------- ------------ ----------- ----------- -----------
Net cash provided by (used in) operating
activities................................. (2,825,000) (5,688,000) 1,025,000 (1,029,000) 4,334,000
CASH FLOWS -- INVESTING ACTIVITIES
Equipment acquisitions and deposits.......... (7,678,000) (4,586,000) (4,132,000) (2,960,000) (3,905,000)
Business acquisitions and other.............. (223,000) (93,000) (13,000) (18,000) (3,246,000)
----------- ------------ ----------- ----------- -----------
Net cash used in investing activities........ (7,901,000) (4,679,000) (4,145,000) (2,978,000) (7,151,000)
CASH FLOWS -- FINANCING ACTIVITIES
Proceeds from exercise of stock options and
warrants................................... 9,531,000 107,000 2,182,000 1,319,000 5,578,000
Proceeds from private offering, preferred.... -- -- 6,000,000 6,000,000 --
Private placement offering costs,
preferred.................................. -- -- (513,000) (513,000) --
Return (deposit) of restricted cash.......... -- (50,000) 255,000 126,000 96,000
Proceeds from private offering, redeemable
preferred.................................. 14,100,000 -- -- -- --
Private placement offering costs, redeemable
preferred.................................. (1,117,000) -- -- -- --
Proceeds from private offerings, common...... 1,220,000 -- -- -- --
Private placement offering costs, common..... (75,000) -- -- -- --
Principal payments under capitalized lease
obligations, notes payable and line of
credit..................................... (2,387,000) (2,716,000) (2,031,000) (1,379,000) (3,015,000)
Proceeds from loan financings................ -- 4,148,000 1,863,000 1,863,000 --
----------- ------------ ----------- ----------- -----------
Net cash provided by financing activities.... 21,272,000 1,489,000 7,756,000 7,416,000 2,659,000
----------- ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 10,546,000 (8,878,000) 4,636,000 3,409,000 (158,000)
Cash and cash equivalents at beginning of
period..................................... 2,126,000 12,672,000 3,794,000 3,794,000 8,430,000
----------- ------------ ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD... $12,672,000 $ 3,794,000 $ 8,430,000 $7,203,000 $ 8,272,000
=========== ============ =========== =========== ===========
</TABLE>
F-7
<PAGE> 66
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED APRIL 30, ENDED JANUARY 31,
------------------------------------------- --------------------------
1996 1997 1998 1998 1999
------------ ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(RESTATED - (RESTATED -
NOTE 3) NOTE 3)
<S> <C> <C> <C> <C> <C>
NON-CASH INVESTING AND FINANCING
Conversion of preferred stock and value
assigned to warrants (Restated - Note
3)..................................... -- $ 14,665,000 $ 2,128,000 $ 849,000
Deemed preferred dividends (Restated -
Note 3)................................ $ 439,000 126,000 1,930,000 1,887,000 $ 122,000
Offering costs, private placement
redeemable preferred................... 125,000 -- -- -- --
Restricted cash upon issuance of capital
leases................................. -- 1,650,000 -- -- --
Management Services Agreements:
Stock and stock options (returned)
issued for contract rights........... -- 1,092,000 (1,092,000) -- --
Contract rights surrendered............ -- -- 1,044,000 -- --
Equipment returned..................... -- -- 233,000 -- --
Lease obligation transferred........... -- -- 215,000 -- --
Warrants and options issued for
equipment purchase and future
services............................. -- -- 718,000 -- --
Sale of assets to limited liability
partnership............................ -- -- -- -- 260,000
Notes payable issued to acquire RSR and
MSS.................................... -- -- -- -- 3,141,000
Adjustment of value of common stock and
stock options issued for contract
rights................................. -- -- -- 218,000 96,000
Capital lease obligations and notes
payable related to laser and equipment
purchases.............................. 2,611,000 1,045,000 2,177,000 925,000 2,466,000
Acquisitions--Fair value of assets
acquired................................. 1,676,000 -- -- -- 12,536,000
Liabilities assumed, including notes
payable................................ 595,000 -- -- -- 9,268,000
Common stock issued...................... 912,000 130,000 -- -- --
Cash paid................................ 169,000 193,000 -- -- 3,268,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest............................... $ 127,000 $ 587,000 $ 1,010,000 $ 725,000 $ 835,000
</TABLE>
See notes to consolidated financial statements
F-8
<PAGE> 67
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF ORGANIZATION
Laser Vision Centers, Inc. (the Company) provides access to excimer lasers
and related services for the treatment of refractive vision disorders and at
April 30, 1998 owned 40 excimer lasers which are available for use in the United
States, Canada or Europe. The Company is also the world's largest operator of
mobile excimer laser systems and provides mobile laser access with two different
types of mobile support equipment including the patented MobilExcimer(R)
surgical suite which received FDA approval in April 1997 and another system
which is used to move excimer lasers into qualified ambulatory surgery centers
and physician's offices. The excimer laser can be used to treat refractive
vision disorders such as nearsightedness, farsightedness and astigmatism to
eliminate or reduce the need for corrective lenses. LaserVision Centers(R)
operates primarily on a shared-access model, giving individual or group
ophthalmic practices use of the technology without investment risk or
maintenance requirements, thereby improving utilization of the excimer laser
equipment. In addition, the Company provides a broad range of professional
services, including physician and staff training, technical support services and
maintenance and, through its MarketVision division, advertising and marketing
programs and services.
Photorefractive keratectomy (PRK) involves the use of an excimer laser to
reshape the cornea, thereby adjusting its refractive power, which in turn
eliminates or reduces the need for corrective lenses. Most of the Company's
lasers were manufactured by VISX, Incorporated (VISX) which has received
approval by the United States Food and Drug Administration (FDA) for use of
their excimer lasers to perform PRK for myopia and astigmatism. In addition to
such procedures, excimer lasers can also be used with microkeratomes to perform
procedures known as laser in situ keratomileusis (LASIK). While LASIK has not
been specifically approved in the U.S. by the FDA, it has been widely adopted by
U.S. ophthalmologists and is treated by the FDA as a practice of medicine
matter.
The Company has operated excimer laser centers in Canada, Europe and the
U.S. since 1991, 1993 and 1995, respectively. The Company currently provides
excimer lasers and related services to fixed site centers in the U.S., Canada,
United Kingdom, Finland, Greece, and Sweden and provides mobile services in the
U.S., Canada, United Kingdom, and Ireland. The Company's mobile access strategy
makes it possible to provide excimer laser access to additional locations
without having to purchase a separate laser for each location. In the United
States, fixed site laser centers are operated in conjunction with Columbia/ HCA
Healthcare Corporation or by the Company independently or through joint
operating agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, as well as the reported amounts
of revenue and expenses. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly and majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
CASH EQUIVALENTS
The Company considers unrestricted cash, as well as short-term investments
purchased with an original maturity of three months or less, to be cash
equivalents. At April 30, 1998, cash and cash equivalents included $4,651,000 of
money market funds and at April 30, 1997 $1,943,000 of money market funds and
$1,488,000 of short-term government obligations and commercial paper.
F-9
<PAGE> 68
FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined that the
fair value of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, restricted cash and notes payable approximates
book value at April 30, 1998 and 1997, based on terms currently available to the
Company in financial markets.
CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of funds held in commercial
paper, money market accounts and trade receivables.
As of April 30, 1998 and 1997, the Company has deposited $4,651,000 and
$3,431,000, respectively, in government obligations, commercial paper and money
market accounts at financial institutions. Management believes the credit risk
related to these funds is limited due to the short-term nature of the accounts.
One customer with multiple locations accounted for 21%, 24% and 3% of total
revenues in fiscal 1998, 1997 and 1996, respectively and 17% of accounts
receivable at April 30, 1998. Management believes the credit risk related to its
trade receivables, and the patient notes with recourse to the Company (see Note
13), is limited due to the Company's large number of customers and that its
allowance for doubtful accounts of $395,000 and $360,000 at April 30, 1998 and
1997, respectively, is adequate.
INVENTORY
Inventory is recorded at cost and consists of key cards which operate the
lasers and are consumed each time a procedure is performed.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Long-lived assets determined to
be impaired are stated at the estimated fair value at the date impairment was
determined. Expenditures for repairs and maintenance are charged to expense as
incurred. Depreciation and amortization are computed utilizing the straight-line
method. In the opinion of management, this method is adequate to allocate the
cost of equipment over its estimated useful lives which range from four to five
years. Depreciation for lasers, mobile equipment and medical equipment is
included in cost of revenue. Depreciation for leasehold improvements, furniture
and fixtures is classified as a selling, general and administrative expense.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets when events or
changes in circumstances indicate that an asset's carrying value may not be
recoverable. In reviewing for impairment, if the carrying value of an asset is
greater than the sum of the undiscounted projected cash flows attributable to
that asset, an impairment loss is recognized. The impairment loss is based on
the fair value of the asset which is determined based on market prices,
discounted cash flows or the best information available. In instances where
goodwill is identified with assets that are subject to an impairment analysis,
goodwill is allocated to the assets being tested for recoverability on a pro
rata basis using the relative fair values of the long-lived assets and
identifiable intangibles acquired at the acquisition date. The grouping level of
cash flows used in an impairment analysis is the lowest level for which there
are identifiable cash flows that are largely independent of the cash flows of
other groups of assets. This level is generally on the individual fixed site or
laser basis.
OTHER ASSETS
Costs of goodwill, tradename, servicemark and deferred contract rights are
being amortized over 5 to 15 years. The carrying value of goodwill is assessed
for recoverability by management based on an analysis of undiscounted projected
cash flows from the underlying operations of the Company. If the carrying value
F-10
<PAGE> 69
of goodwill is determined to not be recoverable, a writedown of goodwill will be
recognized to the extent expected future discounted cash flows are less than the
carrying value of goodwill.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") which defines the fair value based method of
accounting for stock options, purchase and award plans. SFAS 123 allows
companies to use the fair value method defined in the Statement or to continue
use of the intrinsic value method as outlined in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The
Company utilizes APB 25 for accounting for employee stock options and warrants.
The Company also uses APB 25 for accounting for stock options and warrants
granted to non-employees for serving on the Company's Board of Directors. See
Note 16 for the pro forma impact on the net loss per share for the fiscal years
ended April 30, 1998, 1997 and 1996.
For all equity instruments issued to non-employees, other than those in
connection with serving on the Company's Board of Directors, the fair value is
determined and recorded using the Black-Scholes option pricing model for options
and warrants, or the market price for common stock, at the date of grant or
issuance.
REVENUE
Laser revenue is recognized when the surgical procedures are performed.
Advertising revenue is recognized as earned, upon delivery of print media or
upon broadcast of TV or radio advertisements. Revenue for conducting training
sessions for eye surgeons is recognized as earned, upon completion of the
course.
COST OF REVENUE
Cost of revenue includes royalty fees and professional medical services,
depreciation and amortization and other costs. Other costs include laser
maintenance including optics and gasses, mobile equipment travel, laser
technician salaries, and medical supplies for the LaserVision Centers division.
For the MarketVision division, client media and production costs are expensed
when the revenue is earned. Advertising costs are expensed as incurred and
included in selling, general and administrative expenses for the LaserVision
Centers division. In fiscal 1996 and 1997, the Market Vision revenues and fixed
site laser revenues did not have a direct labor component to record in Cost of
Revenue because all employees were considered sales and administrative. In
fiscal 1998, salary and benefit costs for laser technicians were recorded in
Cost of Revenue when the mobile excimer program was implemented commercially.
Components of other costs of revenue are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED APRIL 30, JANUARY 31,
------------------------------------ -------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Transportation, travel and meals..... $ 61,000 $ 251,000 $1,291,000 $ 931,000 $1,487,000
Salary and benefits.................. -- -- 739,000 449,000 2,096,000
Gases and medical supplies........... 133,000 352,000 630,000 437,000 1,336,000
Market Vision cost of revenue........ 912,000 669,000 427,000 331,000 461,000
Maintenance and other costs of
revenue............................ 801,000 861,000 1,198,000 971,000 1,665,000
---------- ---------- ---------- ---------- ----------
Other costs of revenue............... $1,907,000 $2,133,000 $4,285,000 $3,119,000 $7,045,000
========== ========== ========== ========== ==========
</TABLE>
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recorded based on the difference
between the income tax basis of assets and liabilities
F-11
<PAGE> 70
and their carrying amounts for financial reporting purposes. Deferred tax assets
are reduced by a valuation allowance if, based on the weight of available
evidence, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. See Note 11 for discussion of income taxes.
FOREIGN CURRENCY TRANSLATION
The accounts of the Company's foreign subsidiaries are maintained in their
respective local currencies. The accompanying consolidated financial statements
have been translated and adjusted to reflect U.S. dollars on the bases presented
below.
Assets and liabilities are translated into U.S. dollars at year-end
exchange rates. Income and expense items are translated at average rates of
exchange prevailing during the year. Foreign currency translation adjustments
and transaction gains and losses are immaterial amounts and are included in
earnings currently.
LOSS PER SHARE
In March 1997, FASB issued Statement of Financial Accounting Standards No.
128, "Earnings per Share" (FAS 128), which requires public entities to present
both basic and diluted earnings per share amounts on the face of their financial
statements, replacing the former calculations of primary and fully diluted
earnings per share. The Company adopted FAS 128 effective with the beginning of
its fiscal 1998 third quarter. See Note 4 for discussion of income (loss) per
share calculations.
SEGMENT DISCLOSURE
In June 1997, the FASB issued FAS 131, "Disclosures about Segments of an
Enterprise and Related Information", effective for periods beginning after
December 15, 1997. FAS 131 supersedes FAS 14, "Financial Reporting for Segments
of a Business Enterprise." FAS 131 establishes standards for the way public
business enterprises report financial and descriptive information about the
reportable operating segments in their financial statements. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company has not determined the impact of the adoption
of FAS 131. The adoption in fiscal 1999 may impact the business segment
information disclosure of the Company.
UNAUDITED INTERIM FINANCIAL INFORMATION
The information contained in the interim consolidated financial statements
and footnotes is condensed from that which would appear in the annual
consolidated financial statements. Accordingly, the interim consolidated
financial statements included herein should be read in conjunction with the
consolidated financial statements and related notes thereto also contained
herein. The unaudited interim consolidated financial statements at January 31,
1999 and January 31, 1998, and for the nine months then ended, include all
normal recurring adjustments which management considers necessary for a fair
presentation. The results for operations for the interim periods are not
necessarily indicative of the results which may be expected for the entire
fiscal year. The interim consolidated financial statements include the accounts
and transactions of Laser Vision and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
3. EFFECTS OF RESTATEMENTS
In the course of a review of a Securities Act filing, the staff of the
Securities and Exchange Commission (the "Commission"), raised an issue regarding
the existence of a beneficial conversion feature embedded in the Series B
Convertible Preferred Stock ("Series B shares"), which should be accounted for
as a deemed dividend to the preferred shareholders. After consideration, the
Company concluded that a beneficial conversion feature does exist and has
quantified the amount as $3,667,000 at the issuance date. In addition, based on
review of the terms of the stock agreement, it has been determined that the
Series B shares have certain mandatory redemption features. Although the Company
believes that the
F-12
<PAGE> 71
likelihood of redemption occurring is remote, the carrying value of the Series B
shares is required to be presented as temporary equity, which is outside of
stockholders' equity.
The closing of the Series B Convertible Preferred Stock occurred on June
20, 1997 (the "Issuance Date") at an aggregate price of $6,000,000. The Company
issued 6,000 shares of preferred stock, having a stated value of $1,000 per
share, together with 100,000 warrants to purchase common stock at $9.39 per
share, and the right to an additional 100,000 warrants to purchase common stock
issuable on June 20, 1998, provided at least $2,000,000 of the preferred shares
remain outstanding at that date. Such additional warrants were issued in June
1998 in accordance with the terms of the agreement at an exercise price of
$17.85 per share. The Series B shares bear no dividends and are convertible at
any time. The warrants are exercisable immediately upon issuance. In August
1997, the common shares underlying the Series B shares and warrants were
registered with the Securities and Exchange Commission pursuant to registration
rights under the Series B stock purchase agreement.
The Series B shares are convertible into common stock at a conversion
price, which at the Issuance Date, is the lower of (a) 85% of the average of the
daily low sale price for the five consecutive trading days ending two days prior
to the conversion date, or $6.01 at the Issuance date, and (b) $8.05. The number
of common shares into which the preferred stock is convertible is determined by
dividing the stated value of the preferred stock, increased on a daily basis at
a rate of 5% per annum, by the conversion price. As the Series B shares are
automatically convertible on June 20, 2002, the most beneficial conversion ratio
was determined to include the additional common shares attributable to the 5%
adjustment feature for the five-year period ending in 2002. After adjustment for
this additional benefit, the $6.01 conversion price is reduced to $4.81, the
most beneficial conversion price at the Issuance Date.
The Series B shares are subject to mandatory redemption requirements under
certain limited circumstances as defined in the preferred stock agreement. Those
circumstances include, a change in control of the Company in which more than 50%
of the voting power of the company is disposed of, the Company's failure to
maintain its common stock listing on the NASDAQ National Market or other
designated stock exchange, or the Series B shares ceasing to be convertible as a
result of the aggregate number of common shares then issuable upon conversion
equaling 19.99% of the outstanding common stock. Should the Series B shares
become redeemable, the redemption price would be greater of (a) 118% of the
stated value of the preferred stock, increased on a daily basis since the
Issuance Date at a rate of 5% per annum, or (b) the number of shares issuable
upon conversion multiplied by the closing price of the common stock on such
conversion date.
The Company received $6,000,000 of proceeds, and paid offering costs of
$513,000, resulting in net proceeds of $5,487,000 for the preferred shares and
warrants. In the April 30, 1998 financial statements, the Company ascribed
$6,000,000, the stated value, to the preferred stock, $362,000 to paid in
capital for the warrants and charged paid-in capital $875,000, to account for
the net proceeds received. The Company accounted for the 5% adjustment feature
as a deemed dividend by charging paid-in capital, as the Company had an
accumulated deficit, and increasing the carrying value of the preferred stock.
For the year ended April 30, 1998, the Company recognized deemed dividends of
$198,000, which were determined based on the amount of the 5% adjustment feature
realizable by the Series B stockholder during the period.
The Company has restated its 1998 financial statements to account for the
beneficial conversion feature and the mandatory redemption features of the
Series B shares. In determining the accounting for the beneficial conversion
feature, the Company first allocated the net proceeds of $5,487,000 to the
Series B shares and the warrants based on their relative fair values at the
Issuance Date, resulting in $5,242,000 assigned to the Series B shares and
$245,000 assigned to the warrants as of June 20, 1997. The Company then
allocated $3,667,000 of the Series B shares net proceeds to paid-in capital for
the beneficial conversion feature resulting in a reduction in the carrying value
of the Series B shares to $1,575,000. The beneficial conversion feature is being
recognized as a deemed dividend to the preferred shareholders over the minimum
period in which the preferred shareholders can realize that return. Because the
Series B shares were immediately convertible, a portion of the beneficial
conversion feature is realizable at the
F-13
<PAGE> 72
Issuance Date. Accordingly, a $1,732,000 deemed dividend as of the Issuance Date
has been recognized as a charge to paid-in capital and net loss applicable to
common stockholders, and an increase in the carrying value of the preferred
stock. As a result, through April 30, 1998, $1,930,000 of the beneficial
conversion feature has been recognized. The balance of the beneficial conversion
feature related to outstanding Series B shares which is not realizable until
future periods is being recognized through June 2002 using the interest method.
During Fiscal 1998, 2,750 Series B shares were converted to 452,146 shares
of common stock. The converted Series B shares had a carrying value, including
the beneficial conversion feature recognized through the date of conversion, of
$1,590,000. As a result of the above, the carrying value of the Series B shares
is $1,915,000 at April 30, 1998.
In addition, due to the mandatory redemption features noted above, the
carrying value of the Series B shares, which were previously presented as a
component of Stockholders' Equity, has been reclassified as temporary equity,
outside of Stockholders' Equity at April 30, 1998.
The restatements of the 1998 financial statements for the matters described
above had no effect on the Company's net loss, total assets or total
liabilities. The Company's redeemable equity and total stockholders' equity at
April 30, 1998 and January 31, 1999 and basic and diluted loss per common share
for the year ended April 30, 1998 and the nine month period ended January 31,
1998, as previously reported and as restated, are as follows:
<TABLE>
<CAPTION>
APRIL 30, 1998 JANUARY 31, 1999
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
Redeemable equity -- previously reported.................... $ -- $ --
Adjustment related to the presentation of the Series B
shares as redeemable...................................... 1,915,000 2,037,000
----------- -----------
As restated................................................. $ 1,915,000 $ 2,037,000
=========== ===========
Stockholders' equity -- previously reported................. $15,493,000 $24,872,000
Adjustment related to the presentation of the Series B
shares as redeemable...................................... (1,915,000) (2,037,000)
----------- -----------
As restated................................................. $13,578,000 $22,835,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
APRIL 30, 1998 JANUARY 31, 1998
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
Basic and diluted net loss per common share -- previously
reported.................................................. $(0.40) $(0.42)
Adjustment related to the recognition of the beneficial
conversion feature as a deemed preferred dividend......... (0.19) (0.19)
------ ------
As restated................................................. $(0.59) $(0.61)
====== ======
</TABLE>
4. INCOME (LOSS) PER SHARE
YEAR END LOSS PER SHARE AMOUNTS
The net loss per share was computed using the "Weighted average number of
common shares outstanding -- basic" during each period. The "Net loss per share"
for the fiscal years ended April 30, 1998, 1997 and 1996, reflects $198,000,
$126,000 and $439,000, respectively, of accrued preferred dividends. The
calculations for the fiscal years ended April 30, 1998, 1997 and 1996 exclude
the dilutive effect of Series B Convertible Preferred Stock, stock options and
warrants since their inclusion in such calculations would have been
antidilutive.
F-14
<PAGE> 73
UNAUDITED INTERIM INCOME (LOSS) PER SHARE AMOUNTS
The "Net Income per Share -- Basic" for the nine months ended January 31,
1999, reflects $122,000 of accrued dividends on the Series B Convertible
preferred stock. The "Net loss per share -- basic" for the nine months ended
January 31, 1998 reflects $155,000 of accrued dividends on the Series B
Convertible Preferred Stock. The sum of the quarterly net income (loss) per
share amounts will not necessarily equal the year to date net income (loss) per
share. For nine months ended January 31, 1999, the Consolidated Statement of
Operations reflects an income tax benefit which was not applicable during the
nine months ended January 31, 1998.
"Weighted average number of common shares outstanding -- diluted" for the
nine months ended January 31, 1999 includes the dilutive effects of warrants and
options using the treasury stock method and the Series B Convertible Preferred
Stock. For the nine months ended January 31, 1999, dilutive warrants and options
were calculated using an average market price of $14.62. As of January 31, 1999,
2.9 million warrants and options were outstanding with an average exercise price
of about $9.50 each. Since MSS did not generate enough profitability during the
two months ended January 31, 1999 to earn the minimum contingent consideration,
no shares have been included for any Laser Vision stock issuable as contingent
consideration. Diluted per share calculations follow:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income (loss)........................................... $ 3,552,000 $(3,623,000)
Deemed preferred dividends (Restated -- Note 3)............. -- (1,887,000)
----------- -----------
Net income (loss) applicable to common stockholders
(Restated -- Note 3).................................. $ 3,552,000 $(5,510,000)
=========== ===========
Weighted average number of common shares outstanding --
basic..................................................... 9,987,000 9,055,000
Dilutive securities:
Warrants and options...................................... 1,158,000 --
Preferred stock and preferred dividends................... 429,000 --
----------- -----------
Weighted average number of common shares outstanding --
diluted............................................... 11,574,000 9,055,000
=========== ===========
Net income (loss) per share -- diluted (Restated -- Note
3)........................................................ $ .31 $ (.61)
</TABLE>
5. MANAGEMENT SERVICES AGREEMENTS
Effective January 1, 1997, the Company completed a management services
agreement with an ophthalmic practice whose president is on the Company's Board
of Directors and is also the Company's medical director. The Company acquired
certain contract rights and fixed assets for $288,000 of cash, the issuance of
96,400 shares of common stock and 157,593 stock options, which had a total
estimated fair value of $908,000, and the assumption of certain lease
obligations totaling $381,000 (See also Note 9). Of the total consideration,
$1,096,000 was allocated to deferred contract rights and $481,000 was allocated
to the cost of the equipment, which approximated fair value. The deferred
contract rights will be amortized over the life of the agreement and the
equipment over its estimated useful life.
Under the management services agreement, the ophthalmic practice had the
unconditional right to cancel the agreement and return the related common stock
and stock options at the end of year 2. In that event, the Company was only
obligated to return the contract rights and had no obligation to pay cash.
Because the cancellation of the agreement and return of the common stock and
stock options was outside the control of the Company, the common stock and stock
options issued under the agreement are classified on the balance sheet as
temporary equity, "Common stock and options issued for contract rights."
As the fair value of the consideration given cannot be finally determined
until the cancellation rights lapse, the fair value of the common stock and
options will be adjusted quarterly until January 1999, when the fair value will
be fixed. The options expire after 10 years, vest monthly over a six-year period
beginning
F-15
<PAGE> 74
in the third year, and have a fixed exercise price based on the current market
price at the time of the agreement. The common shares vest monthly over a
six-year period beginning in the third year and are not considered outstanding
shares as of April 30, 1997. The common stock and stock options did not impact
the earnings per share calculation.
During 1997, deferred contract rights and common stock and options issued
for contract rights were increased by $184,000 for changes in the estimated fair
value of the stock and stock options, and the deferred contract rights were
reduced by $42,000 for amortization expense.
In April 1998, the management services agreement was terminated by mutual
agreement. In accordance with the termination agreement, the ophthalmic practice
returned the previously issuable common stock and the stock options and agreed
to pay $163,000 of cash. In addition, the ophthalmic practice agreed to assume
the capital lease obligations that were previously transferred and the Company
returned the related equipment. No gain or loss was recognized as a result of
the termination of the agreement. During 1998, approximately $236,000 of expense
was recognized for amortization of the deferred contract rights prior to the
termination of the agreement.
Upon termination of the management services agreement described above, a
new five year contract was entered with the president of the ophthalmic practice
and member of the Company's Board of Directors to provide ongoing service as the
Company's medical director for $60,000 per year. The Company has agreed to pay
another physician in the same practice $60,000 per year for five years to
provide services as a medical director for the Company. 160,000 unregistered
warrants with an average exercise price of $10.53 per share, $.28 above the
market price, were also issued to these physicians in exchange for their future
services. The practice has also agreed to exchange their right to purchase an
excimer laser at a discounted price in exchange for 60,000 stock options with an
exercise price of $10.25 per share, the market price. The ophthalmic practice
has committed to using this laser for a minimum number of procedures for five
years. These unregistered warrants and stock options are included in the
Warrants and options line in the Stockholders' equity section of the balance
sheet. The $466,000 of costs associated with these future medical services have
been deferred and will be amortized over the related service period (vesting
period when shorter). The $179,000 of costs associated with the equipment
purchase right has been capitalized as part of the cost of the related laser.
6. ACQUISITIONS
In October 1996, the Company acquired the 49.998% minority interest in its
European subsidiary, Harley Street Laser Vision Centre, for approximately
$193,000 plus the issuance of 17,000 shares of restricted common shares with a
market value of $130,000.
In April 1996, the Company purchased certain European assets and assumed
certain liabilities of New Image Laser Centres Limited for approximately
$229,000 ($60,000 paid during fiscal 1997).
In February 1996, the Company purchased the stock of Med-Source, Inc. for
21,845 restricted shares of the Company's common stock with a market price of
$265,000. In accordance with the purchase method of accounting, approximately
$282,000 of goodwill was recorded.
In August 1995, the Company acquired the stock and assumed certain
liabilities of Vision Correction, Inc. of Minnesota for 76,181 shares of the
Company's common stock with a market price of $648,000 issued. In accordance
with the purchase method of accounting, approximately $664,000 of goodwill was
recorded.
7. FIXED ASSET IMPAIRMENT PROVISIONS
In connection with the Company's continuing evaluation of the
recoverability of its assets, fixed asset impairment charges were recognized in
the fourth quarter of fiscal 1997 ($2,772,000) and the fourth quarter of fiscal
1996 ($3,063,000).
The fiscal 1996 provision resulted from a reorganization of the Company's
international operations in connection with the approval by the FDA of excimer
lasers for performance of certain PRK procedures in
F-16
<PAGE> 75
the United States. The Company had 22 Model B VISX lasers dedicated to its
European and Canadian operations as of February 1, 1996. The intent of the
Company had been to move a number of these lasers to the United States after the
FDA approval. The Company also expected these lasers to be upgradeable to treat
hyperopia (farsightedness). However, in the fourth quarter of fiscal 1996 the
Company was informed of VISX's decision not to upgrade the Model B lasers to
treat hyperopia and of its decision to effectively prohibit the reimporting of
Model B lasers. As a result, the Company was unable to upgrade the international
lasers for use in the United States and thus had an excess of international
equipment which could not treat hyperopia. The Company then completed
negotiations to sell 10 excess lasers for $1,200,000, resulting in an impairment
provision of $1,350,000. Such lasers were classified as assets held for sale on
the balance sheet at April 30, 1996, and were sold prior to October 31, 1996.
The Company revised its international business plan in April 1996, reduced the
number of fixed sites in Europe and Canada, redeployed a number of lasers and
selected a number of sites to be served by mobile lasers. Because of this
significant change in business conditions, the Company assessed the projected
undiscounted future cash flows of the remaining European and Canadian excimer
lasers and related medical equipment and determined that cash flows were
insufficient to recover the carrying value of these assets. As a result, the
Company recorded an additional provision for impairment of $1,713,000 to record
those assets at fair value based upon current market prices. These assets, with
a carrying value of $1,235,000, were used in international operations during
fiscal 1997. The total original cost of the above equipment was $9,542,000 and
the accumulated depreciation at the time of the write-downs was $4,044,000.
The fiscal 1997 provision of $2,772,000 was due to the following four
situations which occurred during the fourth quarter of fiscal 1997. (A) The
Company determined it was not cost effective to mobilize the Summit excimer
lasers and the VISX Star laser received FDA approval for treating astigmatism
which diminished U.S. market interest in the Summit lasers that could not treat
astigmatism. As a result, the Company reassessed its plans for operating these
lasers and recognized a provision for impairment of $2,006,000 to record those
assets at fair value based upon expected remaining net cash flows and expected
salvage values. (B) The Company determined that the international market for
VISX B lasers was deteriorating due to increased competition from lasers
manufactured and sold in Europe. As a result, the Company reassessed its plans
for operating these lasers and recognized an additional provision for impairment
of $425,000 to record those assets at fair value based upon expected remaining
net cash flows and expected salvage values. (C) The Company determined that ten
of the twenty-five Vision Correction, Inc. physicians did not intend to develop
their refractive practice using the Company's mobile excimer lasers, resulting
in a $141,000 write off of the proportionate share of the related U.S. goodwill
acquired as part of Laser Vision's acquisition of Vision Correction, Inc. in
August 1995. (D) The Med-Source operations included in domestic results from
operations were closed. All remaining goodwill related to Med-Source of $200,000
was written off. The total original cost of the above equipment and goodwill was
$4,534,000, and the accumulated depreciation and amortization at the time of the
write-downs was $1,404,000.
8. OTHER ASSETS
Other assets at April 30 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Goodwill, net of $261,000 and $103,000 amortization,
respectively (Notes 6 and 7).............................. $ 678,000 $ 836,000
Tradename and servicemark costs, net of $69,000 and $49,000
amortization, respectively................................ 113,000 136,000
Deferred contract rights, net of $42,000 amortization (Note
5)........................................................ -- 1,238,000
Future services obtained for issuance of warrants and
options................................................... 539,000 --
Restricted cash (Notes 9 and 13)............................ 974,000 1,239,000
Rent deposits and other, net................................ 59,000 49,000
---------- ----------
Total..................................................... $2,363,000 $3,498,000
========== ==========
</TABLE>
F-17
<PAGE> 76
Restricted cash secures one of the Company's notes payable and the
Company's guarantee to a third party of notes by certain patients who elected to
finance a portion of the cost of their PRK or LASIK procedure.
9. NOTES PAYABLE
In September 1997, the Company borrowed $1,050,000 at 11.3% per annum with
a term of four years to finance the acquisition of lasers and mobile equipment.
The debt is collateralized by the same equipment. In October 1997 the Company
borrowed $813,000 from the lender which provided financing in March 1997. The
March 1997 debt agreement gave the lender the right to increase the amount
funded by the loan under similar financial terms including the receipt of 7,500
additional stock warrants. The $32,000 estimated fair value of these warrants is
being recognized as additional interest expense over the life of the debt. This
debt bears interest at 13.6% with a term of four years. In January 1998, the
Company financed the purchase of a laser and other medical equipment for
$390,000, with interest at 9.5% for three years. The debt is collateralized by
the equipment purchased. In January and April 1998, the Company borrowed a total
of $1,837,000 at 5.8% for two to three year terms to finance the purchase of six
excimer lasers. The debt is collateralized by the same lasers.
In October 1996 and March 1997, the Company entered into agreements to
borrow a total of $5.9 million from two different lenders over four to four and
one half years and bearing interest at 11% and 15% per annum, respectively.
These loans were secured by fifteen excimer lasers used in the U.S. The October
loan was also secured by $1,650,000 of restricted cash which will become
available to the Company in proportion to the reduction in the principal balance
and, under certain circumstances, if financial targets are achieved. As of April
30, 1998, $353,000 of this restricted cash is classified as a current asset and
$914,000 is classified as a non-current asset. As part of the March loan
agreement, the Company also issued 25,000 warrants, exercisable within five
years, to the lender at the then current market price. The $48,000 estimated
fair value of these warrants is being recognized as additional interest expense
over the life of the debt. At April 30, 1998 the future maturity schedule for
these notes was as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30,
- - ---------------------
<S> <C>
1999........................................................ $2,365,000
2000........................................................ $2,538,000
2001........................................................ $2,894,000
2002........................................................ $ 475,000
</TABLE>
10. OBLIGATIONS UNDER CAPITAL LEASES
In January 1997, the Company assumed responsibility for an excimer laser
lease and a microkeratome lease with remaining lives of three and one half years
with principal payments totaling $381,000 and bearing interest at rates from 7%
to 9% per annum as part of a management services agreement, see Note 4. In
conjunction with the dissolution of the management services agreement in April
1998, the lease obligations have returned to the practice with which the
management services agreement was dissolved. In August 1996, the Company
financed an excimer laser purchase with a four year capital lease requiring
principal payments totaling $525,000 and bearing interest at 15%. During fiscal
1997, the Company financed a total of nine corneal topographer purchases for use
in the United States with three to five year capital leases requiring total
principal payments of $139,000 and bearing interest at rates from 6% to 12% per
annum.
In September 1995, the Company acquired two excimer lasers for use in the
United States. The lasers were financed by five year capital leases requiring
principal payments totaling $1,024,000 and bearing interest at 11% per annum. In
January 1996, the Company acquired two additional excimer lasers which were
financed by three and one-half year term capital leases requiring principal
payments totaling $912,000 and bearing interest at 12% per annum. Future minimum
payments under capital leases as of April 30, 1998 are as follows:
F-18
<PAGE> 77
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30, AMOUNT
--------------------- ----------
<S> <C>
1999........................................................ $ 793,000
2000........................................................ 585,000
2001........................................................ 117,000
2002........................................................ 26,000
----------
Total minimum lease payments................................ 1,521,000
Less amount representing interest........................... (171,000)
Less current portion........................................ (672,000)
----------
Long-term portion of obligations under capital leases....... $ 678,000
==========
</TABLE>
Assets under capital leases totaled $283,000 and $721,000, respectively, at
April 30, 1998 and 1997. Depreciation of leased assets was $136,000, $655,000
and $265,000 for the years ended April 30, 1998, 1997 and 1996, respectively. In
addition, the fixed asset impairment provision in fiscal 1997 included
$1,590,000 related to leased U.S. lasers.
11. CONVERTIBLE PREFERRED STOCK
The Company's amended Certificate of Incorporation authorize the Board of
Directors to issue 1,000,000 shares of preferred stock, in one or more series,
designated by them as to rights, preferences, terms and limitations.
In June 1997, the Company received $6,000,000, less $513,000 of offering
costs, from the issuance of 6,000 shares of restricted Series B Convertible
preferred stock, par value $1,000, 100,000 vested stock warrants with an
exercise price of $9.39 per warrant and, effective June 1998, 100,000 vested
stock warrants with an exercise price of $17.85 per warrant. The underlying
common stock was registered with the SEC in August 1997. During fiscal 1998, a
total of 2,750 Series B preferred shares were converted to 452,146 shares of
common stock. The 3,250 Series B preferred shares outstanding have a mandatory
conversion requirement by June 2002 which varies with the future market price of
the Company's common stock and is subject to an $8.05 per share maximum
conversion price. The number of common shares into which the preferred stock is
convertible is determined by dividing the stated value of the Series B shares,
increased on a daily basis at the rate of 5% per annum, by the conversion price.
As of April 30, 1998, the outstanding Series B preferred stock would have
converted to 421,109 shares of common stock. The Series B preferred shares are
non-voting except in regard to issues directly affecting the preferred stock as
a class. See Note 3
In October 1995, the Company received $14,100,000, less $1,242,000 of
offering costs, from the sale of 141,000 shares of restricted convertible
preferred stock with a mandatory redemption provision in 2005. These restricted
preferred shares, par value $100, converted into 2,349,991 shares of common
stock during the first half of fiscal 1997 and were registered with the SEC in
March 1997. For the fiscal years ended April 30, 1997 and 1996, dividends of
$126,000 and $439,000, respectively, were accrued and reflected in the
calculation of basic and diluted loss per common share.
12. INCOME TAXES
YEAR END INCOME TAX AMOUNTS
At April 30, 1998, the Company has net operating loss carryforwards of
approximately $31 million available to offset future taxable income, expiring
2006 through 2013. The Company has recorded a deferred tax asset of
approximately $13 million with offsetting valuation allowances at April 30,
1998, as management believes it is more likely than not that they will not be
realized before expiration. The "Valuation allowance, equity" reflects the tax
benefit that would be reflected directly in stockholders' equity upon release of
the valuation allowance. This tax benefit relates to certain equity transactions
that did not impact operating results, such as those arising from the exercise
of non-qualified stock options and warrants. For purposes of recording deferred
tax assets, no future taxable income is assumed given the
F-19
<PAGE> 78
results of operations of the Company to date. The amount of the valuation
allowance could be reduced in the near term if estimates of future taxable
income are increased.
The components of deferred taxes at April 30 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net operating loss carryforwards............................ $ 11,773,000 $ 9,403,000
Depreciation................................................ 1,124,000 1,769,000
Other....................................................... 117,000 81,000
------------ ------------
Net asset................................................... 13,014,000 11,253,000
Valuation allowance, provision for income taxes............. (12,073,000) (10,747,000)
Valuation allowance, equity................................. (941,000) (506,000)
------------ ------------
Total deferred taxes...................................... $ -- $ --
============ ============
</TABLE>
The components of income tax expense are as follows for the fiscal years
ending April 30:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected tax benefit..................... $ 1,189,000 $ 4,103,000 $ 2,993,000
Change in valuation allowance, provision for
income taxes.................................... (1,327,000) (4,593,000) (3,178,000)
State income taxes, net of federal benefit........ 138,000 478,000 349,000
Other............................................. -- 12,000 (164,000)
----------- ----------- -----------
Income tax expense.............................. $ -- $ -- $ --
=========== =========== ===========
</TABLE>
UNAUDITED INTERIM TAX AMOUNTS
During the three months ended January 31, 1999, management reassessed the
realizability of Laser Vision's deferred tax assets as a result of Laser
Vision's improving levels of and trend in profitability. For the nine months
ended January 31, 1999, Laser Vision recognized a net tax benefit of $802,000 on
pretax income of $2,750,000. The net tax benefit principally reflects the
benefit of the reduction in the valuation allowance on deferred tax assets for
the portion of the net operating loss ("NOL") carryforwards which are more
likely than not realizable in the next fiscal year. Accordingly, the net tax
benefit was recognized as a current asset at January 31, 1999. Because net
operating losses are not available in all states where Laser Vision operates and
are limited for alternative minimum tax ("AMT") purposes, a current tax
provision of $142,000 was recorded in "Other accrued liabilities" for estimated
state and AMT liabilities. The valuation allowance on deferred tax assets could
be further reduced in the fourth quarter and future periods if Laser Vision's
profitability continues to improve and estimates of future taxable income are
increased.
13. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
During fiscal 1996, the Company entered into three-year agreements with
four executive officers of the Company to provide for base salaries, the
potential payment of certain bonuses and severance payments equal to 18 months
of base compensation. Three other key employees have employment agreements with
unexpired terms ranging from twelve to twenty four months.
OPERATING LEASES
The Company has office and laser center lease agreements in St. Louis,
Missouri and London, England. The respective leases commenced in 1994 and 1996
and shall end in 1999 and 2001. Approximate future minimum rental payments under
the leases are as follows:
F-20
<PAGE> 79
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30, MINIMUM RENTAL PAYMENTS
--------------------- -----------------------
<S> <C>
1999........................................................ $329,000
2000........................................................ 306,000
2001........................................................ 283,000
2002........................................................ 4,000
</TABLE>
Related rental expenses totaled $443,000, $545,000, and $184,000 for the
years ended April 30, 1998, 1997 and 1996, respectively.
NOTES WITH RECOURSE
As of April 30, 1998, the Company had guaranteed notes payable totaling
$959,000 to a third party by certain patients who elected to finance a portion
of the cost of their refractive surgery. Interest bearing deposits with the
third party, classified as current and non-current restricted cash on the
balance sheet, secure $178,000 of this contingent obligation.
14. LEGAL PROCEEDINGS
In March 1998 the Company was served with a subpoena by the United States
Department of Justice. The Company understands that the subpoena is part of an
industry wide investigation into the so-called "international card" software
that enabled the excimer lasers to be used to perform laser eye surgeries for
higher myopia cases (greater than -6.0 diopters) than what was initially
approved by the FDA. The FDA ultimately did approve use of an excimer laser for
higher myopia cases in January 1998. Many ophthalmologists have taken the
position that FDA restrictions on physicians' use of laser equipment through
software control, rather than the traditional means of labeling, deny physicians
the flexibility to treat individual patients as the physician deems medically
necessary, and represent an unwarranted intrusion upon physicians' rights to
practice medicine according to their best medical judgment. The subpoena
requests that the Company produce several specified categories of documents. The
Company has provided the documents as requested and intends to continue to fully
cooperate in this matter. Although it is impossible to assess the effect, if
any, of this investigation on the operating results and cash flow for a
particular period, the Company's management does not believe that it should be
material to the financial condition of the Company.
Other than as described above, management does not expect that any
outstanding or pending legal proceedings, individually or in the aggregate, will
have a material adverse effect upon the Company's future results of operations,
liquidity or financial condition.
15. CAPITAL STOCK
In September 1994, stockholders approved an increase in the number of
authorized common shares from 10,000,000 to 50,000,000 and an amendment to the
Company's Certificate of Incorporation requiring super majority (80%) approval
of certain business combinations.
16. STOCK OPTIONS AND WARRANTS
The Company has three plans under which registered stock options and
warrants may be granted and also has issued unregistered warrants and options.
These plans are administered by the Board of Directors whose Compensation
Committee recommends option and warrant grants for officers, directors and key
consultants of the Company.
The 1990 Incentive Stock Option Plan (the Option Plan) was approved by
stockholders of the Company on March 5, 1990 and amended by the stockholders on
April 22, 1992, January 19, 1996 and March 19,1998. Under the terms of the
Option Plan, the Company has reserved 1,000,000 shares for issuance upon
exercise of options granted to employees and officers of the Company. The
exercise price may not be less than the market price of the common stock on the
date of grant. Options are nonassignable and may be exercised only by the
employee while employed by the Company or within three
F-21
<PAGE> 80
months after termination of employment unless due to death or disability.
Options are exercisable in increments over four years and expire no later than
ten years from the date of the grant. All outstanding options had an initial
expiration date of five years. A total of 371,405 options were available for
issuance under this plan at April 30, 1998.
The 1990 Non-Qualified Stock Option Plan (the Plan) was approved by the
stockholders of the Company on March 5, 1990, and amended by the stockholders on
April 22, 1992 and January 19, 1996. Under the terms of the Plan, as amended,
the Company has reserved 600,000 shares of common stock for issuance upon
exercise of options granted to outside directors and consultants. Such options
vest over various lengths of time and expire after five years. A total of
165,237 options were available for issuance under this plan at April 30, 1998.
Under the 1994 Non-Qualified Warrant Plan, as amended on January 19, 1996
and March 19, 1998, the Company has reserved 2,200,000 shares of common stock
for issuance upon exercise of registered warrants granted to certain employees,
directors and consultants. Such warrants generally vest ratably over periods of
up to twenty-four months and are exercisable over a five year period. A total of
527,000 warrants were available for issuance under this plan at April 30, 1998.
Unregistered warrants are exercisable over a five year period and vest at
varying rates ranging from immediately to four years. Of the 680,300
unregistered warrants outstanding as of April 30, 1998, 325,000 were issued to
officers, employees and consultants during fiscal 1995 at $9.00 per share, above
the market price, 100,000 were issued to a consultant during fiscal 1996 at
$5.25 per share, below the market price, 60,000 were issued to medical advisors
during fiscal 1998 at $11.00 per share, above the market price, and the balance
were issued at the market price.
Information with respect to the previous plans is as follows:
<TABLE>
<CAPTION>
NON-QUALIFIED
INCENTIVE STOCK STOCK UNREGISTERED NON-QUALIFIED
OPTION PLAN OPTION PLAN WARRANTS WARRANT PLAN
--------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Outstanding at April 30, 1995............ 286,695 192,000 355,000 944,500
Exercised ($3.00 to $7.75)............... (59,210) (41,000) (30,000) (104,250)
Granted ($5.25 to $16.63)................ 59,000 -- 110,000 61,000
Forfeited ($6.00)........................ (3,000) -- -- --
-------- -------- -------- ----------
Outstanding at April 30, 1996............ 283,485 151,000 435,000 901,250
Exercised ($3.00 to $7.75)............... (10,283) (16,957) -- (1,550)
Exchanged ($5.00 to $8.13)............... 19,000 -- -- (19,000)
Granted ($5.75 to $12.44)................ 55,000 63,306 75,000 319,000
Forfeited ($7.00 to $8.75)............... (25,000) -- -- (100,000)
Expired ($6.00 to $6.88)................. (6,000) (40,000) -- --
-------- -------- -------- ----------
Outstanding at April 30, 1997............ 316,202 157,349 510,000 1,099,700
Exercised ($3.00 to $8.75)............... (74,350) (30,000) -- (243,700)
Granted ($5.75 to $11.00)................ 311,150 222,500 170,300 467,500
Forfeited ($5.75 to $16.63).............. (69,850) (13,043) -- --
-------- -------- -------- ----------
Outstanding at April 30, 1998............ 483,152 336,806 680,300 1,323,500
======== ======== ======== ==========
Average price per share at April 30,
1996................................... $ 7.42 $ 5.78 $ 8.11 $ 6.40
1997................................... 7.28 6.37 8.04 7.03
1998................................... 7.70 7.76 8.60 7.43
Exercisable at April 30,
1996................................... 170,235 151,000 239,583 827,041
1997................................... 241,452 123,189 409,375 969,156
1998................................... 249,602 223,663 492,025 973,073
</TABLE>
F-22
<PAGE> 81
The Company also has the following warrants and options outstanding as of
April 30, 1998:
47,388 underwriter warrants-exercisable for one share of common stock, at a
price of $7.25 per share, expire in November 1998
100,000 warrants-exercisable for one share of common stock, at a price of
$9.39 per share, above the market price, expire in June 2002, with a fair value
of $1.81 on the grant date. As discussed in Note 11, these warrants were issued
in connection with the issuance of the Series B Convertible Preferred Stock.
At the January 1998 Board of Directors meeting, 33,500 incentive stock
options issued in January 1996 and April 1996 to non-officer employees had the
exercise price reduced from a weighted average of $12.63 per option to $8.75 per
option, above the market price at that time.
During fiscal 1997, the Company adopted SFAS 123, which addresses
accounting for stock option and warrant plans and selected the "intrinsic value
based method" for valuing stock options granted to employees. Had compensation
cost for all of the Company's stock option and warrant plans been determined
based upon the fair value at the grant dates consistent with the methodology
prescribed in SFAS 123, the Company's net loss and net loss per share would have
increased to the pro forma amounts indicated below using the weighted average
fair values indicted:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30, 1998 1997 1996
- - --------------------- ------- ------- -------
(RESTATED)
<S> <C> <C> <C>
Net loss as reported (thousands)............................ $ 3,496 $12,069 $ 8,803
Pro forma net loss (thousands).............................. 4,309 12,862 9,064
Loss per share as reported (Restated - Note 3).............. .59 1.45 1.75
Pro forma loss per share (Restated - Note 3) ............... .68 1.54 1.80
Weighted average fair value of grants at market............. 2.91 2.78 2.41
Weighted average fair value of grants below market.......... -- -- 4.06
Weighted average fair value of grants above market.......... 2.27 1.12 --
Weighted average exercise price of grants at market......... 7.76 8.30 12.40
Weighted average exercise price of grants below market...... -- -- 5.25
Weighted average exercise price of grants above market...... 10.00 7.63 --
</TABLE>
The fair value of each option and warrant grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions for grants in fiscal 1998, 1997 and 1996: risk-free interest rates
ranging from 5.0% to 6.5%, expected volatility of 30% to 45%, no dividends, and
an expected life of two and one half years. Since employee stock options and
warrants are not traded on a secondary exchange, employees receive no benefit
and derive no value from holding stock options and warrants under these plans
without an increase in the market price of the Company's stock. Such an increase
would benefit all stockholders.
The following table summarizes information for stock warrants and options
outstanding at April 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE EXERCISABLE
-------------------- ----------------------------
RANGE OF AVERAGE NUMBER REMAINING EXERCISE NUMBER WEIGHTED
EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING EXERCISE PRICE
- - ---------------- ----------- --------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.00................................ 37,652 1.8 years $ 3.00 37,652 $ 3.00
$5.00 -- $6.50....................... 671,300 1.0 years 5.51 646,150 5.51
$7.25 -- $9.00....................... 721,888 1.7 years 8.34 713,838 8.34
$7.43 -- $8.75....................... 948,806 4.1 years 7.58 368,612 7.62
$9.25 -- $11.00...................... 447,500 4.8 years 10.02 185,500 9.72
$12.44............................... 144,000 3.0 years 12.44 144,000 12.44
--------- --------- ------ --------- ------
2,971,146 2.8 years $ 7.84 2,095,752 $ 7.65
========= ========= ====== ========= ======
</TABLE>
F-23
<PAGE> 82
The fiscal 1998 financial statements reflect $262,000 of expense for
warrants and options issued as compensation to consultants and lenders, $718,000
of cost for warrants issued to acquire equipment and non-current contract rights
from medical advisors and $245,000 of cost assigned to the warrants issued or
issuable as part of the issuance of preferred stock. Fiscal 1997 operating
results reflect $36,000 of expense for warrants and options issued as
compensation to consultants and lenders.
17. BUSINESS SEGMENT INFORMATION
After determining the primary geographic area for mobile equipment,
business segment information for the years ended April 30, 1998, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
FOREIGN
-------------------------
DOMESTIC CANADA EUROPE TOTAL
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED APRIL 30, 1998
Revenues............................... $20,721,000 $ 836,000 $ 1,912,000 $ 23,469,000
Income (loss) from operations.......... (2,127,000) 25,000 (771,000) (2,873,000)
Interest/other income.................. -- -- -- 377,000
Interest expense....................... -- -- -- (1,000,000)
Net Loss............................... -- -- -- (3,496,000)
Identifiable assets.................... 27,064,000 893,000 2,872,000 30,829,000
Capital expenditures................... 6,130,000 -- 179,000 6,309,000
Depreciation and amortization.......... 3,767,000 225,000 933,000 4,925,000
YEAR ENDED APRIL 30, 1997
Revenues............................... $ 5,279,000 $ 928,000 $ 2,031,000 $ 8,238,000
Income (loss) from operations.......... (9,155,000) (725,000) (1,963,000) (11,843,000)
Minority interest in net loss of
subsidiary........................... -- -- -- 103,000
Interest/other income.................. -- -- -- 268,000
Interest expense....................... -- -- -- $ (597,000)
Net Loss............................... -- -- -- (12,069,000)
Identifiable assets.................... $18,310,000 $ 876,000 $ 3,684,000 22,870,000
Capital expenditures................... 6,423,000 436,000 1,363,000 8,222,000
Depreciation and amortization.......... 2,642,000 285,000 983,000 3,910,000
YEAR ENDED APRIL 30, 1996
Revenues............................... 1,720,000 943,000 1,255,000 3,918,000
Income (loss) from operations.......... (3,554,000) (1,350,000) (4,312,000) (9,216,000)
Minority interest in net loss of
subsidiary........................... -- -- -- 192,000
Interest/other income.................. -- -- -- 437,000
Interest expense....................... -- -- -- (216,000)
Net loss............................... -- -- -- (8,803,000)
Identifiable assets.................... 24,325,000 561,000 4,027,000 28,913,000
Capital expenditures................... 7,197,000 426,000 981,000 8,604,000
Depreciation and amortization.......... 306,000 467,000 1,430,000 2,203,000
</TABLE>
The Company's domestic, Canadian and European operations each have separate
management teams and maintain separate administrative offices. All related costs
are borne directly by each operation. All corporate expenses associated with the
consolidated entity are included in the domestic results of
F-24
<PAGE> 83
operations. Management believes the allocation of such costs to the Canadian and
European operations is not practicable.
18. SUBSEQUENT EVENTS
On September 1, 1998, Laser Vision acquired all of the outstanding stock of
Refractive Surgical Resources, Inc. (RSR) for $468,000 in cash and $2.1 million
in notes payable (of which $1.1 million is due within one year). Richard L.
Lindstrom, M.D., one of Laser Vision's outside directors, held a minority
ownership position of less than 7% in RSR. RSR provides microkeratome access and
the related disposable blades used by ophthalmologists during the LASIK
procedure. This acquisition complements our existing refractive surgery business
and has been integrated with our existing field operations. The acquisition was
accounted for as a purchase and the resulting goodwill of $2.6 million will be
amortized over 15 years. The results of operations of RSR are included with
Laser Vision's results since the date of acquisition. For the fiscal year ended
April 30, 1998, RSR revenue was $1.8 million and assets, which consisted
primarily of microkeratome equipment and current assets, were over $1.5 million.
On December 4, 1998, Laser Vision acquired all of the outstanding stock of
Midwest Surgical Services, Inc. (MSS) for $3.8 million (including accrued
dividends) and, based on MSS's operating performance, up to $8.25 million of
contingent consideration in cash and Laser Vision common stock. The contingent
consideration is based upon MSS meeting certain operating income targets for the
five-month period ending April 30, 1999, the twelve-month period ending April
30, 2000, and the three-month period ending July 31, 2000. The contingent
consideration is payable in up to $4,125,000 of common stock, at market value,
with the balance paid in cash. Laser Vision may determine, in its sole
discretion, the amount of contingent consideration to be paid in common stock.
Laser Vision paid $2.8 million of the purchase price during the third quarter
and owes $1 million which is payable in April 1999. Richard L. Lindstrom, M. D.
held a minority position of less than 9% in MSS. MSS provides mobile access to
cataract surgery technology. This acquisition allows us to provide another type
of mobile service to our ophthalmic surgeon customers. MSS will be initially
operated as a separate subsidiary while MSS's operating results will determine
the amount of any additional consideration. The acquisition was accounted for as
a purchase and the resulting goodwill of $3.4 million will be amortized over 15
years. Any additional consideration required to be paid will be recorded as
goodwill at that time and amortized over the remaining life of the goodwill
recorded. The results of operations of MSS are included with Laser Vision's
results since the date of the acquisition. For the fiscal year ended April 30,
1998, MSS revenue was $6.2 million and assets, which consisted primarily of
equipment and current assets, were over $4.3 million.
The unaudited pro forma Laser Vision results from operations assuming both
the RSR and MSS acquisitions were consummated as of May 1, 1997 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, 1999 JANUARY 31, 1998
----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue................................................... $39,805,000 $21,544,000
Net income (loss)......................................... $ 3,535,000 $(3,727,000)
Net income (loss) per share -- basic (Restated -- Note
3)...................................................... $.34 ($.62)
Net income (loss) per share -- diluted (Restated -- Note
3)...................................................... $.31 ($.62)
</TABLE>
On January 1, 1999 Laser Vision established a limited liability partnership
to own and operate one transportable refractive laser and related equipment and
services in the State of Minnesota (the "partnership"). Laser Vision is the
general partner and owns 60% of the partnership, Minnesota Eye Consultants, P.
A. ("MEC") is a limited partner and owns 40% of the partnership. Richard L.
Lindstrom, M. D. is President of MEC. Laser Vision contributed equipment with a
net book value of $620,000 and an estimated fair value of $650,000 to the
partnership and will receive $260,000 from MEC for this minority interest. The
$260,000 amount due from MEC is recorded as part of "Prepaid expenses and other
current assets" and "Minority interest" on the January 31, 1999 balance sheet.
Laser Vision will receive a
F-25
<PAGE> 84
management fee from the partnership for providing certain staff, supplies,
maintenance and administrative services. The net operating cash flow of the
partnership will be distributed to the two partners as a dividend on a quarterly
basis. The partnership's operating results are included in the Consolidated
Statement of Operations. During the nine month period ended January 31, 1999,
the Company recognized a $12,000 gain related to the sale of the 40% interest to
MEC.
F-26
<PAGE> 85
LASER VISION CENTERS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The unaudited pro forma financial statements present a combination of the
historical financial statements for Laser Vision Centers, Inc. (LVCI),
Refractive Surgical Resources, Inc. (RSR) and Midwest Surgical Services, Inc.
(MSS) as adjusted to reflect purchase transactions in accordance with the
purchase method of accounting. Pro forma income statements are presented for the
year ended April 30, 1998 and the nine months ended January 31, 1999 as if the
acquisitions had occurred as of May 1, 1997.
On September 1, 1998, LVCI acquired all of the outstanding stock of RSR,
for $680,000 in cash (including $212,000 of transaction expenses) and $2.1
million in notes payable (of which $1.1 million is due within one year). The
acquisition was accounted for under the purchase method of accounting and
resulted in the recognition of goodwill of $2.6 million. RSR provides
microkeratome access and the related disposable blades used by ophthalmologists
during the LASIK procedure.
On December 4, 1998 LVCI acquired all of the outstanding stock of MSS, for
$3.2 million in cash (including $373,000 of transaction expenses and $300,000 of
dividends payable to MSS stockholders) and $1.0 million in notes payable with
potential additional consideration of up to $8.25 million in cash and LVCI
common stock based on the performance of MSS through July 2001. LVCI has the
option to pay all future payments in cash. MSS provides mobile cataract services
to U.S. ophthalmologists primarily in small markets. The acquisition was
accounted for under the purchase method of accounting and resulted in
recognition of goodwill of $3.4 million. MSS provides mobile access to cataract
surgery technology.
The Pro Forma Combined Statements of Operations for the year ended April
30, 1998 include LVCI's, RSR's and MSS's results of operations for the year
ended April 30, 1998. The Pro Forma Combined Statements of Operations for the
nine months ended January 31, 1999 include LVCI's results of operations for this
period (including RSR from September 1, 1998 to January 31, 1999 and MSS from
December 4 1998 to January 31, 1999), RSR's results of operations for the period
May 1, 1998 to August 31, 1998, and MSS's results of operations for the seven
months ended November 30, 1998.
The unaudited pro forma financial information is based on assumptions that
management believes are reasonable and such information is presented for
comparative and informational purposes only. The unaudited pro forma financial
information does not purport to represent what the Company's results of
operations or financial condition would actually have been had such transactions
occurred on May 1, 1997 or to project the Company's results of operations for
any future period or financial condition at any future date.
As discussed in Note 3 to the consolidated financial statements included in
this prospectus, the Company has restated its 1998 consolidated financial
statements to account for the beneficial conversion feature and the mandatory
redemption features of the Series B Convertible Preferred Stock. The
accompanying pro forma financial information have been adjusted to give effect
to the restatements.
F-27
<PAGE> 86
LASER VISION CENTERS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------- PRO FORMA PRO FORMA
LVCI RSR MSS ADJUSTMENTS TOTAL
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue......................... $23,469,000 $1,764,000 $6,150,000 $(117,000)(a) $31,266,000
Cost of revenue................. 16,750,000 1,102,000 3,624,000 (117,000)(a) 21,359,000
----------- ---------- ---------- --------- -----------
Gross profit.................... 6,719,000 662,000 2,526,000 -- 9,907,000
Selling, general and
administrative expense........ 9,592,000 492,000 1,910,000 383,000(b) 12,377,000
----------- ---------- ---------- --------- -----------
Income (loss) from operations... (2,873,000) 170,000 616,000 (383,000) (2,470,000)
Net interest expense and
other......................... (623,000) (31,000) (182,000) (444,000)(c) (1,280,000)
----------- ---------- ---------- --------- -----------
Net income (loss)............... (3,496,000) 139,000 434,000 (827,000) (3,750,000)
Deemed preferred dividends
(Restated).................... (1,930,000) -- -- -- (1,930,000)
----------- ---------- ---------- --------- -----------
Net income (loss) applicable to
common stockholders
(Restated)(d)................. $(5,426,000) $ 139,000 $ 434,000 $(827,000) $(5,680,000)
=========== ========== ========== ========= ===========
Loss per share:
Basic and diluted
(Restated)................. $(.59) $(.62)
Weighted average number of basic
and diluted shares
outstanding................... 9,178,000 9,178,000
</TABLE>
- - ---------------
(a) Adjustment to eliminate intercompany revenue from RSR to LVCI.
(b) Selling, general and administrative expense has been adjusted to reflect the
increase in the amortization of goodwill attributable to the acquisitions of
RSR and MSS. Total goodwill related to the RSR acquisition of $2.6 million
and the MSS acquisition of $3.4 million is being amortized over a 15 year
period.
(c) Interest expense of $251,000 (at 8%) has been adjusted to reflect the
interest expense on the $1.0 million of notes payable issued in connection
with the MSS acquisition and $2.1 million issued in connection with the RSR
acquisition. Interest income of $193,000 (at 5%) has been adjusted to
reflect the reduction in interest income related to the $3.2 million of cash
on hand utilized to finance the MSS acquisition and $680,000 of cash on hand
utilized to finance the RSR acquisition.
(d) Prior to being acquired by LVCI, RSR and MSS had elected S corporation
status under the provisions of the Internal Revenue Code. As such, all
pre-acquisition income subsequent to this election flowed through to the
shareholders of RSR and MSS, respectively, who were liable for all
applicable taxes. Accordingly, no provision is presented for federal and
state income taxes in the RSR and MSS historical Statements of Operations.
No pro forma adjustment for income tax provision is included since any
taxable income would be offset by the utilization of net operating loss
carryforwards of LVCI. For purposes of recording deferred tax assets of
LVCI, no future taxable income has been assumed given the results of
operations of LVCI through April 30, 1998. Accordingly, LVCI's deferred tax
asset, related primarily to net operating loss carryforwards, is fully
reserved with an offsetting valuation allowance. Therefore any utilization
of the net operating losses as a result of pro forma taxable income from
MSS or RSR would result in an offsetting reduction in the valuation
allowance.
F-28
<PAGE> 87
LASER VISION CENTERS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
LVCI RSR* MSS* ADJUSTMENTS TOTAL
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue....................... $33,574,000 $1,133,000 $5,145,000 $ (47,000)(a) $39,805,000
Cost of revenue............... 22,346,000 913,000 3,272,000 (47,000)(a) 26,484,000
Gross profit.................. 11,228,000 220,000 1,873,000 -- 13,321,000
----------- ---------- ---------- --------- -----------
Selling, general and
administrative expense...... 7,927,000 160,000 1,379,000 191,000(b) 9,657,000
----------- ---------- ---------- --------- -----------
Income from operations........ 3,301,000 60,000 494,000 (191,000) 3,664,000
Net interest expense and
other....................... (551,000) (20,000) (152,000) (208,000)(c) (931,000)
----------- ---------- ---------- --------- -----------
Net income before taxes....... 2,750,000 40,000 342,000 (399,000) 2,733,000
Income tax benefit............ 802,000 -- -- -- 802,000
----------- ---------- ---------- --------- -----------
Net income.................... 3,552,000 40,000 342,000 (399,000) 3,535,000
Deemed preferred dividends.... (122,000) -- -- -- (122,000)
----------- ---------- ---------- --------- -----------
Net income (loss) applicable
to common stockholders(d)... $ 3,430,000 $ 40,000 $ 342,000 $(399,000) $ 3,413,000
=========== ========== ========== ========= ===========
Net income per share:
Basic....................... $.34 $.34
Diluted..................... $.31 $.31
Weighted average number of
common shares outstanding --
basic....................... 9,987,000 9,987,000
Weighted average number of
common shares outstanding --
diluted..................... 11,574,000 11,574,000
</TABLE>
- - ---------------
* RSR statement of income is for the four months ended August 31, 1998, RSR
operating results since the acquisition on September 1, 1998 are included in
the LVCI operating results. MSS statement of income is for the seven months
ended November 30, 1998. MSS operating results since the acquisition on
December 4, 1998 are included in the LVCI operating results.
(a) Adjustment to eliminate intercompany revenue from RSR to LVCI.
(b) Selling, general and administrative expense has been adjusted to reflect the
increase in the amortization of goodwill attributable to the acquisitions of
RSR and MSS. Total goodwill related to the RSR acquisition of $2.6 million
and the MSS acquisition of $3.4 million is being amortized over a 15 year
period.
(c) Interest expense of $104,000 (at 8%) has been adjusted to reflect the
interest expense on the $1.0 million of notes payable issued in connection
with the MSS acquisition and $2.1 million issued in connection with the RSR
acquisition. Interest income of $104,000 (at 5%) has been adjusted to
reflect the reduction in interest income related to the $3.2 million of cash
on hand utilized to finance the MSS acquisition and $680,000 of cash on hand
utilized to finance the RSR acquisition.
(d) Prior to being acquired by LVCI, RSR and MSS had elected S corporation
status under the provisions of the Internal Revenue Code. As such, all
pre-acquisition income subsequent to this election flowed through to the
shareholders of RSR and MSS, respectively, who were liable for all
F-29
<PAGE> 88
applicable taxes. Accordingly, no provision is presented for federal and
state income taxes in the RSR and MSS historical Statements of Operations.
No pro forma adjustment for income tax provision is included since any
taxable income would be offset by the utilization of net operating loss
carryforwards of LVCI. For purposes of recording deferred tax assets of
LVCI at January 31, 1999 future income of RSR and MSS was considered.
F-30
<PAGE> 89
THE LASIK PROCEDURE
[Picture showing an eye surgeon performing a
LASIK surgery with one of our excimer lasers.]
VISION DISORDERS TREATED WITH OUR EQUIPMENT AND SERVICES
[Four schematic diagrams are shown, depicting
nearsightedness, farsightedness, astigmatism
and cataracts.]
<PAGE> 90
- - ---------------------------------------------------------
- - ---------------------------------------------------------
YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK
MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE
OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 7
The Company.............................. 14
Use of Proceeds.......................... 14
Price Range of Common Stock.............. 15
Capitalization........................... 16
Dilution................................. 17
Selected Consolidated Financial Data..... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 20
Industry Background...................... 34
Business................................. 36
Directors and Executive Officers......... 46
Certain Relationships of Officers and
Directors.............................. 48
Principal and Selling Stockholders....... 48
Description of Securities................ 51
Shares Eligible for Future Sale.......... 52
Underwriting............................. 53
Legal Matters............................ 55
Experts.................................. 55
Forward Looking Statements............... 55
Where You Can Find More Information...... 56
Information Incorporated by Reference.... 57
Index to Financial Information........... F-1
</TABLE>
- - ---------------------------------------------------------
- - ---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
1,720,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
A.G. EDWARDS & SONS, INC.
PRUDENTIAL SECURITIES
WARBURG DILLON READ LLC
May 11, 1999
---------------------------------------------------------
---------------------------------------------------------
<PAGE> 91
PART II
- - --------------------------------------------------------------------------------
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the approximate costs and expenses, other than
underwriting discounts and commissions, payable by Laser Vision in connection
with the sale of common stock being registered hereunder:
<TABLE>
<S> <C>
SEC Registration fees....................................... $ 15,122
Blue Sky expense............................................ $ 4,000
Printing cost............................................... $150,000
Transfer agent fees......................................... $ 3,500
Legal fees and expenses..................................... $150,000
Accounting fees and expenses................................ $125,000
Miscellaneous............................................... $ 3,938
NASD filing fee............................................. $ 5,940
Nasdaq listing fee.......................................... $ 17,500
--------
Total..................................................... $475,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6 of Laser Vision's Certificate of Incorporation provides for
indemnification of the officers and directors of Laser Vision to the fullest
extent permitted by the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware
provides generally and in pertinent part that a Delaware corporation may
indemnify its directors and officers against expenses, judgments, fines and
settlements actually and reasonably incurred by them in connection with any
civil suit or action, except actions by or in the right of the corporation, or
in connection with any administrative or investigative proceedings if, in
connection with the matters in issue, they acted in good faith and in a manner
they reasonable believed to be in, or not opposed to, the best interests of the
corporation and in connection with any criminal suit or proceeding, if in
connection with the matters in issue, they had no reasonably cause to believe
their conduct was unlawful. Section 145 further permits a Delaware corporation
to grant its directors and officers additional rights of indemnification through
bylaw provisions and otherwise and to purchase indemnity insurance on behalf of
its directors and officers.
The Registrant maintains a policy of insurance under which the directors
and officers of the Registrant are insured, subject to the limits of the policy,
against certain losses arising from claims made against such directors and
officers by reason of any acts or omissions covered under such policy in their
respective capacities as directors or officers.
II-1
<PAGE> 92
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1.1** Underwriting Agreement
4.1* Specimen Stock Certificate
5.1*** Opinion of Dankenbring Greiman Osterholt & Hoffmann, P.C.
with respect to the shares being registered
23.1** Consent of Independent Accountants, PricewaterhouseCoopers
LLP
23.2*** Consent of Dankenbring Greiman Osterholt & Hoffmann, P.C. to
use its opinion letter filed herewith (contained in Opinion
Letter at Exhibit 5.1)
24.1*** Power of Attorney executed by Laser Vision's officers and
directors appointing John J. Klobnak and Robert W. May as
attorneys-in-fact
</TABLE>
- - ---------------
* Incorporated by reference from registration statement No. 33-33843 effective
on April 3, 1991
** Filed herewith
*** Previously filed
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (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.
Laser Vision hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
Post-Effective Amendment to this registration statement:
(i) To include any prospectus required by section 10(a) of the Securities
Act;
(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;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining liability under the Securities Act,
each 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.
II-2
<PAGE> 93
(3) To remove from registration by means of a Post-Effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of the
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(5) That for purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to section 13(a) or
section 15(d) of the Exchange Act (and where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(6) That for the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 94
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of St.
Louis, Missouri on the 11th day of May, 1999.
LASER VISION CENTERS, INC.
By: /s/ JOHN J. KLOBNAK
------------------------------------
John J. Klobnak,
Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN J. KLOBNAK Chief Executive Officer and Chairman of May 11, 1999
- - --------------------------------------------- the Board of Directors
JOHN J. KLOBNAK
/s/ ROBERT W. MAY Vice-Chairman of the Board, General May 11, 1999
- - --------------------------------------------- Counsel and Secretary
ROBERT W. MAY
/s/ B. CHARLES BONO, III Executive Vice President, Principal May 11, 1999
- - --------------------------------------------- Accounting Officer, Chief Financial
B. CHARLES BONO, III Officer and Treasurer
/s/ RICHARD L. LINDSTROM, M.D.* Director May 11, 1999
- - ---------------------------------------------
RICHARD L. LINDSTROM, M.D.
/s/ DR. HENRY SIMON* Director May 11, 1999
- - ---------------------------------------------
DR. HENRY SIMON
/s/ JAMES M. GARVEY* Director May 11, 1999
- - ---------------------------------------------
JAMES M. GARVEY
/s/ STEVEN C. STRAUS* Director May 11, 1999
- - ---------------------------------------------
STEVEN C. STRAUS
*By: /s/ JOHN J. KLOBNAK May 11, 1999
---------------------------------------
John J. Klobnak, individually
and as Attorney-in-fact
</TABLE>
II-4
<PAGE> 1
Exhibit 1.1
1,720,000 SHARES
COMMON STOCK
($ .01 PAR VALUE)
UNDERWRITING AGREEMENT
May 10, 1999
A.G. EDWARDS & SONS, INC.
PRUDENTIAL SECURITIES INCORPORATED
WARBURG DILLON READ LLC
As Representatives of the Several Underwriters
c/o A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
The undersigned, Laser Vision Centers, Inc., a Delaware corporation
(the "Company"), and the persons listed on Schedule I hereto (the "Selling
Shareholders"), hereby address you as the representatives (the
"Representatives") of each of the persons, firms and corporations listed on
Schedule II hereto (collectively, the "Underwriters") and hereby confirm their
agreement with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell to the
Underwriters one million (1,000,000) shares of its Common Stock, par value $ .01
per share, and the Selling Shareholders propose to sell to the Underwriters a
total of Seven Hundred Twenty Thousand (720,000) shares of the Company's Common
Stock, par value $ .01 per share, as set forth on Schedule I hereto (such
1,720,000 shares of Common Stock are herein collectively referred to as the
"Firm Shares"). Solely for the purpose of covering over-allotments in the sale
of the Firm Shares, certain of the Selling Shareholders set forth on Schedule
III hereto (the "Option Shareholders") further propose to grant to the
Underwriters the right to purchase up to an additional 258,000 shares of Common
Stock (the "Option Shares"), as provided in Section 3 of this Agreement. The
Firm Shares and the Option Shares are herein sometimes referred to as the
"Shares" and are more fully described in the Prospectus hereinafter defined.
2. PURCHASE, SALE AND DELIVERY OF FIRM SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters under the terms hereof One Million (1,000,000) shares of its common
stock and each Selling Shareholder agrees, severally and not jointly, to sell to
the Underwriters the number of Firm Shares set forth opposite the name of such
Selling Shareholder on Schedule I hereto, and each such Underwriter agrees,
severally and not jointly, (a) to purchase from the Company and from each of the
Selling Shareholders, pro rata, at a purchase price of $46.50 per share, the
number of Firm Shares set forth
<PAGE> 2
opposite the name of such Underwriter on Schedule II hereto and (b) to purchase
from the Option Shareholders any additional number of Option Shares which such
Underwriter may become obligated to purchase pursuant to Section 3 hereof.
The Company and the Selling Shareholders will deliver definitive
certificates (for purposes herein, "definitive certificates" will include any
electronic format equivalent reasonably acceptable to the Representatives) for
the Firm Shares at the office of A.G. Edwards & Sons, Inc., One North Jefferson
Avenue, St. Louis, Missouri 63103 ("Edwards' Office"), or such other place as
you and the Company may mutually agree upon, for the accounts of the
Underwriters against payment to the Company and the Selling Shareholders of the
purchase price for the Firm Shares sold by them to the several Underwriters by
wire transfer of immediately available funds payable to the order of the Company
and the Selling Shareholders, as their respective interests may appear, and
delivered to One North Jefferson Avenue, St. Louis, Missouri 63103, or at such
other place as may be agreed upon between you and the Company (the "Place of
Closing"), at 9:00 a.m., St. Louis time, on May 14, 1999, or at such
other time and date not later than five full business days thereafter as you and
the Company may agree, such time and date of payment and delivery being herein
called the "Closing Date."
The certificates for the Firm Shares so to be delivered will be made
available to you for inspection at Edwards' Office (or such other place as you
and the Company may mutually agree upon) at least one full business day prior to
the Closing Date and will be in such names and denominations as you may request
at least forty-eight hours prior to the Closing Date.
It is understood that an Underwriter, individually, may (but shall not
be obligated to) make payment on behalf of the other Underwriters whose funds
shall not have been received prior to the Closing Date for Shares to be
purchased by such Underwriter. Any such payment by an Underwriter shall not
relieve the other Underwriters of any of their obligations hereunder.
It is understood that the Underwriters propose to offer the Shares to
the public upon the terms and conditions set forth in the Registration Statement
hereinafter defined.
3. PURCHASE, SALE AND DELIVERY OF THE OPTION SHARES. The Option
Shareholders hereby grant options to the Underwriters to purchase from them, on
a pro rata basis, up to Two Hundred Fifty-Eight Thousand (258,000) Option
Shares, respectively, on the same terms and conditions as the Firm Shares;
provided, however, that such options may be exercised only for the purpose of
covering any over-allotments which may be made by them in the sale of the Firm
Shares. No Option Shares shall be sold or delivered unless the Firm Shares
previously have been, or simultaneously are, sold and delivered. Each Option
Shareholder shall sell up to that number of Option Shares set forth opposite the
name of such Option Shareholder on Schedule III hereto.
The options are exercisable on behalf of the several Underwriters by
you, as Representatives, at any time, and from time to time, before the
expiration of 30 days from the date of the Prospectus (or, if such 30th day
shall be a Saturday or Sunday or a holiday, on the next day thereunder when the
Nasdaq National Market is open for trading), for the purchase of all or part of
the Option Shares covered thereby, by notice given by you to the Option
Shareholders in the
2
<PAGE> 3
manner provided in Section 13 hereof, setting forth the number of Option Shares
as to which the Underwriters are exercising the options, and the date of
delivery of said Option Shares, which date shall not be more than five business
days after such notice unless otherwise agreed to by the parties. You may
terminate the options at any time, as to any unexercised portion thereof, by
giving written notice to the Option Shareholders to such effect.
You, as Representatives, shall make such allocation of the Option
Shares among the Underwriters as may be required to eliminate purchases of
fractional Shares.
Delivery of the Option Shares with respect to which the options shall
have been exercised shall be made to or upon your order at Edwards' Office (or
at such other place as you and the Company may mutually agree upon), against
payment by you of the per share purchase price to the Option Shareholders by
wire transfer of immediately available funds. Such payment and delivery shall be
made at 10:00 a.m., St. Louis time, on the date designated in the notice given
by you as above provided for (which may be the same as the Closing Date), unless
some other date and time are agreed upon, which date and time of payment and
delivery are called the "Option Closing Date." The certificates for the Option
Shares so to be delivered will be made available to you for inspection at
Edwards' Office at least one full business day prior to the Option Closing Date
and will be in such names and denominations as you may request at least
forty-eight hours prior to the Option Closing Date. On the Option Closing Date,
the Option Shareholders and the Company shall provide the Underwriters such
representations, warranties, agreements, opinions, letters, certificates and
covenants with respect to the Option Shares as are required to be delivered on
the Closing Date with respect to the Firm Shares.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING SHAREHOLDERS. (a) The Company and the Selling Shareholders set forth on
Schedule IV hereto (the "Principal Selling Shareholders") jointly and severally
represent and warrant to and agree with each Underwriter that:
(i) A registration statement (Registration No. 333-72941) on
Form S-3 with respect to the Shares, including a preliminary
prospectus, and such amendments to such registration statement as may
have been required to the date of this Agreement, has been carefully
prepared by the Company pursuant to and in conformity with the
requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the rules and regulations thereunder (the "1933 Act Rules
and Regulations") of the Securities and Exchange Commission (the "SEC")
and has been filed with the SEC under the 1933 Act. The Company meets
the requirements for use of Form S-3 under the 1933 Act. Copies of such
registration statement, including any amendments thereto, each related
preliminary prospectus (meeting the requirements of Rule 430 or 430A of
the 1933 Act Rules and Regulations) contained therein, and the
exhibits, financial statements and schedules thereto have heretofore
been delivered by the Company to you. If such registration statement
has not become effective under the 1933 Act, a further amendment to
such registration statement, including a form of final prospectus,
necessary to permit such
3
<PAGE> 4
registration statement to become effective will be filed promptly by
the Company with the SEC. If such registration statement has become
effective under the 1933 Act, a final prospectus containing information
permitted to be omitted at the time of effectiveness by Rule 430A of
the 1933 Act Rules and Regulations will be filed promptly by the
Company with the SEC in accordance with Rule 424(b) of the 1933 Act
Rules and Regulations. The term "Registration Statement" as used herein
means the registration statement as amended at the time it becomes
effective under the 1933 Act (the "Effective Date"), including
financial statements and all exhibits and all documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the 1933 Act
and, if applicable, the information deemed to be included by Rule 430A
of the 1933 Act Rules and Regulations. If it is contemplated, at the
time this Agreement is executed, that a post-effective amendment to
such registration statement will be filed and must be declared
effective before the offering of Shares may commence, the term
"Registration Statement" as used herein means the registration
statement as amended by said post-effective amendment. If an
abbreviated registration statement is prepared and filed with the SEC
in accordance with Rule 462(b) under the 1933 Act (an "Abbreviated
Registration Statement"), the term "Registration Statement" as used in
this Agreement includes the Abbreviated Registration Statement. The
term "Prospectus" as used herein means (i) the prospectus as first
filed with the SEC pursuant to Rule 424(b) of the 1933 Act Rules and
Regulations, or (ii) if no such filing is required, the form of final
prospectus included in the Registration Statement at the Effective
Date, or (iii) if a Term Sheet or Abbreviated Term Sheet (as such terms
are defined in Rule 434(b) and 434(c), respectively, of the 1933 Act
Rules and Regulations) is filed with the SEC pursuant to Rule 424(b)(7)
of the 1933 Act Rules and Regulations, the Term Sheet or Abbreviated
Term Sheet and the last Preliminary Prospectus filed with the SEC prior
to the time the Registration Statement became effective, taken
together, including, in each case, the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the 1933 Act.
The term "Preliminary Prospectus" as used herein shall mean a
preliminary prospectus as contemplated by Rule 430 or 430A of the 1933
Act Rules and Regulations included at any time in the Registration
Statement. For purposes of this Agreement, the words "amend,"
"amendment," "amended," "supplement" or "supplemented" with respect to
the Registration Statement or the Prospectus shall mean amendments or
supplements to the Registration Statement or the Prospectus, as the
case may be, as well as documents filed after the date of this
Agreement and prior to the completion of the distribution of the Shares
and incorporated by reference therein as described above.
(ii) Neither the SEC nor any state or other jurisdiction or
other regulatory body has issued, and neither is, to the knowledge of
the Company, threatening to issue, any stop order under the 1933 Act or
other order suspending the effectiveness of the Registration Statement
(as amended or supplemented) or preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending the
qualification or registration of the Shares for offering or sale in any
jurisdiction nor instituted or, to the knowledge of the Company,
threatened to institute proceedings for any such purpose.
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<PAGE> 5
Each Preliminary Prospectus at its date of issue, the Registration
Statement and the Prospectus and any amendments or supplements thereto
contain or will contain, as the case may be, all statements which are
required to be stated therein by, and in all material respects conform
or will conform, as the case may be, to the requirements of, the 1933
Act and the 1933 Act Rules and Regulations. Neither the Registration
Statement nor any amendment thereto, as of the applicable effective
date, contains or will contain, as the case may be, any untrue
statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein, not misleading, and neither any Preliminary
Prospectus, the Prospectus nor any supplement thereto contains or will
contain, as the case may be, any untrue statement of a material fact or
omits or will omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided,
however, that the Company makes no representation or warranty as to
information contained in or omitted from the Registration Statement or
the Prospectus, or any such amendment or supplement, in reliance upon,
and in conformity with, written information furnished to the Company
relating to the Underwriters by or on behalf of the Underwriters
expressly for use in the preparation thereof (as provided in Section 14
hereof). There is no contract or document required to be described in
the Registration Statement or Prospectus or to be filed as an exhibit
to the Registration Statement which is not described or filed as
required. The documents incorporated by reference in the Prospectus
pursuant to Item 12 of Form S-3 under the 1933 Act, at the time they
were filed with the SEC, complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and the rules and regulations adopted by the SEC
thereunder (the "1934 Act Rules and Regulations"). Any future documents
incorporated by reference so filed, when they are filed, will comply in
all material respects with the requirements of the 1934 Act and the
1934 Act Rules and Regulations; no such incorporated document contained
or will contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and, when read together and
with the other information in the Prospectus, at the time the
Registration Statement became effective and at the Closing Date, each
such incorporated document did not or will not, as the case may be,
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(iii) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
obligation of the Company enforceable against the Company in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and
by general principles of equity (the "Exceptions").
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<PAGE> 6
(iv) The Company and its subsidiaries have been duly organized
and are validly existing as corporations in good standing under the
laws of the states or other jurisdictions in which they are
incorporated, with full power and authority (corporate and other) to
own, lease and operate their properties and conduct their businesses as
described in the Prospectus and, with respect to the Company, to
execute and deliver, and perform the Company's obligations under, this
Agreement; the Company and its subsidiaries are duly qualified to do
business as foreign corporations in good standing in each state or
other jurisdiction in which their ownership or leasing of property or
conduct of business legally requires such qualification, except where
the failure to be so qualified, individually or in the aggregate, would
not have a Material Adverse Effect. The term "Material Adverse Effect"
as used herein means any material adverse effect on the condition
(financial or other), net worth, business, affairs, management,
prospects, results of operations or cash flow of the Company and its
subsidiaries, taken as a whole.
(v) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any material
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree. Otherwise
than as set forth in the Prospectus and, since the respective dates as
of which information is given in the Prospectus, there has not been any
change in the capital stock or long-term debt of the Company or any of
its subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries taken as a
whole, otherwise than as set forth in the Prospectus.
(vi) The issuance and sale of the Shares and the execution,
delivery and performance by the Company of this Agreement, and the
consummation of the transactions herein contemplated, will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any properties or
assets of the Company or any of its subsidiaries under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to which
any of the properties or assets of the Company or any of its
subsidiaries is subject, except to such extent as, individually or in
the aggregate, does not have a Material Adverse Effect, nor will such
action result in any violation of the provisions of the Company's
certificate of incorporation or bylaws or any statute, rule, regulation
or other law, or any order or judgment, of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the execution,
delivery and performance of this Agreement, the issuance and sale of
the Shares or the consummation
6
<PAGE> 7
of the transactions contemplated hereby, except such as have been, or
will be prior to the Closing Date, obtained under the 1933 Act or as
may be required by the National Association of Securities Dealers, Inc.
(the "NASD") and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or blue sky laws in connection with the purchase and
distribution of the Shares by the Underwriters.
(vii) The Company has duly and validly authorized capital
stock as set forth in the Prospectus; all outstanding shares of Common
Stock of the Company and the Shares conform, or when issued will
conform, to the description thereof in the Prospectus and have been,
or, when issued and paid for in the manner described herein will be,
duly authorized, validly issued, fully paid and non-assessable; and the
issuance of the Shares to be purchased from the Company hereunder is
not subject to preemptive or other similar rights, or any restriction
upon the voting or transfer thereof pursuant to applicable law or the
Company's certificate of incorporation, by-laws or governing documents
or any agreement to which the Company or any of its subsidiaries is a
party or by which any of them may be bound. All corporate action
required to be taken by the Company for the authorization, issuance and
sale of the Shares has been duly and validly taken. Except as disclosed
in the Prospectus, there are no outstanding subscriptions, rights,
warrants, options, calls, convertible securities, commitments of sale
or rights related to or entitling any person to purchase or otherwise
to acquire any shares of, or any security convertible into or
exchangeable or exercisable for, the capital stock of, or other
ownership interest in, the Company. The outstanding shares of capital
stock of the Company's subsidiaries have been duly authorized and
validly issued, are fully paid and non-assessable and are owned by the
Company free and clear of any mortgage, pledge, lien, encumbrance,
charge or adverse claim and are not the subject of any agreement or
understanding with any person and were not issued in violation of any
preemptive or similar rights; and there are no outstanding
subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or instruments related to or entitling
any person to purchase or otherwise acquire any shares of, or any
security convertible into or exchangeable or exercisable for, the
capital stock of, or other ownership interest in any of the
subsidiaries.
(viii) The statements set forth in the Prospectus describing
the Shares, certain regulatory matters affecting the Company and this
Agreement, insofar as they purport to describe the provisions of the
laws and documents referred to therein, are accurate, complete and
fair.
(ix) Each of the Company and its subsidiaries is in possession
of and is operating in compliance with all franchises, grants,
authorizations, licenses, certificates, permits, easements, consents,
orders and approvals ("Permits") from all state, federal, foreign and
other regulatory authorities, and has satisfied the requirements
imposed by regulatory bodies, administrative agencies or other
governmental bodies, agencies or officials, that are required for the
Company and its subsidiaries lawfully to own, lease and
7
<PAGE> 8
operate their properties and conduct their businesses as described in
the Prospectus, and, each of the Company and its subsidiaries is
conducting its business in compliance with all of the laws, rules and
regulations of each jurisdiction in which it conducts its business, in
each case with such exceptions, individually or in the aggregate, as
would not have a Material Adverse Effect; each of the Company and its
subsidiaries has filed all notices, reports, documents or other
information ("Notices") required to be filed under applicable laws,
rules and regulations, in each case, with such exceptions, individually
or in the aggregate, as would not have a Material Adverse Effect; and,
except as otherwise specifically described in the Prospectus, neither
the Company nor any of its subsidiaries has received any notification
from any court or governmental body, authority or agency, relating to
the revocation or modification of any such Permit or, to the effect
that any additional authorization, approval, order, consent, license,
certificate, permit, registration or qualification ("Approvals") from
such regulatory authority is needed to be obtained by any of them, in
any case where it could be reasonably expected that obtaining such
Approvals or the failure to obtain such Approvals, individually or in
the aggregate, would have a Material Adverse Effect.
(x) The Company and its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and paid
all taxes shown as due thereon; all such tax returns are complete and
correct in all material respects; all tax liabilities are adequately
provided for on the books of the Company and its subsidiaries except to
such extent as would not have a Material Adverse Effect; the Company
and its subsidiaries have made all necessary payroll tax payments and
are current and up-to-date; and the Company and its subsidiaries have
no knowledge of any tax proceeding or action pending or threatened
against the Company or its subsidiaries which, individually or in the
aggregate, might have a Material Adverse Effect.
(xi) Except as described in the Prospectus, the Company and
its subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent licenses, trademarks, service marks and trade
names necessary to conduct the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice
of infringement of or conflict with asserted rights of others with
respect to any patents, patent licenses, trademarks, service marks or
trade names which, individually or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would have a Material
Adverse Effect.
(xii) The Company and its subsidiaries have good and
marketable title in fee simple to all items of real property and good
and marketable title to all personal property owned by them, in each
case free and clear of all liens, encumbrances, restrictions and
defects except such as are described in the Prospectus or do not
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property; and any property
held under lease or sublease by the Company or any of its subsidiaries
is held under valid, subsisting and enforceable leases or subleases
with such
8
<PAGE> 9
exceptions as are not material and do not interfere with the use made
and proposed to be made of such property by the Company and its
subsidiaries; and neither the Company nor any of its subsidiaries has
any notice or knowledge of any material claim of any sort which has
been, or may be, asserted by anyone adverse to the Company's or any of
its subsidiaries rights as lessee or sublessee under any lease or
sublease described above, or affecting or questioning the Company's or
any of its subsidiaries' rights to the continued possession of the
leased or subleased premises under any such lease or sublease in
conflict with the terms thereof.
(xiii) Except as described in the Prospectus, there is no
factual basis for any action, suit or other proceeding involving the
Company or any of its subsidiaries or any of their material assets for
any failure of the Company or any of its subsidiaries, or any
predecessor thereof, to comply with any requirements of federal, state
or local regulation relating to air, water, solid waste management,
hazardous or toxic substances, or the protection of health or the
environment. Except as described in the Prospectus, none of the
property owned or leased by the Company or any of its subsidiaries is
contaminated with any waste or hazardous substances, and neither the
Company nor any of its subsidiaries may be deemed an "owner or
operator" of a "facility" or "vessel" which owns, possesses,
transports, generates or disposes of a "hazardous substance" as those
terms are defined in ss.9601 of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. ss.9601 et
seq.
(xiv) No labor disturbance exists with the employees of the
Company or any of its subsidiaries or is imminent which, individually
or in the aggregate, would have a Material Adverse Effect. None of the
employees of the Company or any of its subsidiaries is represented by a
union and, to the best knowledge of the Company and its subsidiaries,
no union organizing activities are taking place. Neither the Company
nor any of its subsidiaries has violated any federal, state or local
law or foreign law relating to discrimination in hiring, promotion or
pay of employees, nor any applicable wage or hour laws, or the rules
and regulations thereunder, or analogous foreign laws and regulations,
which might, individually or in the aggregate, result in a Material
Adverse Effect.
(xv) The Company and its subsidiaries are in compliance in all
material respects with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended, including
the regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to
any "pension plan" (as defined in ERISA) for which the Company and its
subsidiaries would have any liability; the Company and its subsidiaries
have not incurred and do not expect to incur liability under (i) Title
IV of ERISA with respect to termination of, or withdrawal from, any
"pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue
Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for
which the Company or any of its subsidiaries would have any liability
that is intended to be qualified under
9
<PAGE> 10
Section 401(a) of the Code is so qualified in all material respects,
and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.
(xvi) The Company and its subsidiaries maintain insurance of
the types and in the amounts generally deemed adequate for its
business, including, but not limited to, directors' and officers'
insurance, insurance covering real and personal property owned or
leased by the Company and its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect. Neither
the Company nor any of its subsidiaries has been refused any insurance
coverage sought or applied for, and the Company has no reason to
believe that it and its subsidiaries will not be able to renew their
existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse
Effect.
(xvii) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or lapse of time or both would be, in default
or violation with respect to its certificate of incorporation or
by-laws. Neither the Company nor any of its subsidiaries is, or with
the giving of notice or lapse of time or both would be, in default in
the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the
properties or assets of the Company or any of its subsidiaries is
subject, or in violation of any statutes, laws, ordinances or
governmental rules or regulations or any orders or decrees to which it
is subject, including, without limitation, Section 13 of the 1934 Act,
which default or violation, individually or in the aggregate, would
have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries has, at any time during the past five years, (A) made any
unlawful contributions to any candidate for any political office, or
failed fully to disclose any contribution in violation of law, or (B)
made any payment to any state, federal or foreign government official,
or other person charged with similar public or quasi-public duty (other
than payment required or permitted by applicable law).
(xviii) Other than as set forth in the Prospectus, there are
no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject that, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a Material Adverse Effect or which would
materially and adversely affect the consummation of the transactions
contemplated hereby or which is required to be disclosed in the
Prospectus; to the best of the Company's knowledge, no such proceedings
are threatened or contemplated.
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<PAGE> 11
(xix) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company," as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended
(the "1935 Act").
(xx) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" or
an entity "controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended (the "1940
Act").
(xxi) PricewaterhouseCoopers LLP, the accounting firm which
has certified the financial statements filed with or incorporated by
reference in and as a part of the Registration Statement, is an
independent public accounting firm within the meaning of the 1933 Act
and the 1933 Act Rules and Regulations. The Company and each of its
subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance that: (1) transactions are
executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (3) access to assets is permitted only in accordance with
management's general or specific authorization; and (4) the recorded
accounts for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect thereto. The
consolidated financial statements and schedules of the Company,
including the notes thereto, filed with (or incorporated by reference)
and as a part of the Registration Statement or Prospectus, are accurate
in all material respects and present fairly the financial condition of
the Company and its subsidiaries as of the respective dates thereof and
the consolidated results of operations and changes in financial
position and consolidated statements of cash flow for the respective
periods covered thereby, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the
periods involved except as otherwise disclosed therein. All adjustments
necessary for a fair presentation of results for such periods have been
made. The selected financial data included or incorporated by reference
in the Registration Statement and Prospectus present fairly the
information shown therein and have been compiled on a basis consistent
with that of the audited financial statements. Any operating or other
statistical data included or incorporated by reference in the
Registration Statement and Prospectus comply in all material respects
with the 1933 Act and the 1933 Act Rules and Regulations and present
fairly the information shown therein.
(xxii) Except as disclosed in the Prospectus, no holder of any
security of the Company has any right to require registration of shares
of Common Stock or any other security of the Company because of the
filing of the Registration Statement or the consummation of the
transactions contemplated hereby, and, except as disclosed in the
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<PAGE> 12
Prospectus, no person has the right to require registration under the
1933 Act of any shares of Common Stock or other securities of the
Company. No person has the right, contractual or otherwise, to cause
the Company to permit such person to underwrite the sale of any of the
Shares. Except for this Agreement, there are no contracts, agreements
or understandings between the Company or any of its subsidiaries and
any person that would give rise to a valid claim against the Company,
its subsidiaries or any Underwriter for a brokerage commission,
finder's fee or like payment in connection with the issuance, purchase
and sale of the Shares.
(xxiii) The Company has not distributed and, prior to the
later to occur of (i) the Closing Date or the Option Closing Date, if
any, and (ii) completion of the distribution of the Shares, will not
distribute any offering material in connection with the offering and
sale of the Shares other than the Registration Statement, the
Preliminary Prospectus or the Prospectus.
(xxiv) The Company has not taken and will not take, directly
or indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the
price of the Company's Common Stock, and the Company is not aware of
any such action taken or to be taken by affiliates of the Company.
(b) Each Selling Shareholder severally represents and warrants to and
agrees with each Underwriter and the Company that:
(i) All consents, approvals, authorizations and orders
necessary for the execution and delivery by it of this Agreement, and
the Custody Agreement and Power of Attorney (as defined herein) and the
sale and delivery of the Shares to be sold by such Selling Shareholder
hereunder and thereunder have been given and are in full force and
effect on the date hereof and will be in full force and effect on the
Closing Date (and, if applicable, the Option Closing Date). This
Agreement and the Custody Agreement and Power of Attorney have been
duly authorized, executed and delivered by or on behalf of such Selling
Shareholder and are the valid and legally binding obligations of such
Selling Shareholder enforceable in accordance with their terms except
as enforceability may be limited by the Exceptions and except to the
extent the enforceability of the indemnification and contribution
provisions hereof and thereof may be limited by public policy
considerations as expressed in the 1933 Act as construed by courts of
competent jurisdiction.
(ii) Such Selling Shareholder has, and on the Closing Date
(and, if applicable, the Option Closing Date) will have, good, valid
and marketable title to the Shares to be sold by such Selling
Shareholder, free and clear of all liens, mortgages, pledges,
encumbrances, claims, equities and security interests whatsoever,
including any restriction on transfer other than pursuant to this
Agreement and the Custody Agreement
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<PAGE> 13
and Power of Attorney referred to herein, and now has, and on the
Closing Date (and, if applicable, the Option Closing Date), will have,
full right, power and authority, and any approval required by law, to
enter into this Agreement and the Custody Agreement and Power of
Attorney and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Shareholder hereunder.
(iii) Upon delivery of and payment for such Shares hereunder,
the several Underwriters will acquire good, valid and marketable title
to such Shares to be sold by such Selling Shareholder hereunder, free
and clear of all liens, mortgages, pledges, encumbrances, claims,
equities and security interests whatsoever.
(iv) The execution, delivery and performance of this Agreement
and the Custody Agreement and Power of Attorney by such Selling
Shareholder, and the consummation by such Selling Shareholder of the
transactions contemplated herein and therein will not conflict with or
result in a breach or violation of any the terms or provisions of, or
constitute a default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the properties or assets of
such Selling Shareholder under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which such Selling
Shareholder is a party or by which it is bound or to which any of the
properties or assets of such Selling Shareholder is subject (or any
certificate or articles of incorporation or bylaws, partnership
agreement, trust document or articles of association of such Selling
Shareholder, as applicable), or any order or decree, or statute, law,
ordinance, rule or regulation applicable to such Selling Shareholder of
any court or of any governmental agency, authority or body having
jurisdiction over such Selling Shareholder or its properties or assets.
(v) Such Selling Shareholder does not have any knowledge or
any reason to believe that the Registration Statement or the Prospectus
(or any amendment or supplement thereto) contains any untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading. The representations and warranties of such Selling
Shareholder in the Custody Agreement and Power of Attorney are, and on
the Closing Date and any Option Closing Date will be, true and correct.
(vi) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which might be
reasonably expected to cause or result in stabilization or manipulation
of the price of the Common Stock, and such Selling Shareholder is not
aware of any such action taken or to be taken by affiliates of such
Selling Shareholder.
(vii) When the Registration Statement becomes effective and at
all times subsequent thereto, such information in the Registration
Statement and Prospectus and any amendments or supplements thereto as
specifically relates to such Selling
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<PAGE> 14
Shareholder will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(viii) Certificates in negotiable form representing all of the
Shares to be sold by such Selling Shareholder hereunder have been
placed in the custody of Robert W. May (the "Custodian") under a
Custody Agreement and Power of Attorney (the "Custody Agreement and
Power of Attorney"), duly executed and delivered by such Selling
Shareholder, with the Custodian having the authority to deliver the
Shares to be sold by such Selling Shareholder hereunder, and such
Selling Shareholder has duly executed and delivered the Custody
Agreement and Power of Attorney appointing John J. Klobnak and Robert
W. May as such Selling Shareholder's agents and attorneys-in-fact (the
"Attorneys-in-Fact") with the Attorneys-in-Fact having authority to
execute and deliver this Agreement on behalf of such Selling
Shareholder, to determine the purchase price to be paid by the
Underwriters to the Selling Shareholders as provided in Section 2, to
authorize the delivery of the Shares to be sold by it hereunder and
otherwise to act on behalf of such Selling Shareholder in connection
with the transactions contemplated by this Agreement and such Custody
Agreement.
(ix) The Shares represented by the certificates held in
custody for such Selling Shareholder under the Custody Agreement and
Power of Attorney are subject to the interests of the Underwriters
hereunder, and the arrangements made by such Selling Shareholder for
such custody, and the appointment by such Selling Shareholder of the
Custodian and of the Attorneys-in-Fact under the Custody Agreement and
Power of Attorney, are, except as specifically provided therein,
irrevocable.
(x) The obligations of such Selling Shareholder hereunder and
under the Custody Agreement and Power of Attorney shall not be
terminated by any Selling Shareholder or operation of law, whether by
the death or incapacity of any individual Selling Shareholder or, in
the case of an estate or trust, by the death or incapacity of any
executor or trustee or the termination of such estate or trust, or, in
the case of a partnership, corporation or other entity, upon any
dissolution, winding up, distribution of assets or other event
affecting the legal existence of such Selling Shareholder, or by the
occurrence of any other event; and if any individual Selling
Shareholder or any such executor or trustee should die or become
incapacitated, or if any such estate or trust should be terminated, or
if any such partnership, corporation or other entity should dissolve,
wind up or distribute assets or any other event affecting the legal
existence of such Selling Shareholder should occur, or if any other
such event should occur before the delivery of the Shares hereunder,
certificates representing the Shares shall be delivered by or on behalf
of each Selling Shareholder in accordance with the terms and conditions
of this Agreement and of the Custody Agreement; and actions taken by
the Custodian or by the Attorneys-in-Fact pursuant to the Custody
Agreement and Power of Attorney shall be as valid as if such death,
incapacity, termination, dissolution, winding up, distribution of
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<PAGE> 15
assets or other event had not occurred, regardless of whether or not
the Custodian or Attorneys-in-Fact, or any of them, shall have received
notice of such death, incapacity, termination, dissolution, winding up,
distribution of assets or other event.
(xi) Such Selling Shareholder is not prompted to sell shares
of Common Stock by any information concerning the Company or any of its
subsidiaries which is not included in the Registration Statement.
(c) Any certificate signed by any officer of the Company and delivered
to you or to counsel for the Underwriters shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered thereby;
and any certificate signed by or on behalf of the Selling Shareholders as such
and delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Selling Shareholders to each Underwriter as
to the matters covered thereby.
5. ADDITIONAL COVENANTS. The Company and, where expressly indicated,
the Selling Shareholders, covenant and agree with the several Underwriters that:
(a) The Company will timely transmit copies of the Prospectus, and any
amendments or supplements thereto, or a Term Sheet or Abbreviated Term Sheet, as
applicable, to the SEC for filing pursuant to Rule 424(b) of the 1933 Act Rules
and Regulations.
(b) The Company will deliver to each of the Representatives, and to
counsel for the Underwriters (i) a signed copy of the Registration Statement as
originally filed, including copies of exhibits thereto (other than any exhibits
incorporated by reference therein), of any amendments and supplements to the
Registration Statement (including all documents incorporated by reference
therein), and (ii) a signed copy of each consent and certificate included or
incorporated by reference in, or filed as an exhibit to, the Registration
Statement as so amended or supplemented; the Company will deliver to the
Underwriters through the Representatives as soon as practicable after the date
of this Agreement as many copies of the Prospectus (including all documents
incorporated by reference therein) as the Representatives may reasonably request
for the purposes contemplated by the 1933 Act; if the Registration Statement is
not effective under the 1933 Act, the Company will use its best efforts to cause
the Registration Statement to become effective as promptly as possible, and it
will notify you, promptly after it shall receive notice thereof, of the time
when the Registration Statement has become effective; the Company will promptly
advise the Representatives of any request of the SEC for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information, and of the issuance by the SEC or any state or other jurisdiction
or other regulatory body of any stop order under the 1933 Act or other order
suspending the effectiveness of the Registration Statement (as amended or
supplemented) or preventing or suspending the use of any Preliminary Prospectus
or the Prospectus or suspending the qualification or registration of the Shares
for offering or sale in any jurisdiction, and of the institution or threat of
any proceedings therefor, of which the Company shall have received notice or
otherwise have
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<PAGE> 16
knowledge prior to the completion of the distribution of the Shares; and the
Company will use its best efforts to prevent the issuance of any such stop order
or other order and, if issued, to secure the prompt removal thereof.
(c) The Company will not file any amendment or supplement to the
Registration Statement, the Prospectus (or any other prospectus relating to the
Shares filed pursuant to Rule 424(b) of the 1933 Act Rules and Regulations that
differs from the Prospectus as filed pursuant to such Rule 424(b)) and will not
file any document under the 1934 Act before the termination of the offering of
the Shares by the Underwriters if the document would be deemed to be
incorporated by reference into the Registration Statement or the Prospectus, of
which the Underwriters shall not previously have been advised and furnished with
a copy or to which the Underwriters shall have reasonably objected or which is
not in compliance with the 1933 Act Rules and Regulations; and the Company will
promptly notify you after it shall have received notice thereof of the time when
any amendment to the Registration Statement becomes effective or when any
supplement to the Prospectus has been filed.
(d) During the period when a prospectus relating to any of the Shares
is required to be delivered under the 1933 Act by any Underwriter or dealer, the
Company will comply, at its own expense, with all requirements imposed by the
1933 Act and the 1933 Act Rules and Regulations, as now and hereafter amended,
and by the rules and regulations of the SEC thereunder, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealing in
the Shares during such period in accordance with the provisions hereof and as
contemplated by the Prospectus.
(e) If, during the period when a prospectus relating to any of the
Shares is required to be delivered under the 1933 Act by any Underwriter or
dealer, (i) any event relating to or affecting the Company or of which the
Company shall be advised in writing by the Representatives shall occur as a
result of which, in the opinion of the Company or the Representatives, the
Prospectus as then amended or supplemented would include any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or (ii) it shall be necessary to amend or supplement the
Registration Statement or the Prospectus to comply with the 1933 Act, the 1933
Act Rules and Regulations, the 1934 Act or the 1934 Act Rules and Regulations,
the Company will forthwith at its expense prepare and file with the SEC, and
furnish to the Representatives a reasonable number of copies of, such amendment
or supplement or other filing that will correct such statement or omission or
effect such compliance.
(f) During the period when a prospectus relating to any of the Shares
is required to be delivered under the 1933 Act by any Underwriter or dealer, the
Company will furnish such proper information as may be lawfully required and
otherwise cooperate in qualifying the Shares for offer and sale under the
securities or blue sky laws of such jurisdictions as the Representatives may
reasonably designate and will file and make in each year such statements or
reports as are or may be reasonably required by the laws of such jurisdictions;
provided,
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<PAGE> 17
however, that the Company shall not be required to qualify as a foreign
corporation and shall not be required to qualify as a dealer in securities or to
file a general consent to service of process under the laws of any jurisdiction.
(g) In accordance with Section 11(a) of the 1933 Act and Rule 158 of
the 1933 Act Rules and Regulations, the Company will make generally available to
its security holders and to holders of the Shares, as soon as practicable, an
earning statement (which need not be audited) in reasonable detail covering the
12 months beginning not later than the first day of the month next succeeding
the month in which occurred the effective date (within the meaning of Rule 158)
of the Registration Statement.
(h) During the period when a prospectus relating to any of the Shares
is required to be delivered under the 1933 Act by any Underwriter or dealer, the
Company will file promptly all documents required to be filed with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act. The Company will
furnish to its security holders annual reports containing financial statements
audited by independent public accountants and quarterly reports containing
financial statements and financial information which may be unaudited. The
Company will, for a period of five years from the Closing Date, deliver to the
Underwriters at their principal executive offices a reasonable number of copies
of annual reports, quarterly reports, current reports and copies of all other
documents, reports and information furnished by the Company to its shareholders
or filed with any securities exchange or market pursuant to the requirements of
such exchange or market or with the SEC pursuant to the 1933 Act or the 1934
Act. The Company will deliver to the Underwriters similar reports with respect
to any significant subsidiaries, as that term is defined in the 1933 Act Rules
and Regulations, which are not consolidated in the Company's financial
statements. Any report, document or other information required to be furnished
under this paragraph (h) shall be furnished as soon as practicable after such
report, document or information becomes available.
(i) During the period beginning from the date of this Agreement and
continuing to and including the earlier of (i) the termination of trading
restrictions on the Shares, as determined by the Underwriters, and (ii) [30]
days after the Closing Date, the Company will not, without the prior written
consent of the Representatives, offer for sale, sell or enter into any agreement
to sell, or otherwise dispose of, any equity securities of the Company, except
for the Shares and the issuance of its Common Stock in connection with the
exercise of options or warrants or the conversion of Preferred Stock.
(j) The Company will apply the proceeds from the sale of the Shares as
set forth in the description under "Use of Proceeds" in the Prospectus, which
description complies in all respects with the requirements of Item 504 of
Regulation S-K.
(k) The Company will promptly provide you with copies of all
correspondence to and from, and all documents issued to and by, the SEC in
connection with the registration of the
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<PAGE> 18
Shares under the 1933 Act or relating to any documents incorporated by reference
into the Registration Statement or the Prospectus.
(l) Prior to the Closing Date (and, if applicable, the Option Closing
Date), the Company will furnish to you, as soon as they have been prepared,
copies of any unaudited interim consolidated financial statements of the Company
and its subsidiaries for any periods subsequent to the periods covered by the
financial statements appearing in the Registration Statement and the Prospectus.
(m) Prior to the Closing Date (and, if applicable, the Option Closing
Date), neither the Company nor any Selling Shareholder will issue any press
releases or other communications directly or indirectly and will hold no press
conferences with respect to the Company or any of its subsidiaries, the
financial condition, results of operations, business, properties, assets or
liabilities of the Company or any of its subsidiaries, or the offering of the
Shares, without your prior written consent.
(n) The Company will use its best efforts to obtain approval for, and
maintain the quotation of the Shares on, the Nasdaq National Market.
(o) The Company will cause its directors and officers and the Selling
Shareholders, to furnish to you, on or prior to the date of this Agreement, a
letter or letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree not to, and the
Company will not, directly or indirectly, offer for sale, contract to sell,
sell, distribute, grant any option, right or warrant to purchase, pledge,
hypothecate or otherwise dispose of any shares of Common Stock, any securities
convertible into, or exercisable or exchangeable for, Common Stock or any other
rights to acquire such shares, for a period of 90 days from the Effective Date,
without the prior written consent of A.G. Edwards & Sons, Inc., except for the
Shares sold hereunder and except for: (1) sales of shares of Common Stock to the
Company's employees pursuant to the exercise of options or warrants outstanding
on the date hereof under the Company's stock option or warrant plans; or (2) the
issuance of shares of Common Stock to the Company's Preferred Shareholders
pursuant to the conversion of Preferred Stock outstanding on the date hereof.
(p) The Company and its subsidiaries will maintain and keep accurate
books and records reflecting their assets and maintain internal accounting
controls which provide reasonable assurance that (1) transactions are executed
in accordance with management's authorization, (2) transactions are recorded as
necessary to permit the preparation of the Company's consolidated financial
statements and to maintain accountability for the assets of the Company and its
subsidiaries, (3) access to the assets of the Company and its subsidiaries is
permitted only in accordance with management's authorization, and (4) the
recorded accounts of the assets of the Company and its subsidiaries are compared
with existing assets at reasonable intervals.
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<PAGE> 19
(q) During any period in which a prospectus is required by law to be
delivered by an Underwriter or dealer, the Company will promptly file all
documents required to be filed with the SEC pursuant to Sections 13, 14 or 15(d)
of the 1934 Act.
(r) If the Company elects to rely on Rule 462(b) under the 1933 Act,
the Company shall both file an Abbreviated Registration Statement with the SEC
in compliance with Rule 462(b) and pay the applicable fees in accordance with
Rule 111 of the 1933 Act by the earlier of (i) 9:00 p.m., St. Louis time, on the
date of this Agreement, and (ii) the time that confirmations are given or sent,
as specified by Rule 462(b)(2).
(s) If at any time during the 90-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price of the Common Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(t) Each of the Selling Shareholders severally agrees with the several
Underwriters as follows:
(i) Such Selling Shareholder will cooperate to the extent
necessary to cause the Registration Statement or any post-effective
amendment thereto to become effective at the earliest possible time.
(ii) Such Selling Shareholder will pay all Federal and other
taxes, if any, on the transfer or sale of the Shares being sold by the
Selling Shareholder to the Underwriters.
(iii) Such Selling Shareholder will do or perform all things
required to be done or performed by the Selling Shareholder prior to
the Closing Date or any Option Closing Date, as the case may be, to
satisfy all conditions precedent to the delivery of the Shares pursuant
to this Agreement.
(iv) For a period of 90 days from the Effective Date, the
Selling Shareholders will not directly or indirectly offer for sale,
contract to sell, sell, distribute, grant any option, right or warrant
to purchase, pledge, hypothecate or otherwise dispose of any shares of
Common Stock or any securities convertible into, or exercisable or
exchangeable for, Common Stock or rights to acquire such shares,
without the prior written consent of A.G. Edwards & Sons, Inc., except
for the Shares sold hereunder.
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<PAGE> 20
(v) Except as stated in this Agreement and in the Preliminary
Prospectus and the Prospectus, such Selling Shareholder has not taken
and will not take, directly or indirectly, any action designed to or
that might reasonably be expected to cause or result in stabilization
or manipulation of the price of the Common Stock to facilitate the sale
or resale of the Shares.
(vi) Such Selling Shareholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the
period of time referred to in Section 5(d) hereof, of any change in the
Company's condition (financial or other), net worth, business, affairs,
management, prospects, results of operations or cash flow or of any
change in information relating to such Selling Shareholder or the
Company or any new information relating to the Company or relating to
any matter stated in the Prospectus or any amendment or supplement
thereto which comes to the attention of such Selling Shareholder that
suggests that any statement made in the Registration Statement or the
Prospectus (as then amended or supplemented, if amended or
supplemented) is or may be untrue in any material respect or that the
Registration Statement or Prospectus (as then amended or supplemented,
if amended or supplemented) omits or may omit to state a material fact
or a fact necessary to be stated therein in order to make the
statements therein not misleading in any material respect, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented, if amended or supplemented) in order to comply with the
1933 Act or any other law.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase and pay for the Shares, as provided herein, shall
be subject to the accuracy, as of the date hereof and as of the Closing Date
(and, if applicable, the Option Closing Date), of the representations and
warranties of the Company and the Selling Shareholders contained herein, to the
performance by the Company and the Selling Shareholders of their covenants and
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective not later than 5:00 p.m., St. Louis time, on
the date hereof, or, with your consent, at a later date and time, not later than
10:00 a.m., St. Louis time, on the first business day following the date hereof,
or at such later date and time as may be approved by the Representatives; if the
Company has elected to rely on Rule 462(b) under the 1933 Act, the Abbreviated
Registration Statement shall have become effective not later than the earlier of
(x) 10:00 p.m. St. Louis time, on the date hereof, or (y) at such later date and
time as may be approved by the Representatives. All filings required by Rule 424
and Rule 430A of the 1933 Act Rules and Regulations shall have been made. No
stop order suspending the effectiveness of the Registration Statement, as
amended from time to time, shall have been issued and no proceeding for that
purpose shall have been initiated or, to the knowledge of the Company or any
Underwriter, threatened or contemplated by the SEC, and any request of the SEC
for additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of the Underwriters.
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<PAGE> 21
(b) No Underwriter shall have advised the Company on or prior to the
Closing Date (and, if applicable, the Option Closing Date), that the
Registration Statement or Prospectus or any amendment or supplement thereto
contains an untrue statement of fact which, in the reasonable opinion of counsel
to the Underwriters, is material, or omits to state a fact which, in the
reasonable opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On the Closing Date (and, if applicable, the Option Closing Date),
you shall have received the opinion of Dankenbring Greiman Osterholt & Hoffmann,
P.C., counsel for the Company, addressed to you and dated the Closing Date
(and, if applicable, the Option Closing Date), to the effect that:
(i) The Registration Statement and all post-effective
amendments thereto and the Abbreviated Registration Statement, if any,
have become effective under the 1933 Act; any required filing of the
Prospectus or any supplement thereto pursuant to Rule 424(b) or
otherwise has been made in the manner and within the time period
required thereby; and, to the knowledge of such counsel after due
inquiry, no stop or other order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the
1933 Act or under the securities laws of any jurisdiction.
(ii) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (including any document incorporated by
reference into the Prospectus), as of their respective effective or
issue date, comply as to form and appear on their face to be
appropriately responsive in all material respects to the requirements
of Form S-3 under the 1933 Act and the applicable 1933 Act Rules and
Regulations (except that such counsel need express no opinion as to the
financial statements or other financial data); the conditions for use
of Form S-3 have been satisfied; and, as of the date they were filed
with the SEC, the documents incorporated by reference in the Prospectus
appear on their face to comply as to form and be appropriately
responsive in all material respects with the requirements of the 1934
Act and the applicable 1934 Act Rules and Regulations (except that such
counsel need express no opinion as to the financial statements or other
financial data).
(iii) The descriptions in the Registration Statement and
Prospectus of statutes, laws, ordinances, rules, regulations, legal or
governmental proceedings, contracts and other documents are accurate
and fairly present the information required to be shown under the 1933
Act and the 1933 Act Rules and Regulations.
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<PAGE> 22
(iv) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
obligation of the Company enforceable against the Company in accordance
with its terms, except as enforceability may be limited by the
Exceptions and except to the extent the enforceability of the
indemnification and contribution provisions of Section 7 of the
Agreement may be limited by public policy considerations as expressed
in the 1933 Act as construed by courts of competent jurisdiction.
(v) The Company and its subsidiaries have been duly organized
and are validly existing as corporations in good standing under the
laws of the states or other jurisdictions in which they are
incorporated, with full power and authority (corporate and other) to
own, lease and operate their properties and conduct their businesses as
described in the Prospectus and, with respect to the Company, to
execute and deliver, and perform the Company's obligations under, this
Agreement; the Company and its subsidiaries are duly qualified to do
business as foreign corporations in good standing in each state or
other jurisdiction in which their ownership or leasing of property or
conduct of business legally requires such qualification, except where
the failure to be so qualified, individually or in the aggregate, would
not have a Material Adverse Effect.
(vi) The entities listed on Exhibit A are the only
subsidiaries, direct or indirect, of the Company. The Company owns,
directly or indirectly through other subsidiaries, the percentage
indicated on Exhibit A of the outstanding shares of capital stock or
other securities evidencing equity ownership of such subsidiaries, and
all such securities have been duly authorized and validly issued, are
fully paid and non-assessable and, to the knowledge of such counsel,
are owned by the Company free and clear of any mortgage, pledge, lien,
encumbrance, charge or adverse claim and are not the subject of any
agreement or understanding with any person, and were not issued in
violation of any preemptive or similar rights; and, to the knowledge of
such counsel, except as disclosed in the Prospectus, there are no
outstanding subscriptions, rights, warrants, options, calls,
convertible securities, commitments of sale, or instruments related to
or entitling any person to purchase or otherwise acquire any shares of,
or any security convertible into or exercisable or exchangeable for,
any such shares of capital stock or other ownership interest of any of
such subsidiaries.
(vii) The issuance and sale of the Shares and the execution,
delivery and performance by the Company of this Agreement, and the
consummation of the transactions herein contemplated, will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any properties or
assets of the Company or any of its subsidiaries under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel after due inquiry to which the Company
or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or to which any of the properties or assets
of the Company or
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any of its subsidiaries is subject, except to such extent as,
individually or in the aggregate, does not have a Material Adverse
Effect, nor will such action result in any violation of the provisions
of the Company's certificate of incorporation or bylaws or any statute,
rule, regulation or other law, or any order or judgment known to such
counsel after due inquiry, of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any
of their properties.
(viii) No consent, approval, authorization, order,
registration or qualification of or with any court or governmental
agency or body is required in connection with the execution, delivery
and performance of this Agreement, and the issuance and sale of the
Shares or the consummation of the transactions contemplated hereby,
except such as may be required under the 1933 Act or the 1933 Act Rules
and Regulations and have been obtained, or as may be required by the
NASD or under state securities or blue sky laws in connection with the
purchase and distribution of the Shares by the Underwriters. Each of
the Company and its subsidiaries has filed all Notices pursuant to, and
has obtained all Approvals required to be obtained under, and has
otherwise complied with all requirements of, all applicable laws and
regulations in connection with the issuance and sale of the Shares, in
each case with such exceptions, individually or in the aggregate, as
would not affect the validity of the Shares, their issuance or the
transactions contemplated hereby or have a Material Adverse Effect; and
no such Notices or Approvals are required to be filed or obtained by
the Company or any of its subsidiaries in connection with the
execution, delivery and performance of this Agreement, the issuance and
sale of the Shares or the transactions contemplated hereby, in each
case with such exceptions, individually or in the aggregate, as would
not affect the validity of the Shares, their issuance or the
transactions contemplated hereby or have a Material Adverse Effect.
(ix) To the knowledge of such counsel after due inquiry and
other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any
of its subsidiaries is the subject that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole; and,
to the knowledge of such counsel after due inquiry and other than as
set forth in the Prospectus, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(x) The Company has duly and validly authorized capital stock
as set forth under the caption "Capitalization" in the Prospectus; all
outstanding shares of Common Stock of the Company and the Shares
conform, or when issued will conform, as to legal matters to the
description thereof in the Prospectus and have been duly authorized,
validly issued, fully paid and non-assessable; and the Shares to be
sold by the Company have been duly authorized and, when delivered and
paid for in accordance with this
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<PAGE> 24
Agreement, will be validly issued, fully paid and non-assessable. All
corporate action required to be taken by the Company for the
authorization, issue and sale of the Shares has been duly and validly
taken. The Shares are duly authorized for trading, subject to official
notice of issuance and evidence of satisfactory distribution, on The
Nasdaq National Market. The form of specimen certificate representing
the Shares filed as an exhibit to the Registration Statement is in
valid and sufficient form. The issuance of the Shares to be purchased
from the Company hereunder is not subject to preemptive or other
similar rights, or any restriction upon the voting or transfer thereof
pursuant to applicable law or the certificate of incorporation, bylaws
or governing documents of the Company or any agreement to which the
Company or any of its subsidiaries is a party or by which any of them
may be bound; and, to such counsel's knowledge, except as described in
the Prospectus, there are no outstanding subscriptions, rights,
warrants, options, calls, convertible securities, commitments of sale
or rights related to or entitling any person to purchase or otherwise
acquire any shares of, or any security convertible into or exercisable
or exchangeable for, the capital stock of, or other ownership interest
in, the Company.
(xi) To the knowledge of such counsel after due inquiry, the
Company and each of its subsidiaries hold all licenses, certificates,
permits and approvals from all state, federal and other regulatory
authorities, and have satisfied in all material respects the
requirements imposed by regulatory bodies, administrative agencies or
other governmental bodies, agencies or officials, that are required for
the Company and its subsidiaries lawfully to own, lease and operate its
properties and conduct its business as described in the Prospectus,
and, to the knowledge of such counsel after due inquiry, each of the
Company and its subsidiaries is conducting its business in compliance
in all material respects with all of the laws, rules and regulations
of each jurisdiction in which it conducts its business (except to the
extent the same relate to matters pertaining to government restriction,
regulation, or control of medical devices, practices, services, fees or
procedures).
(xii) The statements made in the Prospectus under the captions
"Risk Factors," "Business" (excluding those matters of law or legal
conclusions pertaining to government restriction, regulation or control
of medical devices, practices, services, fees or procedures),
"Description of Securities" and "Shares Eligible For Future Sale," Item
15 of Part II of the Registration Statement, and in the Company's
Annual Report on Form 10-K of the year ended April 30, 1998 under Item
11, "Executive Compensation" and Item 13, "Certain Relationships and
Related Transactions," to the extent that they constitute summaries of
documents referred to therein or matters of law or legal conclusions,
have been reviewed by such counsel and are accurate summaries and
fairly present the information disclosed therein.
(xiii) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or lapse of time or both would be, in default
or violation with respect to its certificate of incorporation or
by-laws. To the best of such counsel's knowledge, neither the Company
nor any of its subsidiaries is, or with the giving of notice or lapse
of time
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or both would be, in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound
or to which any of the properties or assets of the Company or any of
its subsidiaries is subject, or in violation of any statutes, laws,
ordinances or governmental rules or regulations or any orders or
decrees to which it is subject, including, without limitation, Section
13 of the 1934 Act, and neither the Company nor any of its subsidiaries
has failed to obtain any other license, permit, franchise, easement,
consent, or other governmental authorization necessary to the
ownership, leasing and operation of its properties or to the conduct of
its business, which default, violation or failure, individually or in
the aggregate, would have a Material Adverse Effect.
(xiv) To the knowledge of such counsel after due inquiry, (A)
there are no material (individually, or in the aggregate) legal,
governmental or regulatory proceedings pending or threatened to which
the Company or any of its subsidiaries is a party or of which the
business or properties of the Company or any of its subsidiaries is the
subject which are not disclosed in the Registration Statement and
Prospectus, (B) there are no contracts or documents of a character
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement
which are not described or filed as required, and (C) there are no
statutes, ordinances, laws, rules or regulations required to be
described in the Registration Statement or Prospectus which are not
described as required.
(xv) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company," as such terms are
defined in the 1935 Act.
(xvi) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" or
an entity "controlled" by an "investment company," as such terms are
defined in the 1940 Act.
(xvii) To the best of such counsel's knowledge, all the shares
of capital stock of the Company issued subsequent to prior three fiscal
years were issued and sold in compliance with all applicable federal
and state securities laws.
(xviii) To the knowledge of such counsel after due inquiry and
except as disclosed in the Prospectus, no holder of any security of the
Company has any right to require registration of shares of Common Stock
or any other security of the Company because of the filing of the
Registration Statement or the consummation of the transactions
contemplated hereby and, except as disclosed in the Prospectus, no
person
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<PAGE> 26
has the right to require registration under the 1933 Act of any shares
of Common Stock or other securities of the Company.
Such counsel shall confirm that during the preparation of the
Registration Statement and Prospectus, such counsel participated in conferences
with the Representatives and their counsel and with officers and representatives
of the Company and its independent accountants, at which conferences the
contents of the Registration Statement and the Prospectus (including all
documents filed under the 1934 Act and deemed incorporated by reference therein)
were discussed, reviewed and revised. On the basis of the information which was
developed in the course thereof, considered in light of such counsel's
understanding of applicable law and the experience gained by such counsel
through their practice thereunder, without such counsel assuming responsibility
for the accuracy and completeness of such statements except to the extent
expressly provided above, such counsel shall confirm that nothing came to their
attention that would lead them to believe that either the Registration Statement
(including any document filed under the 1934 Act and deemed incorporated by
reference therein), as of the Effective Date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or the Prospectus or any amendment
or supplement thereto (including any document filed under the 1934 Act and
deemed incorporated by reference therein) as of its respective issue date and as
of the Closing Date, or, if applicable, the Option Closing Date, contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (other than the financial statements or other financial data as to
which such counsel need express no opinion).
In rendering the foregoing opinion, such counsel may rely, (1) as to
matters involving laws of any jurisdiction other than Missouri or the United
States, upon opinions addressed to the Underwriters of other counsel
satisfactory to them and Bryan Cave LLP, and (2) as to all matters of fact, upon
certificates and written statements of the executive officers of, and
accountants for, the Company, provided, in either case, that such counsel shall
state in their opinion that they and the Underwriters are justified in relying
thereon.
(d) On the Closing Date (and, if applicable, the Option Closing Date),
you shall have received the opinion of Dankenbring Greiman Osterholt & Hoffmann,
P.C., counsel to the Selling Shareholders, addressed to you and dated the
Closing Date, to the effect that:
(i) The Custody Agreement and Power of Attorney has been duly
executed and delivered by such Selling Shareholders and constitutes a
legal, valid and binding agreement of such Selling Shareholders
enforceable in accordance with its terms.
(ii) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Shareholders, and is a legal, valid
and binding obligation of the Selling Shareholders. The execution and
delivery of this Agreement and the Custody
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Agreement and Power of Attorney by such Selling Shareholders, the
consummation by such Selling Shareholders of the transactions
contemplated herein and therein and the fulfillment by such Selling
Shareholders of the terms hereof and thereof will not result in a
breach or violation of any terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the properties or assets of such
Selling Shareholders under any bond, debenture, note or other evidence
of indebtedness or any indenture, mortgage, deed of trust, sale and
leaseback arrangement, joint venture or any other agreement or
instrument to which any such Selling Shareholder is a party, or by
which it is bound or to which any of the properties or assets of any
such Selling Shareholder is subject (or any certificate or articles of
incorporation or bylaws, partnership agreement, trust document or
articles of association of any such Selling Shareholder, as
applicable), or any order or decree, or statute, law, ordinance, rule
or regulation applicable to any such Selling Shareholder of any court
or of any governmental agency, authority or body having jurisdiction
over any such Selling Shareholder or its properties.
(iii) Each Selling Shareholder has full legal right, power and
authority, and any approval required by law (other than as required by
the 1933 Act, the NASD and state securities and Blue Sky Laws) to sell,
assign, transfer and deliver the Shares to be sold by such Selling
Shareholder.
(iv) No consent, approval, authorization or order of any
court, or governmental agency or body is required for consummation of
the transactions contemplated by this Agreement in connection with the
Shares to be sold by each Selling Shareholder hereunder except such as
may be required under the 1933 Act or the 1933 Act Rules and
Regulations or as may be required by the NASD or under state securities
laws.
(v) Each Selling Shareholder has good, valid and marketable
title to the Shares being sold by such Selling Shareholder hereunder,
free and clear of all liens, mortgages, pledges, encumbrances, claims,
equities and security interests whatsoever, including any restriction
on transfer other than pursuant to this Agreement and the Custody
Agreement and Power of Attorney, and has transferred to the
Underwriters good, valid and marketable title to the Shares being sold
by such Selling Shareholder on the Closing Date (and, if applicable,
the Option Closing Date), free and clear of all liens, mortgages,
pledges, encumbrances, claims, equities and security interests
whatsoever, including any restriction or transfer other than pursuant
to this Agreement and the Custody Agreement and Power of Attorney.
In rendering the foregoing opinion, such counsel may rely, (1) as to
matters involving laws of any jurisdiction other than Missouri or the United
States, upon opinions addressed to the Underwriters of other counsel
satisfactory to them and Bryan Cave LLP, and (2) as to all matters of fact, upon
certificates and written statements of the Selling Shareholders, provided, in
either
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case, that such counsel shall state in their opinion that they and the
Underwriters are justified in relying thereon.
(e) You shall have received on the Closing Date (and, if applicable,
the Option Closing Date), from Bryan Cave LLP, counsel to the Underwriters, such
opinion or opinions, dated the Closing Date (and, if applicable, the Option
Closing Date) with respect to such matters as you may reasonably require; and
the Company and Selling Shareholders shall have furnished to such counsel such
documents as they reasonably request for the purposes of enabling them to review
or pass on the matters referred to in this Section 6 and in order to evidence
the accuracy, completeness and satisfaction of the representations, warranties
and conditions herein contained.
(f) You shall have received at or prior to the Closing Date from Bryan
Cave LLP a memorandum or memoranda, in form and substance satisfactory to you,
with respect to the qualification for offering and sale by the Underwriters of
the Shares under state securities or Blue Sky laws of such jurisdictions as the
Underwriters may have designated to the Company.
(g) On the business day immediately preceding the date of this
Agreement and on the Closing Date (and, if applicable, the Option Closing Date),
you shall have received from PricewaterhouseCoopers LLP, a letter or letters,
dated the date of this Agreement and the Closing Date (and, if applicable, the
Option Closing Date), respectively, in form and substance satisfactory to you,
confirming that they are independent public accountants with respect to the
Company within the meaning of the 1933 Act and the published Rules and
Regulations, and stating to the effect set forth in Schedule V hereto.
(h) Except as contemplated in the Prospectus, (i) neither the Company
nor any of its subsidiaries shall have sustained since the date of the latest
audited financial statements included or incorporated by reference in the
Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree; and (ii) subsequent to
the respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its subsidiaries
shall have incurred any liability or obligation, direct or contingent, or
entered into any transactions, and there shall not have been any change in the
capital stock or short-term or long-term debt of the Company and its
subsidiaries or any change, or any development involving or which might
reasonably be expected to involve a prospective change in the condition
(financial or other), net worth, business, affairs, management, prospects,
results of operations or cash flow of the Company or its subsidiaries, the
effect of which, in any such case described in clause (i) or (ii), is in your
reasonable judgment so material or adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares
being delivered on such Closing Date (and, if applicable, the Option Closing
Date) on the terms and in the manner contemplated in the Prospectus.
(i) There shall not have occurred any of the following: (i) a
suspension or material limitation in trading in securities generally on the New
York Stock Exchange or the American
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<PAGE> 29
Stock Exchange or the Nasdaq National Market or the establishing on such
exchanges or market by the SEC or by such exchanges or markets of minimum or
maximum prices which are not in force and effect on the date hereof; (ii) a
suspension or material limitation in trading in the Company's securities on the
Nasdaq National Market or the establishing on such market by the SEC or by such
market of minimum or maximum prices which are not in force and effect on the
date hereof; (iii) a general moratorium on commercial banking activities
declared by either federal or any state authorities; (iv) the outbreak or
escalation of hostilities involving the United States or the declaration by the
United States of a national emergency or war, which in your judgment makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares in the manner contemplated in the Prospectus; or (v) any calamity
or crisis, change in national, international or world affairs, act of God,
change in the international or domestic markets, or change in the existing
financial, political or economic conditions in the United States or elsewhere,
which in your judgment makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares in the manner contemplated in the
Prospectus.
(j) You shall have received certificates, dated the Closing Date (and,
if applicable, the Option Closing Date) and signed by the Chief Executive
Officer and the Chief Financial Officer of the Company, in their capacities as
such, stating that:
(i) the condition set forth in Section 6(a) has been fully
satisfied;
(ii) they have carefully examined the Registration Statement
and the Prospectus as amended or supplemented and all documents
incorporated by reference therein and nothing has come to their
attention that would lead them to believe that either the Registration
Statement or the Prospectus, or any amendment or supplement thereto or
any documents incorporated by reference therein as of their respective
effective, issue or filing dates, contained, and the Prospectus as
amended or supplemented and all documents incorporated by reference
therein when read together with the documents incorporated by reference
therein, at such Closing Date, contains any untrue statement of a
material fact, or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading;
(iii) since the Effective Date, there has occurred no event
required to be set forth in an amendment or supplement to the
Registration Statement or the Prospectus which has not been so set
forth and there has been no document required to be filed under the
1934 Act and the 1934 Act Rules and Regulations that upon such filing
would be deemed to be incorporated by reference into the Prospectus
that has not been so filed;
(iv) all representations and warranties made herein by the
Company are true and correct at such Closing Date, with the same effect
as if made on and as of such Closing Date, and all agreements herein to
be performed or complied with by the
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<PAGE> 30
Company on or prior to such Closing Date have been duly performed and
complied with by the Company;
(v) neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any material
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree;
(vi) except as disclosed in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its
subsidiaries has incurred any liabilities or obligations, direct or
contingent, other than in the ordinary course of business, or entered
into any transactions not in the ordinary course of business, which in
either case are material to the Company or such subsidiary; and there
has not been any change in the capital stock or material increase in
the short-term debt or long-term debt of the Company or any of its
subsidiaries or any material adverse change or any development
involving or which may reasonably be expected to involve a prospective
material adverse change, in the condition (financial or other), net
worth, business, affairs, management, prospects, results of operations
or cash flow of the Company and its subsidiaries taken as a whole; and
there has been no dividend or distribution of any kind, paid or made by
the Company on any class of its capital stock;
(vii) there has not been any change or decrease specified in
paragraph (iii)(E) of the letter or letters delivered to the
Underwriters referred to in Section 6(g) above, except those changes
and decreases that are disclosed therein; and
(viii) covering such other matters as you may reasonably
request.
(k) You shall have received certificates, dated the Closing Date (and,
if applicable, the Option Closing Date) signed by each of the Selling
Shareholders, stating that (i) all representations and warranties made herein by
such Selling Shareholder are true and correct at such Closing Date, with the
same effect as if made on and as of such Closing Date, and all agreements herein
to be performed or complied with by such Selling Shareholder on or prior to such
Closing Date have been duly performed or complied with by such Selling
Shareholder and (ii) covering such other matters as you may reasonably request.
(l) The Company and each of the Selling Shareholders shall not have
failed, refused, or been unable, at or prior to the Closing Date (and, if
applicable, the Option Closing Date) to have performed any agreement on their
part to be performed or any of the conditions herein contained and required to
be performed or satisfied by them at or prior to such Closing Date.
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(m) The Company and the Selling Shareholders shall have furnished to
you at the Closing Date (and, if applicable, the Option Closing Date) such
further information, opinions, certificates, letters and documents as you may
have reasonably requested.
(n) The Shares shall have been approved for trading upon official
notice of issuance on the Nasdaq National Market.
(p) You shall have received duly and validly executed letter agreements
referred to in Section 5(o) hereof.
(q) On the Closing Date (and, if applicable, the Option Closing Date),
you shall have received the opinion of special regulatory counsel for the
Company addressed to you and dated the Closing Date (and, if applicable, the
Option Closing Date), pertaining to matters related to government restriction,
regulation or control of medical devices, practices, services, fees or
procedures and reasonably satisfactory in form and substance to you and to Bryan
Cave LLP, counsel for the several Underwriters.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and to Bryan Cave LLP, counsel for the several
Underwriters. The Company and Selling Shareholders will furnish you with such
signed and conformed copies of such opinions, certificates, letters and
documents as you may request.
If any of the conditions specified above in this Section 6 shall not
have been satisfied at or prior to the Closing Date (and, if applicable, the
Option Closing Date) or waived by you in writing, this Agreement may be
terminated by you on notice to the Company and the Selling Shareholders.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company and each of the
Selling Shareholders, jointly and severally will indemnify and hold harmless
each Underwriter for and against any losses, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the 1933 Act or
otherwise, insofar as such losses, damages or liabilities (or actions or claims
in respect thereof) arise out of or are based upon (i) an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement, the Prospectus or any other prospectus
relating to the Shares, or any amendment or supplement thereto, or in any blue
sky application or other document executed by the Company or based on any
information furnished in writing by the Company, filed in any state or other
jurisdiction in order to qualify any or all of the Shares under the securities
laws thereof (the "Blue Sky Application"), or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses incurred by such Underwriter in
connection with investigating, preparing, pursuing or defending against or
appearing as a third party witness in connection with any such loss, damage,
liability or action or claim, including, without limitation, any investigation
or proceeding by any governmental agency or body, commenced or threatened,
including the reasonable fees and expenses of counsel to the indemnified party,
as such expenses are incurred (including such losses, damages, liabilities or
expenses to the extent of the aggregate amount paid in settlement of any such
action or claim, provided that (subject to Section 7(d) hereof) any such
settlement is effected with the written consent of the Company); provided,
however, that the Company and the Selling Shareholders shall not be liable in
any such case to the extent, but only to the extent, that any
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<PAGE> 32
such loss, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement, the Prospectus or any
other prospectus relating to the Shares, or any such amendment or supplement, in
reliance upon and in conformity with written information relating to the
Underwriter furnished to the Company by you or by any Underwriter through you,
expressly for use in the preparation thereof (as provided in Section 14 hereof).
(b) Each Selling Shareholder will indemnify and hold harmless each
Underwriter for and against any losses, damages or liabilities to which the
Company may become subject, under the 1933 Act or otherwise, insofar as such
losses, damages or liabilities (or actions or claims in respect thereof) arise
out of or are based upon (i) an untrue statement or alleged untrue statement of
a material fact contained in any Preliminary Prospectus, the Registration
Statement, the Prospectus or any other prospectus relating to the Shares, or any
amendment or supplement thereto, or any Blue Sky Application, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement, the Prospectus or any other
prospectus relating to the Shares, or any such amendment or supplement, or any
Blue Sky Application, in reliance upon and in conformity with written
information furnished to the Company or any Underwriter by such Selling
Shareholder specifically for use in the preparation thereof, and will reimburse
each Underwriter for any legal or other expenses incurred by such Underwriter in
connection with investigating, preparing, pursuing or defending against or
appearing as a third party witness in connection with any such loss, damage,
liability or action or claim, including, without limitation, any investigation
or proceeding by any governmental agency or body, commenced or threatened,
including the reasonable fees and expenses of counsel to the indemnified party,
as such expenses are incurred (including such losses, damages, liabilities or
expenses to the extent of the aggregate amount paid in settlement of any such
action or claim, provided that (subject to Section 7(d) hereof) any such
settlement is effected with the written consent of such Selling Shareholder).
(c) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company and each Selling Shareholder for and against any
losses, damages or liabilities to which the Company may become subject, under
the 1933 Act or otherwise, insofar as such losses, damages or liabilities (or
actions or claims in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement, the Prospectus or any other
prospectus relating to the Shares, or any amendment or supplement thereto, or
any Blue Sky Application, or arise out of are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement, the Prospectus or any other prospectus
relating to the Shares, or any such amendment or supplement, or any Blue Sky
Application, in reliance upon and in conformity with written
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information relating to the Underwriter furnished to the Company by you or by
any Underwriter through you, expressly for use in the preparation thereof (as
provided in Section 14 hereof), and will reimburse the Company or any such
Selling Shareholder for any legal or other expenses incurred by the Company or
any such Selling Shareholder, as the case may be, in connection with
investigating or defending any such action or claim as such expenses are
incurred (including such losses, damages, liabilities or expenses to the extent
of the aggregate amount paid in settlement of any such action or claim, provided
that (subject to Section 7(d) hereof) any such settlement is effected with the
written consent of the Underwriters).
(d) Promptly after receipt by an indemnified party under Section 7(a),
7(b) or 7(c) hereof of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under Section 7(a), 7(b) or 7(c) hereof, notify each such
indemnifying party in writing of the commencement thereof, but the failure so to
notify such indemnifying party shall not relieve such indemnifying party from
any liability except to the extent that it has been prejudiced in any material
respect by such failure or from any liability that it may have to any such
indemnified party otherwise than under Section 7(a), 7(b) or 7(c) hereof. In
case any such action shall be brought against any such indemnified party and it
shall notify each indemnifying party of the commencement thereof, each such
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party under Section
7(a), 7(b) or 7(c) hereof similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not, except with
the consent of such indemnified party, be counsel to such indemnifying party),
and, after notice from such indemnifying party to such indemnified party of its
election so to assume the defense thereof, such indemnifying party shall not be
liable to such indemnified party under Section 7(a), 7(b) or 7(c) hereof for any
legal expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. The indemnified party shall have the
right to employ its own counsel in any such action, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party at the expense of the
indemnifying party has been authorized by the indemnifying party, (ii) the
indemnified party shall have been advised by such counsel that there may be a
conflict of interest between the indemnifying party and the indemnified party in
the conduct of the defense, or certain aspects of the defense, of such action
(in which case the indemnifying party shall not have the right to direct the
defense of such action with respect to those matters or aspects of the defense
on which a conflict exists or may exist on behalf of the indemnified party) or
(iii) the indemnifying party shall not in fact have employed counsel reasonably
satisfactory to such indemnified party to assume the defense of such action, in
any of which events such fees and expenses to the extent applicable shall be
borne, and shall be paid as incurred, by the indemnifying party. If at any time
such indemnified party shall have requested such indemnifying party under
Section 7(a), 7(b) or 7(c) hereof to reimburse such indemnified party for fees
and expenses of counsel, such indemnifying party agrees that it shall be liable
for any settlement of the nature contemplated by Section 7(a), 7(b) or 7(c)
hereof effected without its written consent if (i) such settlement is entered
into more than 45 days after receipt by such
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indemnifying party of such request for reimbursement, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with such
request for reimbursement prior to the date of such settlement. No such
indemnifying party shall, without the written consent of such indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not such
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (A) includes an unconditional
release of such indemnified party from all liability arising out of such action
or claim and (B) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any such indemnified party.
In no event shall such indemnifying parties be liable for the fees and expenses
of more than one counsel, including any local counsel, for all such indemnified
parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances.
(e) If the indemnification provided for in this Section 7 is
unavailable to or insufficient to indemnify or hold harmless an indemnified
party under Section 7(a), 7(b) or 7(c) hereof in respect of any losses, damages
or liabilities (or actions or claims in respect thereof) referred to therein,
then each indemnifying party under Section 7(a), 7(b) or 7(c) hereof shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, damages or liabilities (or actions or claims in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Shareholders, on the one hand, and the
Underwriters, on the other hand, from the offering of the Shares. If, however,
the allocation provided by the immediately preceding sentence is not permitted
by applicable law or if the indemnified party failed to give the notice required
under Section 7(d) hereof and such indemnifying party was prejudiced in a
material respect by such failure, then each such indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault, as applicable, of the Company and the Selling Shareholders,
on the one hand, and the Underwriters, on the other hand, in connection with the
statements or omissions that resulted in such losses, damages or liabilities (or
actions or claims in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by, as applicable, the Company
and the Selling Shareholders, on the one hand, and the Underwriters, on the
other hand, shall be deemed to be in the same proportion as the total net
proceeds from such offering (before deducting expenses) received by the Company
and the Selling Shareholders bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault, as applicable, of
the Company or the Selling Shareholders, on the one hand, and the Underwriters,
on the other hand, shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Shareholders, on the one hand, or the
Underwriters, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company,
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the Selling Shareholders and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7(e) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to above in this Section 7(e). The amount
paid or payable by such an indemnified party as a result of the losses, damages
or liabilities (or actions or claims in respect thereof) referred to above in
this Section 7(e) shall be deemed to include any legal or other expenses
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this Section 7(e),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The obligations of the
Underwriters in this Section 7(e) to contribute are several in proportion to
their respective underwriting obligations with respect to the Shares and not
joint.
(f) The obligations of the Company and the Selling Shareholders under
this Section 7 shall be in addition to any liability that the Company and the
Selling Shareholders may otherwise have and shall extend, upon the same terms
and conditions, to each officer, director, employee, agent or other
representative and to each person, if any, who controls any Underwriter within
the meaning of the 1933 Act; and the obligations of the Underwriters under this
Section 7 shall be in addition to any liability that the respective Underwriters
may otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company who signed the Registration Statement and to
each person, if any, who controls the Company within the meaning of the 1933 Act
and to each person, if any, who controls the Selling Shareholders within the
meaning of the 1933 Act.
(g) The liability of a Selling Shareholder for a breach of its
representations and warranties set forth in this Agreement and pursuant to
Section 7(a) shall not exceed the product of the number of Shares sold by such
Selling Shareholder and the public offering prices per share of the Shares set
forth in the Prospectus.
(h) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including, without limitation, the
provisions of this Section 7, and are fully informed regarding such provisions.
They further acknowledge that the provisions of this Section 7 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, and any
supplement or amendment thereof, as required by the 1933 Act.
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8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. The respective
representations, warranties, agreements and statements of the Company and the
Selling Shareholders and the Underwriters, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
remain operative and in full force and effect regardless of any investigation
(or any statement as to the results thereof) made by or on behalf of any
Underwriter or any controlling person of any Underwriter, the Company or any of
its officers, directors or any controlling persons, or the Selling Shareholders,
and shall survive delivery of and payment for the Shares hereunder.
9. SUBSTITUTION OF UNDERWRITERS. (a) If any Underwriter shall default
in its obligation to purchase the Shares which it has agreed to purchase
hereunder, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company shall be entitled to a further
period of thirty-six hours within which to procure another party or parties
reasonably satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company
that you have so arranged for the purchase of such Shares, or the Company
notifies you that it has so arranged for the purchase of such Shares, you or the
Company shall have the right to postpone the Closing Date for a period of not
more than seven days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any persons substituted under this Section 9 with like effect as
if such person had originally been a party to this Agreement with respect to
such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters made by you and the Company
and the Selling Shareholders as provided in subsection (a) above, the aggregate
number of Shares which remains unpurchased does not exceed one-eleventh of the
total Shares to be sold on the Closing Date, then the Company and the Selling
Shareholders shall have the right to require each non-defaulting Underwriter to
purchase the Shares which such Underwriter agreed to purchase hereunder and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters made by you and the Company
and the Selling Shareholders as provided in subsection (a) above, the number of
Shares which remains unpurchased exceeds one-eleventh of the total Shares to be
sold on the Closing Date, or if the Company and the Selling Shareholders shall
not exercise the right described in subsection (b) above to require the
non-defaulting Underwriters to purchase Shares of the defaulting
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<PAGE> 37
Underwriter or Underwriters, then this Agreement (or, with respect to the Option
Closing Date, the obligations of the Underwriters to purchase and of the Company
and the Selling Shareholders to sell the Option Shares) shall thereupon
terminate, without liability on the part of any non-defaulting Underwriter or
the Company and the Selling Shareholders except for the expenses to be borne by
the Company and the Underwriters as provided in Section 11 hereof and the
indemnity and contribution agreements in Section 7 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. EFFECTIVE DATE AND TERMINATION. (a) This Agreement shall become
effective at 1:00 p.m., St. Louis time, on the first business day following the
effective date of the Registration Statement, or at such earlier time after the
effective date of the Registration Statement as you in your discretion shall
first release the Shares for offering to the public; provided, however, that the
provisions of Section 7 and 11 shall at all times be effective. For the purposes
of this Section 10(a), the Shares shall be deemed to have been released to the
public upon release by you of the publication of a newspaper advertisement
relating to the Shares or upon release of telegrams, facsimile transmissions or
letters offering the Shares for sale to securities dealers, whichever shall
first occur.
(b) This Agreement may be terminated by you at any time before it
becomes effective in accordance with Section 10(a) by notice to the Company and
the Selling Shareholders; provided, however, that the provisions of this Section
10 and of Section 7 and Section 11 hereof shall at all times be effective. In
the event of any termination of this Agreement pursuant to Section 9 or this
Section 10(b) hereof, the Company and the Selling Shareholders shall not then be
under any liability to any Underwriter except as provided in Section 7 or
Section 11 hereof.
(c) This Agreement may be terminated by you at any time at or prior to
the Closing Date by notice to the Company and the Selling Shareholders if any
condition specified in Section 6 hereof shall not have been satisfied on or
prior to the Closing Date. Any such termination shall be without liability of
any party to any other party except as provided in Sections 7 and 11 hereof.
(d) This Agreement also may be terminated by you, by notice to the
Company and the Selling Shareholders, as to any obligation of the Underwriters
to purchase the Option Shares, if any condition specified in Section 6 hereof
shall not have been satisfied at or prior to the Option Closing Date or as
provided in Section 9 of this Agreement.
If you terminate this Agreement as provided in Sections 10(b), 10(c) or
10(d), you shall notify the Company and the Selling Shareholders by telephone or
telegram, confirmed by letter.
11. COSTS AND EXPENSES. The Company, whether or not the transactions
contemplated hereby are consummated or this Agreement is prevented from becoming
effective under Section 10 hereof or is terminated, will bear and pay the costs
and expenses incident to the registration of the Shares and public offering
thereof, including, without limitation, (a) all
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<PAGE> 38
expenses (including stock transfer taxes) incurred in connection with the
delivery to the several Underwriters of the Shares, the filing fees of the SEC,
the fees and expenses of the Company's counsel and accountants, (b) the
preparation, printing, filing, delivery and shipping of the Registration
Statement, each Preliminary Prospectus, the Prospectus and any amendments or
supplements thereto (except as otherwise expressly provided in Section 5(d)
hereof) and the printing, delivery and shipping of this Agreement and other
underwriting documents, including the Agreement Among Underwriters, the Selected
Dealer Agreement, Underwriters' Questionnaires and Powers of Attorney and Blue
Sky Memoranda, and any instruments or documents related to any of the foregoing,
(c) the furnishing of copies of such documents (except as otherwise expressly
provided in Section 5(d) hereof) to the Underwriters, (d) the registration or
qualification of the Shares for offering and sale under the securities laws of
the various states and other jurisdictions, including the fees and disbursements
of counsel to the Underwriters relating to such registration or qualification
and in connection with preparing any Blue Sky Memoranda or related analysis, (e)
the filing fees of the NASD (if any) and fees and disbursements of counsel to
the Underwriters relating to any review of the offering by the NASD, (f) all
printing and engraving costs related to preparation of the certificates for the
Shares, including transfer agent and registrar fees, (g) all fees and expenses
relating to the authorization of the Shares for trading on the Nasdaq National
Market, (h) all travel expenses, including air fare and accommodation expenses,
of representatives of the Company in connection with the offering of the Shares,
and (i) all of the other costs and expenses incident to the performance by the
Company of the registration and offering of the Shares; provided, that each
Selling Shareholder, whether or not the transactions contemplated hereby are
consummated or this Agreement is prevented from becoming effective under Section
10 hereof or is terminated, will pay or cause to be paid all costs and expenses
incident to the performance of such Selling Shareholder's obligations hereunder
which are not otherwise specifically provided for in this Section; including (i)
any fees and expenses of counsel for such Selling Shareholder, (ii) such Selling
Shareholder's pro rata share of the fees and expenses of the Attorneys-in-Fact
and the Custodian, and (iii) all expenses (including stock transfer taxes)
incident to the sale and delivery of the Shares to be sold by such Selling
Shareholder to the Underwriters hereunder; [provided further, that the
Underwriters will bear and pay the fees and expenses of the Underwriters'
counsel (except as provided in this Section 11), the Underwriters' out-of-pocket
expenses, and any advertising costs and expenses incurred by the Underwriters
incident to the public offering of the Shares.]
If this Agreement is terminated by you in accordance with the
provisions of Section 10(c), the Company and each of the Selling Shareholders
pro rata (based on the number of Shares to be sold by the Company and the
Selling Shareholders hereunder) shall reimburse the Underwriters for all of
their out-of-pocket expenses, including the fees and disbursements of counsel to
the Underwriters.
12. DEFAULT OF SELLING SHAREHOLDERS. Failure or refusal by any of the
Selling Shareholders to sell and deliver on the Closing Date the Shares agreed
to be sold and delivered by such Selling Shareholder shall in no manner relieve
the other Selling Shareholders or the
38
<PAGE> 39
Company of their respective obligations under this Agreement. If any Selling
Shareholder should fail or refuse to sell and deliver his Shares, the remaining
Selling Shareholders shall have the right hereby granted to increase, pro rata
or otherwise, the number of Shares to be sold by them hereunder to the total
number of Shares to be sold by all Selling Shareholders as set forth in Schedule
I. If the remaining Selling Shareholders do not fully exercise the right to
increase the number of Shares to be sold by them, the Underwriters, at your
option, will have the right to elect to purchase or not to purchase the Shares
to be sold by the Company and the remaining Selling Shareholders. In the event
the Underwriters purchase the Shares of the Company and such other Selling
Shareholders pursuant to this Section 12, the Closing Date shall be postponed
for a period of not more than seven days in order that the Registration
Statement and Prospectus or other documents may be amended or supplemented to
the extent necessary under the provisions of the 1933 Act and the 1933 Act Rules
and Regulations or under the securities laws of any jurisdiction. If the
Underwriters determine not to purchase the Shares of the Company and the other
Selling Shareholders, if any, this Agreement shall terminate and neither the
Company nor the Underwriters nor any other Selling Shareholder shall be under
any obligation under this Agreement except as provided in Section 7 hereof and
except for the obligation of the Company to pay for such expenses as are set
forth in Section 11 hereof. Nothing herein shall relieve a defaulting Selling
Shareholder from liability for his default or from liability under Section 7
hereof or for expenses imposed by this Agreement upon such Selling Shareholder.
13. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to the
Underwriters shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed c/o A.G. Edwards & Sons, Inc. at One North Jefferson
Avenue, St. Louis, Missouri 63103, Attention: Daniel J. Schaub, Director,
Corporate Finance, facsimile number (314) 955-4775, with a copy to Attention:
Douglas L. Kelly, General Counsel, facsimile number (314) 955-5913, or if sent
to the Company shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed to the Company at Laser Vision Centers, Inc., 540
Maryville Centre Drive, Suite 200, St. Louis, Missouri 63141, Attention:
Robert W. May, facsimile number (314) 434-7251, or if sent to any Selling
Shareholder shall be mailed, delivered, sent by facsimile transmission or
telegraphed and confirmed to such Selling Shareholder, c/o the Attorney-in-Fact
at 540 Maryville Centre Drive, Suite 200, St. Louis, Missouri 63141, Attention:
Robert W. May. Notice to any Underwriter pursuant to Section 7 shall be mailed,
delivered, sent by facsimile transmission, or telegraphed and confirmed to such
Underwriter's address as it appears in the Underwriters' Questionnaire furnished
in connection with the offering of the Shares or as otherwise furnished to the
Company and the Selling Shareholder.
14. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth in
(i) the second paragraph of the cover page of the Prospectus with respect to
delivery of shares to purchasers and (ii) the statements in the first, third,
tenth, eleventh, twelfth, thirteenth, fourteenth (insofar as it relates to the
Underwriters) and fifteenth under the caption "Underwriting" in the Prospectus
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Section 4(a)(ii) and Section 7
hereof.
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<PAGE> 40
15. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Underwriters, the Company, the Selling Shareholders and, to the
extent provided in Sections 7 and 8, the officers and directors of the Company
and each person who controls the Company, any Selling Shareholder or any
Underwriter and their respective heirs, executors, administrators, successors
and assigns. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, corporation or other entity any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained; this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of the
parties hereto and their respective successors and assigns and said controlling
persons and said officers and directors, and for the benefit of no other person,
corporation or other entity. No purchaser of any of the Shares from any
Underwriter shall be construed a successor or assign by reason merely of such
purchase.
In all dealings hereunder, you shall act on behalf of each of the
several Underwriters, and the parties hereto shall be entitled to act and rely
upon any statement, request, notice or agreement on behalf of the Underwriters,
made or given by you jointly or by A.G. Edwards & Sons, Inc. on behalf of you as
the representatives, as if the same shall have been made or given in writing by
the Underwriters; and in all dealings with any Selling Shareholders hereunder,
you and the Company shall be entitled to act and rely upon any statement,
request, notice or agreement on behalf of such Selling Shareholder made or given
by any or all of the Attorneys-in-Fact for such Selling Shareholder.
16. COUNTERPARTS. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
17. PRONOUNS. Whenever a pronoun of any gender or number is used
herein, it shall, where appropriate, be deemed to include any other gender and
number.
18. TIME OF ESSENCE. Time shall be of the essence of this Agreement.
19. APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Missouri, without giving effect to
the choice of law or conflict of laws principles thereof.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 41
If the foregoing is in accordance with your understanding, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, each of the Selling
Shareholders and the Underwriters.
LASER VISION CENTERS, INC.
By: /s/ Robert W. May
-----------------------------
Title: Vice Chairman/General Counsel
--------------------------
SELLING SHAREHOLDERS AND OPTION SHAREHOLDERS
NAMED IN SCHEDULES I AND III HERETO
By: /s/ Robert W. May
-----------------------------
Attorney-in-Fact
Accepted in St. Louis,
Missouri as of the date
first above written, on
behalf of ourselves and each
of the several Underwriters
named in Schedule II hereto.
A.G. EDWARDS & SONS, INC.
PRUDENTIAL SECURITIES INCORPORATED
WARBURG DILLON READ LLC
As Representatives of the Several
Underwriters named on Schedule II hereto
By: A.G. EDWARDS & SONS, INC.
By: /s/ Marc R. Sarni
--------------------------
Title: Managing Director
------------------------
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<PAGE> 42
SCHEDULE I
Number of
Selling Shareholders Firm Shares
- - -------------------- -----------
John J. Klobnak 50,000
Robert W. May 50,000
Richard L. Lindstrom, M.D. 120,000
Steven C. Straus 14,000
James C. Wachtman 50,000
B. Charles Bono 50,000
Alan F. Gillam 80,000
T. Wesley Dunn 21,000
Frank J. Bono, III 20,000
Rikki L. Bradley 10,000
Robert M. Freyman 5,000
Schroder Ventures International Life Sciences Fund LP1 94,810
Schroder Ventures International Life Sciences Fund LP2 21,069
Schroder Ventures International Life Sciences Trust 751
Schroder Ventures Managers Limited, 33,372
as Investment Manager for the Schroder Ventures
International Life Sciences Co-investment Scheme
Barings (Guernsey) Limited, 18,750
as Trustee of the Schroder UK Venture I Extension Fund
Schroder UK Venture Fund III Trust 32,944
Schroder UK Venture Fund III LP1 32,203
Schroder UK Venture Fund III LP2 16,101
================================ =========
TOTAL 720,000
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<PAGE> 43
SCHEDULE II
Name Number of Shares
- - ---- ----------------
A.G. Edwards & Sons, Inc. 375,000
Prudential Securities Incorporated 375,000
Warburg Dillon Read LLC 375,000
BT Alex. Brown Incorporated 34,000
CIBC World Markets Corp. 34,000
Credit Lyonnais Securities (USA) Inc. 34,000
Donaldson, Lufkin & Jenrette Securities Corp 34,000
Hambrecht & Quist LLC 34,000
Lehman Brothers Inc. 34,000
Merrill Lynch & Co. 34,000
Morgan Stanley & Co. Incorporated 34,000
SG Cowen Securities Corporation 34,000
Advest Inc. 17,000
Brean Murray & Co., Inc. 17,000
Dain Rauscher Wessells 17,000
First Union Capital Markets Corp. 17,000
GunnAllen Financial, Inc. 17,000
Harris Webb & Garrison Inc. 17,000
Ladenburg Thalmann & Co. Inc. 17,000
Legg Mason Wood Walker, Incorporated 17,000
Leerink Swann & Company 17,000
Jefferies & Company, Inc. 17,000
McDonald Investments Inc. A KeyCorp Company 17,000
Pacific Growth Equities Inc. 17,000
Raymond James & Associates, Inc. 17,000
The Robinson-Humphrey Company, LLC 17,000
Sanders Morris Mundy 17,000
Schneider Securities, Inc. 17,000
SunTrust Equitable Securities Corporation 17,000
Total 1,720,000
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<PAGE> 44
SCHEDULE III
Option Shareholders
<TABLE>
<CAPTION>
Number of
Option Shareholders Option Shares
- - ------------------- -------------
<S> <C>
John J. Klobnak 14,500
Robert W. May 14,500
James C. Wachtman 14,500
B. Charles Bono 14,500
Schroder Ventures International Life Science Fund LP1 75,848
Schroder Ventures International Life Science Fund LP2 16,855
Schroder Ventures International Life Science Trust 26,698
Schroder Ventures Managers Limited, 601
as Investment Manager for the Schroder Ventures
International Life Sciences Co-investment Scheme
Barings (Guernsey) Limited, 15,000
as Trustee of the Schroder UK Venture I Extension Fund
Schroder UK Venture Fund III Trust 26,355
Schroder UK Venture Fund III LP1 25,762
Schroder UK Venture Fund III LP2 12,881
================================ =======
Total 258,000
</TABLE>
<PAGE> 45
SCHEDULE IV
Principal Selling Shareholders
John J. Klobnak
Robert W. May
James C. Wachtman
B. Charles Bono
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<PAGE> 46
SCHEDULE V
Pursuant to Section 6(g) of the Underwriting Agreement,
PricewaterhouseCoopers LLP shall furnish letters to the Underwriters to the
effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the 1933 Act
and the applicable Rules and Regulations thereunder.
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules audited (and, if applicable,
prospective financial statements and/or pro forma financial information
examined) by them and included or incorporated by reference in the Prospectus or
the Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the applicable Rules and
Regulations with respect to registration statements on Form S-3; and, if
applicable, they have made a review in accordance with standards established by
the American Institute of Certified Public Accountants of the unaudited
consolidated interim financial statements, selected financial data, pro forma
financial information, prospective financial statements and/or condensed
financial statements derived from audited financial statements of the Company
for the periods specified in such letter, as indicated in their reports thereon,
copies of which have been furnished to the Representatives of the Underwriters
(the "Representatives").
(iii) On the basis of limited procedures, not constituting an
audit in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information referred to
below, performing the procedures specified by the AICPA for a review of interim
financial information as discussed in SAS No. 71, Interim Financial Information,
on the latest available interim financial statements of the Company and its
subsidiaries, inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in the
Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their attention
that caused them to believe that:
(A) any material modifications should be made to the
unaudited statements of consolidated income, statements of
consolidated financial position and statements of consolidated
cash flows included or incorporated by reference in the
Prospectus for them to be in conformity with generally
accepted accounting principles, or the unaudited statements of
consolidated income, statements of consolidated financial
position and statements of consolidated cash flows included in
the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the
1933 Act and the related published Rules and Regulations
thereunder.
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<PAGE> 47
(B) any other unaudited income statement data and
balance sheet items included or incorporated by reference in
the Prospectus do not agree with the corresponding items in
the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data
and items were not determined on a basis substantially
consistent with the basis for the corresponding amounts in the
audited consolidated financial statements included or
incorporated by reference in the Prospectus.
(C) the unaudited financial statements which were not
included or incorporated by reference in the Prospectus but
from which were derived any unaudited condensed financial
statements referred to in Clause (A) and any unaudited income
statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined
on a basis substantially consistent with the basis for the
audited consolidated financial statements included or
incorporated by reference in the Prospectus.
(D) any unaudited pro forma consolidated condensed
financial statements included or incorporated by reference in
the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the
1933 Act and the published rules and regulations thereunder or
the pro forma adjustments have not been properly applied to
the historical amounts in the compilation of those statements.
(E) as of a specified date not more than five days
prior to the date of such letter, there have been any changes
in the consolidated capital stock or any increase in the
consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated working
capital, net current assets or net assets, or any changes in
any other items specified by the Representatives, in each case
as compared with amounts shown in the latest balance sheet
included or incorporated by reference in the Prospectus,
except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which
are described in such letter.
(F) for the period from the date of the latest
financial statements included or incorporated by reference in
the Prospectus to the specified date referred to in Clause (E)
there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of
consolidated net income or any changes in any other items
specified by the Representatives, in each case as compared
with the comparable period of the preceding year and with any
other period of corresponding length specified by the
Representatives, except in each case for changes, decreases or
increases which the Prospectus discloses have occurred or may
occur or which are described in such letter.
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<PAGE> 48
(iv) In addition to the audit referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures referred
to in paragraph (iii) above, they have carried out certain specified procedures,
not constituting an audit in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the general
accounting records of the Company and its subsidiaries for the periods covered
by their reports and any interim or other periods since the latest period
covered by their reports, which appear or are incorporated by reference in the
Prospectus, or in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain of such
amounts, percentages and financial information with the accounting records of
the Company and its subsidiaries and have found them to be in agreement.
47
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated June 12, 1998, except as
to Note 18, which is as of January 1, 1999 and Note 3, which is as of April 21,
1999 relating to the financial statements of Laser Vision Centers, Inc., which
appears in such Prospectus. We also consent to the incorporation by reference of
our report dated June 12, 1998, except as to Note 3 which is as of April 21,
1999, which appears on page F-1 of Laser Vision Center, Inc.'s Annual Report on
Form 10-K/A for the three years ended April 30, 1998. We also consent to the
incorporation by reference of our report dated August 27, 1998, except Note 13,
which is as of December 4, 1998, which appears on page 4 of the Current Report
on Form 8-K/A dated February 12, 1999 and April 22, 1999. We also consent to the
incorporation by reference of our report dated August 27, 1998, except Note 7,
which is as of September 1, 1998, which appears on page 22 of the Current Report
on Form 8-K/A dated February 12, 1999 and April 22, 1999. We also consent to the
reference to us under the heading "Experts".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
May 10, 1999
